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Home My WebLink About0325.093- -----------------~---~~ ~-.~ Jur.e 3, 1993 THE HOllORABLE C:T~ COUNCIL Palo Alto, California 4 RESOLUTrON TO EFFECT Non' FINANCIAL )'S __ ~UR}.NCE KECHANIS~ ____ I_~_J::~ONJUNC- -rIOK WITH. Cill'.N9E IN J..CCOUNTIN.t:!_:f9R LANDFILL Cr,.OSQJtEiPOSTCLOSURE COSTS« AND ASSOCIJ-TED BUP.9_~T AMENDMENT ORDINA1T~ Members of the Council: Report in Brief In the amended Midyear Financial sum:rnary presented to city council on April 26, 1933 (CMR:255:93j, staff recommended that the City delay enacting changes in the acc;oul"Jting for landfill closllre/post closure costs which had been proposed by the Governmental Accour.t inq Standards Board (GASE}. The accounting change would affect the report.ing of the financial assurance .mechanism which is required of 1andfill op€rators by the California Integrated Waste Manage~ent Board (CrWNB). Staff has since received verification frcI:l the Board that the fully-funded liability proposed by staff to meet accounting requirements 'would indeed satisfy the State' s financial assurance mechanism requirement. The attached resolution effects. a ne'W financial assurance mechanism for continued compliance with state regulations, while the ~ssociated Budget Amendment O~dinance (BAO} allows for the implementation of the accounting change ,-,'ithin City's Refuse Fund. Existi~q Regulations On October 9, 19S1, the U. S. Environmental Protection Agency (EPA) issuea ~Solid Waste Disposal Facility criteria" {40 Code of Federal Regulations Parts 257 and 258), ., ... hieh establishes municipal solid 'Waste landfills (MSWLFj closure requirements for-all MSWLFs that accept solid waste after the date of issuar,ce. The regulations CMR: 325: 93 ~1 '"-~. -- :~ I - define location restrictions, operati~g crit.eria, design crit;eria, qroundwa ter monitor ing and correcti ve. action requi re~e~ts, and financial assuranc~ require~ents. state gDvernment.s ar-e p!"imarily responsible for implementing ~ild enforcing the EP.~ rule and ha",re been given flexibility to tailor requireme~ts to accommodate the w-ide variety of local cor.di t ions that exist. Pr lor to the EPA rule, the level of closure and postclosure care required bi' la ..... varied by state. Th.e CIWMB issued landfill clcsu::-c= regulations in August 1989. These regulations ..... ere some of the 1i1ost comprehensive regarding landfill requirements in the country at the ti~e. Many of the obligations of MSWLF c'w'l'ners and operators under the California regulations are reinforced bi the EFA rw.le, although there. a;re differences in specific requirements. The CHIj"MB is currently working .... it.h the EPA and landfill mmers to !!lake California a pilot s~ate in shaping national policy in this area. Accounting St!!ll'ldal;.~~ In June 1992, GASB proposed standards of accc'-.lnting and reporting of the closure and postclosure care cost:s incurred by MSWLF's. Its intent is to reduce the diversity in the manner of reporting those costs, .rhich is recognized to have been caused in part to the unCErtainty in the level of closure and postclosure care required by law. The GASB requirements are based on the EPA rule. Since landfill operators are legally required to fund closu~e and postclosure costs, the GASB believes that operating a laradfill establishes a liability to cover and maintain the si~e after the municipal operator stops accepting waste. GASB has indicated that "failure to recognize estimated clcsure and postclo5ure care costs in pe~iods of MSWLF ope~ation und~rsta~es current expenQi tures/expenses and overstates expenditures/e~penses of some future period when closure and po~tclosure care takes place." The GASB also recognizes that lI o ..... ners and operators are cr .rill be required by local, state, or federal la~ or regulation to establish some form of financial aSS'.lranc:;e trust for :MS\-,'LF closure and pastcLosure care, However. .. how an enti tj' chooses to :finance its MSWLF obligations does not change the ultimate amount that -will be paid to perform postclos~re care." Landfill Closur~ ___ .and Postc:los-ure Mai~ __ ~erl..