trends, regulatory outcomes, and the long-term pat-
terns of various cost pressures. As such, they claim
that trying to measure them actually represents a
poor use of limited resources, especially for smaller
systems that lack the staff or funds for consultants
to devote to such studies. While most of these driv-
ers are indeed highly uncertain, Standard & Poor’s
views a refusal to consider the potential burden of
pressures beyond the short-to medium-term as a
credit risk. Accordingly, even small utilities that
have attempted to examine long-term risks and pos-
sibilities in limited ways consistent with their
resources and capabilities will likely find their rate
projections and capital plans more accepted by
Standard & Poor’s.Legal Provisions
Legal provisions are defined through the bond
indenture and other documents, which outline the
basic structure of the financing. Whether the struc-
ture provides for an integrated solid waste system, a
stand-alone project or a subsidized financing of
facilities, the analysis focuses on what is the securi-
ty for the bonds and the identification of the sup-
porting revenue stream.
Standard & Poor’s Ratings Services reviews all
contracts concerning service, operation, construc-
tion, and energy sales for possible credit implica-
tions. The revenue stream pledged under these
documents can vary considerably. A mixture of spe-
cial taxes, disposal fees, and a municipal entity’s
credit can be pledged in addition to other revenues,
such as those from the sale of by-products. The
nature and diversity of the revenue stream is an
important factor, given the transportability of solid
waste. A system or facility that receives all or most
of its revenues from tipping fees paid by private
haulers is likely to be more vulnerable to competi-
tion than a system that can use alternative revenue
streams, such as household disposal fees
A detailed analysis begins with identification of
the source of revenues for debt service payments.
The ultimate credit strength depends upon the pri-
mary revenue stream, such as revenues influenced
by market events (i.e. tipping fees) or the general
fund pledge of the community. Through a service
agreement, a municipality might covenant to make
payments from general fund by the use of annual
appropriations. In these circumstances, Standard &
Poor’s establishes a GO assessment that generally iscritical to the rating determination. A general fund
pledge is assessed at less than the full faith and
credit pledge of the municipality; factors considered
are the presence or lack of, appropriations risk, the
level of financial flexibility available to the general
fund, and the economics of the project.
When a user fee is pledged to debt repayment,
Standard & Poor’s focuses on the history of the
user fee and how it is collected and assessed. Cases
where the user fee is formulated, but has yet to be
implemented, generally provide weaker credit sup-
port. If a method of billing and collection exists,
and such a fee only needs to be levied, the credit
generally is considered stronger.
Under different operating scenarios, the legal
structure must provide a sufficient revenue stream
to cover operating costs and debt service payments.
The legal structure should provide a revenue stream
that can be maintained, despite additional mainte-
nance cost, lower throughput, reduced energy out-
put or price, and outages caused by system failure
or environmental requirements. For example, recov-
ered material sales from a recycling program are
likely to vary, depending on product quality and
market price. The ultimate or primary revenue
stream must have the flexibility to make up for any
declines in revenue flow from a more unpredictable
secondary stream. Here, reserve funds may be
required to provide a bridge from one budget year
to the next, depending on the flexibility of the pri-
mary revenue stream.
One unique concern that must be addressed by
solid waste issuers is the transportability of solid
waste. Since there is usually no direct link between
the solid waste utility and the customer, the haulers
collecting the waste can choose the disposal site.
The ability to direct waste to the project or system’s
facilities provides an important link between the
waste generator and the disposal system. Waste-
flow control can be provided by municipal owner-
ship of collection vehicles, some form of
contractual arrangements, or through economic
means. Waste flow control ordinances are not fac-
tored into the analysis and should not be relied on
in light of the U.S. Supreme Court’s Carbone deci-
sion. Based on the competitive nature of the solid
waste industry, a system that cannot effectively
retain the waste flow is generally not investment
grade, unless alternative revenue sources are avail-
able and pledged for debt repayment.■General Government Utilities130 Standard & Poor’s Public Finance Criteria 2007