[Federal Register Volume 63, Number 69 (Friday, April 10, 1998)]
[Rules and Regulations]
[Pages 17706-17731]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-9558]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 258

[FRL-5994-7]
RIN 2050-AD77


Financial Assurance Mechanisms for Corporate Owners and Operators 
of Municipal Solid Waste Landfill Facilities

AGENCY: Environmental Protection Agency.

ACTION: Final rule.

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SUMMARY: The Environmental Protection Agency is amending the financial 
assurance regulations under the Resource Conservation and Recovery Act 
(RCRA) for owners and operators of municipal solid waste landfills. 
Today's rule increases the flexibility available to owners and 
operators by adding two mechanisms to those currently available: a 
financial test for use by private owners and operators, and a corporate 
guarantee that allows companies to guarantee the costs for another 
owner or operator.

EFFECTIVE DATE: This regulation is effective April 10, 1998. This rule 
provides regulatory relief by establishing additional, less costly 
mechanisms for owners and operators to comply with existing financial 
assurance requirements.

ADDRESSES: Supporting materials are available for viewing in the RCRA 
Information Center (RIC), located at Crystal Gateway I, First Floor, 
1235 Jefferson Davis Highway, Arlington, VA. The Docket Identification 
Number is F-98-FTMF-FFFFF. The RIC is open from 9 a.m. to 4 p.m., 
Monday through Friday, excluding federal holidays. To review docket 
materials during these hours, it is recommended that the public make an 
appointment by calling 703 603-9230. The public may copy a maximum of 
100 pages from any regulatory docket at no charge. Additional copies 
cost $0.15/page. The docket index and some supporting materials are 
available electronically. See the SUPPLEMENTARY INFORMATION section for 
information on accessing them.

FOR FURTHER INFORMATION CONTACT: For general information, contact the 
RCRA Hotline at 800 424-9346 or TDD 800 553-7672 (hearing impaired). In 
the Washington, DC, metropolitan area, call the RCRA Hotline at 703 
412-9810 or TDD 703 412-3323. You may also contact Dale Ruhter at 703 
308-8192, or by electronic mail at [email protected].

SUPPLEMENTARY INFORMATION:

Regulated entities

    Entities potentially regulated by this action are private owners or 
operators of municipal solid waste landfills. Regulated categories and 
entities include:

------------------------------------------------------------------------
                                                Examples of regulated   
                 Category                             entities          
------------------------------------------------------------------------
Industry..................................  Privately owned municipal   
                                             solid waste landfill       
                                             facilities.                
                                            Privately operated municipal
                                             solid waste landfill       
                                             facilities.                
------------------------------------------------------------------------

    This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities likely to be regulated by this 
action. This table lists the types of entities that EPA is now aware 
could potentially be regulated by this action. Other types of entities 
not listed in the table could also be regulated. To determine whether 
your company is regulated by this action, you should carefully examine 
the

[[Page 17707]]

applicability criteria in Secs. 258.1 and 258.70 of title 40 of the 
Code of Federal Regulations. If you have questions regarding the 
applicability of this action to a particular entity, consult the person 
listed in the preceding FOR FURTHER INFORMATION CONTACT section.
    The docket index and the following supporting materials are 
available on the Internet: Comment Response Document for Financial Test 
and Corporate Guarantee for Private Owners or Operators of Municipal 
Solid Waste Landfill Facilities, October 12, 1994 Proposed Rule; 
Description of Data Used in the Analysis of Subtitles C and D Financial 
Tests; Analysis of Subtitle D Financial Tests in Response to Public 
Comments; memorandum entitled Bond Ratings and Investment Grade Status; 
memorandum entitled Updated Closure and Post Closure Cost Estimates for 
Subtitle C; Issue Paper, Relevant Factors to Consider in a Financial 
Test; Issue Paper, Recent Consolidation and Acquisitions Within the 
Solid Waste Industry; Issue Paper, Issues Relating to the Bond Rating 
Alternative of the Corporate Financial Test; Issue Paper, Accounting 
Issues Affecting the Corporate Financial Test; Issue Paper, Domestic 
Assets Requirement; Issue Paper, Reporting Timeframes; Issue Paper, 
Effects of the Financial Test on the Surety Industry; Issue Paper, 
Market Effects of the Financial Test; Issue Paper, Assessment of 
Financial Assurance Risk of Subtitles C and D Corporate Financial Test 
and Third-Party Financial Assurance Mechanisms; Issue Paper, 
Performance of the Financial Test as a Predictor of Bankruptcy; Issue 
Paper, Assessment of First Party Trust Funds; Issue Paper, Assessment 
of Trust Fund/Surety Combination.
    Follow these instructions to access the information electronically:
    WWW: http://www.epa.gov/osw
    FTP: ftp.epa/gov
    Login: anonymous
    Password: your Internet address
    Files are located in /pub/OSWER.

Preamble Outline

I. Authority
II. Background
III. Summary of the Rule
    A. Corporate Financial Test (Sec. 258.74(e))
    1. Financial Component (Sec. 258.74(e)(1))
    a. Minimum Tangible Net Worth
    b. Bond Rating
    c. Financial Ratios
    d. Domestic Assets Requirement
    2. Recordkeeping and Reporting Requirements (Sec. 258.74(e)(2))
    a. Chief Financial Officer (CFO) Letter
    b. Accountant's Opinion
    c. Special Report From the Independent Certified Public 
Accountant
    d. Placement of Financial Test Documentation and Annual Updates 
in the Operating Record
    e. Alternate Financial Assurance
    f. Current Financial Test Documentation
    B. Corporate Guarantee (Sec. 258.74(g))
    C. Calculation of Obligations
    D. Combining the Financial Test and Corporate Guarantee With 
Other Mechanisms
    E. Use of Alternative Mechanisms After the Effective Date
IV. National Solid Wastes Management Association (NSWMA) Petition
    A. Discussion of the Petition
    B. The Meridian Test
V. State Program Approval
VI. Response to Comments and Summary of Issues
    A. Minimum Tangible Net Worth
    1. Minimum Tangible Net Worth Requirement Is Too Low
    2. The $10 Million Net Worth Requirement Is Too Restrictive
    a. The Size of Closure Obligations
    b. Recognition of Closure Obligations
    c. Accuracy of the Test at Lower Net Worth Levels
    d. Public Costs of Lower Net Worth Levels
    3. Allow Firms To Include Closure and Post Closure Funds as Part 
of Net Worth
    4. The Net Worth Requirement Reduces the Market for Sureties
    5. Tangible Net Worth Does Not Have To Be Liquid
    6. MSWLFs Should Have a Lower Minimum Net Worth Requirement Than 
Subtitle C Facilities
    7. EPA's Proposed Net Worth Requirement Was Not the Best 
Investigated
    8. The Tangible Net Worth Requirement Is Appropriate
    B. Bond Ratings
    C. Financial Ratios
    D. Domestic Assets
    E. Recordkeeping and Reporting Requirements
    1. Qualified Accountant's Opinion
    2. Special Report From the Independent Certified Public 
Accountant
    F. Annual Updates
    G. Current Financial Test Documentation
    H. Corporate Guarantee
    I. Impacts on Third Party Financial Assurance Providers
    J. General Support of and Opposition to the Financial Test
    K. First Party Trust
    L. Comments on the Notice of Data Availability
VII. Miscellaneous
    A. Executive Order 12866
    B. Unfunded Mandates Reform Act
    C. Regulatory Flexibility Act
    D. Submission to Congress and the General Accounting Office
    E. Paperwork Reduction Act
    F. Environmental Justice
    G. National Technology Transfer and Advancement Act

I. Authority

    These amendments to Title 40, part 258, of the Code of Federal 
Regulations are promulgated under the authority of sections 1003(a), 
1008, 2002(a), 4004, 4005(c), and 4010(c) of the Resource Conservation 
and Recovery Act (RCRA), as amended, 42 U.S.C. 6902(a), 6907, 6912(a), 
6944, 6945(c), and 6949a(c).

II. Background

    The Agency proposed revised criteria for municipal solid waste 
landfills (MSWLFs), including financial assurance requirements, on 
August 30, 1988 (see 53 FR 33314). The purpose of the financial 
assurance requirements is to assure that adequate funds will be readily 
available to cover the costs of closure, post-closure care, and, when 
necessary, corrective action associated with MSWLFs.
    In the August 30, 1988 proposal, rather than proposing specific 
financial assurance mechanisms, the Agency proposed a financial 
assurance performance standard. The Agency solicited public comment on 
this performance standard approach and, at the same time, requested 
comment on whether the Agency should develop financial test mechanisms 
for use by local governments and corporations. In response to comments 
on the August 1988 proposal, the Agency added several specific 
financial mechanisms to the financial assurance performance standard in 
promulgating 40 CFR 258.74 as part of the October 9, 1991 final rule on 
MSWLF criteria (56 FR 50978). That provision allows approved States to 
use any State-approved mechanism that meets that performance standard 
and thereby gives approved states considerable flexibility in 
determining appropriate financial mechanisms.
    Commenters on the August 30, 1988 proposal also supported the 
development of financial tests for local governments and for 
corporations to demonstrate that they meet the financial assurance 
performance standard, without the need to produce a third-party 
instrument to assure that the obligations associated with their 
landfill will be met. (For a description of the third-party instruments 
available to MSWLF owners and operators, see 56 FR 50978.) The Agency 
agreed with commenters and, in the October 9, 1991 preamble, announced 
its intention to develop both a local government and corporate 
financial test in advance of the effective date of the financial 
assurance provisions.
    On April 7, 1995, the Agency delayed the date by which MSWLFs must 
comply with the financial assurance requirements of the MSWLF criteria 
until April 9, 1997 (see 60 FR 17649) (remote, very small landfills as 
defined at 40 CFR 258.1(f)(1) must comply by October 9, 1997). See 40 
CFR 258.70(b). EPA extended the compliance date to

[[Page 17708]]

provide additional time to promulgate financial tests for local 
governments and for corporations before the financial assurance 
provisions would take effect. The Agency proposed a local government 
financial test and a corporate financial test on December 27, 1993 (see 
58 FR 68353) and October 12, 1994 (see 59 FR 51523), respectively. The 
proposed corporate financial test rule notice also included proposed 
amendments to the domestic asset requirements of the RCRA Subtitle C 
hazardous waste financial assurance rules. Promulgating these proposed 
changes to the Subtitle C rule, after considering and addressing public 
comments, will be part of an upcoming rulemaking on the Subtitle C 
financial assurance rules.
    As part of the corporate test for MSWLFs rulemaking, on September 
27, 1996 (61 FR 50787) EPA published a Notice of Data Availability for 
a document that had been inadvertently omitted from the rulemaking 
docket for part of the public comment period. This Notice provided a 30 
day comment period on the missing document.
    On November 27, 1996, EPA promulgated a final local government 
financial test rule for MSWLFs (61 FR 60328). That rule increases the 
flexibility of the financial assurance requirements in four important 
ways. First, it provides local governments owning or operating a MSWLF 
with the option of demonstrating financial assurance through a 
financial test. Second, it allows local governments to use the 
financial test to provide a guarantee for financial assurance for the 
owner or operator of a MSWLF. Third, the rule allows a State Director 
to waive the financial assurance requirements for up to twelve months 
until April 9, 1998 if the Director finds that an owner or operator 
cannot practically comply by April 9, 1997. Fourth, a State Director 
can allow the discounting of closure, post-closure, and corrective 
action costs for MSWLFs under certain conditions.
    The flexibility to extend the effective date and to allow 
discounting are available to both locally and privately owned and 
operated MSWLFs under the November 27, 1996 final rule. In today's 
notice, EPA is taking final action on the corporate financial test and 
guarantee for MSWLFs under RCRA Subtitle D, that were proposed October 
12, 1994. This notice extends to private owners and operators the 
flexibility that local governments have as a result of the November 27, 
1996 final rulemaking notice.

III. Summary of the Rule

A. Corporate Financial Test (Sec. 258.74(e))

    Today's rule allows private owners or operators of MSWLFs that meet 
certain financial and recordkeeping and reporting requirements to use a 
financial test to demonstrate financial assurance for MSWLF closure, 
post-closure care and corrective action costs up to a calculated limit. 
(Costs over the limit must be assured through a third-party mechanism 
such as a surety bond or trust fund, or, in approved States, through 
other appropriate mechanisms the State determines to meet the 
performance standard at existing Sec. 258.74(l)). The financial test 
allows a company to avoid incurring the expenses associated with the 
existing financial assurance requirements which provide for 
demonstrating financial assurance through the use of third-party 
financial instruments, such as a trust fund, letter of credit, surety 
bond, or insurance policy. With the financial test, private owners or 
operators must demonstrate that they are capable of meeting their 
financial obligations at their MSWLFs through ``self insurance.'' The 
following sections discuss the requirements of the financial test in 
greater detail.
1. Financial Component (Sec. 258.74(e)(1))
    The financial component is designed to measure viability of the 
owner or operator, based on its current financial condition. To satisfy 
the financial component, a firm must: (1) have a minimum tangible net 
worth of $10 million plus the costs it seeks to assure (e.g., closure, 
post-closure care, or corrective action costs); (2) satisfy a bond 
rating requirement or pass one of two financial ratios; and (3) meet a 
domestic asset requirement.
    a. Minimum Tangible Net Worth. In Sec. 258.74(e)(1)(ii)(A), the 
Agency is requiring firms using the financial test to have a tangible 
net worth at least equal to the sum of the costs they seek to assure 
through a financial test plus $10 million. Tangible net worth means the 
tangible assets that remain after deducting liabilities. Tangible 
assets do not include intangibles such as goodwill or rights to patents 
and royalties.
    The Agency is also providing an exception to the minimum net worth 
requirement in Sec. 258.74(e)(1)(ii)(B). In this exception, a State 
Director may allow a firm that has already recognized all of its 
environmental obligations on its financial statements to utilize the 
financial test so long as it has a minimum tangible net worth of $10 
million and meets all of the remaining requirements of the financial 
test. The exception in Sec. 258.74(e)(1)(ii)(B) acknowledges that the 
recognition of environmental obligations as liabilities in financial 
statements has become more widespread. As explained more fully in the 
Response to Comments and Summary of Issues (see section VI below), EPA 
does not want to place a firm that has fully recognized these 
obligations as liabilities at a disadvantage in its ability to use the 
test.
    Under Sec. 258.74(e)(3), the costs an owner or operator seeks to 
assure must be equal to the current cost estimates for closure, post-
closure care, and corrective action or the sum of such costs to be 
covered, and any other environmental obligations assured by a financial 
test. The owner or operator must include cost estimates required for 
municipal solid waste management facilities under this part, as well as 
cost estimates required for the following environmental obligations, if 
it assures them through a financial test: obligations associated with 
underground injection control (UIC) facilities under 40 CFR 144.62, 
petroleum underground storage tank facilities under 40 CFR part 280, 
polychlorinated biphenyl (PCB) storage facilities under 40 CFR part 
761, and hazardous waste treatment, storage, and disposal facilities 
(TSDFs) under 40 CFR parts 264 and 265.
    The Agency is requiring this minimum tangible net worth requirement 
to ensure that the costs of closure, post-closure care, and/or 
corrective action do not force a firm into bankruptcy. The minimum net 
worth is intended to help ensure that firms relying on the financial 
test have viable net worth to cover potential costs. EPA received 
several comments on the $10 million in net worth requirement which had 
also been part of the proposal. For the reasons discussed more fully in 
the Response to Comments and Summary of Issues section below, the 
Agency has retained this requirement in the final rule. The Agency 
believes that this minimum net worth should be required as an initial 
screen for corporations in demonstrating financial responsibility for 
the very large costs of closure, post-closure care, and corrective 
action. This requirement in addition to other financial criteria 
comprise the financial test adopted in this final rule.
    b. Bond Rating. The Agency is promulgating regulations allowing 
firms that meet the minimum net worth requirement to satisfy the second 
requirement of the financial test in one of two ways.
    Under Sec. 258.74(e)(1)(i)(A), a firm can satisfy the financial 
component if its