~.:oce Liability J... special reserve was establishe,j W'ithin. th~ City's Refuse Fund in July of 1990 to comply •• lith the Clh118 requirement that landfill operators pro .... ide a financial assurance !nechanis1Tl to finance anticipated costs of closing the landfill. However, GASB requires the City t.:l recognize a 1 iabil i ty for the prorata share of projected closure and postclosure costs, based on the landfill capacity used from inception through the current fiscal year. This CMR:J25:9J 2 I I t , i • I , , i I I I I '71 .... , " :.", •..•.. -....... '. l' ',. :; , . ·1 ... ..J , 1 :..-; '.~~j. >- poses ~n apparent co~tra.diction in that the liability req:.lired by GASB cculd not be properly (unded if the City ~ere also to tund the current Landfill Closure and pest-Closure Main~enance Reserve. In April 1993, the Cit}¥ requested th",t the CrWHB .311ow the liability established through i~plementation of the GASB state~ent to serve as the financial assu!"ance mechanism, rather the . .,. a separate reserve for that p\.lrpose. In order to provide assurance for closure and postclosure costs, the liacility would :r.-3.ve to be tully funded ..... ithin t.he City's Re:fu$-e. Fundj L e., the. amount of fu.nd assets would equal or eXct:!ed the full arnollilt of the 1 iability established for this pucpose. In response, the Financial Assurance Section (Permitting and Compliance Division, of the CIWl-1B acknowLedged the proposed standards set forth b~' the GASS and the need by the. City to establish this accounting method. The city's pro~osal to provide a financial assurance mechanisTI1 through a funded "Landfill Closure and Postclosure l"!aintena.nce Liabilit}·ll, rathe,r than the previous reserve, was accepted as long as it provides for funding .... hich equals or exceeds the Cl\<.i"MB funding requirements." Implementati-on GASS requires that all costs associated .ath landfill operation, including clo$ure costs and postclosure monitoring, be ~ecoqnized in eact. year the landfill is in operation. Since tbe City's landfill is now at 75 percent of tot~l capaciti~, the liability established in the retroactive implementation of this a~counting change will approximate 75 percent of the total landfill closure and postclosure maintenance costs estimated to be incurred over the life of the landfill I or approximately $4.8 million. A one-time draw from the reserves to the liability account will represent a large prior period accounting adjustment for these expenses, accrued from the inception of thE: larld.f ill in 1921). .After this initial adj-.:.stment, however. the prorata exper.se ... <'ill be based or. the. landfill capacity used each ye.ar. ,,;ith plar.s to divert solid wastes from the City's landfill in response t.o AB 939 (the Califor nia Integrated Waste Management Act of 1989) the landfill is not expected to reach capacity until the year 2029. utilizing less than 1 percent of landfill capacity annuaU):' ~il1 result in a closure!postclosure cost allocation of less than $55 1 000 per year for the re.maining life of the landfill, according to current estimates. Prior to implementation of the prap~$ed accounting change, the City had planned to fund the landfill closure a.nd postclosure mainte nance r(;serVe Py the end of fiscal year 1997 ~ The ne .... ' accounting treatment essentially accelerates the fundtng of these. cost.s, so that the liability can De fully established in the 1993 fiscal year. Subsequent years' funding, recorded as increases to the CMR:325-:93 3 -. closure/postclosure liability, is reflects only the allocated cost capacity usage~ cot"respondir.gly reduced, and based on the a:mual landtill staff recommends that Council approve the attached resolution, which eliminates the Landfill closure and Post closure Maintenance Reserve and establishes a fully fllnded liability as the financial assurance mechanism required by the CIWMB. In addition, staff recommends the approval of the attached BP.O, which reflects the change in accounting and reporting for the City'S landfill operations according to the proposed GASB standard~ Respectfully submitted, rLA-Ir--'tw.d.L ~ hnlELL Accounting Manager ~-g;(~·.n _z"--<-~ ILY rSON'~- Director of Finance city Manager CMR: 325: 9) 4 .. ·~ ....... it'-7t ORDINANCE NO. ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING TriE BUDGET .FOR THE: FIS-:AL YEAR 1992-93 TO CRE.ATE A NEi"l FINANCIAL ASSLlRANCE MEeHANI SM FOR LANDFILL CLOSUREjPOSTCLOSURE COSTS IN CONJUNCTION WITH A CIiJ.Jl'GE IN ACCOUNTING WHEREAS, pUrS1.1ant to the provisions of Section 12 of Article III of the Charter of t'ne City of Palo A.lto, the CC1Jncil on Jl..i.ne 22, 1992 did adopt a budget for fiscal year 1992-S3; and WHEREAS, a change in the accounting guidelines for landfill closure/postclosur~ costs h,~s been proposed by the. GO'Jernmental Accounting Standards B.:.ard {GASE); and WHEREAS, the change in accounting ~ould affect the reporting of the financial assurance mechanism which is required of landfill operators by the California Integrated Waste Management Board (CIWMB)i and WHEREAS, verification has been received frolf'. the CIWMB that the liability that ..... ould be established under the change in accounting 'Would satisf}" the State's financial assurance mechanism requirement if that liability .. "ere ful1)~ funded; and WHEREAS, this cnange "Will eliminate the "'Landfill Closure and Postclosure Maintenance Reserve" in the RefuEe Fund, and establish instead a fully funded liability to satisfy the financial assurance mechanism for landfill closure costs and postclo5ure care as required by the CIWMBj and WHERE}"S, the funds currently in the "Landfill Closure and Postclosure .Maintenance Reserve" of the Refuse fund previously budgeted for closure C~$ts 1..;111 nee.d to be utilized along 'iIlith adeli tional funds available in t.he System Improve.ment Reserve in order to create tl'le tully funded liability discussed above; NOW, THEREFORE, ~he council of the Cit,' of Palo Alto does ORDAIN as follows. SECTION l~ The sum of One Million Seven Hundred Thirty Nine Thousand TWo Hundred T\oI'enty Three Dollars ($1,739.223) is hereby transferred to the System lrr.provement Reserve and the Landfill Closure Post Closure Reserve is hereby closed. SECTION 2~ The sum of Nine Hundred Seven Thousand Six Hundred Fifty One Dollars ($907/651) is reduced from the Contract Services Budget in the Refuse Fu~d and the System Improvement Reserve is correspondingly increased~ L ~::!' 'ic~1't·· - ~,l - SECTION...l. The sum cf Fi· ... e Million Seven Ht..:ndred Fcrty Eight Tho~sand Three Hundred EigMty Two Dollars ($5~7481382) is reduced fro!1l the Refuse Fund System Improve!:1ent Reserve and a 1 iabi 1 i ty f~r financial assur21nce for closur~ and postclosure requirement.: -.. 'ill be recorded in the firlancial st3.'tements of the Refuse Fund. SE'C1.I.Ql:L...i. All of the above transactions will reduce the System Improvement Reserve fro~ $4,500,000 to $1,398,492 as of June 30 I 19'93. ~~. The Council of the city of Palo Alto hereby finds that the enactment of this ordinance is not a project under the California Eiwironmental QUClility Act and, therefoz:e, no environmen tal impact assessment is necessary. SECTION 6~ Municipal Code, adoption. As provided in Section 2.04.375 of the Palo Alto this ordinance shall beC'.ome -effective up..:ln IN'I'RODUCED AND PASSED: }"YES: A5STENTIO!<S: ABSENT: ATTEST: APPROVED: City Clerk Mayor APPROVED AS TO FORM: Sr~ Asst. City Attorne:.-,- APPROVED: oirector of Finance - :,,~~:-.-: ;~r~~ "'_ •. ' ... ra .... "" ...... _ ... . ~ t1 4 4 0;01_-, o f(ESOLtPflON NO. ______ _ RESOLUTION OF THE COUNCIL OF THE ('ITY OF PALO ALTO P.BPEA!..ING RESOLtJTI0N NO. 6919 ANL· ESTABLISHING F!NANCIAL ASSURANCE FOR CLOSURB k~'"D POSTCL03URE MAINTENANCE COSTS OF TIlE PALO ALTO REFUSE DISPOSAL A.~&A PURSUANT TO PROVISIONS OF THE CAIJIFOP..NIA C-O .... :rsRNMBNT CODE Ao.'"ID REGULATIONS OF TITLE 14 OF T"dE CALIFO~~IA CODE OF REGULATIONS WHEREAS r Title 14 of the California Code of Regulations, Chapter 5. Article 3.5 (hereinafter "Regulations" J, require operators of solid waste landfills to demonstrate the availability of financial resources to conduct closure and postclosure mai.ntenance activities; and WHEREAS I Sections lB2S3 and 18285 of the Regulatio~s specify an Enterprise Fund and a related financial assurance mechanism as an acceptable mechanism to demonstrate financial responsibility for financing closure and/or poetclosure maintenance costs of a solid waste landfill; and WHEREAS, the Gover.lli~ental Accounting Standards Boa~d requires that all costs associated with the operation of a landfill site, including closure and postclosure monitoring and maintenance expenaes required by the Bnvironmental Protection Agency must be recognized as a liability during the pe:!:'iod tt'-..at revenue is generated by the landfill, and that total costs for closure and postclosure activities must be captured by the tin,e the landfill reaches its full capacity; and