How to Own a Landfill (and sleep at night)

Address the legal liability of landfill owners under state and federal environmental laws, including evidence of financial responsibility for closure and post-closure costs;

Provide protection against third-party tort claims arising from actual or alleged releases of pollutants from an open or closed landfill; and

Provide owners and operators with certainty regarding expected future costs by protecting against cost overruns on expected costs and unexpected contingencies.

Financial Responsibility

Landfill owners often face difficulties proving to regulators that they have adequate funding for closure and post-closure care costs. The Resource Conservation and Recovery Act (RCRA) has established financial responsibility provisions to assure that landfills set aside money for closure and post-closure activities, or that they are otherwise able to bear these expenses when they come due. Generally, the amount required for closure is the cost to close the largest cell, and the post-closure care costs are the amounts required to maintain the integrity and operate all pollution control equipment for the entire facility for 30 years. Cost estimates usually are revised annually, and the funds for closure and post-closure care are adjusted accordingly.

However, because post-closure care requirements extend 30 years past closing, financial obligations can be relatively large. In fact, it is common to see requirements in the tens of millions of dollars for average-sized landfills. Although RCRA regulations allow several financial mechanisms by which owners can demonstrate that they have the money to fund closure and post-closure care, all of the financing options have limitations.

Letters of credit and bonds, with their attendant collateral requirements, can affect an owner's ability to seek additional capital for business expansion. Trust funds often must be invested in conservative instruments that yield a relatively low rate of return on the closure and post-closure care funds. And self-insurance and corporate guarantees are available as an option, but usually only to larger landfill operators, and even larger operators can quickly run out of capacity to use these mechanisms as the exclusive means of demonstrating financial responsibility.

A significant percentage of small landfill operators and family owned facilities set aside “trust funds” under the Subtitle D RCRA regulations to handle closure and post-closure costs. Each year, additional amounts are added to the fund to recognize that the facility's capacity is being used and the time for closure is drawing nearer. Contributions to the fund usually are tax-deductible business expenses, as long as they relate to the facility that is used during the tax year and they can be demonstrated to reflect the expected costs of closure and post-closure care. Adjustments also may be made as closure and post-closure cost estimates are revised to reflect recent engineering data available for the remaining landfill areas.

Closure and Post-Closure

Landfill owners should be concerned about costs that are not accounted for in the RCRA calculations of closure and post-closure care. Cost increases and unforeseen contingencies, such as regulation changes, may materially increase future costs for landfill owners at a time when they cannot recoup them through higher disposal charges. Physical damage to the landfill occurs because of floods, earthquakes or explosions and requires extraordinary expenditures. Third-party claims also can incur unexpected costs, when you include the costs of defense, as well as indemnity payments for bodily injury, property damage and cleanup cost claims. Additionally, liner failures may result in releases of leachate and methane gas and require excavation and repair. Similar damage may be caused by differential settlement of compacted waste materials. This may lead to surface depression formations that allow water ponding. As such, this may affect leachate and landfill gas management systems and require repairs to the capping system.

Other contingencies may result in releases of contaminants from a closed landfill and cause bodily injury or property damage to third parties, including the owners of neighboring properties, parties using well water from common aquifers, municipalities and the general public. Trustees of the states or the federal government may file claims for Natural Resource Damage that reflect permanent damage to ecostructures because of the contaminants release. Furthermore, environmental regulators may change the requirements for closure and post-closure care that could increase the costs that were originally expected when the facilities were operating.

A landfill security program, such as the one provided by EMCON/OWT Inc., a member of the Shaw Group, Mahwah, N.J., combined with risk management services from Breitstone & Co. Ltd., Cedarhurst, N.Y., can provide an alternative to manage landfill closure and post-closure activities, and address unexpected events without adversely affecting a family's financial resources.

Engineering Solutions

Because the unforeseen can threaten the adequacy of closure and post-closure funding — despite the RCRA financial responsibility program — landfill owners need to plan for and develop financial resources to handle these concerns. Landfill owners can continue to build their trust funds, but contributions to pre-fund fortuitous losses, unlike expected closure and post-closure care costs, are not tax-deductible business expenses. Sometimes, it may be difficult to estimate whether the amounts set aside for unexpected events are large enough to pay for losses or claims when they occur. It is especially difficult to estimate the cost of third-party claims, including litigation expenses, and the increased cost of operations resulting from changes in environmental regulations.