[[Page 17709]]

senior unsecured bond rating is investment grade, that is, Aaa, Aa, A 
or Baa, as issued by Moody's, or AAA, AA, A, or BBB, as issued by 
Standard & Poor's. The Agency is promulgating this option because it 
believes that a firm's bond rating incorporates an evaluation of a 
firm's financial management practices. Bond ratings reflect the expert 
opinion of bond rating services, which are organizations that have 
established credibility in the financial community for their 
assessments of firm financial conditions. An analysis of bond ratings 
showed that bond ratings have been a good indicator of firm defaults, 
and that few firms with investment grade ratings have in fact gone 
bankrupt.
    Including a bond rating option in this financial test is consistent 
with other Agency programs. For example, the regulations governing 
TSDFs under 40 CFR parts 264 and 265, petroleum underground storage 
tanks under 40 CFR part 280, UIC facilities under 40 CFR part 144, and 
PCB commercial storage facilities under 40 CFR part 761 all consider 
bond ratings as part of their financial tests. The local government 
financial test for owners and operators of MSWLFs under 40 CFR part 
258, which was promulgated on November 27, 1996 (61 FR 60328), also 
allows a bond rating option.
    In the local government test, EPA restricted the use of bond 
ratings to bonds which were not insured or collateralized. Insured 
bonds are increasingly popular for municipal issues and reflect the 
rating of the insurer, and not of the issuing municipality. Insured 
bonds are used less frequently for corporations. Similarly, a 
collateralized bond can receive a rating that is not indicative of the 
overall strength of the firm that issues it, but rather of the 
collateral backing it. In fact, a firm under financial distress may 
only be successful in issuing a bond if it pledges assets to back it. 
In this final rule, EPA is likewise adopting a regulation that 
effectively disallows the use of ratings based on collateralized bonds.
    For the reasons described above, because bond ratings incorporate 
an evaluation of a firm's financial management practices, reflect the 
credible expert opinion of bond rating services and have been shown to 
be a good indicator of defaults, EPA proposed to include a bond rating 
option in the corporate financial test for MSWLFs. EPA proposed to 
implement the bond rating option using the rating for the last bond 
issued. (This is consistent with the current Subtitle C financial test 
and the revisions proposed on July 1, 1991 (56 FR 30201)). The reason 
for choosing the rating on the most recently issued bond was because 
the Agency considered this to be the most accurate indication of the 
firm's financial status. Under the assumption that the most recently 
issued bond would have had the most current analysis of its 
characteristics, EPA considered this the best indicator of the firm's 
ability to fulfill its financial obligations.
    A commenter on the proposed corporate test for MSWLFs noted that 
the rating on a firm's senior debt was the best indicator of the firm's 
financial health. EPA reviewed its proposed position in response to the 
comment and found that bond ratings for corporations are continually 
being reviewed. Thus, there are more accurate indicators of a firm's 
financial health than the most recently issued bond. By using the 
rating on the firm's senior unsecured debt rather than on the most 
recent issue, EPA is ensuring that firms that use the bond rating 
alternative will not be qualifying on the basis of a secured 
obligation.
    EPA recognizes that the use of a senior unsecured debt rating in 
this rule is potentially inconsistent with the financial test bond 
rating alternative in the hazardous waste financial assurance 
regulations in 40 CFR Part 264, Subpart H. EPA considers the arguments 
for adopting the use of the rating on senior unsecured debt to have 
considerable merit and is similarly considering adopting it as part of 
the revisions to the RCRA hazardous waste financial assurance 
requirements (proposed 56 FR 30201).
    c. Financial Ratios. To provide the regulated community with 
additional flexibility in meeting the financial test, the Agency 
proposed to also allow financial test ratios that it is promulgating at 
Sec. 258.74(e)(1)(i)(B)-(C) as an alternative to the bond rating. In 
order to satisfy the ratio requirement, a firm must have either:
      a debt-to-equity ratio of less than 1.5 based on the 
ratio of total liabilities to net worth. This ratio indicates the 
degree to which a firm is leveraged, and financed through borrowing; or
      a profitability ratio of greater than 0.10 based on the 
ratio of the sum of net income plus depreciation, depletion, and 
amortization, minus $10 million, to total liabilities. This ratio 
indicates cash flow from operations relative to the firm's total 
liabilities.
    EPA is adopting these financial test ratios in 
Sec. 258.74(e)(1)(i)(B)-(C) of today's rule. The Agency selected these 
two specific financial ratios with their associated thresholds based on 
their ability to differentiate between viable and bankrupt firms. The 
Agency's analysis demonstrated that debt-to-equity ratios (e.g., total 
liabilities/net worth) and profitability ratios (e.g. (cash flow minus 
$10 million)/total liabilities) are particularly good discriminators of 
financial health. The Agency selected as thresholds for these ratios 
values that, together with the other financial test criteria, minimized 
the costs associated with demonstrating financial responsibility. A 
more detailed discussion of this analysis can be found in the 
Background Document developed in support of the proposal, and the 
report entitled ``Analysis of Subtitle D Financial Tests in Response to 
Public Comment,'' which was developed to further assess the results of 
the Background Document in light of public comments. Both documents are 
available in the public docket for this rulemaking.
    d. Domestic Assets Requirement. In Sec. 258.74(e)(1)(iii), the 
Agency is promulgating a requirement that it had earlier proposed that 
all firms using the financial test have assets in the United States at 
least equal to the costs they seek to assure through a financial test. 
(See paragraph a. of this section, ``Minimum Tangible Net Worth,'' for 
more discussion on assured costs.) The domestic asset requirement is 
intended to ensure that the Agency has access to funds in the event of 
bankruptcy. Without this requirement, the Agency could experience 
substantial difficulty in accessing funds of bankrupt firms that have 
their assets outside of the United States. The Response to Comments and 
Summary of Issues section below discusses this requirement in more 
detail.
2. Recordkeeping and Reporting Requirements (Sec. 258.74(e)(2))
    The rule requires that after a firm has determined that it is 
eligible to use this corporate financial test, it must document its use 
of the test by placing three items (discussed below) in the facility 
operating record. These requirements will help ensure that the self-
implementing aspect of the test requirements have been met. In the case 
of closure and post-closure care, these items must be placed in the 
operating record prior to the initial receipt of waste or upon the 
effective date of the financial assurance requirements (see existing 40 
CFR 258.70) whichever is later, or no later than 120 days after the 
corrective action remedy has been selected. This language is consistent 
with the language in the proposal, and in the other mechanisms 
allowable under 40 CFR 258.74. For example, the language for letters of 
credit in existing

[[Page 17710]]

258.74(c)(1) states ``The letter of credit must be effective before the 
initial receipt of waste or before the effective date of this section * 
* *  whichever is later, in the case of closure or post-closure care, 
or no later than 120 days after the corrective action remedy has been 
selected in accordance with the requirements of Sec. 258.58.''
    EPA seeks to make clear that the deadline provision in today's rule 
allows the use of the financial test by an owner or operator of an 
existing facility for whom the financial responsibility requirements 
have already become effective. An owner or operator may change 
mechanisms for providing financial assurance. The regulations require 
that an owner or operator provide financial assurance without 
interruption. See, for example, 40 CFR 258.71(b), 258.72(b) and 
258.73(c). However, qualifying owners or operators may choose from the 
mechanisms in Sec. 258.74(a) through (j), and may substitute one 
mechanism for another in meeting financial assurance requirements 
(assuming all such mechanisms are available under the Federally-
approved State program). For further information on this point, please 
see section III.E., below, Use of Alternative Mechanisms After the 
Effective Date.
    The specific recordkeeping and reporting requirements are 
summarized below. Owners and operators must update these items 
annually, and must notify the State Director and obtain alternative 
financial assurance if the firm is no longer able to pass the financial 
test.
    a. Chief Financial Officer (CFO) letter. Under Sec. 258.74(e)(2)(i) 
of today's rule, the owner or operator must submit a letter from the 
firm's CFO. The letter must demonstrate that the firm has complied with 
the criteria of the test. Specifically, the letter must list all cost 
estimates covered by a financial test and provide evidence 
demonstrating that the firm satisfies the financial criteria of the 
test including: (1) The bond rating or financial ratios, (2) the 
tangible net worth requirement, and (3) the domestic asset requirement. 
The proposed regulatory language for the CFO's letter was inconsistent 
with the proposed regulatory language in Sec. 258.74(e)(1) regarding 
the financial test. The regulatory language inadvertently omitting a 
cross-reference to the domestic asset requirement. The preamble to the 
proposed rule clearly provides that the CFO letter would document that 
the firm satisfies all the criteria of the financial test including the 
domestic asset requirement. 59 FR 51525. The final language clarifies 
that the letter must provide evidence that the owner or operator meets 
all of the requirements of Sec. 258.74(e)(1)(i), (ii), and (iii).
    b. Accountant's Opinion. Under Sec. 258.74(e)(2)(i)(B), the Agency 
requires an owner or operator to place in the facility's operating 
record the opinion from the independent certified public accountant of 
the firm's financial statements for the latest completed fiscal year. 
EPA expects that the documentation of the independent accountant's 
opinion will include the audited financial statements. An unqualified 
opinion (i.e., a ``clean opinion'') from the accountant demonstrates 
that the firm has prepared its financial statements in accordance with 
generally accepted accounting principles. Generally, an adverse 
opinion, disclaimer of opinion, or any qualification in the opinion 
would automatically disqualify the owner or operator from using the 
corporate financial test. The one potential exception is that the State 
Director of an approved State may evaluate qualified opinions on a 
case-by-case basis, and accept such opinions if the matters which form 
the basis for the qualified opinion are insufficient to warrant 
disallowance of the test.
    c. Special Report From the Independent Certified Public Accountant. 
Under Sec. 258.74(e)(2)(i)(C), the third item to be placed in the 
operating record is a special report of the independent certified 
public accountant upon examination of the chief financial officer's 
letter. In this report, the accountant would confirm that the data used 
in the CFO letter to pass the financial ratio test were appropriately 
derived from the audited, year-end financial statements or any other 
audited financial statements filed with the SEC. This report would not 
be required if the CFO uses financial test figures directly from the 
audited year end financial statements, or any other audited financial 
statements filed with the SEC. However, this report is required if the 
CFO letter uses data that are derived from and are not identical to the 
data in the audited annual financial statements or other audited 
financial statements filed with the Securities and Exchange Commission 
(SEC).
    EPA has partially revised the proposed CPA's report in light of 
public comments. The proposal had included a requirement that the CPA 
provide negative assurance that ``no matters came to his attention 
which caused him to believe that the data in the chief financial 
officer's letter should be adjusted.'' 51 FR 51535. This proposed 
requirement is inconsistent with current American Institute of 
Certified Public Accountants standards which direct auditors not to use 
the types of language included in the proposed regulations. Instead the 
new language specifies that the independent certified public accountant 
should report on the findings from an agreed upon procedures 
engagement. Additionally, the language in today's rule clarifies that 
the accountant's report is about information used to calculate the 
financial ratios. Information that is not a part of the audited 
financial statements, such as the company's bond rating, is not subject 
to this requirement.
    For example, in computing the financial ratios in 
Sec. 258.74(e)(1)(i)(B) or (C) owners and operators are required to 
recognize total liabilities, including those associated with ``post-
retirement benefits other than pensions (OPEB).'' The Financial 
Accounting Standards Board (FASB) allows the use of two different 
methods when accounting for these liabilities in annual financial 
statements. FASB 106 allows employers the option of accounting for OPEB 
obligations in one year (immediate recognition) or over a consecutive 
number of years (delayed recognition). Since both the immediate and 
delayed recognition methods are allowed by FASB 106, EPA does not 
require owners and operators that are demonstrating they meet the 
requirements of the financial test to use the same accounting method 
for OPEB obligations that is used for annual SEC submission purposes. 
For example, the owner or operator may use the immediate recognition 
method in the financial statement prepared for the SEC, but the delayed 
recognition method in computing liabilities for the purpose of 
demonstrating RCRA financial assurance.
    As reflected in today's rule, EPA does not believe a separate CPA 
statement is needed where the CFO simply takes figures directly from an 
audited financial statement. This is a straight forward process. On the 
other hand, where the CFO ``derives'' the figures--for example, by 
using different accounting procedures to determine OPEB liabilities--
the process may require a high level of financial expertise. In these 
cases, EPA believes review by an independent auditor is appropriate.
    Consistent with the policy to confirm the accuracy of the 
information from the audited financial statement where it is not 
readily discernible, Sec. 258.74(e)(2)(i)(D) of today's rule also 
includes a requirement for a report from the independent certified 
public

