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  • Arne Mortensen

Weber Tried to Sell the Landfill

Updated: Jun 8

During a recent public meeting in May 2020, Dennis Weber chose to attack me and repeated yet again the assertion that I want to sell the landfill. It was an improper time and place for that, but that is secondary to his purpose. Why does he bring up the landfill, when he knows fully well that I have no intention to sell the landfill or to do anything with the landfill other than support its current operation?

Let me give you a fuller picture of Dennis and the landfill. Dennis was commissioner when the County bought the landfill, and obviously he has been a commissioner during the entire period, to date, that the County has owned the (Headquarters) landfill.

So, here is what has happened to the landfill under Dennis's watch.


  1. The landfill has gone from a 100 year lifetime to a 63 year lifetime.

  2. He tried to sell the landfill to Waste Connections. See the letter copied into this document at the bottom. This letter is a response from a law firm about the potential impact on bond holders if the county were to sell the landfill. --See the section titled “Question” on page 2 -- Note that a general inquiry would not have included specific dollar amounts nor named a potential purchaser. It is serious when it gets to that point. -- I uncovered this letter by accident; Dennis never brought it up during any of the landfill discussions

  3. It was not until I came on board that there was much of an inquiry into the landfill. Now Dennis is trying to twist matters around, taking credit for some good work the team did, and accusing me falsely of the very same thing he was doing behind the public’s back, trying to sell the landfill.

See here for a brief history of the landfill: https://www.arneforcommissioner.com/post/the-abbreviated-history-of-the-headquarters-landfill

