WASHINGTON — Bond lawyers told the Treasury Department recently that proposed regulations on bond-financed solid-waste disposal facilities are a significant improvement from an earlier 2004 version, but contain some aspects that would be unworkable for issuers.
The National Association of Bond Lawyers made the remarks in a 32-page document it sent the Treasury late Wednesday that outlines clarifications that should be made to the proposed rules.
Charles Henck, an attorney with Ballard Spahr LLP who helped lead the NABL effort, said the overall proposal is "a huge improvement over what was proposed in 2004. It's logical. It is the right way to do it, in my view."
NABL's comments stem primarily from areas "where we think the execution deviated from the intent," he added.
A public hearing on the proposed rules has been scheduled by the Treasury for Jan. 5.
Specifically, NABL said a proposed provision — which stipulates that residual material, a type of solid waste, must constitute less than 5% of all the material made in the production process — "poses insurmountable challenges" and should be removed from the rules.
The Treasury described some facilities it said would pass the 5% test for residual material: an oil refining facility, a waste coal facility, and a lumber facility.
But "the fact is ... none of them would actually meet that requirement," Henck said. "It's simply not a realistic requirement."
In actuality, those facilities can end up with residual material totaling up to 50% of the material left at the end of the process, Henck and other lawyers maintained.
Furthermore, NABL said there are "numerous other materials" that are recognized as residual material under the current rules that typically make up more than 5% of the final product that would fail the less-than-5% test, such as waste material produced from sugar cane processing, which can comprise 30% of the end product.
The test needs to be eliminated, NABL members said. They said simply boosting the percentage will do no good because "the percentage of material has no particular relevance in determining whether the material is properly treated as solid waste."
The percentage of residual material has no bearing on the makeup of the waste and any limitation on the percentage could exclude legitimate waste from the definition of solid waste, NABL said.
The California Pollution Control Financing Authority, which has issued over $1.5 billion of tax-exempt bonds for solid-waste disposal facilities over the last decade, echoed NABL's call to delete the test in comments sent to the Treasury earlier this week, calling it "unnecessary."
Another sticking point in the proposed rules is the Treasury's position that no hazardous waste can be considered solid waste. NABL maintains that this proposal, a holdover from the 2004 proposed regulations that were heavily criticized by market participants, misinterprets the legislative intent of Congress and relies on flawed legal analysis.
In the conference report for the Tax Reform Act of 1986, lawmakers added language stating "conferees wish to clarify that solid waste does not include most hazardous waste (including radioactive waste.)" NABL argued that Congress was not trying to ban all hazardous materials, because logically the fact that solid waste does not include most hazardous waste must mean it includes some hazardous waste. Treasury should remove this exclusion in the proposed rules, NABL said.
For mixed-use facilities that handle a combination of solid waste and other products, the proposed rules state that if 65% of the input to the facility is solid waste, all the costs of the facility can be considered part of the solid waste process.
However, the rules are not clear about whether the 65% test should be applied on an average annual basis, or if the facility must handle at least 65% of solid waste every single year. NABL urged the Treasury to apply the test on an annual average basis, warning the other method would be "unworkable" and could lead to unintended consequences.
For example, if 95% of the input to a mixed use facility is solid waste every year, except for one year when it is less than 65% because of extenuating circumstances like a natural disaster or labor strike, it would not qualify completely as a solid-waste disposal facility, the lawyers argued. By contrast, if 65% of the input to a facility was solid waste every year, it would qualify as a solid-waste disposal facility, even though it handled less waste overall.
NABL also asked the Treasury to clarify that solid waste can be produced from a process that delivers a service instead of producing a product like a brush clearing service.