[[Page 17711]]

accountant when an owner or operator proposes to meet the tangible net 
worth requirement on the basis of having recognized all of the 
environmental obligations covered by a financial test as liabilities in 
the audited financial statements. This requirement is necessary to 
ensure that these liabilities have in fact been recognized since this 
would be difficult for the State Director to ascertain. There is also a 
requirement that the report ensure that at least $10 million in 
tangible net worth remains after any guarantees have been extended.
    d. Placement of Financial Test Documentation and Annual Updates in 
the Operating Record. Section 258.74(e)(2)(ii) of today's rule requires 
firms to place the financial test documentation items specified in 
Sec. 258.74(e)(2) in the operating record and notify the State Director 
that these items are there. Because the financial condition of firms 
can change over time, under Sec. 258.74(e)(2)(iii), firms are required 
to update annually all financial test documentation, including each of 
the items described above, within 90 days of the close of the firm's 
fiscal year. The State Director is, however, allowed to extend this 
time by up to 45 days for an owner or operator who can demonstrate that 
90 days is insufficient time to acquire audited financial statements. 
This could occur in the case of a privately held firm which does not 
receive audited financial reports as early as publicly held firms. 
Under Sec. 258.74(e)(2)(iv), the owner or operator is not required to 
submit the items specified in Sec. 258.74(e)(2) when he substitutes 
alternate financial assurance as specified in this section that is not 
subject to these recordkeeping and reporting requirements; or is 
released from the requirements of this section in accordance with 
Sec. 258.71(b), Sec. 258.72(b), or Sec. 258.73(b).
    e. Alternate Financial Assurance. Under Sec. 258.74(e)(2)(v), if a 
firm can no longer meet the terms of the financial test, the owner or 
operator must notify the State Director and obtain alternative 
financial assurance within 120 days of the close of the firm's fiscal 
year. The alternative financial assurance selected by the owner or 
operator would have to meet the terms of this section and the required 
submissions for that assurance would have to be placed in the 
facility's operating record. The owner or operator would have to notify 
the State Director within 120 days of the close of the fiscal year that 
he no longer meets the criteria of the financial test and that 
alternate financial assurance has been obtained.
    f. Current Financial Test Documentation. Under 
Sec. 258.74(e)(2)(vi), the Director of an approved State may, based on 
a reasonable belief that the owner or operator no longer meets the 
requirements of paragraph (e)(1) of this section, require the owner or 
operator to provide current financial test documentation. Although the 
Agency anticipates this provision will not be used often, it can be 
important in situations where the financial condition of the owner or 
operator comes into question. The State Director should have the 
flexibility to require the owner or operator to provide current 
financial test documents if information arises that raises questions 
about the financial conditions of the owner or operator. For example, 
an owner or operator may be forced into financial distress by a large, 
well-publicized liability judgment. In such cases and other appropriate 
situations, the State Director should be able to investigate the 
owner's or operator's change in financial condition, and require the 
owner or operator to demonstrate that it still meets the financial 
test.

B. Corporate Guarantee (Sec. 258.74(g))

    As in the proposal, this rule allows owners and operators to comply 
with financial responsibility requirements for MSWLFs using a guarantee 
provided by another private firm (the guarantor). The language of the 
final rule includes clarifications of some of the deadlines in the 
proposal. Under such a guarantee, the guarantor promises to pay for or 
carry out closure, post-closure care, or corrective action activities 
on behalf of the owner or operator of a MSWLF if the owner or operator 
fails to do so. Guarantees, like other third-party mechanisms, such as 
letters of credit or surety bonds, ensure that a third party is 
obligated to cover the costs of closure, post-closure care, or 
corrective action in the event that the owner or operator goes bankrupt 
or fails to conduct the required activities. At the same time, a 
guarantee is an attractive compliance option for owners and operators 
because guarantees are generally much less expensive than other third-
party mechanisms.
    Section 258.74(g)(1) of the rule allows three types of qualified 
guarantors: (1) The parent corporation or principal shareholder of the 
owner or operator (i.e., a corporate parent or grandparent), (2) a firm 
whose parent company is also the parent company of the owner or 
operator (a corporate sibling), and (3) other related and non-related 
firms with a ``substantial business relationship'' with the owner or 
operator (including subsidiaries of the owner or operator). Guarantors 
also must meet the conditions of the corporate financial test.
    To comply with the requirements of the corporate guarantee, the 
owner or operator must place in the facility operating record a 
certified copy of the guarantee contract and copies of all of the 
financial test documentation that is required of the guarantor as 
specified in the corporate financial test requirements. Pursuant to 
Sec. 258.74(g)(3), the terms of the guarantee contract must specify 
that, if the owner or operator fails to perform closure, post-closure 
care, or corrective action in accordance with the requirements of part 
258, the guarantor will either: (1) Carry out those activities or pay 
the costs of having them conducted by a third party (performance 
guarantee), or (2) fund a trust to pay the costs of the activities 
(payment guarantee). The required documentation must be placed in the 
operating record, in the case of closure and post-closure care, prior 
to the initial receipt of waste or before the effective date of the 
financial assurance requirements (see existing Sec. 258.70), whichever 
is later, or in the case of corrective action, no later than 120 days 
following selection of a corrective action remedy. (See 
Sec. 258.74(g)(2).) The financial test documentation from the guarantor 
must be updated annually, in accordance with the requirements of the 
corporate financial test.
    The documentation required of the guarantor is the same as that 
required of a corporate financial test user with either one or two 
additional requirements depending upon the relationship of the 
guarantor to the owner or operator. First, for all users of the 
guarantee, the letter from the guarantor's chief financial officer must 
describe the value received in consideration of the guarantee. Second, 
in cases where the guarantor is not a corporate parent, grandparent, or 
sibling, the letter from the chief financial officer also must address 
the ``substantial business relationship'' that exists between the owner 
or operator and the guarantor. In particular, if the guarantor is a 
firm with ``a substantial business relationship,'' the letter must 
describe the relationship and the consideration received from the owner 
or operator in exchange for the guarantee, which are necessary to 
ensure that the contract is valid and enforceable.
    For purposes of its hazardous waste financial assurance 
regulations, EPA has defined ``substantial business relationship'' in 
40 CFR 264.141(h) as ``the extent of a business relationship necessary 
under applicable State law to make a guarantee contract issued

[[Page 17712]]

incident to that relationship valid and enforceable.'' However, as 
noted in the preamble to that regulation, ``No single legal definition 
exists of what constitutes a business relationship between two firms 
that would justify upholding a guarantee between them. Furthermore, 
such a determination would depend upon the application of the laws of 
the States of the involved parties.'' (53 FR 33942). The responsibility 
for demonstrating that the guarantee contract is valid and enforceable 
rests with the guarantor. (See Sec. 258.74(g)(1)).
    This regulation requires that guarantors agree to remain bound 
under this guarantee for so long as the owner or operator must comply 
with the applicable financial assurance requirements of Subpart G of 
part 258, except that guarantors may initiate cancellation of the 
guarantee by sending notice to the State Director and to the owner or 
operator. The rule provides that such cancellation cannot become 
effective earlier than 120 days after receipt of such notice by both 
the State Director and the owner or operator. (See 
Sec. 258.74(g)(3)(ii).)
    If notice of cancellation is given, the regulations require the 
owner or operator to, within 90 days following receipt of the 
cancellation notice by the owner or operator and the State Director, 
obtain alternate financial assurance, place evidence of that alternate 
financial assurance in the facility operating record, and notify the 
State Director. If the owner or operator fails to provide alternate 
financial assurance within the 90-day period, the guarantor must 
provide that alternate assurance within 120 days of the notice of 
cancellation, place evidence of the alternate assurance in the facility 
operating record, and notify the State Director. (See 
Sec. 258.74(g)(3)(iii).)
    Under Sec. 258.74(g)(4), if the corporate guarantor no longer meets 
the requirements of the financial test, the owner or operator must, 
within 90 days, obtain alternative assurance, place evidence of the 
alternate assurance in the facility operating record, and notify the 
State Director. If the owner or operator fails to provide alternate 
financial assurance within the 90-day period, the guarantor must 
provide that alternate assurance within the next 30 days, place 
evidence of the alternate assurance in the facility operating record, 
and notify the State Director. These requirements are designed to avoid 
potential lapses in financial assurance.

C. Calculation of Obligations

    EPA currently allows financial tests as mechanisms to demonstrate 
financial assurance for environmental obligations under several 
programs. These include hazardous waste treatment, storage, and 
disposal facilities under 40 CFR parts 264 and 265, petroleum 
underground storage tanks under 40 CFR part 280, UIC Class I hazardous 
waste injection wells under 40 CFR part 144, and PCB commercial storage 
facilities under 40 CFR part 761. Requiring that the owner or operator 
include all of the costs it is assuring through a financial test when 
it calculates its obligations prevents an owner or operator from using 
the same assets to assure different obligations under different 
programs. The Agency believes this is vital to assure the effectiveness 
of the financial test and assure that assets are available for all of 
the environmental obligations covered by the test. Thus, consistent 
with Agency policy, Sec. 258.74(e)(3) of today's rule requires a firm 
using a financial test for its MSWLF obligations also to include those 
costs covered by a financial test under other Agency programs when it 
calculates assured costs.

D. Combining the Financial Test and Corporate Guarantee With Other 
Mechanisms

    When EPA promulgated the financial test and guarantee for municipal 
owners and operators of municipal solid waste landfills (61 FR 60328, 
November 27, 1996), EPA inadvertently omitted the provisions allowing 
private owners and operators to use the financial test and corporate 
guarantee in combination with other mechanisms in 40 CFR 258.74(k). 
Thus, EPA is clarifying in today's rule that an owner or operator may 
use the financial test or guarantee and another payment mechanism at a 
single facility, thereby realizing greater flexibility and cost savings 
from this regulation. EPA is promulgating a change to 258.74(k) that 
allows the use of the financial test and corporate guarantee with the 
other mechanisms. In promulgating this change to add the omitted cross-
references, EPA is repeating the entire paragraph solely for the 
convenience of the reader.

E. Use of Alternative Mechanisms After the Effective Date

    Consistent with the other existing financial assurance mechanisms 
at 40 CFR 258.74, the language of today's regulations includes a 
requirement that the financial test or guarantee must be effective 
before the initial receipt of waste or before the effective date of the 
basic requirement that owners or operators of MSWLF units have 
financial assurance, whichever is later, in the case of closure or 
post-closure care. See Sec. 258.74(e)(2)(ii) and Sec. 258.74(g)(2). The 
effective date of the financial assurance requirement for owners or 
operators of MSWLF units is established under existing 40 CFR 258.70. 
For most, but not all, MSWLFs the effective date is April 9, 1997. The 
provisions establishing the compliance deadlines are to ensure that an 
existing MSWLF has financial assurance mechanisms in place by the 
effective date of the regulations and that a new MSWLF has the 
mechanisms in place by the first receipt of waste. In the case of 
corrective action, today's regulations for the financial test and 
guarantee, like the existing regulations for the other mechanisms, 
provides that the mechanism has to be in place no later than 120 days 
after the corrective action remedy has been selected in accordance with 
the requirements of 40 CFR 258.58. See Sec. 258.74(e)(2)(ii) and 
Sec. 258.74(g)(2).
    The requirement that financial assurance be in place by a specific 
deadline does not in any way preclude an owner or operator from 
subsequently switching to another eligible mechanism. The operative 
requirement is for an owner or operator of an MSWLF unit to have an 
eligible financial assurance mechanism in place by the specific 
compliance deadlines that ensures that the funds necessary to meet the 
costs of closure, post-closure care, and corrective action will be 
available whenever they are needed, and to provide such coverage 
continuously until the owner or operator is released from financial 
assurance requirements. See existing 40 CFR 258.71(b), 258.72(b), and 
258.73(c). An owner or operator in compliance with the financial 
assurance requirement using one eligible mechanism may switch to 
another eligible mechanism so long as the relevant requirements are 
met.
    The Agency's regulations expressly allow an owner or operator to 
substitute one mechanism for another in this manner. The regulations 
establishing specific Federal mechanisms (40 CFR 258.74(a)-(h)) each 
allow the termination of a financial assurance mechanism when a 
substitute mechanism has been established (or, of course, if the owner 
or operator is no longer subject to the requirement to have financial 
assurance). Today's rules establish a similar substitution provision 
for the financial test and the guarantee. See Sec. 258.74(e)(2)(iv) and 
Sec. 258.74(g)(5). Thus, the Federal regulations would allow an owner 
or

[[Page 17713]]

operator complying with the financial assurance requirements through, 
for example, a letter of credit mechanism to switch to a financial test 
or vice versa, assuming the owner or operator qualifies for the 
mechanisms and the mechanisms are available under the approved State 
program. In this way, the Federal regulations give owners and operators 
of MSWLF units broad flexibility in the mechanisms used to satisfy the 
financial assurance requirement.
    In switching mechanisms, the owner or operator would be subject to 
the applicable requirements of the new mechanism. For example, each of 
the Federal mechanisms contains a specific requirement to provide 
notice to the State Director, to maintain particular documentation, 
and/or satisfy other requirements. For an owner or operator of an MSWLF 
unit to meet the operative requirement that it have an eligible 
financial assurance mechanism in place by the specific compliance 
deadlines that ensures that the funds necessary to meet the costs of 
closure, post-closure care, and corrective action will be available 
whenever they are needed, then the owner or operator must comply with 
all of the relevant requirements upon switching mechanisms and may not 
allow lapses in financial assurance compliance. Additionally, owners 
and operators should be aware that a State may have more stringent 
requirements in place and may not allow all of the mechanisms provided 
for under the Federal rules.