----------------------------------------------------------------------- FOSTER PEPPER PLLC Memorandum Claire Hauge, MPA OFM Director, Cowlitz County From: William G. Tonkin Date: October 27, 2015 Subject: Ownership Requirement for Solid Waste Disposal Facilities (Headquarters Landfill) Financed With Proceeds of Cowlitz County Limited Tax General Obligation Bonds, 2014A Background On March 12, 2014, Cowlitz County (the "County") issued its $27,220,000 principal amount Limited Tax General Obligation Bonds, 2014A (AMT) (the "2014A Bonds"), to finance part of the cost of the County's acquisition and improvement of solid waste disposal facilities known as the Headquarters Landfill (the "Landfill"). Because the Landfill was expected to be used for private business use to a significant extent, the 2014A Bonds were issued as qualified "exempt facility" private activity bonds the interest on which is excluded from gross income for federal tax purposes under sections 103 and 142(a)(6) of the Internal Revenue Code of 1986, as amended (the "Code"), but is subject to the federal alternative minimum tax. 1 With certain exceptions, an issuer of tax-exempt private activity bonds is required to obtain an allocation from the state's private activity bond volume cap prior to the issuance of the bonds. Section 146(h)(1) of the Code provides an exception to this requirement for exempt facility bonds described in section 142(a)(6) of the Code issued to finance solid waste disposal facilities "if all of the property to be financed by the net proceeds of [an] issue is to be owned by a governmental unit." Section 146(h)(2) of the Code provides that in determining ownership for this purpose, section 142(b)(1)(B) of the Code applies, except that a lease term is treated as satisfying clause (ii) thereof (described below) if it is not more than 20 years. 1 Another, smaller ponion of the cost of the Landfill was financed with proceeds of the County's $6,820,000 principal amount Limited Tax General Obligation Bonds, 2014B (the "2014B Bonds"). The 2014B Bonds were issued as tax-exempt governmental bonds under section 103 of the Code the interest on which is not subject to the federal alternative minimum tax. SEATTLE WASHINGTON SPOKANE WASHINGTON Under a general "safe harbor" for determining governmental ownership of bond-financed property, section 142(b )(I)(B) of the Code provides that property leased by a governmental unit to a private entity is treated as owned by the governmental unit if (i) the lessee makes an irrevocable election (binding on the lessee and all successors in interest under the lease) not to claim depreciation or an investment credit with respect to the property; (ii) the lease term is not more than 80 percent of the reasonably expected economic life of the property;[1] and (iii) the lessee has no option to purchase the property other than at fair market value as of the time the option is exercised. Here, because the County reasonably expected on the issue date of the 2014A Bonds that the Landfill would be owned by the County during the entire term of the 2014A Bonds, the County was not required to obtain an allocation of the state's volume cap for private activity bonds for the issuance of the 2014A Bonds by virtue of the exception to that requirement in section 146(h)(1) of the Code. Question The County has asked whether a sale of the Landfill to Waste Connection, Inc., a Delaware business corporation (or a subsidiary thereof) ("WCI"), thereby transferring ownership of the Landfill from the County to WCI, would have an adverse effect on the tax-exempt status of the 2014A Bonds. Conclusion If the County were to cease to be the owner of the Landfill, as the result of either an outright sale of the Landfill to WCI or entering into a lease and operating agreement with WCI having the terms set forth in the proposed MOU (described below), the tax-exempt status of the 2014A Bonds would be adversely affected. However, this adverse effect could be avoided if the County were to take steps to obtain from the Washington State Department of Commerce an allocation of the State's private activity bond volume cap for all of the 2014A Bonds, effective on or before any such transfer of ownership. Discussion First, we note that WCI has provided to the County a proposed Memorandum of Understanding Regarding Landfill Lease and Operating Agreement (the "MOU") under which, in exchange for a $30,000,000 "Upfront Lease Payment," the assumption of the County's obligations on its outstanding bonds issued to acquire and improve the Landfill (presumably, the outstanding 2014A Bonds and 2014B Bonds), and other consideration, WCI would acquire the right to lease and operate the Landfill on behalf of the County for the entire life of the Landfill. The County has informally estimated the life of the Landfill to be 100 years. Under these general terms of the proposed MOU, irrespective of any actual sale of the Landfill to WCI, it would appear that such a lease of the Landfill to WCI would be outside the "safe harbor" for determining that the Landfill would continue to be treated as owned by the County under the requirements of section 142(b)(1)(B) and section 146(h)(2) of the Code. This is because the lease term would exceed both 80% of the reasonably expected economic life of the Landfill and 20 years. In this respect, the proposed MOU also does not address whether a definitive agreement with WCI would (i) require WCI to make an irrevocable election (binding on WCI and all successors in interest under the lease) not to claim depreciation or an investment credit with respect to the Landfill; and (ii) not grant to WCI any option to purchase the Landfill other than at fair market value as of the time the option is exercised. Those provisions would be necessary to satisfy the other two "safe harbor" requirements for determining that the Landfill would continue to be treated as owned by the County following the execution of a definitive lease and operating agreement with WCI. Of course, if the County were to sell the Landfill to WC], the Landfill would cease to be owned by the County. Thus, it appears that either a lease and operating agreement with WCI having the terms provided in the MOU or an outright sale of the Landfill to WCI would cause the Landfill to cease to be owned by the County. In our view, based upon the applicable provisions of the Code, the cessation of County ownership of the Landfill would adversely affect the tax exemption for the 2014A Bonds. This because those bonds were issued without obtaining an allocation of the state volume cap on tax-exempt private activity bonds under the exception to that requirement that was premised upon expected County ownership during the entire term of the 2014A Bonds. [2] We believe it may be possible to avoid adverse consequences for the 2014A Bonds that otherwise would result from a cessation of County ownership of the Landfill under either scenario mentioned above. The Internal Revenue Service ("IRS") has issued two private letter rulings, PLR 9644020 (July 19, 1996) and PLR 9644021 (July 19, 1996), which apparently involved the same bond-financed solid waste disposal facilities that were proposed to be sold and transferred from governmental ownership to ownership by a private company. In these two rulings, an Authority of a county was responsible for the development and operation of the county's solid waste disposal system, including a mass burn waste-to-energy resource recovery facility (the "Facility"). Like the County, the Authority had financed the 5


