LANDFILL: Avoiding Landfill Exposures

Howard Tollin and Richard A. Peluso

To avoid jeopardizing the family estate, owners and operators of private landfills are turning to financial and risk management tools to help them responsibly manage risk closure and post-closure activities.

Risk management tools and financial assurances, such as capping cleanup costs and transferring liability exposures, can eliminate the worry and expense associated with federal, state and local laws, and third-party tort claims. These tools also may generate significant tax benefits and guarantee that existing and future closure and post-closure requirements will be met. Providing this guarantee are financial institutions rated A++ by A.M. Best Company, Oldwick, N.J., or AAA by Standard & Poor's, New York.

Federal Resource Conservation and Recovery Act (RCRA) regulations require municipal solid waste (MSW) facility owners to secure enough funds to pay for closure and post-closure care, including any unexpected costs, for up to 30 years. Unexpected costs could include leachate being released if a liner fails or damages caused by floods, earthquakes or explosions.

To cover the unexpected, owners use letters of credit, bonds and trust funds. However, these sources may be difficult to obtain, can tie up a landfill's capital and may affect an owner's ability to expand the business.

Alternatives offered by today's risk management programs provide the same assurances that closure costs and RCRA requirements will be fulfilled, but they do so without tying up capital.

Owners using a risk management firm pay the company an amount equal to the discounted net present value of expected closure and post-closure costs during a site's operating life. Any closure accidents and obligations then are transferred to the risk management firm, which provides landfill owners protection against liabilities and financial concerns. Cost savings subsequently are shared if closure and post-closure costs are lower than expected.

To take advantage of the program's financial security and guaranteed higher rate of return on funds set aside for closure and post closure, a landfill owner must demonstrate that his site is managed with environmental care. For example, a landfill's maintenance programs must ensure that systems will operate as intended during the post-closure period. To develop a program that addresses environmental exposures, a financial institution will work closely with risk management consultants and engineers. Risk management programs can be tailored to meet specific landfill and owner needs, concerns and obligations.

Landfill owners using risk management tools and financial assurances demonstrate that they are financially and socially responsible in addressing future environmental costs and liability exposures.