IV. National Solid Wastes Management Association (NSWMA) Petition

A. Discussion of the Petition

    On February 16, 1990, NSWMA submitted a rulemaking petition to the 
Agency requesting that EPA revise various financial assurance 
requirements. The Agency noted in the preamble to the proposal of this 
rule (59 FR 51523) that it had addressed many of the concerns raised in 
the petition in a July 1, 1991 proposed rule (56 FR 30201) and a 
September 16, 1992 final rule (57 FR 42832). Among the changes in the 
September 16, 1992 final rule was the adoption of provisions allowing 
for guarantees by non-parent firms for Subtitle C closure and post-
closure care financial responsibility requirements. This request had 
been part of the NSWMA petition. In adopting similar provisions in this 
rulemaking, EPA is extending this flexibility to private owners and 
operators of MSWLFs. Local governments already have the flexibility to 
provide guarantees for MSWLFs under 40 CFR 258.74(h). See 61 FR 60328.
    In addition, when EPA promulgated the final rule on the local 
government financial test for MSWLFs, it established regulations (40 
CFR 258.75) giving State Directors the discretion to allow the 
discounting of MSWLF costs (61 FR 60328). As noted in the Background 
Section of today's preamble, this discretion applies to both municipal 
and private owners and operators of MSWLFs. Discounting of costs was 
another issue in the petition. While today's final rule addresses the 
use of a financial test and guarantee for financial assurance for MSWLF 
closure, post-closure care, and, as necessary, corrective action costs, 
and one more issue (an alternative financial test) raised in this 
petition, it does not represent the full Agency response to NSWMA's 
petition. The Agency continues to examine the concerns raised in the 
NSWMA petition.

B. The Meridian Test

    As part of its rulemaking petition, NSWMA submitted an analysis 
performed by Meridian Corporation which proposed an alternative to 
EPA's current Subtitle C financial test. In the docket to the proposal 
for today's rule, EPA included a copy of an analysis performed for EPA 
that evaluated the test in comparison with the one that EPA proposed to 
amend the current Subtitle C test. EPA also on September 27, 1996 
published a Notice of Data Availability (61 FR 50787) providing 
additional opportunity to comment on this analysis. A summary of the 
comments EPA received on this notice and the Agency's response appear 
in the Response to Comments and Summary of Issues section of this 
preamble.
    In evaluating public comments for the Subtitle D rule adopted 
today, EPA further examined the Meridian Test using the cost estimates 
and financial information which it had developed to assess other 
alternative tests. See Analysis of Subtitle D Financial Tests in 
Response to Public Comments, which is available in the public docket. 
This analysis allowed EPA to assess the Meridian Test along with 
several other potential tests on a consistent basis using updated 
information, and to determine whether the Meridian Test would be better 
than the financial test EPA had proposed for private owners and 
operators of MSWLFs.
    The analysis showed that the Meridian Test would have public costs 
approximately 2.36 to 3.45 times larger than those of the test that EPA 
proposed and is issuing in final form in this rulemaking. (The range in 
estimates result from varying specifications of the net worth 
requirements and interpretations of how firms are accounting for 
financial responsibility requirements in their financial statements.) 
As discussed in the preamble to the proposed amendments to the 
financial test for Subtitle C owners and operators (56 FR 30201 at page 
30210), selection of a test that results in lower public costs is 
consistent with the Agency's position that it is equitable to make the 
party that creates the environmental obligation pay for it.
    In its petition, NSWMA noted that the current Subtitle C financial 
test is less available to some firms to cover large obligations than 
other alternative tests. In the Analysis of Subtitle D Financial Tests 
in Response to Public Comments, EPA found that the use of the financial 
test being adopted in this rulemaking will allow private MSWLF owners 
and operators to cover 71.67% of their obligations. Further, EPA's 
analysis estimates that the private cost of the Meridian Test could 
range from 42.1% to 122% of the private cost of EPA's test. Again, this 
range depends upon the net worth specification and interpretations of 
how firms are accounting for financial responsibility requirements in 
their financial statements. However, in all the permutations analyzed, 
the sums of the public and private costs for the Meridian Test are 
higher than for the test being promulgated in this rule. This provides 
an additional basis for rejecting the Meridian Test beyond EPA's 
concern with its higher public cost. EPA believes that this analysis 
further substantiates its decision not to establish a financial test 
for private owners or operators of MSWLFs based upon the Meridian Test, 
and that the Agency has adopted a test for MSWLF obligations that 
reasonably addresses the concerns in the NSWMA petition about a test 
that would be more available than the Subtitle C financial test.

V. State Program Approval

    Section 4005(c) of RCRA provides that each State adopt and 
implement a ``permit program or other system of prior approval and 
conditions'' adequate to assure that each facility that may receive 
household hazardous waste will comply with the revised MSWLF criteria. 
EPA is to ``determine whether each State has developed an adequate 
program'' pursuant to section 4005(c).
    The Agency has procedures for reviewing revised applications for 
State program adequacy determinations should a State revise its permit 
program in light of today's final rules. A State

[[Page 17714]]

that receives permit program approval prior to the promulgation of 
today's rule and later elects to adopt the financial test and guarantee 
mechanisms should work with its respective Regional EPA office as it 
proceeds to make changes to its permit program.
    As stated above, today's proposal would amend part 258 by adding 
options for corporations to use when demonstrating financial assurance 
for the costs of closure, post-closure care, and clean-up of known 
releases. EPA generally encourages States to adopt the additional 
flexibility for financial assurance mechanisms reflected in these final 
rules. EPA believes that these mechanisms will result in significant 
cost savings for owners and operators subject to financial assurance 
requirements. At the same time, EPA believes the financial assurance 
mechanisms adopted today effectively delineate eligible owners and 
operators who have a low probability of business failure from owners 
and operators that are unable to meet their obligations. By restricting 
the financial test and guarantee to viable firms, the mechanisms in 
these final rule avoid undue public costs.
    However, States may choose to regulate more stringently than the 
minimum federal requirements in Part 258. Thus, States may decline to 
adopt options under this final rule that they deem undesirable. States 
that have previously adopted Federally-approved financial assurance 
requirements without this financial test and guarantee are not required 
to take any action and may elect to retain only their current options. 
Further, such States may choose to establish their own financial 
assurance programs so long as they meet the minimum financial assurance 
requirements in the Federal performance criteria detailed in the 
October 9, 1991 final rule. (See existing Sec. 258.74(i))
    The criteria that the financial mechanism would need to meet are 
the following: (1) Ensure that the amount of funds assured is 
sufficient to cover the costs of closure, post-closure care, and 
corrective action for known releases when needed; (2) ensure that funds 
will be available in a timely fashion when needed; (3) guarantee the 
availability of the required amount of coverage from the effective date 
of the requirements under 40 CFR 258, Subpart G, or prior to the 
initial receipt of waste, whichever is later, in the case of closure 
and post-closure care, and no later than 120 days after the corrective 
action remedy has been selected in accordance with the requirements of 
Sec. 258.58, until the owner or operator is released from financial 
assurance requirements under Secs. 258.71, 258.72 and 258.73; and (4) 
be legally valid, binding, and enforceable under State and Federal law. 
See generally 40 CFR 258.74(l).
    As a result, while the Agency has developed financial tests that 
are designed to meet these performance criteria (the financial test 
promulgated in this Federal Register and the financial test promulgated 
November 27, 1996 (61 FR 60328)), approved States could develop their 
own financial tests that could be used by owners and operators of 
MSWLFs within those States for demonstrating financial responsibility 
so long as those tests are determined to have met the performance 
criteria.
    Similarly, States initially seeking approval for the financial 
assurance portion of their MSWLF program would have flexibility in 
adopting Federally-promulgated standards. The State can simply adopt 
the Federal standard or could adopt a mechanism that meets the Federal 
performance criteria described above. In the latter case, the mechanism 
could be used by owners or operators for demonstrating financial 
responsibility for their MSWLF obligations in that State.
    Owners and operators who can use the options in today's rule under 
Federally-approved State programs would be required to maintain 
appropriate documentation of the mechanism in the facility's operating 
record. They would not be required by Federal rules to submit that 
documentation to the State, but only to notify the State Director that 
the required items have been placed in the operating record. However, 
the Federal rules establish several minimum recordkeeping and reporting 
requirements. For example, owners and operators using the financial 
test or guarantee would also be required to update all required 
financial test information on an annual basis, and retain this 
information in their operating records. In addition, an owner or 
operator (or guarantor) that becomes unable to meet the financial test 
criteria would be required to notify the State Director and establish 
alternate financial assurance within specified deadlines. Finally, in 
order to cancel a guarantee, the guarantor would have to notify both 
the State Director and the owner or operator at least 120 days prior to 
cancellation.
    However, EPA cautions owners and operators that wish to use the 
options in the Federal program that they should examine the options 
available under State law. If the State's rules do not include the 
option that the owner or operator wishes to use, the owner or operator 
would run the risk of being out of compliance with State law.
    In unapproved States, if State law did not preclude the use of 
options established today (either because it did not include any 
financial assurance requirements, included only a general requirement 
that left the choice of mechanism to the discretion of the owner or 
operator, or included mechanisms like those promulgated today), an 
owner or operator would be able to use the corporate test or guarantee 
described in today's rule to satisfy both State and Federal law.
    The Agency believes that most Tribes have an accounting structure 
similar or identical to those of most local governments. Tribes should 
be eligible to use the local government financial test to demonstrate 
financial responsibility for their obligations under the MSWLF criteria 
to the extent that they meet the provisions of that test. However, the 
Agency recognizes that there may be Tribes and local government units 
that use an accounting system similar or identical to those of most 
corporations. Those Tribes and local government units would be eligible 
to use the corporate financial test established today to demonstrate 
financial responsibility for their MSWLF obligations to the extent that 
they meet the relevant requirements.

VI. Response to Comments and Summary of Issues

    EPA has endeavored to provide ample opportunity to comment on its 
October 12, 1994 proposed rule. EPA held a 60-day public comment period 
on its proposed rule. 59 FR 51523. On September 27, 1996, EPA also 
published a Notice of Data Availability for a document inadvertently 
omitted from the docket, and provided additional opportunity to comment 
on the information. 61 FR 50787.
    EPA received thirty comments (twenty-eight on the original proposal 
and two on the supplemental notice of data availability) on the 
proposed rule with the largest number of comments from insurance 
companies and sureties. The States of Texas, Nebraska, Michigan, and 
California also commented along with several corporations and 
associations. EPA has considered and responded to all significant 
comments in adopting its final rule. The Docket contains a compilation 
of the comments and EPA's responses. See ``Comment Response Document 
for Financial Test and Corporate Guarantee for Private Owners or 
Operators of Municipal Solid Waste

[[Page 17715]]

Landfill Facilities, October 12, 1994 Proposed Rule.''
    Many of the comments raised issues that were outgrowths of topics 
that had been dealt with in the original proposal, but that benefitted 
from additional scrutiny in light of public comment. In performing this 
analysis EPA studied particular topics in additional depth and prepared 
issue papers on these topics which were used in responding to the 
public comments. For example, several commenters questioned the 
appropriateness of the $10 million tangible net worth requirement in 
the financial test. The proposal had included this requirement, and the 
analysis of public and private costs had examined the financial 
information for firms with more than $10 million in net worth. To 
assess the potential impact of changing this requirement, EPA assembled 
financial information from Dun and Bradstreet on additional owners and 
operators of MSWLFs, i.e. those with both more and less than $10 
million in net worth. EPA then applied the same methodology it had used 
in support of the proposal to determine the public and private costs of 
alternative specifications of the financial test (including an 
alternative test that had been developed by Meridian Research 
Incorporated for the National Solid Wastes Management Association). The 
results of this analysis appear in the docket in a report entitled 
``Analysis of Subtitle D Financial Tests in Response to Public 
Comments.''
    The next sections summarize the major comments and the Agency's 
response.

A. Minimum Tangible Net Worth

    Several commenters raised a variety of issues with the requirement 
in the proposed rule that firms have a minimum tangible net worth of 
$10 million plus the amount of obligations being covered by the 
financial test. One commenter suggested that the requirement was too 
little, particularly in the case of firms owning multiple landfills. 
Some comments agreed with its reasonableness. Others characterized the 
requirement as overly strict because it limited the availability of the 
test to larger firms.
    In evaluating comments on the impact of the net worth requirement, 
EPA acquired updated financial information on the MSWLF industry. This 
information allowed EPA to examine further the net worth requirements, 
and determine whether the financial ratios were appropriate. The 
additional analysis included firms with net worth lower than $10 
million. This analysis relied upon financial information which EPA 
acquired from Dun and Bradstreet, bond ratings from Standard and Poor's 
and Moody's, and EPA cost estimates which had supported the proposal 
analysis, and on which EPA had received no comments. A full description 
of the data base and the analysis appears in the memoranda entitled 
``Description of Data Used in the Analysis of Subtitles C and D 
Financial Tests,'' and ``Analysis of Subtitle D Financial Tests in 
Response to Public Comments'' which are available in the public docket 
for this rulemaking.
    As examined further below, EPA received comments that the proposed 
minimum net worth requirement creates a competitive disadvantage for 
and affects smaller firms. EPA emphasizes that today's rule does not 
impose new regulatory requirments on any firm but would allow owners 
and operators of MSWLFs additional flexibility in meeting the existing 
financial assurance requirements. The existing financial assurance 
requirements are to ensure that owners and operators of MSWLF units 
will have the funds available to meet the costs of closure, post-
closure care, and corrective action whenever they are needed. The 
existing regulations meet that objective by establishing a number of 
third-party mechanisms, as well as performance criteria for additional 
State-approved mechanisms, that could be used by owners or operators in 
meeting the financial assurance requirement. Today's rulemaking adds a 
financial test and a corporate guarantee as two additional, less costly 
mechanisms that could be used by eligible private owners or operators 
of MSWLFs to demonstrate financial responsibility under the existing 
regulatory requirements. Entities able to use these mechanisms would be 
allowed to demonstrate financial responsibility without incurring the 
costs of obtaining a third-party mechanism.
    No small or large entity will be required to use the alternative 
mechanisms promulgated today. Further, as noted, States are not 
required to make these mechanisms available under their programs. 
However, all entities in States that allow these new mechanisms and 
that choose to make use of, and meet the relevant criteria for, the 
financial test or guarantee established by this rule will benefit from 
the savings that these alternative mechanisms offer. While presumably 
both small or large entities will choose to use one of the new 
mechanisms only if it is in their interest to do so, requirements apply 
to any firm ultimately seeking to use one of the alternative 
mechanisms. EPA has endeavored to reasonably minimize the requirements 
associated with the mechanisms and thereby promote private cost savings 
while at the same time limiting the public costs.
    As noted above, the basic purpose of the financial assurance 
program is to ensure that corporate owners and operators of MSWLF units 
are financially able to meet their obligations for closure, post-
closure care, and corrective action. The existing financial assurance 
requirements apply to all such owners and operators, regardless of 
their size, in view of the potential harm and public costs that can 
result if an owner or operator is unable to meet its responsibility for 
closure, post-closure care, and corrective action at a MSWLF unit. 
Today's rule adds a financial test that allows a less costly means of 
providing financial assurance to entities financially capable of 
covering the costs themselves, through self-insurance, or relying on a 
guarantor that meets the financial test. The basis for the financial 
test is necessarily tied to the financial capability of the MSWLF or 
guarantor. Later in the discussions of the public comments sections 
entitled Tangible Net Worth Does Not Have to Be Liquid and Bond Rating, 
EPA also examined the question of whether the financial test would 
create an uneven playing field and did not find that the savings 
potentially available from this rule would be sufficient to create a 
significant competitive advantage.
    After examining the minimum net worth requirement in light of the 
public comments on the proposal, EPA concluded that the increase in 
public costs under a financial test that did not include this 
requirement would not justify the anticipated reduction in private 
costs. As noted in the section entitled Public Costs of Lower Net Worth 
Levels, there is an equity issue involving higher public costs. Higher 
public costs mean that costs that should have been borne by the owner 
or operator (and customers) of a landfill that goes bankrupt are 
unfairly transferred to society in general. Because of this fairness 
issue and other factors discussed below, EPA determined that it was 
appropriate to retain this component of the financial test even though 
the test EPA is establishing has a higher calculated sum of public and 
private costs than would have been the case had EPA selected this test 
with a lower minimum tangible net worth requirement. The test EPA is 
establishing has lower public costs and provides substantial private 
savings. Of course, if contradictory new information

