Headquarters Landfill - an update
Below is a summary that brings you up to date on the question about whether Cowlitz County should continue to operate the Headquarters Landfill (HQLF) or should pursue a public-private partnership.
Currently, the county has a review board which has been studying various responses from private entities interested in working with us to bring value to the County. My goal is to get a decision within a month and move into a phase to develop a formal contract to put a partnership into operation in January of 2019.
There will be public hearings. No final decisions have been made; the final decision will be in the public eye via hearings, both in the morning and evening, on two separate days.
Public-Private partnership operation of the Cowlitz County HQLF – a discussion
Cowlitz County currently owns and operates the Headquarters Landfill (HQLF). Although there was citizen opposition to purchasing of the HQLF by the County, the purchase was made, and the county proceeded to get necessary permitting that now makes the landfill a valuable asset.
Nearly two years ago the County received from one of the large national waste management companies an unsolicited offer for the landfill. Within that time frame, Waste Control, the company which operates the tippers at the landfill and services the county with waste collection, informed commissioners of concerns about the performance of the county operations at the landfill.
Within this same period of time, the then manager of the landfill put together an analysis that showed great economic risk of managing the HQLF. The risk comes from two factors:
The clear air rule, as it stands today, will reverse the economics of the landfill, leading to widening losses to operate the landfill.
Waste management streams for municipal solid waste (MSW) are tied up by the large waste management companies, leaving only low value material that is economically marginal.
Cowlitz County has not recovered from the “Great Recession,” and the County budget continues to be a serious problem. Due to unfavorable rulings, the key economic development projects, including Millennium Bulk Terminals and Northwest Innovations, have been delayed, depriving the County of legitimate efforts to solve its budget shortcomings.
For fiscal 2018, the county budget was balanced only by using funds from the landfill in the 2017, 2018, and 2019 budgetary years.
The above factors caused the BoCC to issue a Request for Qualifications (RFQ) to determine whether there is commercial interest to operate the HQLF. Response was positive, eliciting 8 commercial expressions of interest.
Subsequent to the issuance of the RFQ, the newly appointed director of public works, expressed an interest in keeping the HQLF under county operation.
Goal of the BoCC
The primary objective of the BoCC is to fulfill its fiduciary obligation to the County while mitigating risk factors. To evaluate options involving the HQLF, the BoCC appointed a review board (ARB) to study the submissions by the respondents and to recommend to the BoCC a course of action.
Once the ARB began its evaluation of responses, the value of the HQLF as a regional asset for a waste management player became evident.
The question is whether the County should proceed with a private-public partnership or retain full operation of the landfill. The arguments for each side are given in subsequent sections.
Discussion: Comparing Options
We limit the discussion to the two options: county retains full operation of the landfill; County engages in a private-public partnership.
The selected solution has to take into account the various factors that lead to an overall assessment of value for the near term and extending decades into the future. The only reason to choose one over the other is financial, which includes risk mitigation but should not include emotional attachments, the latter are sirens that invariably will lead us onto the rocks.
There is no point in wasting time on discriminants that are identical between both options. Here are some such factors:
Current employees at the landfill are not at risk.
Current contracts with the landfill are not at risk.
Current agreements/understandings to provide in county waste services at favorable prices are not at risk.
The landfill will see a waste stream up to the permitted limit of tons per year.
Clean air rule risk mitigation
As noted in the introduction, there is considerable risk due to the clean air rule. The County has been sheltered from this effect with a grace period which expires within a year. Some of the respondents have options to deal with this risk, including converting the gas into electricity or submitting the gas for commercial use and consequent government rewards of renewable energy credits.
Currently, we flare the gas, and recently added a second flare. That is a wasteful approach that should be eschewed, but to do so requires expertise and considerable capital, both of which the County does not have. Some respondents have shown successful programs using this gas to benefit the public.
Sources of MSW
Municipal solid waste is the high value waste stream, with substantial economic impact for the landfill. The major waste management companies have a marketing and sales staff already well established, and they have relationships already well established with many regional sources of MSW.
Currently, only Cowlitz County MSW is directly contracted for the HQLF. The county receives some MSW from outside the county but only in specific exceptional circumstances, such as when the majors lose access to one of their landfills due to traffic problems (e.g. bad weather along the gorge).
To pursue this lucrative material, the County has to develop a competitive marketing presence, which will require time and money, both of which the County does not have.
Closure and Post Closure
Another form of mitigation is to lessen the exposure that the county has to closure and post closure obligations and responsibilities required under state law. Without a doubt, the larger waste management companies have the financial means and proven financial expertise to relieve the county of substantial risk in this matter.
The major respondents have significant environmental expertise in a dedicated staff that plans and oversees the development of landfills around the country. This expertise is critical to their ability to comply with current regulations and exceed current requirements.
The County currently sets aside money to meet the state requirements.
Respondents have shown a willingness to guarantee a minimum payment to the County, regardless of economic developments at the landfill. This is an important risk mitigation for the county.
Currently the County must pay for the general obligation bond that was issued for the purchase of the landfill. The payments are around $2.3 MM annually, the money coming out of the general fund. If all goes well, revenue from the landfill is transferred to the general fund to make this payment.
But, what happens if the predictions of the former HQLF manager materialize? Not only will the county not have access to revenue to balance its budget, but it will need Draconian cuts to make the bond payment.
Value of the HQLF
A proper valuation for the landfill is difficult to determine. Invoking its present value makes no sense because this is a long lived asset with potential to provide funds to the County for decades.
The ARB, in addition to a minimum annually recurring payment, requires that any offer includes a percentage of the gross revenue from tipping fees. In this manner, the County can participate in the expected growing value of the landfill.
The market is the best way to determine the value of an asset. In this case, we have several respondents competing with each other for the contract to operate the landfill. They know that if they want to partner with the County, they have to make the most attractive offer, trying to best the other competitors.
Current management shares a little of the revenue generated but shoulders all of the risk. Prior management recommended sale of the landfill.
Some respondents have a history of public-private partnerships and have showcased them with testimonials. These provide proof that government entities are happy to tell about an ongoing relationship tailored to their specific needs.
Risk mitigation and financial stability drive the conclusion that the County is served best with a public-private partnership.
Pursuing a County only solution requires that in the overall picture, the county can make enough additional money to justify the risk it takes by going it alone. Furthermore, the County has to figure out how it will finance the HQLF to get to the point where it can compete against the major respondents.
The County does not have the financial strength to develop a competitive landfill operation. In fact, the County depends on landfill revenue just to balance its budget.