To aid with closure, post-closure and repair cost estimates, construction cost indices and conservative interest rates generally can be estimated 30 or more years in advance. These numbers usually are updated annually and can provide a basis with which to fund expected closure and post-closure care costs.

To take advantage of the financial security and higher rate of return in a landfill security program, a landfill owner must demonstrate that the operations and activities at the facility meet underwriting requirements. Site management must demonstrate concern for environmental risks, and maintenance programs must assure that required systems will continue to operate as intended for the full post-closure period.

Through the appropriate due diligence of the owner and a third-party engineering review, the owner can literally walk away from the site and be assured that all physical requirements will be met. Risk management services also assure that all concerns are addressed without the need to set aside additional funds. Risk management solutions include protection against cost overruns, third-party claims and physical perils that might occur during closure activities and in the post-closure period.

Today, regulators welcome the security of alternative financial mechanisms because they provide stronger and more easily verified evidence of financial responsibility during and after the operating life of the facility; owners do not need to wait until closure to begin to enjoy the benefits of a coordinated approach to liability risk management and closure and post-closure care. By cooperating with consulting engineers and a risk management company, landfill owners can tailor their landfill security programs to eliminate the time, expense and uncertainty associated with:

Future changes in environmental laws and regulations governing the operation, closure and post-closure care of landfills;

Identifying new contaminants of concern at, under or emanating from the landfill site;

Changes in cleanup, closure or post-closure care requirements by state or federal regulators;

Planning to respond to and pay for third-party claims, including those associated with natural resource damage;

Continuously monitoring regulatory and political proposals for changes in standards applicable to the ownership and/or operation of landfills; and

The inability to obtain a meaningful “No Further Action” letter regarding cleanup, closure or post-closure requirements.

Moreover, developing funding mechanisms for expected and unexpected future costs can help to satisfy RCRA financial responsibility requirements for closure and post-closure care costs while allowing the landfill owner to be both financially and socially responsible. With a landfill security plan in place, landfill owners can transfer obligations for future payment of closure and post-closure costs in exchange for a single payment of discounted net present value of expected costs. And by planning ahead, landfill owners can provide cost overrun protection for both closure and post-closure care costs, then share in the benefit if costs are lower than expected.

A risk management and landfill security program can provide comprehensive protection against third-party claims arising from landfill operations and during the post-closure period. The owner of a Midwest, family owned, large municipal solid waste landfill recently used EMCON's Landfill Financial Security Program to resolve several critical issues. The facility had more than 10 years of expected life remaining, but the family was concerned about the future burden of expected and unexpected costs, if the funds it had set aside for these purposes were inadequate. The family also was concerned about the necessary funds for contingencies and amount of allowable tax deductions as current operating expenses.

The security program eliminated the need for future contributions to contingency trusts and provided logical arguments for appropriate tax deductions. By implementing the risk management program and managing pre-funded expenses, the owner also was assured he was adequately covering his closure and post-closure care costs. Protection was provided for unexpected events, including third-party claims, changes in the closure or post-closure care requirements or regulatory standards for closure or cleanup. All funds set aside for future costs earned competitive market rates, and they were managed by a financial institution with the highest financial strength ratings in the industry. Additionally, the program was approved by regulators to provide evidence of financial responsibility for closure and post-closure obligations.

By addressing potential problems ahead of time and anticipating funding needs, landfill owners can find financial stability and peace of mind. Additionally, with a financially secure mechanism in place to provide for future landfill closure, owners can increase positive publicity and their ability to attract developers interested in reuse projects.

Richard A. Peluso is president of EMCON/OWT Inc., Mahwah, N.J., and can be reached at (800) 753-6266. Rodney J. Taylor is managing director of Breitstone & Co. Ltd., Cedarhurst, N.Y., and can be reached at (516) 569-2550.