[[Page 17716]]

is presented to EPA in the future, EPA will further examine this issue.
    Further, EPA's existing rules for financial assurance under 40 CFR 
part 258, subpart G provide States with broad flexibility to fashion 
financial assurance mechanisms so long as the mechanisms meet the 
performance criteria at 40 CFR 258.74(l). Thus, in implementing the 
existing regulations, States can make specific judgments about 
additional flexibility in meeting the financial assurance requirements. 
Such judgments are more difficult in a general national rulemaking, 
where broader delineations must be made. Indeed, EPA encourages States 
to make reasoned judgments in implementing the performance criteria in 
the existing rules, including providing flexibility for firms in 
circumstances that States determine to reasonably balance the public 
and private cost of financial assurance. However, in this national 
rulemaking, EPA was faced with the choice of allowing eligible firms 
the potential regulatory flexibility of a financial test or foregoing 
the regulatory flexibility of a financial test altogether because it 
may not benefit all firms in the MSWLF industry. Faced with that 
choice, EPA determined it was reasonable to provide the regulatory 
flexibility for qualifying firms.
1. Minimum Tangible Net Worth Requirement Is Too Low
    Comment: The minimum tangible net worth requirement is inadequate 
for firms with multiple facilities.
    Response: The concern that the net worth minimum is inadequate for 
firms with multiple facilities overlooks the interrelationships between 
the net worth requirement and the other components of the test. For a 
firm to use the financial test, it can only assure an amount that is up 
to $10 million less than its net worth, unless it has already 
recognized all of its environmental obligations as liabilities. Firms 
with multiple landfills will have high levels of assets which must be 
matched by the sum of their liabilities and net worth. It is an axiom 
of accounting that assets minus liabilities equals net worth. An 
example will illustrate why a firm with more landfills and a 
correspondingly higher level of assets will also have a higher level of 
net worth than the $10 million minimum. Suppose a firm had multiple 
landfills such that it had $200 million in assets. For it to meet the 
liability to net worth (leverage) ratio of 1.5 under the financial test 
adopted in today's rule, it would have liabilities of less than $120 
million and a net worth of at least $80 million which is substantially 
in excess of the $10 million minimum.
    If, on the other hand, the hypothetical firm with $200 million in 
assets attempted to pass the financial test with only $20 million in 
net worth and $180 million in liabilities through the profitability 
ratio alternative of the test, it would have to show substantial 
profitability to succeed. In the profitability ratio alternative of the 
test, the ratio of the sum of net income plus depreciation, depletion, 
and amortization, minus $10 million, to total liabilities must be 
greater than 0.10. With $180 million in liabilities, the hypothetical 
firm would have to have a cash flow (the sum of net income plus 
depreciation, depletion, and amortization) of more than $28 million, 
even after paying interest on a substantial debt. This amounts to over 
140% of net worth, and would be difficult to achieve. Furthermore, the 
additive requirement restricts the amount that could be covered through 
the financial test. For firms that have not recognized all of their 
environmental obligations as liabilities, the additive requirement 
restricts the amount that can be covered to $10 million less than their 
net worth. In this particular example, the firm would be able to cover 
$10 million in environmental obligations which is much less than the 
$28 million in net income plus depreciation, depletion and amortization 
necessary to utilize the profitability ratio under the test. Like the 
leverage ratio, the profitability ratio of the test favors firms with 
relatively low debt ratios, and correspondingly high net worth ratios. 
Additional information on this point appears in Issue Paper, Recent 
Consolidation and Acquisitions in the Solid Waste Industry, which is 
available in the public docket.
    Bond rating agencies also favor firms with relatively low debt 
levels, and tend to grant more favorable ratings to firms with large 
net worth. Thus, under the bond rating alternative as well as the 
financial ratio alternatives, firms with several operations and large 
assets would have to have substantially more than the $10 million 
minimum net worth to utilize the financial test. For example, EPA's 
analysis estimated that the two largest firms expected to be able to 
use the financial test have MSWLF financial assurance obligations which 
are approximately $1.7 and $1.4 billion, respectively. Their 
corresponding net worth are $5.3 and $2.8 billion, figures 
substantially higher than the $10 million minimum net worth 
requirement.
    The additive requirement (tangible net worth of $10 million plus 
the amount being assured), limits the amount of environmental 
obligations that a firm can assure when it has passed the financial 
test. For the firms in EPA's analysis with the third and fourth largest 
number of landfills, EPA's estimate of their closure and post closure 
financial assurance obligations exceeds their net worth. The additive 
requirement means that these firms may need to provide a third party 
instrument for some of their obligations.
2. The $10 Million Net Worth Requirement Is Too Restrictive
    Comment: Several commenters objected to the $10 million in tangible 
net worth requirement as being overly strict and restricting the test 
to larger firms.
    Response: In analyzing these comments EPA considered several 
factors including the value of the obligations that could potentially 
be assured by the test, how these obligations are reflected in the 
firms' financial statements, the accuracy of the financial test at 
lower net worth levels, and the increase in costs that could be borne 
by the public if a firm that uses the financial test would go bankrupt 
and be unable to fulfill its obligations. Based upon analyses of these 
factors, EPA has decided to retain the $10 million in net worth 
requirement for the test being promulgated today.
    a. The Size of Closure Obligations. The net worth of a firm equals 
the value of its assets minus the value of its liabilities. As provided 
in 40 CFR 264.141, ``liabilities'' mean ``probable future sacrifices of 
economic benefits arising from present obligations to transfer assets 
or provide services to other entities in the future as a result of past 
transactions or events.'' EPA estimated in the analysis supporting the 
proposal that closure and post-closure obligations for MSWLFs range 
from $5.1 million (for a landfill with less than 275 tons per day) to 
$24 million for a landfill of more than 1125 tons per day. EPA received 
no public comments on the accuracy of these estimates, and so in the 
additional analysis supporting this notice merely updated them for 
inflation so that they would be in 1995 dollars like the financial 
information on the firms. This led to estimates ranging from $5.5 
million to $26.1 million. (See the memorandum entitled ``Analysis of 
Subtitle D Financial Tests in Response to Public Comments.'') These 
costs represent substantial liabilities that are largely paid at the 
end of the landfill's life when there would be no revenue from tipping 
fees. Therefore it is

[[Page 17717]]

important to ensure that adequate provisions have been made for their 
recognition and payment.
    These estimates can represent several multiples of a firm's 
liabilities (and net worth). These cost estimates combined with the 
financial information on firms with less than $10 million in net worth 
show that firms with relatively small net worth can accrue relatively 
large liabilities for closure and post-closure obligations. Under such 
a circumstance a firm that would have to undertake closure would be 
forced into bankruptcy (negative net worth) by closure.
    b. Recognition of Closure Obligations. The financial analysis of 
firms with net worth between $1 million and $10 million show that these 
environmental obligations may not be universally recognized. When EPA 
examined the liabilities, net worth and estimated financial assurance 
amounts for forty firms with net worth between $1 and $10 million, it 
found that many of these firms had estimated financial assurance 
obligations that exceeded their net worth (thirty-seven) and their 
reported liabilities (thirty-five). In the instances of firms with 
financial assurance obligations that exceed their liabilities, this 
strongly implies that they are not recognizing these obligations as 
liabilities, particularly because liabilities also include money owed 
to creditors such as banks. This inconsistent reporting of landfill 
closure obligations has been reported by the Financial Accounting 
Standards Board (See, for example, pages 1 and 2 Exposure Draft, 
Proposed Statement of Financial Accounting Standards, Accounting for 
Certain Liabilities Related to Closure or Removal of Long-Lived Assets, 
No. 158-B, February 7, 1996, Financial Accounting Standards Board).
    Firms that do not recognize their closure and post-closure care 
obligations as liabilities also may be overstating their ability to 
pass a financial test if they had to recognize their environmental 
obligations as liabilities. This arises because both financial test 
ratios utilize liabilities as a factor and require that the ratio meet 
a particular threshold (e.g. total liabilities divided by net worth 
must be less than 1.5). A higher amount of recorded liabilities for the 
same net worth or cash flow can make it more difficult for a firm to 
qualify for the financial test.
    EPA is interested in having more uniformity in the reporting of 
financial assurance obligations. EPA is concerned that the absence of a 
minimum net worth requirement may have the undesirable effect of 
favoring firms that do not record their environmental obligations as 
liabilities. The provision of the rule that requires a firm to have at 
least $10 million in tangible net worth over the amount of 
environmental obligations being covered ensures that firms that have 
not recognized their obligations as liabilities will still have 
adequate net worth to fulfill their obligations.
    If a firm has already recognized all of its environmental 
obligations as liabilities, it could demonstrate less ability to cover 
them through the financial test than if it had not recognized them as 
liabilities. EPA received comments that the additive requirement would 
have an impact on small owners or operators and effectively required a 
higher coverage ratio for them. To address these concerns, and to 
assist smaller owners or operators who have already recognized their 
environmental obligations as liabilities, EPA is establishing a special 
provision. Under this provision, a firm that has recognized all of its 
MSWLF closure, post closure care, or corrective action liabilities 
under 40 CFR 258.71, 258.72 and 285.73, obligations associated with UIC 
facilities under 40 CFR 144.62, petroleum underground storage tank 
facilities under 40 CFR part 280, PCB storage facilities under 40 CFR 
part 761, and hazardous waste treatment, storage, and disposal 
facilities under 40 CFR parts 264 and 265 can utilize the financial 
test if it meets the other requirements of the test, receives the 
approval of the State Director, and still maintains a tangible net 
worth of at least $10 million plus the amount of any guarantees it has 
undertaken that have not been recognized as liabilities. See 
Sec. 258.74(e)(1)(ii)(B). This addition of any guarantees is necessary 
because EPA does not expect that a guarantee extended by a corporation 
will appear on that company's financial statement until it is drawn 
upon and is recorded as a liability. The Agency believes that the 
additional flexibility allowed by this provision creates an incentives 
for owners or operators to fully recognize their environmental 
obligations in their audited financial statements.
    For an owner or operator to qualify for this alternative, it will 
be necessary for the letter from the chief financial officer to include 
a report from the independent certified public accountant verifying 
that all of the environmental obligations covered by a financial test 
have been recognized as liabilities on the audited financial 
statements, how these obligations have been measured and reporteed, and 
that the net worth of the firm is at least $10 million plus the amount 
of any guarantees provided. See Sec. 258.74(e)(2)(i)(D).
    EPA recognizes that its treatment in this rule of environmental 
obligations that have already been recognized as liabilities differs 
from the treatment in the hazardous waste financial test in 40 CFR 
264.151(f) and in the proposed amendments to those rules (56 FR 30201, 
July 1, 1991). In the current hazardous waste rules and the proposed 
amendments, closure and post closure care obligations which have 
already been recognized as liabilities can be deducted from the 
liabilities and added back to net worth for purposes of calculating the 
financial test. This adjustment provision was incorporated into the 
regulations ``in order not to penalize those firms that do include 
these costs in their liabilities'' (47 FR 15037, April 7, 1982). The 
proposal for today's rule did not include a similar adjustment 
provision, nor did the Agency receive comments suggesting incorporating 
such a provision. The proposal was consistent with the research in the 
Background Document which found a high availability of the test without 
incorporating an adjustment of liabilities or net worth as allowed by 
the current Subtitle C regulations. This finding was supported in the 
analysis associated with the public comments which found that the 
financial test would be available to cover approximately 72% of 
obligations even in the absence of the adjustment.
    EPA does not have information on the extent to which companies have 
recognized all of their environmental obligations as liabilities. 
However, in its analysis of alternative tests, EPA examined a test 
designated as Test 58-10 that required the same bond ratings and 
financial ratios as the final rule, but would allow a firm with at 
least $10 million in tangible net worth that passed the requirements to 
cover any amount of environmental obligation with the financial test. 
Conceptually, the results from this test provide an upper bound 
estimate of approximately 82% for the maximum percent of obligations 
that could be covered with the adjustment if allowed by the State 
Director.
    EPA believes that substantial progress has been made since the 
issuance of the 1982 hazardous waste financial assurance regulations in 
the recognition of environmental obligations as liabilities. Further, 
the rationale for allowing this adjustment was based upon fairness to 
firms who had recognized these obligations as liabilities, rather than 
a belief by EPA that these obligations should not be treated as 
liabilities. The Agency

