Photo by W. Stuart Morgan III
Standing behind a model of the Three Rivers Solid Waste Authority's (TRA)
regional landfill, located in Aiken, S.C., are: (l-r) Colin W. Covington,
TRA projects director; David K. Summers, Jr., Calhoun County Council and
TRA chairman; and Eric P. Thompson, TRA general manager. In the background,
the Calhoun County Courthouse.
In a deal signed April 23 and touted in the The Wall Street Journal for its innovative financing, the Three Rivers Solid Waste Authority (TRA) of Aiken, S.C., closed a $21.5 million bond issue that allowed its nine-county members to begin building one of the nation's first public-served, multi-county landfills, May 1.
The first cell of the 300-acre Subtitle D Landfill near S.C. Highway 125 at the Savannah River nuclear power site in Aiken could begin accepting garbage as early as May 1998. The landfill includes 11 cells (to be opened as needed) and will provide disposal of municipal solid waste - household and compatible garbage - for eight counties in the state's Lower Savannah Region for more than 50 years.
The Wall Street Journal on May 7 described TRA's venture as a "potentially far-reaching municipal-finance experiment," one that financial experts believe will spark interest beyond the state from cities and counties looking to raise money.
To pay for the landfill, the participating South Carolina counties have created a complex mixture of three types of bonds, explained Alexis P. Kisteneff, founder and managing director of Columbia Capital Markets, Inc., of Columbia, S.C. These include:
A super sinker bond is a term maturity (for example, a 30-year bond). Its sinking fund provisions provide for unlimited prepayments, usually with no penalty, in the event the borrower's cash flows exceed original projections or expectations. As a result, the bond's accelerated call provisions mean that it is likely to be redeemed in its entirety well before the stated maturity date.
Photo by W. Stuart Morgan III
Completing the complex $21.5 million bond issue to fund construction of
the Three Rivers Solid Waste Authority's (TRA) landfill involves a mountain
of paperwork. David K. Summers, Jr., Calhoun County Council and TRA chairman,
signs all the required documents on April 23 in Columbia, S.C.
The super sinker bond is attractive to investors because it offers long-term interest on what is effectively a shorter term security. At the same time, the super sinker bond is attractive to counties because it provides maximum flexibility in financing the landfill's future cells, and guarantees that the landfill's tipping fee will always be competitive.
"If municipal waste comes in slowly, say 150,000 tons per year, they will have 30 years to pay off the bonds, Kisteneff explained. "The tipping fee will stay steady at around $23 a ton, in current dollars, including transportation, for this entire period, and the total debt service will be $45 million.
"However, if the waste comes in quickly, say 300,000 tons per year, which is what most people expect, $9.8 million in super sinkers will be paid off in only seven years at no penalty," he added. "The tipping fee, which will start at around $20 per ton, could actually plunge significantly after the super sinker has been paid off. And this would reduce the total debt service to $34 million, thus saving the counties $9 million in interest expense. In fact, the counties would never have to borrow again to finance the nine future cells."
Super sinkers were used in the early '80s to finance certain kinds of housing deals, according to Kisteneff.
"But the super sinker we devised bears about as much resemblance to those early super sinkers as an F-16 does to a bi plane," Kisteneff said.
This is the first time that a super sinker has ever been used in a solid waste deal. This type of super sinker could also be applied to other kinds of revenue-based infrastructure projects as well, such as water and wastewater, especially when rapid growth is anticipated but uncertain.
"It's nice to be on the cutting edge right here in South Carolina," Kisteneff said. "You don't have to be near Wall Street anymore to get Wall Street's bells and whistles."
In the early '90s, The U.S. Department of Energy (DOE), which manages the Westinghouse Savannah River Site and employed some 25,000 people at the site, faced many of the same waste management issues that neighboring counties faced. Subsequently, DOE provided a $147,000 grant to the Lower Savannah Council of Governments to determine if it would make economic sense for the counties within the general vicinity of the Savannah River Site to build a joint waste management facility.
The study recommended the formation of the Three Rivers Solid Waste Authority and projected that eight of the counties - Aiken, Bamberg, Barnwell, Calhoun, Edgefield, McCormick, Orangeburg and Saluda - would, indeed, save approximately $2 million per year by cooperating in the regional effort and using the same landfill.
