Long-Term Financial Assurance for California’s Landfills: A Policy Framework

1. Long-Term Financial Assurance for California’s Landfills: A Policy Framework California Integrated Waste Management Board May 19, 2009 Agenda Items 6 & 7 Tim Gage & Joel Schwartz Blue Sky Consulting Group

2. What Problem Are We Trying to Solve? • Protecting the State Against Three Risks • Ensuring adequate funds beyond 30 years for post-closure maintenance and reasonably foreseeable corrective action • Ensuring continuity of adequate financial assurance in the event of divestiture • Ensuring adequate resources to cover low-probability, high-cost events • Separable concerns; separate approaches to address them 2

3. Staff Identifies Four Categories of Post-Closure Costs • Post-Closure Maintenance • Typical maintenance costs, including minor repairs • Reasonably foreseeable Corrective Action • Liner or cover issues, slope failure, leaks, etc. • Major maintenance • E.g., cover failure • Extraordinary events • Rare, but serious and expensive 3

4. Framework • Address divestiture separately through legislation • Greatly reduces state’s overall financial risk • Address high-cost, low-probability risks through insurance pool approach • Address reasonably foreseeable post-closure maintenance and corrective action costs by modifying current financial assurance requirements 4

5. Divestiture • Prevent transfer of ownership until new owner demonstrates financial assurance to Board’s satisfaction • Would eliminate 73% of staff’s estimated PCM risks to state • Would also address divestiture component of financial risks from CA and extraordinary events 5

6. Insurance Pool • Low-probability, high-cost events • Inefficient to assume every operator will experience worst-case scenario • Suggests insurance is most cost-effective approach • Issues • Single fund or separate public and private? • Under what circumstances would the fund be tapped? 6

7. Ensuring Long-Term PCM/CA • Current status • Owners currently provide 30 years PCM at closure; no FA funds for non-water CA; FA for water-related CA not consistently collected • Cash instruments (e.g., trust fund) can be drawn down at rate of (1X + interest) per year • Non-cash instruments (e.g., surety bond) must be maintained at 30 years (30X) • Corporate financial guarantee and government pledge of revenue depend on continued financial health of organization 7

8. Ensuring Long-Term PCM/CA (cont.) • Issues • What costs are included in calculation of required financial assurance amount (i.e., what is the annual amount that gets multiplied by 30X, 15X, etc.)? • Is a step-down (in terms of the required number of years of financial assurance) based on performance appropriate? • What are the criteria by which performance would be evaluated? • What maximum step-down is consistent with adequate FA? • Ability to spend cash FA funds before step-down is earned • Extent to which FA can be beefed up for landfills that are no longer accepting waste – how is this financed? 8

9. Conclusion • Protecting the state involves putting a framework in place that: • Mitigates divestiture risk • Creates a pooled insurance fund to protect the state against risks, whether foreseen or not • Structures financial assurance requirements to cover maintenance and corrective action costs beyond 30 years after closure • Addressing the first two concerns will reduce the burden that the long-term PCM/CA financial assurance mechanism needs to address • Suggest working with the Legislature to establish statutory pieces of this framework 9