[[Page 17718]]

continues to consider environmental obligations for closure, post-
closure care, and corrective action as meeting the definition of 
liabilities as ``probable future sacrifices of economic benefits 
arising from present obligations to transfer assets or provide services 
to other entities in the future as a result of past transactions or 
events.'' (40 CFR 264.141(f)) As more firms recognize these obligations 
as liabilities, the basis for granting an adjustment to the liability 
and net worth measures in financial statements because of fairness has 
diminished, while their recognition as liabilities has become more 
accepted in the financial community. Thus, there is less of a need to 
allow an adjustment of liabilities and net worth in the calculation of 
the financial ratios.
    This final rule allows those firms who have already recognized all 
of their environmental obligations as liabilities in their financial 
statements and who pass the financial test to assure for a potentially 
higher amount of obligations than would otherwise be allowed. EPA 
believes that this approach has preserved fairness while maintaining 
the notion of these environmental obligations as liabilities, and 
reduced the administrative burden of adjusting figures on the balance 
sheets. EPA will continue to assess the utility of the adjustment 
provision proposed for 264.151(f), and may determine that it is 
appropriate to promulgate a final Subtitle C financial test regulation 
that would take a similar approach to that used in this regulation.
    c. Accuracy of the Test at Lower Net Worth Levels. EPA also 
examined whether its financial test would operate as well for firms 
with less than $10 million in net worth. Practically, no financial test 
can perfectly discriminate between firms that should be allowed to use 
the financial test and, therefore, not have to pay the cost of a third 
party mechanism, and firms that will go bankrupt and so should have to 
use a third party instrument. As a test becomes less stringent so that 
it becomes more available (such as by reducing the net worth 
requirement), it carries a higher risk that firms will qualify for the 
test that will enter bankruptcy. The worse the test is at screening out 
firms that will enter bankruptcy, the higher its misprediction rate. 
Moreover, since a test will not be perfect at screening out firms that 
will enter bankruptcy, a test that allows more obligations to be 
covered with a financial test will have a higher dollar amount of 
misprediction. EPA's analysis assessed the misprediction of the various 
tests and the attendant public costs. These public costs are the costs 
to the public sector of paying for financial assurance obligations for 
firms that pass the test but later go bankrupt without funding their 
obligations. This analysis revealed that the financial test had a 66% 
higher misprediction rate (1.067%) when applied to firms with less than 
$10 million in net worth than to firms with more than $10 million 
(0.644% to 0.233%) (See Issue Paper, Relevant Risk Factors to Consider 
in a Financial Test, which is available in the public docket). This 
means that without the $10 million net worth requirement, the test 
would not be as good at screening out firms that will enter bankruptcy 
at the lower net worth levels.
    d. Public Costs of Lower Net Worth Levels. The higher misprediction 
rate for the test with a lower net worth requirement leads to higher 
public costs. Since these public costs are the costs to the public 
sector of paying for financial assurance obligations for firms that 
pass the test and later go bankrupt without fulfilling their 
obligations, an increase in public costs represents a departure from 
the Agency's ``polluters pay'' philosophy. Higher public costs in this 
instance would mean that costs that should have been borne by the owner 
or operator (or the landfill's customers) were transferred to society 
in general. This means that the customers of landfills that do not go 
bankrupt unfairly subsidize the customers of landfills that did not 
provide the funds for proper closure and post-closure care. This 
subsidy is through government expenditures for closure and post-closure 
care of the bankrupt landfills. EPA estimates that reducing the minimum 
net worth requirement for the financial test from $10 million to $1 
million would increase the public cost of the financial test from $11.7 
million to $13.2 million annually. This would have represented a 13% 
increase in public costs. In light of the substantial closure costs 
involved compared to the net worth of firms with less than $10 million 
in net worth, the reduced ability of the test to screen out firms that 
will go bankrupt, and the increased public cost of reducing the net 
worth requirement, EPA has declined to change this requirement. 
However, as discussed above, in light of concerns about impacts on 
smaller owners and operators, EPA has established a provision that 
would allow firms that have recognized all of their environmental 
obligations as liabilities additional flexibility in meeting the 
minimum net worth requirement, subject to the approval of the State 
Director.
3. Allow Firms to Include Closure and Post Closure Funds as Part of Net 
Worth
    Comment: One company suggested that EPA allow any funded liability 
such as Closure/Post-Closure Trust Funds to be added to tangible net 
worth when calculating the size requirement.
    Response: The financial test provides a mechanism that companies 
may use to demonstrate financial responsibility for closure, post-
closure and, if necessary, corrective action obligations. The 
obligations covered by the financial test are those for which the 
company has not already provided financial assurance through a third 
party mechanism. Under the commenter's suggestion, funds in a trust for 
closure costs not covered by the financial test would be added to 
tangible net worth. EPA has historically deferred judgments on 
accounting matters to generally accepted accounting principles (See, 
for example, 40 CFR 264.141(f)). In this instance as well, EPA defers 
to the application of generally accepted accounting principles to 
determine the assets, liabilities and resultant net worth of the 
company. If the application of generally accepted accounting principles 
determines that the trust funds are assets of the company, then they 
can be counted against the tangible net worth to the extent allowed by 
the recognition of the company's liabilities.
    Furthermore, the information on firms' financial statements which 
EPA used to assess the financial tests for the proposed and this 
rulemaking were based upon the application of generally accepted 
accounting principles. EPA used the information based upon generally 
accepted accounting principles to determine the public and private 
costs of the financial test. EPA does not have information on how a 
test would operate based upon some other system of financial 
measurement. Therefore EPA has declined to specify particular additions 
to net worth for purposes of the financial test, but would interpret 
the tangible net worth requirement to be determined consistent with 
generally accepted accounting principles.
4. The Net Worth Requirement Reduces the Market for Sureties
    Comment: Other commenters objected to the net worth requirement as 
unnecessary because it would allow the financially stronger companies 
with greater net worth to utilize the financial test and thereby remove 
these companies from the market for sureties and other third party 
instruments.
    Response: The financial test allows those companies with the lowest

[[Page 17719]]

probability of failure, and hence the least need for a third party 
financial responsibility instrument, to self insure. EPA estimates that 
the closure and post-closure obligations for private owners and 
operators total approximately $6.4 billion. The cost for private owners 
or operators to obtain third party mechanisms, such as letters of 
credit or surety bonds, to assure these obligations is estimated at 
approximately $123 million. With today's rule, EPA estimates that the 
private cost of third party mechanisms would be $45.6 million for 
obligations that cannot be covered by the financial test. This will 
provide savings to owners and operators of MSWLFs of approximately $77 
million annually.
    The effect of this rule may be to reduce the market for certain 
types of third party financial responsibility instruments, but it does 
not eliminate the market which would still total approximately $45.6 
million annually. This rule does not eliminate any of the third party 
instruments as options for a firm to use to comply with the 
regulations. In addition to sureties, the allowable instruments include 
trust funds, irrevocable standby letters of credit, insurance, or 
state-approved mechanisms. Therefore, even if sureties or insurers were 
to decide not to provide financial assurance (an outcome which EPA does 
not expect), owners or operators would still have mechanisms available 
for demonstrating financial assurance. EPA notes that the types of 
instruments available for demonstrating financial assurance for MSWLFs 
are similar to those for Subtitle C facilities, and other financial 
responsibility programs which help to sustain this market. It is EPA's 
experience that sureties provide financial assurance mechanisms for 
Subtitle C facilities, even though many Subtitle C facilities are able 
to utilize the financial test.
    EPA also examined whether the availability of the financial test 
would cause some form of adverse selection whereby only ``bad risk'' 
firms would form the market for third party instruments and these ``bad 
risk'' firms would be unable to obtain a third party guarantee. EPA's 
financial test maximizes the availability of the test to strong firms 
while minimizing the number of firms allowed to use the test that later 
go bankrupt without covering their environmental obligations. Since no 
test can perfectly discriminate between financially viable firms and 
nonviable firms, a number of viable, financially sound firms will be 
unable to use the test. The financial test is a conservative predictor 
of long term viability and therefore a particular firm's inability to 
cover all or some of its obligations using the financial test does not 
necessarily mean that it poses an unreasonable risk for third-party 
guarantors of financial responsibility such as the insurance or surety 
industry.
    Even though a firm does not pass the financial test, it remains a 
viable candidate for third party instruments. While such firms are not 
candidates for EPA's financial test, banks provide direct lending to 
these types of firms. Banks, for example, have the flexibility to 
require collateral or charge a higher interest rate to control their 
risk. A surety company also has ways to control its risk such as filing 
with a state a rating plan that decreases its rates for firms that meet 
certain financial strength requirements and charges higher rates to 
higher risk firms. For additional information on these points, please 
see the Issue Paper in the docket entitled Effects of the Financial 
Test on the Surety Industry.
5. Tangible Net Worth Does Not Have To Be Liquid
    Comment: One commenter on the net worth requirement objected to the 
selection of tangible net worth because there was not a requirement 
that the assets had to be liquid, it can fluctuate dramatically so that 
a firm could qualify and then not qualify for the financial test, and 
it would create an uneven playing field with smaller owners and 
operators being unable to utilize the financial test.
    Response: The proposed financial test did not include a requirement 
that owners or operators maintain a certain amount of liquid assets in 
addition to the other requirements such as minimum tangible net worth. 
The proposal relied upon two financial ratios, a leverage ratio of less 
than 1.5 based on the ratio of total liabilities to net worth, and a 
profitability ratio of greater than 0.10 based on the ratio of the sum 
of net income plus depreciation, depletion, and amortization, minus $10 
million, to total liabilities. The leverage ratio and profitability 
ratios are highly effective in discriminating between viable and 
bankrupt firms, but liquidity ratios which measure firms' liquid assets 
are not as effective in discriminating between viable and bankrupt 
firms. In fact, liquidity ratios can be misleading as firms in 
financial distress often liquidate fixed assets to generate cash to 
continue operations. (For more information on these points, please see 
Chapter 4 of the Background Document, Revisions to the Subtitle C 
Financial Tests for Closure, Post-Closure Care and Liability Coverage, 
which was prepared in support of the July 1, 1991 proposed changes to 
the Subtitle C financial test 56 FR 30201).
    While the market valuation of a corporation's stock can vary 
significantly, its net worth is a much more stable measure. Since net 
worth reflects the accounting value of the corporation's assets minus 
its liabilities, it will not have the volatility associated with the 
value of the company's stock that varies with the stock market's 
expectations of future dividends and interest rates. While it is 
possible that a firm could have a tangible net worth value close to the 
$10 million threshold, it seems unlikely that many would have a value 
close to this requirement and have losses and profits that would 
alternately bring them above or below the threshold. Also, the 
requirement for at least $10 million in net worth is reasonable in 
light of the substantial ($5.5 million for a 275 ton per day MSWLF to 
$26 million for a 1125 ton per day MSWLF) closure and post-closure 
costs for a MSWLF (See ``Analysis of Subtitle D Financial Tests in 
Response to Public Comments''), and other factors analyzed above.
    Further, the use of the financial test does not create a 
significant competitive advantage. The cost of providing financial 
assurance through an alternative third party mechanism such as a letter 
of credit is approximately $1.35 to $0.94 per ton for 375 to 1500 ton 
per day landfills. This is not a large enough price difference to 
change substantially the competitive structure in many markets. Other 
factors are more important to competition within the industry. For 
example, transportation costs for transfer facilities can amount to 
$4.30 per ton, and an additional $4.30 to $7.50 per ton for every 100 
miles for rail and truck hauling respectively. (For further information 
please see Issue Paper, Market Effects of the Financial Test.) Further, 
the alternative of maintaining the status quo would withhold greater 
flexibility for financially viable firms. EPA believes it is reasonable 
to extend regulatory flexibility to firms expected to be viable.
6. MSWLFs Should Have a Lower Minimum Net Worth Requirement Than 
Subtitle C Facilities
    Comment: One commenter suggested that since MSWLFs pose less risk 
than hazardous waste activities, that the use of the same $10 million 
threshold for entry into the industry is much more appropriate for 
Subtitle C than for firms operating only in the MSWLF industry, and 
that EPA should choose a lower threshold for the municipal solid waste 
sector.

[[Page 17720]]