Facility with proceeds of exempt facility private activity bonds, but, because the Authority was to be the owner of the Facility, an allocation of the state's volume cap under section 146 of the Code was not necessary by virtue of the exception in section 146(h) of the Code for governmentally owned solid waste disposal facilities. Although the Facility was to be owned by the Authority, it was operated by a private company under a 20-year service agreement, hence the need to issue tax-exempt private activity bonds rather than governmental bonds. As a result of various factors, including delays in the permitting process, a federal court decision holding a state's direction of solid waste flow control to be in violation of the federal Commerce Clause, and the necessity for the Authority to charge tipping fees sufficient to meet rate covenants in its revenue bond resolutions but that were not economically competitive with alternative landfills, the Authority proposed to sell the Facility to the private company that had been operating the Facility. In view of the Authority's expectation when its bonds were issued that the Facility would be owned by the Authority, the occurrence of unforeseen events outside the Authority's control (the federal court decision), the expenditure of a significant amount of Authority funds on the Facility, and the state's commitment to allocate private activity bond volume cap to the full amount of the Authority's bonds originally issued for the Facility, the IRS ruled that a transfer of ownership of the Facility to the private company would not cause the Authority's bonds to fail to meet the requirements of section 146 of the Code.4 The IRS also ruled that any covenant previously made by the company not to claim depreciation or investment tax credit with respect to the Facility while it was owned by the Authority would not limit the company's ability to do so after it became the owner of the Facility. Thus, in the rulings described above, the IRS appears to have permitted a subsequent allocation of the state's private activity bond volume cap, made in conjunction with a transfer of the bond-financed facilities from governmental to private ownership, to "cure" the potential violation of section 146 of the Code. Moreover, because the bond-financed facilities were no longer required to be governmentally owned, the covenants made by the private company under the "safe harbor" for determining governmental ownership were no longer applicable. It is possible that the reasoning of IRS rulings described above could be applied with respect to a transfer of ownership of the Landfill from the County to WCI if the County obtains an allocation of the state's private activity bond volume cap for the County's outstanding 2014A Bonds effective at the time of any such transfer. Some of the facts in the IRS rulings described above differ from the County's circumstances regarding the Landfill in that the sale by the 4 The rulings referred to Temporary Treasury Regulations Q-10 and A-10, which the IRS interpreted as providing that, ". .. if exempt facility bonds did not need volume cap when issued because of governmental ownership, the bonds will continue to be tax-exempt if sufficient volume cap exists in the year ownership changes." These earlier "Q&A's" did not deal specifically with exempt facility private activity bonds issued for solid waste disposal facilities. However, the IRS apparently concluded that the approach set forth in the "Q&A's" with respect to changes in ownership of exempt facilities generally could be applied to similar changes in ownership of solid waste disposal facilities otherwise required to be governmentally owned. 5 1478580, I Authority of its Facility was prompted by unforeseeable events outside the Authority's control. However, based upon the principles expressed in the IRS private letter rulings summarized above and the temporary regulations they cite, it is arguable that a volume cap allocation obtained for all of the 2014A Bonds contemporaneously with a change in ownership of the Landfill to WCI should "cure" a potential violation of section 146 of the Code resulting from the fact that the 2014A Bonds did not have (or require) a volume cap allocation when those bonds were originally issued. 51478580.1 DUE DILIGENCE WORKSHEET FOR QUALIFIED MANAGEMENT OR SERVICE CONTRACTS UNDER REQUIREMENTS OF IRS REV. PROC. 2017-13 Introduction. IRS Rev. Proc. 2017-13 provides safe harbor conditions under which a management or service contract (a "management contract") between a governmental unit or a qualified 501 (c)(3) organization ("qualified user") and a nongovernmental person that involves property financed with tax-exempt bonds will not result in private business use of the managed property. Rev. Proc. 2017-13 supersedes IRS Rev. Proc. 97-13 and applies to any management contract that is entered into on or after January 17, 2017. It also applies to any pre-existing management contract that is materially modified or extended on or after August 1 8, 2017. IRS Rev. Proc. 97-13 also provided safe harbor conditions under which a management contract would not result in private business use of the managed property. Those conditions required an analysis primarily of (i) the type of compensation required to be paid to the service provider for its services under the contract (none of which could be based upon a share of the net profits from the operation of the property), and (ii) the length of the term of the contract, which was permitted to be longer if a larger percentage of annual compensation paid to the service provider was based upon a periodic fixed fee, under several "mechanical" rules. By contrast, Rev. Proc. 2017-13 now requires an analysis of a number of conditions relating to the substantive provisions of the management contract. Compliance with the safe harbor conditions will ensure that the role of the nongovernmental person under the management contract is that of a service provider rather than an owner or lessee of the managed property. If all of these conditions are met, the management contract will not result in private business use of the managed property by the service provider. Questions relating to each of these conditions are listed below. Safe Harbor Conditions. l . Financial Requirements. 1.1 No Net Profits Arrangements. Does the contract provide to the service provider a share of the net profits from the operation of the managed property? * Yes No *For this purpose, no element of the service provider's compensation may take into account or be contingent upon the managed property's net profits. Elements of compensation are the eligibility for and the amount and timing of compensation. 1.2 No Bearing of Net Losses. Does the contract impose on the service provider the burden of bearing any share of net losses from the operation of the managed property? * Yes No


