Starting now, New Jersey's 22 solid-waste authorities, which have about $1.75 billion of outstanding bonds, can longer force haulers to bring trash to local incinerators and landfills.
That's because the Supreme Court Monday rejected an appeal of a lower court decision that struck down the power of New Jersey and its local authorities to direct the flow of garbage to certain facilities and thus ensure enough disposal fees would be collected to pay debt service. The lower court ruling took effect when all appeals were exhausted.
Separately, the court declined to review two cases in which plaintiffs were challenging a Virginia tax and a Washoe County, Nev., mandatory trash collection ordinance.
The New Jersey case has its roots in the 1994 high court decision in C&A Carbone Inc. v. Town of Clarkstown, N.Y. which declared it unconstitutional for Clarkstown to control solid-waste disposal, and set a precedent for challenges to flow control rules in other states. A federal district court judge struck down New Jersey's flow control system in July 1996 and the appellate court upheld his ruling this past May.
Market watchers said the New Jersey solid-waste authorities should be able to maintain operations in the short term, until the state implements measures to bolster shaky credits in the new competitive environment, which it is expected to do now that elections are over.
"We don't see a default immediately," Moody's Investors Service vice president Charles Emrich said Monday. "The state Legislature has entertained various (relief) bills. Presumably that (effort) will be reignited."
For one, most authorities have enough reserves to tide them over for the next six months, Moody's analyst Inocencia Jayaratne said.
However, there will be delays and probably a number of tussles as waste market participants adjust. First of all, the Department of Environmental Protection must approve any new disposal sites before haulers can change where they are dumping waste, said John Antonellis, a senior vice president at J.B. Hanauer & Co.
Also, at least three counties intend to hold haulers to contracts - which haulers will likely challenge - that the local government contends were signed under competitive terms, so-called economic flow control, Antonellis said. Increasing costs for out-of-state disposal site and the tendency for small haulers, who are more vulnerable to competition, to cling to the status quo should help keep waste in-state.
Mark Rosen, a partner with Mesirov Gelman Jaffe Cramer & Jamieson, who represents hauler Atlantic Coast Demolition & Recycling Inc., urged state and local governments not to stand in the way of competition. "There can be no excuse for foot-dragging or attempts to retain this unconstitutional system through other means," Rosen said in a statement.
Expecting that the Supreme Court would probably not hear its appeal, New Jersey took several interim steps to protect the authorities. The Legislature approved a $20 million fund that issuers can tap in emergencies and the DEP gave issuers the ability to charge haulers an environmental investment fee for six months. Authorities also have temporary authority to renegotiate contracts, Antonellis said.
However, haulers are expected to challenge the fee, which Emrich said could be politically difficult for authorities to implement. Congress is unlikely to pass legislation protecting solid-waste issuers, he predicted.
"You'll continue to have a couple of authorities threaten the possibility of default," Antonellis said. "It's a real big poker game."
In the end, though, he said, a state remedy, such as a surcharge on haulers or on taxpayers, would not be very costly and could solve the problem of service on outstanding bonds.
"I am confident that with the counties' cooperation we will maintain a waste-disposal system in New Jersey that is both environmentally sensitive and economically feasible," newly reelected Gov. Christine Todd Whitman said in a statement Monday, noting that the state is working closely with local officials.
In separate action Monday, the Supreme Court turned down Mathy v. Virginia Department of Taxation, an appeal of lower court decisions upholding Virginia's income tax structure. Joseph and Sarah Mathy claimed they were entitled to a state income tax deduction for taxes they paid to the District of Columbia, according to their brief.
Virginia responded that the Mathys had misinterpreted the law. The commonwealth further argued that there are no federal issues involved in the case, and thus the U.S. Supreme Court should not hear the appeal.
Finally, the high court declined to hear Individuals for Responsible Government v. Washoe County, Nev. in which the plaintiffs, a nonprofit corporation, argued that county ordinances mandating the collection of household garbage are unconstitutional. The nonprofit maintained that the county already has ordinances in place prohibiting illegal dumping, which is what the mandatory collection was supposed to prevent and which county officials do not enforce.
"The Petitioners' Statement of the Case is a rambling discussion that does not place the issues decided by the Ninth Circuit (Court of Appeals) in the proper context," the county's brief responded. Lower courts held against the plaintiffs, and the appellate court found that they had no standing - or grounds - to sue.