WHEREAS, the City of Palo Alto owns and operates the Palo Alto Refuse Disposal Area; NOW, THEREFORE., be it RESOLVED by the Council of the City of Palo Alto as foll~ws: ~IQN 1. The Director of Finance of the City of Palo Alto is hereby authorized and directed to establish, ~intain and account for a -Landfill Closure and Pcstclosure Maintenance Liabilicy· within the existing RefUse Ente~prise Fund of the City ot Palo Alto for the Palo Alto Refuse Dfsposal Area ("Closure/post closure Liabil ity-) and to deposit in said account sufficient funds to meet the requirements of Sections 18282 and 18285 of the Regulations. SECT:ON 2. The current "Landfill Closure and Postclos~re Maintena..nce Reserve" will be eliminated, and all monies deposited therein will be cransfe~red to the Clcsure/Postclosure Liability account to be expended exclusively for landfill closure and post-closure monitoring and ma,intenance activities associated with the Palo Alto Refuse Disposal Area. SECTION 3. The Closure/Postcloeure Liability referred to iL Section 1 of this Resolution shall be fully funded within the 1 - Refuse EntE'.rpri~e Fund of the City of Palo Alto. 'fhe liability account w~ll be retained by the Director of Finance of the City of Palo Altv, a~d ~ill be liquida~ed only to the extent that e~~enditurES are incurred for closure and postclosure m~intenance of the palo Refuse Disposal Area. Tr.e Director c! Finance shall neither direct, nor withdra· .... from the investnlents of the City of Palo A1 to, monies used to fund U'.e balances of said Clasure/Postclosure Liabil ity except fo!: the p1...rposes and the re~ireme-nts of Sections 1B282 and 18285 of the Regulations. SECTION 4. To the extent permitted by law, the Closure!Postclosure Liability shall be and remain inviolat e against all other claims~ including claims of this City or its City Council, or the creditors thEreof, it being the> intent of this Resol uti on that the mechanism established hereby .... ill provide equivalefit protection to a teust fund or a reserve fund in ensuring that the assured amounts of funds will be available on a timely basis for closure and/or postclosure maintenance costs of che Palo ~to Refuse Dispo~al Area. SBCTION S. The monies funding the Clasure;'Postclos'.lre Liability shall be invested by che Director of Finance in the manner provided by law and the investment policy of the City of Palo Alto. SECTION 6. Disbursement of postclosure ~aintenance shall be in 1B262.3 and 18265.3 of the Regulations. funds for accordance closure and/:>r with sections ~~. In the event the California Integrated Waste ~~gemeDt Board {the ·Board~) det~rmineB that this City has failed to perform closure and/or postclasure mainter~nce as required by law, the Board may direct the Director of Finance to pay to the City Manager from the Closure/Post-closure Liabi 1 ity such a.Llounts as are necessary to ensure sufficient closure and/or postclcsure maintena.""1ce. The City Manager shall then be obligated to use such funds for closure and/or postclosure maintenance costs in accord~nce with the directive cf the Beard. SBCTION e ~ The City Engineer is directed to produce or cause to be produced an annual report for transmittal to the Board, containing the following information concerning the Palo Alto Refuse Disposal Area: (al As appropriate. a revised prepared as speCified by Regulations; Closu.r-e section Cost Estimate, la263 of the (b) ,:1!....s appropriate~ a revised Postclo9Ure Maintenance Cost Estimate, prepared as specified by Section 18266 of the Regulations; ec) Status, including current balance of the Palo Alto Refuse Disposal Area Closure/Postclasure Maintenance Liability; and 2 o Cd) The nU!!'Der of curI-ent rnernhe:cs of the Council of the City of Palo Alto who voted affi:nnat.ively when this R~801ution was adopted or last reaffirmed. SECTION~. Resolution number 6919, adopted July 23~ 1990, is hereby repealed. SEC1'ION 10. The Council of the City of Palo Altc shall reconsider this Resolution .... henever the number of the then-current members of the Council who voted affirmatively when this Resolution was adopted or last reaffi~~d is less than Lhe majority of the total members. INTRODUCED AND PASSED: AYES; NOBS: 1.BSI!NT; ABSTENTIONS: City Clerk APPROVED AS TO FORM; Senior Asst. City Attorney APPROVED: Mayor City Manager DIrector of Publ ic-jofocr"Jc"s:-- Director of Finance 3