"It became apparent that counties were going to be faced with expenses in dealing with solid waste that they really had not imagined," said Eric P. Thompson, executive director of the Lower Savannah Council of Governments (LSCOG) and TRA's general manager. "And, essentially, volume is the name of the game in solid waste management. The more volume, the less the per unit cost of everything.
LSCOG established the regional entity, which became known as the Three Rivers Solid Waste Authority. Nine counties (including Allendale County) teamed up to join the TRA by the time it was incorporated in December 1992. However, before the counties could jointly fund the construction of the regional Subtitle D Solid Waste Landfill, they had to change state legislation in South Carolina that, before 1996,
David K. Summers, Jr., chairman of Calhoun County Council, successfully spearheaded the effort last year to amend the legislation, which allowed the nine counties to sign 30-year contracts with TRA in February.
The TRA's waste management program helps the nine counties recycle tires, white goods, scrap metal, oil, oil filters, glass aluminum, cardboard, newspaper, plastics, used clothing and bi-metal cans. The program also helps the counties coordinate the administration of grants received from the state's health and environmental agency.
However, TRA allows each member county to select from a menu of options to determine its level of participation in the regional waste management program. This has permitted Allendale County, which uses another landfill, to participate in the TRA's waste management program but to elect not to use the authority's regional landfill.
Today, the TRA's governing board consists of county officials appointed to serve as directors by the respective nine county councils.
"One of the most unique things about the Three Rivers Solid Waste Authority is that it has been able to get the nine counties in this region to stand together," said Summers, who has served as TRA's chairman since its inception in 1992.
Calhoun County, like other counties in the region, already had a landfill but simply could not afford a new Subtitle D Solid Waste Landfill.
"Calhoun County is one of the smaller counties in this region," Summers said. "So, if we had not joined with other counties for a regional solution, a private waste management business could have raised the price of waste disposal by $30 to $40 a ton, and there would have been nothing that we could have done about it. We would have had to pay it."
Colin Covington, TRA's projects director, said that is precisely how the authority helps. The authority, he explained, allows elected public officials to set policy for solid waste disposal and to exercise some control over its ever-increasing costs.
"The elected officials," Covington said, "are motivated more to save money for the taxpayers than to earn more money for private company shareholders."
Essentially, the counties control the regional solid waste management facility and become its customers. The DOE has granted permits for 1,400 acres of property to the TRA for the landfill, but becomes a customer of the landfill as well.
"The regionalism idea is a natural for solid waste management because volume is the name of the game," Covington said. "Now, we're combining the economic reality with the political and social reality, and understanding that self-reliance is the ultimate goal of solid waste management."
It is possible for other counties to join the TRA. A county could pass an ordinance to join the authority and a resolution to name a director to the board. The authority's board of directors would then determine what the county must pay to become a full member and participate in various projects.
TRA plans to develop a solid waste technology center at the site. The authority will use the facility to promote solid waste reduction, reuse and recycling technologies, and to work with private industry to develop and commercialize such technologies.
TRA will also purchase the equipment, including waste disposal trucks and trailers, that is required to operate the landfill.
So far, the authority is off to a great start. TRA will pay less than a 5.85 percent interest rate on the $21.5 million in bonds, required for its funding. Feasibility studies had been based on an anticipated interest rate of 7 percent.
Covington said the lower interest rate was granted partly due to the authority's stand-alone credit rating, BBB, which he said is "unheard of for a start-up agency." TRA achieved the rating, he added, because of its "solid, innovative legal and financial structure."
The BBB rating enabled TRA to insure its bonds, which allowed the authority to leverage its rating to AAA - the best bond rating carrying the lowest interest rate.
In 1996, the TRA's board of directors won the Palmetto Partnership Award in Rural Economic Development for demonstrating the effectiveness of partnerships in addressing community situations that impact economic development.
(Morgan is the public information director of the South Carolina Association of Counties.)
(For more information about the Three Rivers Solid Waste Authority, contact: Eric P. Thompson or Colin W. Covington, Three Rivers Solid Waste Authority, P.O. Box 850, Aiken, S.C. 29802; or 803/649-7981.
For more information about the financing of the TRA regional landfill, contact: Alexis P. Kisteneff, Managing Director, Columbia Capital Markets, Inc., 5000 Thurmond Mall, Suite 106, Columbia, S.C.; or 803/765-2632.)