*For this purpose, the amount and timing of the service provider's compensation may not take into account the managed property's net losses. However, a service provider's compensation may be reduced by a stated amount if the service provider fails to keep expenses below a specified target or targets.

2. Term of the Contract. What is the length of the term of the contract, including all renewal options under which either party has a legally enforceable right to renew the contract? *

Years

*The term of the contract must not be longer than the lesser of 30 years or 80% of the weighted average reasonably expected economic life of the managed property as of the beginning of the term of the contract or as of any later date on which the contract is materially modified.

3. Control of the Pronerty by the Qualified User. Does the qualified user have the right to exercise a significant degree of control over the use of the managed property? For example:

3.1 Does the contract require the qualified user to approve the annual budget of the managed property? Yes No

3.2 Does the contract require the qualified user to approve capital expenditures with respect to the managed property (such as by approving the annual capital budget for the managed property)? Yes No

3.3 Does the contract require the qualified user to approve any disposition of property that is part of the managed property? Yes No

3.4 Does the contract require the qualified user to approve the rates charged for use of the managed property (such as by expressly approving rates to be charged, approving a rate-setting methodology, or requiring reasonable and customary rates to be charged as determined by or negotiated with an independent third party)? Yes

3.5 Does the contract require the qualified user to determine the permitted uses of the managed property? Yes No

4. Qualified User Must Bear Risk of Loss of the Manaoed Property, Does the qualified user bear the risk of loss upon damage to or destruction of the managed property? *

Yes

*This requirement does not preclude the qualified user from insuring against risk of loss with third party insurance or imposing penalties on the service provider for failing to operate the managed property in accordance with standards set forth in the management contract.

5 Take Inconsistent Tax Position. Does the service provider agree not to take any tax position that is inconsistent with being treated only as a service provider to the qualified user of the managed property, such as by claiming depreciation or amortization deductions, investment tax credits, or deductions of payments as rent with respect to the managed property? Yes No

6. No Substantial Limitation of Qualified User's Exercise of Rights. Does the service provider have any role or relationship with the qualified user that would have the effect of substantially limiting the qualified user's ability to exercise its rights under the management contract, based on all the facts and circumstances? Yes No

[1] As noted above, section 146(h)(2) of the Code provides that this requirement is deemed met if the term of a lease of solid waste disposal facilities is not more than 20 years. [2] As you know, in our October 6, 2015, conference call, we advised the County that either a lease and operating agreement with WCI having the terms provided in the MOU or an outright sale of the Landfill to WCI would adversely affect the tax exemption for interest on the 2014B Bonds inasmuch as those bonds were issued as tax-exempt governmental bonds rather than tax-exempt private activity bonds. To avoid such an adverse effect on the 2014B Bonds, the County would be required to take a permitted "remedial action" with respect to the 2014B Bonds, such as using a portion of the proposed Upfront Lease Payment within 90 days after the closing of a definitive lease and operating agreement with WCI to fund a defeasance escrow for all of the 2014B Bonds and to redeem and retire all of the 2014B Bonds on their earliest optional redemption date (December 1, 2023).

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