    Response: This comment confuses the criteria for the financial 
test, which is one of the mechanisms for demonstrating financial 
responsibility, with EPA's broader requirement that companies 
demonstrate financial responsibility. For municipal solid waste 
landfills, EPA has long established financial assurance requirements at 
40 CFR 258.71 for closure, 258.72 for post-closure care, and 258.73 for 
corrective action. These provisions already made a distinction between 
the financial responsibility requirements for MSWLFs and those for 
hazardous waste operations. Under 40 CFR 264.147 and 265.147 hazardous 
waste operations must maintain liability coverage for accidental 
occurrences, while EPA has deferred a corresponding requirement for 
MSWLFs (56 FR 51105). The fundamental requirements to maintain 
financial responsibility are not the subject of this rulemaking. 
Rather, this rule provides additional flexibility for private owners 
and operators to meet the financial responsibility requirements.
    The demonstration of financial assurance can be through several 
mechanisms, including a financial test. There is no net worth 
requirement for firms to enter either the hazardous or municipal waste 
industry. The $10 million in net worth is only to qualify for the use 
of the financial test.
7. EPA's Proposed Net Worth Requirement Was Not the Best Investigated
    Comment: Two commenters preferred a test with a net worth 
requirement at least equal to the amount being assured to EPA's 
proposal of at least $10 million plus the amount being assured. They 
noted that the two tests had the same public and private costs, and 
argued that this meant that the test EPA proposed was therefore not 
preferable to the other.
    Response: The preamble to the proposed MSWLF financial test 
includes calculated private and public costs for three candidate tests 
which incorporate the same leverage and cash flow ratios or bond rating 
requirements, but differ in the amount of obligations that could be 
covered through the financial test. Test 562, which is the test that 
EPA proposed, allows a firm to cover obligation up to $10 million less 
than its net worth (i.e. the test requires a net worth at least $10 
million greater than the amount being assured). Test 130 allows a firm 
with at least $10 million in net worth to cover obligations up to the 
amount of its net worth. Test 58 allows a firm with $10 million in net 
worth to cover any amount of obligations. Based upon the commenters' 
suggestion that EPA's proposal had wrongly rejected Test 130 in favor 
of Test 562, EPA reviewed all three tests using updated financial 
information from Dun and Bradstreet, Moody's and Standard & Poor's. 
This analysis appears in the docket under the title ``Analysis of 
Subtitle D Financial Tests in Response to Public Comments.''
    Under the proposed test (identified as number 562-10 in the 
report), an owner or operator who meets the other test criteria can 
assure obligations as long as the firm's tangible net worth is at least 
$10 million larger than the obligation. This test has a private cost of 
$45.6 million and a public cost of $11.7 million for a total cost of 
$57.3 million. The private cost of the test represents the cost for 
owners or operators to provide a third party instrument (e.g. letter of 
credit) to demonstrate financial responsibility under the existing 
financial assurance requirements. The public costs represent the costs 
to the public sector of paying for financial assurance obligations 
(e.g. closure or post-closure costs) for firms that pass the test but 
later go bankrupt without funding their obligations. The cost figures 
for this and the other tests analyzed differ from the costs in the 
preamble to the proposal largely because the analysis performed in 
response to public comments included firms with less than $10 million 
in net worth. Therefore the private cost figures include not only the 
cost of securing a third party instrument for firms with more than $10 
million in net worth, but also for firms with less than $10 million in 
net worth.
    Under Test 130-10 the owner or operator with at least $10 million 
in net worth and meeting the other criteria of the test can assure 
obligations up to the net worth of the firm. For this test the private 
cost is lower at $43.2 million because a larger value of obligations 
can be assured. However, the public cost is higher than for Test 562 at 
$12.2 million for a total cost of $55.4 million.
    Under Test 58-10 the owner or operator who passes the other 
criteria of the test could assure any amount of obligations so long as 
the company has a tangible net worth of at least $10 million. This test 
has a private cost of $32.9 million and a public cost of $14.1 million 
for a total cost of $46.9 million.
    These cost estimates demonstrate that there are differences between 
Test 562, Test 130 and Test 58. Most notably, Test 562 has the lowest 
public costs of the three tests. EPA is concerned that allowing a 
company to assure environmental obligations up to the amount of its net 
worth, or any amount of obligations, could mean that these obligations 
could, of themselves, cause a firm's bankruptcy and so in the final 
rule adopted a regulation based upon the criteria in Test 562. However, 
the commenter's suggestion that EPA re-examine the relative merits of 
the tests led EPA to re-consider the appropriateness of Test 562 for 
firms that fully recognize environmental obligations as liabilities in 
financial statements. The provisions of today's rule which allow a firm 
that has recognized all of its environmental obligations as liabilities 
to assure them as long as it has at least $10 million in net worth 
(plus the amount of any guarantees not recognized on its financial 
statements) and meets the other criteria of the financial test means 
that these provisions with these important qualifications, are 
conceptually similar to the requirements of Test 58. As such these 
companies can assure a higher level of obligations than they could 
under Test 130. Therefore EPA believes that this provision potentially 
provides a larger amount of regulatory relief than the adoption of Test 
130 since Test 58 has a lower private cost.
8. The Tangible Net Worth Requirement Is Appropriate
    In addition to comments objecting to the proposed tangible net 
worth requirement, EPA also received comments supporting it. These 
comments came from the Texas Natural Resources Conservation Commission, 
and Browning-Ferris Industries. In addition, the State of Nebraska 
commented that they had no objection to the proposed financial test.

B. Bond Ratings

    Comment: One commenter suggested that the proposed financial test 
accept ratings by Duff & Phelps, and Fitch in addition to bond ratings 
by Moody's, and Standard & Poor's.
    Response: Both Standard & Poor's, and Moody's publish information 
on how often bonds with various ratings have defaulted. This 
information confirms that bonds with investment grade ratings from 
these rating agencies have low default rates. The default rate 
information allows EPA to determine the risk associated with accepting 
particular bond ratings and to compare the default rates of bonds with 
various ratings given by the rating agencies. While Duff & Phelps and 
Fitch also provide bond ratings, they do not publish information on 
default rates by bond rating and so EPA is unable to assess the default 
rate for bonds rated by Duff & Phelps and Fitch. When EPA

[[Page 17721]]

promulgated the financial test for Subtitle C facilities on April 7, 
1982 (47 FR 15036), it limited the use of bond ratings to the services 
that could provide information on the performance of their bond ratings 
over time. Today's rule is consistent with that policy.
    Long after the close of the public comment period and as this rule 
was undergoing Agency review, EPA received information from Fitch 
Investor Services about default rates. EPA has requested additional and 
clarifying information about Fitch's default rates to help it evaluate 
this issue. EPA decided not to delay the promulgation of this rule 
while it is reviewing this issue. Instead, EPA consider this 
information and other information it obtains on the accuracy of bond 
ratings by services other than Standard & Poor's, and Moody's in the 
forthcoming promulgation of changes to the Subtitle C financial test. A 
copy of the information from Fitch and EPA's follow-up correspondence 
is available in the public docket for the rulemaking proposing 
revisions to the Subtitle C financial test. (56 FR 30201)
    Comment: While supporting the use of bond ratings, one commenter 
noted that the proposed rule and preamble make no distinction relative 
to the seniority of the debt.
    Response: The commenter correctly noted that the only qualification 
on the bond to be rated was that it be the most recent. As noted above, 
an analysis of bond ratings showed that bond ratings have been a good 
indicator of firm defaults. Part of the basis of the bond ratings is 
the assurances for timely repayment for the bond. A bond which is 
collateralized or insured will, in general, carry a higher rating than 
otherwise.
    The bond rating in the financial test is an indicator of the 
certainty that environmental obligations being assured will be 
fulfilled. A bond may be of investment grade only because it is 
collateralized or insured. Because the financial test does not require 
establishment of collateral or a third party assurance, allowing a 
rating on an insured or collateralized bond could easily overestimate 
the certainty of the fulfillment of environmental obligations which are 
not collateralized or otherwise guaranteed. Since an investment rating 
on the most recent bond would not require a firm to pass any of the 
financial ratios, a firm using, for example, the investment rating on a 
bond that it had been forced to collateralize, would inappropriately 
pass the financial test.
    Therefore, in light of this public comment, EPA has decided to base 
the bond rating alternative of the financial test on the rating of the 
firm's senior debt. This rating is readily available, regularly 
monitored by the rating agency, and avoids the issues of whether a 
particular bond has been collateralized or insured. Because the rating 
of the firm's senior debt reflects the rating agency's judgement of the 
overall financial management of the firm, it is a better indication of 
the financial health of the firm.
    Comment: One commenter noted that bond ratings while an indicator 
of an owner/operator's financial standing, do not guarantee that funds 
will be available for closure and post closure care. As evidenced by 
recent events involving highly rated entities, bond ratings are not 
infallible, and often times can fluctuate rapidly.
    Response: While not infallible, bond ratings are excellent 
predictors of whether bonds will be repaid with more highly rated bonds 
having lower default rates than bonds with lower ratings. Overall, the 
annual assurance risk for investment grade bonds is 0.126% for Moody's 
and 0.175% for Standard and Poor's. (See Issue Paper, Issues Relating 
to the Bond Rating Alternative of the Corporate Financial Test in the 
public docket.)
    Because bond rating organizations regularly re-evaluate the 
financial soundness of the firms, bond ratings change with the 
financial circumstances of the firm. These changes in ratings are 
widely available through financial news sources and the Internet and so 
would be available to a State more quickly than the update based upon 
annual financial statements. EPA considers this re-evaluation of the 
firm's financial outlook another advantage of the bond rating 
alternative which, combined with the low default rate on investment 
grade bonds, supports the use of bond ratings in the financial test. 
Thus, EPA believes that bond ratings together with the other elements 
of the financial test are sound reliable predictors of an owner or 
operator's financial viability.
    Rating agencies can revise the ratings of bonds up or down for 
several reasons which will be of interest to investors because of the 
effect on the price of the bonds. (Higher grade bonds demand a higher 
price than lower rated bonds.) In this process, rating agencies 
frequently will place an issue on a ``watch list'' to signify that its 
rating may change. However, most of these changes will be within a 
ratings category (e.g. A to A-) or from one investment grade rating to 
another (BBB to A) and be inconsequential for purposes of the financial 
test. Studies from rating agencies demonstrate that the vast majority 
of entities with investment grade ratings retain them. For example, 
Standard & Poor's reports that from 1981 to 1996 an average of 93.87% 
of entities with investments grade ratings at the beginning of the year 
had an investment grade rating at the end of the year. (See Table 9 of 
``Ratings Performance 1996, Stability and Transition,'' Standard & 
Poor's, February 1997.) These data, and similar results from Moody's 
(See Exhibit 6 of ``Moody's Rating Migration and Credit Quality 
Correlation, 1920-1996,'' Moody's, July 1997), do not substantiate the 
commenter's claim that ratings often times can fluctuate rapidly. 
(These studies do, however, provide additional substantiation for EPA's 
use of the rating on the firm's senior unsecured debt as it is these 
ratings that form the basis for default rate studies by Standard & 
Poor's, and Moody's.) For the financial test, a change in rating only 
matters if it moves a firm from investment grade to speculative. The 
test does not distinguish between investment grade ratings. Therefore, 
while bond ratings do fluctuate, the minor fluctuations will not often 
affect a firm's ability to use the financial test.
    Comment: The bond rating alternative would be of advantage to only 
three firms in the industry. This is a further anticompetitive 
advantage for large firms. The proposed rules create a significant 
competitive advantage for larger firms and will lead to less 
competition and higher prices.
    Response: The use of bond ratings provides a financial test that is 
highly reliable as shown by the low default rate on investment grade 
bonds. In addition to the bond rating alternative, EPA has allowed the 
use of financial ratios which also are accurate predictors of the 
financial viability of a firm. These two mechanisms provide additional 
flexibility for firms subject to the financial responsibility 
requirements which already provide several mechanisms by which a 
company can demonstrate financial assurance.
    While the commenter notes that only three firms in the industry 
would meet the bond rating alternative, this appears to be an 
incomplete picture. EPA obtained bond ratings from Standard & Poor's, 
and Moody's for firms in the MSWLF industry. At the time of this data 
gathering, EPA was able to obtain ratings for nine firms (with their 
ratings in the parentheses): Allied Waste Industries, Inc. (BB-, B2); 
Browning-Ferris Industries (A, Aa2); Laidlaw, Inc. (BBB+, Baa2); Mid-
American Waste Systems (Ca1); Norcal Waste Systems, Inc. (BB-, B3); 
Sanifill, Inc. (BB+); United Waste Systems, Inc. (BB+); USA

[[Page 17722]]

Waste Services, Inc. (BBB-), and WMX Technologies (A+, A1). Four of 
these firms had investment grade ratings and so could have qualified to 
use the financial test if they met the other qualifications, and four 
others had BB ratings, just below investment grade. If the financial 
situation for the four firms with BB ratings were to improve such that 
the rating agencies were to upgrade their ratings, they would also have 
been eligible to utilize the financial test. Were EPA not to adopt the 
bond rating alternative, this compliance option would be foreclosed to 
potentially more than the three firms suggested by the commenter.
    EPA notes that some of these firms no longer exist independently, 
or have decided to sell their operations to other firms. For example, 
Allied Waste Industries has acquired the solid waste operations of 
Laidlaw, and USA Waste Services has acquired the operations of Mid-
American Waste Systems, Sanifill, and United Waste Systems. These sales 
have occurred between the time that EPA gathered this information and 
the publication of this rule. This consolidation has occurred in the 
absence of a corporate financial test, and indicates that factors 
beyond this rule are influencing the number of competitors in the 
industry. As the ownership patterns for municipal solid waste companies 
has changed substantially in the past, it is difficult to predict 
future directions. Eliminating the regulatory option of a bond rating 
alternative could preclude a future company from being able to utilize 
the financial test even if the analyses by bond rating agencies would 
show the company to be a good credit risk. Conversely, because bond 
ratings have been excellent predictors of bankruptcy, eliminating the 
bond rating alternative would deny to State Directors an effective test 
of companies' financial health. In response to this and other similar 
comments, the Agency further examined whether the financial test would 
change the relative competitiveness of large versus small operations. 
(See Issue Paper, Market Effects of the Financial Test). The principal 
findings of that investigation were that even if a large landfill were 
to use a third-party financial assurance mechanism rather than the 
financial test, it would still face lower costs per ton than a smaller 
landfill. Further, for both small or large landfills third-party 
financial assurance costs constitute only two to three percent of total 
costs.
    Also, in the context of a host of other factors affecting tipping 
fees, including location, fixed costs, and pricing strategies, 
financial assurance costs are not likely to play a key role in 
competition within the MSWLF industry. In particular, costs to 
transport waste to a larger facility may more than offset potentially 
lower tipping fees that the larger landfill might charge as a result of 
using the financial test to demonstrate financial assurance. Therefore, 
EPA does not believe that the financial assurance test will be a 
significant factor in influencing the competitive nature of the 
industry.

