Current through Reg. 50, No. 13; March 28, 2025
An owner or operator may satisfy the requirements of
financial assurance for closure, post closure, or corrective action by
establishing a local government financial test or a local government financial
test and local government guarantee, which conforms to the requirements of this
section, in addition to the requirements specified in Subchapters A and B of
this chapter (relating to General Financial Assurance Requirements; and
Financial Assurance Requirements for Closure, Post Closure, and Corrective
Action). An owner or operator who satisfies the requirements of paragraphs (1)
- (3) of this section may demonstrate financial assurance up to the amount
specified in paragraph (4) of this section.
(1) In order to satisfy the financial
component of the test, the owner or operator must meet the criteria of either
subparagraph (A) or (B) of this paragraph and in addition must meet certain
general conditions outlined in subparagraph (C) of this paragraph.
(A) The owner or operator must satisfy each
of the following financial ratios based on its most recent audited annual
financial statement:
(i) a ratio of cash plus
marketable securities to total expenditures greater than or equal to 0.05;
and
(ii) a ratio of annual debt
service to total expenditures less than or equal to 0.20.
(B) If the owner or operator:
(i) of a facility other than a municipal
solid waste landfill has outstanding, rated, general obligation bonds that are
not secured by insurance, a letter of credit, or other collateral or guarantee,
those bonds must have a current rating of Aaa, Aa, A, or Baa, as issued by
Moody's, or AAA, AA, A, or BBB, as issued by Standard and Poor's on all such
general obligation bonds; or
(ii)
of a municipal solid waste landfill subject to Chapter 330 of this title
(relating to Municipal Solid Waste) has bonds as defined in Subchapter R of
this chapter (relating to Financial Assurance for Municipal Solid Waste
Facilities) and those bonds are not secured by insurance, a letter of credit,
or other collateral or guarantee, those bonds must have a current rating of
Aaa, Aa, A, or Baa, as issued by Moody's, or AAA, AA, A, or BBB, as issued by
Standard and Poor's on all such financial obligations.
(C) In addition to meeting the criteria
listed under subparagraph (A) or (B) of this paragraph, the following general
conditions must be met.
(i) The owner or
operator shall prepare its financial statements in conformity with Generally
Accepted Accounting Principles for governments and have its financial
statements audited by an independent certified public accountant (or
appropriate state agency).
(ii) The
owner or operator must not have operated at a deficit equal to 5.0% or more of
total annual revenue in each of the past two fiscal years.
(iii) The owner or operator must not
currently be in default on any outstanding general obligation bonds.
(iv) The owner or operator must not have any
outstanding general obligation bonds rated lower than Baa as issued by Moody's
or BBB as issued by Standard and Poor's.
(v) The owner or operator must not have
received an adverse opinion, disclaimer of opinion, or other qualified opinion
from the independent certified public accountant (or appropriate state agency)
auditing its financial statements as required under clause (i) of this
subparagraph. However, the executive director may evaluate qualified opinions
on a case-by-case basis and allow use of the financial test in cases where the
executive director deems the qualification insufficient to warrant disallowance
of use of the test.
(D)
The following terms used in this section are defined as follows.
(i) Deficit equals total annual revenues
minus total annual expenditures.
(ii) Total revenues is the sum of the
following seven items:
(I) "Total Revenues" of
the General Fund;
(II) "Total
Revenues" of Special Revenue Funds;
(III) "Total Revenues" of the Debt Service
Fund;
(IV) "Total Revenues" of
Capital Project Funds;
(V) "Total
Operating Revenues" of Enterprise Funds;
(VI) if positive, "Total Non-Operating
Revenues (Net)" of Enterprise Funds; and
(VII) if positive, "Total Non-Operating
Revenues (Net)" of Internal Service Funds.
(iii) Total expenditures is the sum of the
following six items:
(I) "Total Expenditures"
of the General Fund;
(II) "Total
Expenditures" of Special Revenue Funds;
(III) "Total Expenditures" of the Debt
Service Fund;
(IV) "Total Operating
Expenses Before Depreciation" of Enterprise Funds;
(V) if negative, "Total Non-Operating
Revenues (Net)" of Enterprise Funds; and
(VI) if negative, "Total Non-Operating
Revenues (Net)" of Internal Service Funds; except if the local government is
not using accrual accounting and is not including depreciation in its
expenditures, include routine capital outlays and debt repayment as a
substitute for depreciation.
(iv) Cash and current investments is the sum
of "Cash," "Cash Equivalents" (e.g., bank deposits, very short-term debt
securities, money market funds), and "Current Investments" (e.g., interest or
dividend bearing securities that are expected to be held for less than one
year), in the General Fund, Special Revenue Funds, Debt Service Fund,
Enterprise Funds, and Internal Service Funds, as reported on the Comprehensive
Annual Financial Report's (CAFR) Combined Balance Sheet. Note that cash, cash
equivalents, and current investments are included in this term even if they
are: pooled; with a fiscal agent; or restricted, provided that the assets
belong to the General Fund, Special Revenue Funds, Debt Service Fund,
Enterprise Funds, and Internal Service Funds. Specifically excluded from this
definition are accounts receivable, retirement assets, real property, fixed
assets, and other non-current assets, as well as any assets (including cash) in
Capital Project Funds.
