ties, as well as the capacity for those facilities to
accept outside waste will be examined. The assess-
ment will also consider the total household cost
including collection and disposal. While the overall
system or project cost profile is of primary impor-
tance, some consideration will be given to fee struc-
ture since risk of waste diversion can be mitigated
through the method of cost recovery. However, the
overall system or project cost profile will still
remain as a critical factor.Operational Characteristics
In evaluating the operations of a solid waste system
or project, Standard & Poor’s focuses on the service
provider’s flexibility in handling changing industry
requirements while efficiently fulfilling its primary
purpose. As mentioned, waste disposal methods
must address a number of environmental issues.
A key consideration in the analysis is bond
amortization versus the useful life of the facilities.
The expected life of the landfill should at least
match the term of the debt, and the legal structure
must provide flexibility to respond to the variabili-
ty in landfill life if waste flow levels change. A sys-
tem, by its nature, has an advantage over project
financings in handling these risks. However, a proj-
ect also can be structured to manage them effec-
tively—for example, a landfill disposal contract
that provides project back-up disposal capacity.
However, contracts also have risk. Contracts gener-
ally allow less control than system-owned capacity
and can be subject to legal, regulatory, and per-
formance concerns.
System or project operations are evaluated
against demand for disposal over the term of the
bonds. If components of a system or a facility are
temporarily or permanently out of service, the abili-
ty to dispose of waste elsewhere is reviewed. The
capacity to handle such a situation with a minimum
of shock to operations or cost is viewed as a credit
strength. The greater the volume of waste that can
be disposed of at redundant facilities, the better the
ability of the issuer to generate revenues to repay
debt. This leeway allows time for the development
of other alternatives that might guard against a sud-
den increase in the price of disposal and reliance on
an outside source for the service. Such reliance sub-
jects the operations to the whims of another entity
for continuance and cost, and the lack of control is
viewed as a weakness.
Standard & Poor’s assesses the entire waste stream
and disposal process to evaluate if changes have been
adequately addressed. For example, growth in the
service area. Afterwards, questions about the proper
size of facilities or provisions and plans for expan-
sion are evaluated. An inordinate reliance on one
method of waste management raises questionsregarding the system’s flexibility to respond to waste
flow changes and facility problems.
An assessment of the impact of the external pres-
sures brought on by regulation and environmental
mandates, whether at the federal, state, or local
level. The analysis will consider how complying
with the regulatory environment will impact a sys-
tem or project’s ability to compete. The impact can
be felt through increased costs or changes within
the business environment. The U.S. Supreme
Court’s decision in the Carbone v. Clarkstown,
N.Y. case, which invalidated flow control, drasti-
cally changed the environment for the solid waste
industry. This has prompted proposed legislation
and other actions at all levels of government. This
section specifically addresses the impact of any
such initiatives.Financial Data/Capital Improvement Plan
In evaluating finances, the concern is the level of
coverage and liquidity. As with Standard & Poor’s
focus on the legal structure, a review of different
operating and nonoperating scenarios that
demonstrate sufficient debt service coverage in all
cases is required. Costs are viewed relative to the
capacity to pay. As the cost of disposal is general-
ly rising, the comparison of future costs with his-
torical costs has less meaning, but the control and
management over future cost increases are
weighed against the risks. Also, the effectiveness
of the chosen disposal options is measured
against the cost of future alternatives. By operat-
ing a solid waste system, a community generally
has more cost control. It also assumes more risk
in ownership and/or operation than if a private
enterprise provides disposal. Landfill closure
costs, for example, can be substantial and should
be amortized over the life of the landfill in order
to match revenue generation with costs.
Costs are reviewed in terms of tip fees per ton
and household costs. The former is a relevant
measure for systems that rely, for their major cash
flow component, on tipping fees paid by fran-
chised and private haulers. Clearly, the competi-
tive position of the tipping fee impacts financial
performance. However, total household costs also
provide an important basis for evaluating the
costs of the system. Household costs should
include not only disposal cost, but also the cost of
collection and transportation to the disposal site;
individuals are concerned with their total bill for
garbage service, not the various components.
Household cost increases are reviewed for accept-
ability and affordability.
Costs under different scenarios are reviewed and
measured for variance. Large variances may raise
concerns. How attendant increases and risks areGeneral Government Utilities128 Standard & Poor’s Public Finance Criteria 2007