(v) Debt
service is the sum of all amounts in any Debt Service category (including bond
principal, other debt principal, interest on bonds, interest on other debt) in
the General Fund, Special Revenue Funds, Debt Service Fund, and Capital
Projects Funds as reported on the CAFR's Combined Statement of Revenues,
Expenditures and Changes in Fund Balances/Equity; plus all principal and
interest expense in Enterprise Funds and Internal Service Funds, as reported on
the CAFR's Combined Statement of Revenues, Expenses and Changes in Retained
Earnings/Fund Balances.
(2) In order to satisfy the public notice
component of the test, the local government owner or operator must place a
reference to the closure, post closure, or corrective action costs assured
through the financial test into its next CAFR after the effective date of this
section or prior to the initial receipt of waste at the facility, whichever is
later. Disclosure must include the nature and source of closure, post closure,
or corrective action requirements; the reported liability at the balance sheet
date; the estimated total closure or post closure cost remaining to be
recognized; the percentage of landfill capacity used to date; and the estimated
landfill life in years. A reference to corrective action costs must be placed
in the CAFR not later than 120 days after the corrective action remedy has been
selected in accordance with the requirements of §
330.415 of this title (relating to
Implementation of the Corrective Action Program). For the first year the
financial test is used to assure costs at a particular facility, the reference
may instead be placed in the operating record until issuance of the next
available CAFR if timing does not permit the reference to be incorporated into
the most recently issued CAFR or budget. For closure and post closure costs,
conformance with Government Accounting Standards Board Statement 18 assures
compliance with the public notice component.
(3) In order to satisfy the recordkeeping and
reporting component of the test, the local government owner or operator must
submit the following four items to the executive director:
(A) a letter signed by the local government's
chief financial officer worded as specified in §
37.371 of this title (relating to
Local Government Financial Test) that:
(i)
lists all the current cost estimates covered by a financial test as described
in paragraph (4) of this section;
(ii) provides evidence and certifies that the
local government meets the conditions of either paragraph (1)(A) or (B), and
(1)(C) of this section; and
(iii)
certifies that the local government meets the conditions of paragraphs (2) and
(4) of this section;
(B)
the local government's independently audited year-end financial statements for
the latest fiscal year, including the unqualified opinion of the auditor. The
auditor must be an independent certified public accountant (CPA) or an
appropriate state agency that conducts equivalent comprehensive
audits;
(C) a report to the local
government from the local government's independent CPA or the appropriate state
agency which:
(i) is based on performing an
agreed upon procedures engagement relative to the financial ratios required by
paragraph (1)(A) of this section, if applicable, and the requirements of
paragraph (1)(C)(i), (ii), and (v) of this section; and
(ii) the CPA or state agency's report states
the procedures performed and the CPA or state agency's findings; and
(D) a copy of the CAFR used to
comply with paragraph (2) of this section and certification that the
requirements of General Accounting Standards Board Statement 18 have been
met.
(4) The portion of
the closure, post closure, or corrective action costs for which an owner or
operator can assure under this paragraph is determined as follows.
(A) If the local government owner or operator
does not assure other environmental obligations through a financial test, it
may assure closure, post closure, or corrective action costs that equal up to
43% of the local government's total annual revenue.
(B) If the local government owner or operator
assures other environmental obligations through a financial test, including,
but not limited to, those associated with hazardous waste treatment, storage,
and disposal facilities under Chapter 335 of this title (relating to Industrial
Solid Waste and Municipal Hazardous Waste) and 40 Code of Federal Regulations
(CFR) Parts 264 and 265, petroleum underground storage tank facilities under
Chapter 334 of this title (relating to Underground and Aboveground Storage
Tanks) and 40 CFR Part 280, underground injection control facilities under
Chapter 331 of this title (relating to Underground Injection Control) and
40 CFR
§144.62, polychlorinated biphenyl
storage facilities under 40 CFR Part 761, it must add those costs to the
closure, post closure, or corrective action costs it seeks to assure under this
paragraph. The total that may be assured must not exceed 43% of the local
government's total annual revenue.
(5) Annual updates of the financial test
documentation must be submitted to the executive director within 180 days after
the close of each succeeding fiscal year. This information must consist of all
the items required under paragraph (3) of this section.
(6) A local government must satisfy the
requirements of the financial test at the close of each fiscal year. If the
local government owner or operator no longer meets the requirements of
paragraphs (1) - (4) of this section, the local government must send notice to
the executive director of intent to establish alternate financial assurance.
This notice must be sent within 90 days after the end of the fiscal year for
which the year-end financial data shows that the local government no longer
meets the requirements. The local government must provide alternate financial
assurance within 120 days after the end of such fiscal year.
(7) The local government is no longer
required to comply with the requirements of this section when the conditions as
specified in §
37.61 of this title (relating to
Termination of Mechanisms) are met.
(8) The executive director, based on a
reasonable belief that the local government owner or operator may no longer
meet the requirements of the local government financial test, may require
additional reports of financial condition from the local government at any
time. If the executive director finds on the basis of such reports or other
information, that the local government owner or operator no longer meets the
requirements of the financial test, the local government must provide alternate
financial assurance as specified in this subchapter within 30 days after
notification of such a finding.