C. Financial Ratios

    Comment: One commenter agreed with the use of bond ratings but 
disagreed with the use of a financial test involving only a single 
ratio. The commenter instead recommended at least three ratios to 
determine a firm's changes in cash flow, revenues and expenditures, and 
equity. The commenter stated that the use of three ratios would also be 
consistent with the three ratios required in the local government test 
and other Agency programs.
    Response: EPA's financial test adopted in today's rulemaking action 
includes two alternative ratios that consider either the ratio of total 
liabilities to net worth (Sec. 258.74(e)(1)(i)(B)), or the ratio of net 
income plus depreciation, depletion, and amortization, minus $10 
million, to total liabilities (Sec. 258.74(e)(1)(i)(C)). The analysis 
supporting the proposal indicated that the two alternative ratios do 
very well at allowing firms to qualify for the test while 
distinguishing between firms which will and will not go bankrupt. (This 
information can be found in Section VI of the preamble to the proposed 
rule (59 FR 51523)). Additional analyses, conducted in response to this 
and other comments confirmed these findings as shown by Exhibit 6 of 
the Analysis of Subtitle D Financial Tests in Response to Public 
Comments. This exhibit shows the high availability of the test (71.67% 
of obligations) and its low public cost ($11.7 million). By comparison, 
the current Subtitle C test, which uses three ratios, has a much lower 
availability (24.44% of obligations). While the analysis of the current 
Subtitle C test shows a low public cost of $4.3 million, this happens 
because of its low availability rather than because it is a better 
predictor of bankruptcy than the test being adopted today. A comparison 
of the misprediction of a test (M(f)) divided by its availability 
(A(f)) shows that the test EPA selected (Test 562-10) has a better 
ratio (0.362) than the current Subtitle C test (0.380). These ratios 
can also be taken from a single year's financial information.
    To design a test as recommended by this commenter would involve a 
substantial degree of complexity, and with the variables cited (changes 
in cash flow, and revenue and expenditures) could also lack reliability 
and have a degree of redundancy. For example, measuring changes in cash 
flow could discriminate against a firm which previously had an 
exceptionally profitable year, but had only normal profitability in the 
most recent year. This occurs because the change in cash flow would be 
negative, even though the profitability was still acceptable. 
Measurements of changes in revenues and expenditures will incorporate 
much of the information in changes in cash flow and so may yield little 
additional information. Further, the variables that the commenter 
suggests do not directly include measures of debt which EPA's research 
found are crucial in the prediction of bankruptcy.
    While the current Subtitle C financial test incorporates three 
ratios, they involve different measures than suggested by the 
commenter. Moreover, EPA has proposed changes to the Subtitle C test 
(56 FR 30201) involving the same ratios, and the same number of ratios, 
used in this test for corporate owners and operators of MSWLFs. 
Consistency with the current Subtitle C financial test is not a 
sufficient reason to include another test when the test being 
promulgated here has shown that it does a very good job of 
distinguishing between firms that will remain viable and those that 
could go bankrupt. Furthermore, while the commenter noted that EPA's 
proposed local government financial test incorporated three ratios, the 
final test has two ratios (61 FR 60328).
    Comment: The profitability ratio incorporates a $10 million 
subtraction from net cash flow in the comparison with liabilities. One 
commenter recommended that the numerator instead subtract the lesser of 
$10 million or a percentage of the costs being assured.
    Response: In light of public comments on its proposal, EPA has 
examined several alternative specifications of the financial tests. The 
results of these examinations appear in the report entitled ``Analysis 
of Subtitle D Financial Tests in Response to Public Comments'' that is 
included in the public docket of this rulemaking. The alternative 
specifications included fractional specifications (e.g. 0.66 times the 
financial assurance amount and identified as Test 94-10) of the amount 
of the liabilities compared with cash flow, a lower decrement from cash 
flow (e.g. Cash flow--$5 million and

[[Page 17723]]

identified as Test 544-10), no decrement from cash flow (Test 76-10) 
and different ratio requirements (e.g. 0.05 rather than 0.1 and 
identified as Test 127-10). None of these alternative specifications 
were as good overall at minimizing both the public and private costs as 
the tests that EPA had included in its proposed rule. Therefore, EPA is 
promulgating the same cash flow requirement in this rule as that 
proposed.

D. Domestic Assets

    Comment: Several commenters supported the proposed domestic asset 
requirement, but others recommended alternatives such as a six times 
multiple, or assets in the United States equal to the minimum size 
requirement, or domestic assets equal to 50% to 90% of total assets.
    Response: EPA has decided to promulgate the domestic asset 
requirement as proposed. While commenters offered alternative 
approaches for a domestic asset requirement, many of these were based 
upon the use of a number from, for instance, EPA's current Subtitle C 
financial test (e.g. the six times multiple which EPA proposed to 
change in the October 12, 1994 notice for this rulemaking, see 59 FR 
51527), or a separate component of the proposal (e.g. the minimum 
tangible net worth) with little basis for adoption as part of the 
domestic asset requirement. These approaches would have the effect of 
potentially reducing the availability of the financial test, and 
thereby increasing private costs, without a demonstration of how they 
would make the test less available to firms which would enter 
bankruptcy, and thereby decrease the public costs. The information that 
the commenters provided did not demonstrate that requiring more 
domestic assets would lead to a reduced risk of bankruptcy, which is 
already a small probability. Both firms that only have domestic assets 
and firms that also have foreign assets must meet the same ratios or 
bond ratings to qualify for the test. The effect of a more stringent 
domestic asset requirement would have limited the amount of obligations 
that a firm qualifying for the financial test can cover. This would 
potentially have increased the private cost of the test, but not have 
made the test a better predictor of bankruptcy. Only in the unlikely 
event of a bankruptcy would this more stringent requirement have had an 
impact by having reduced the amount of costs covered. EPA believes that 
requiring domestic assets equal to the amount assured represents a 
balanced approach.
    Comment: One commenter noted that none of the domestic assets had 
to be liquid and recommended that EPA should require that some or all 
of the domestic assets should be liquid and readily accessible.
    Response: While liquid assets are more readily accessible than 
fixed assets, EPA is not establishing a requirement that a certain 
amount of domestic assets be liquid. During the normal course of 
business, firms can be expected to maintain a portion of assets in 
liquid form. However, liquidity can be a misleading predictor of 
bankruptcy. This arises because firms that are under financial distress 
tend to liquidate assets and thus appear more liquid as they move to 
bankruptcy. Further, if the underlying concern is that a foreign firm 
would withdraw from the US market and declare bankruptcy, a requirement 
for liquid assets, which can be readily transferred, would prove to be 
an ineffectual deterrent.

E. Recordkeeping and Reporting Requirements

    Comment: One State noted that its program does not follow the self-
implementing requirement of the test which allows the owner or operator 
to maintain the documentation as part of the operating record, but 
instead requires the submission of the original financial assurance 
documents.
    Response: In developing its regulations for MSWLFs, EPA has adopted 
a self-implementing approach. However, EPA recognizes that some States 
may have different programs. This rule does not preclude a State from 
having more stringent requirements than EPA.
1. Qualified Accountant's Opinions
    Comment: Some commenters suggested that the final rule disallow the 
use of the financial test automatically if there was a qualification to 
the accountant's opinion. These comments were based upon a concern that 
allowing the use of a qualified opinion without specifying the basis 
for that allowance could lead to inconsistent application by states or 
that states would have insufficient resources to consider these 
opinions. Others recommended that the rule provide narrower definitions 
of what would constitute something other than a clean opinion.
    Response: The proposal and final rule provide that to be eligible 
to use the financial test, the owner or operator's financial statements 
must generally receive an unqualified opinion. However, the rule also 
allows the State Director the discretion of allowing a firm on a case-
by-case basis to use the financial test if it has received a qualified 
opinion. The final rule provides that an adverse opinion, disclaimer of 
opinion, or other qualified opinion will be cause for disallowance. See 
Sec. 258.74(e)(2)(i)(B). However, this provision of the rule further 
provides that the Director may evaluate qualified opinions on a case-
by-case basis and allow use of the financial test in cases where the 
Director determines that the matters which form the basis for the 
qualification are insufficient to warrant a disallowance of the test. 
Part III of this preamble also explains that an unqualified opinion 
(i.e. a ``clean opinion'') from the accountant demonstrates that the 
firm has prepared its financial statements in accordance with generally 
accepted accounting principles. The Agency believes that, consistent 
with these standards, this is an appropriate area for a State Director 
to exercise judgment and does not see a need at this time to provide 
further national guidance on how to consider submissions which do not 
have unqualified opinions. A state that determines that reviewing 
financial statements that have received a qualified opinion would 
constitute an unreasonable resource burden would not have to adopt that 
provision of the rule. However, EPA will consider providing additional 
guidance if state implementation issues or other circumstances so 
warrant.
2. Special Report From the Independent Certified Public Accountant
    Comment: The American Institute of Certified Public Accountants 
(AICPA) recommended that the regulations provide for a CPA to perform 
an agreed-upon procedures engagement in accordance with standards 
issued by AICPA to report his or her findings. This would replace the 
review level or examination level procedure called for in the proposal.
    Response: Under the regulations the owner or operator does not need 
to provide a report from the CPA if the Chief Financial Officer uses 
financial test figures directly from the annual financial statements or 
any other audited financial statements or data provided to the 
Securities and Exchange Commission. In these cases, EPA does not see a 
need for a special report from the CPA.
    Under EPA's proposed regulations, if the owner or operator used 
financial test data that were different from the audited financial 
statements or not taken directly from SEC filings, then the owner or 
operator had to provide a special report from the independent

[[Page 17724]]

certified public accountant stating that ``In connection with that 
examination, no matters came to his attention which caused him to 
believe that the data in the chief financial officer's letter should be 
adjusted.'' 59 FR 51535. EPA agrees with the comment from AICPA that 
the special report required by the proposed rule was an inappropriate 
type of engagement.
    In performing audits and other types of work, CPAs must follow 
certain professional standards. The AICPA's Statement on Auditing 
Standards no longer permits independent auditors to express negative 
assurance (i.e. ``No matter came to his attention which caused him to 
believe that the specified data should be adjusted.''). The current 
AICPA standards require the auditor to present the results of 
procedures performed in the form of findings, and explicitly disallow 
issuing ``negative assurance.'' Thus, the proposed regulatory language 
would have precluded an owner or operator who wanted to use adjusted 
data in the financial test from having that option.
    If the owner or operator uses financial test figures that are not 
taken directly from the audited financial statements or SEC filings, 
then the owner or operator should include a report from the independent 
certified public accountant that is based upon an agreed-upon 
procedures engagement performed in accordance with AICPA standards. In 
an agreed-upon procedures engagement an accountant is engaged by a 
client to issue a report of findings based upon specific procedures 
performed on specific items of a financial statement. The final 
regulations require the report to describe the procedures performed in 
comparing the data in the chief financial officer's letter derived from 
the independently audited, year-end financial statements for the latest 
fiscal year with the amounts in such financial statements, the findings 
of that comparison, and the reasons for any differences. See 
258.74(e)(2)(i)(C).

F. Annual Updates

    Comment: Commenters suggested allowing a minimum of 120 days for 
privately held firms (as opposed to publicly traded firms) to update 
their financial information because they are not considered major 
accounts and so frequently have their audits performed after publicly 
held firms.
    Response: To address this comment, in the final rule, EPA has given 
State Directors the discretion to allow firms that can demonstrate that 
they cannot meet the annual requirement to acquire audited financial 
statements within 90 days of the close of the fiscal year up to an 
additional 45 days to demonstrate that they qualify. EPA believes that 
this can be particularly valuable to smaller firms that are not 
publicly traded and so may not have their audited financial statements 
prepared as quickly as larger firms.

G. Current Financial Test Documentation

    Comment: Some commenters objected to the provision in 
258.74(e)(2)(vi) that allows the State Director to request current 
financial test documentation when there is a reasonable belief that the 
owner or operator no longer meets the requirement of 258.74(e)(2).
    Response: The Agency continues to believe that to promote and 
verify compliance it is important that State Directors may request 
additional information based upon a reasonable belief that the owner or 
operator may no longer meet the requirements of the financial test. As 
noted above and in the preamble to the proposed rule, the State 
Director may wish to request additional information in the event of a 
large liability judgment. Another example could be the reported 
downgrading of a firm's bonds so that the firm could no longer qualify 
by virtue of the bond rating alternative. While both of these 
occurrences can be appropriate circumstances for such a request, EPA 
does not consider this an exhaustive list. The final rule continues to 
use the criteria of ``reasonable belief.''
    Comment: One commenter asserts that this requirement should be 
deleted as it is not in the Subtitle C rules, and Subtitle D facilities 
present less of a threat to human health and the environment.
    Response: In fact, this requirement appears in the Subtitle C 
financial test regulations promulgated April 7, 1982 (47 FR 15032) 
(See, for example, existing 40 CFR 264.143(f)(7)). It is important in 
both the financial tests for the hazardous and the municipal waste 
programs that the State Director have the ability to ensure that firms 
qualifying for the financial test continue to demonstrate financial 
viability.
    Comment: One comment suggested that EPA allow the use of internal 
financial statements based upon the most recently unaudited quarterly 
financial statements to respond to a request by the State Director for 
additional information.
    Response: Section 258.74(e)(2)(vi) of the proposed rule would have 
required the owner operator ``to provide current financial test 
documentation as specified in paragraph (e)(2) of this section.'' This 
may have been interpreted as merely the transmission to the State 
Director of the types of documentation required to be maintained in the 
facility's operating record. EPA agrees with the commenter that the 
types of documentation may differ depending upon the nature of the 
State Director's concern. The final rule modifies this requirement to 
clarify that the State Director may require the documentation in 
paragraph (e)(2) or additional information. This is consistent with the 
general purpose of the requirement, to ensure the State Director can 
obtain the information necessary to verify whether the firm still meets 
the financial test. 59 FR 51526. This leaves to the State Director the 
discretion to require the appropriate level of information, as 
warranted by the circumstances.

H. Corporate Guarantee

    Comment: Some commenters agreed with allowing the use of a 
corporate guarantee, while others objected to its inclusion as a 
mechanism because of concerns about the ability of States to implement 
such a regulation.
    Response: The Agency continues to believe that a corporate 
guarantee, like other third party mechanisms such as letters of credit 
or surety bonds, can ensure that a third party is obligated to cover 
the costs of closure, post-closure care, or corrective action in the 
event that the owner or operator goes bankrupt or fails to conduct the 
required activities. States concerned with implementation of a 
corporate guarantee could decline to adopt this mechanism. Conversely, 
if a state chooses to revise its permit program in response to today's 
rule, the state should work with the respective EPA regional office as 
it proceeds to make these changes.
    Comment: One State recommended not allowing the use of a corporate 
guarantee based upon a substantial business relationship because it 
would require a decision by the State's Attorney General on its ability 
to enforce against a guarantor.
    Response: While the final rule allows the use of a guarantee by a 
firm with a substantial business relationship, States do not have to 
adopt this provision if, for example, a state believes it creates 
undesirable administrative or enforcement burdens. EPA notes that its 
regulations in the hazardous waste program already allow the use of a 
corporate guarantee by a firm with ``a substantial business 
relationship'' in demonstrating financial assurance in, for example, 40 
CFR 264.143(f)(10) or 40 CFR 265.147(g). (See also 40 CFR 264.141(h) 
for a definition of ``substantial business relationship.'') EPA expects 
that the number of owners

[[Page 17725]]

or operators who would qualify to use this provision in the MSWLF 
criteria will be substantially smaller than for coverage in the 
Subtitle C program if for no other reason than the number of firms that 
could need a guarantee is less than the number of Subtitle C firms.
    Comment: Another commenter suggested that limiting the use to firms 
with a substantial business relationship was too restrictive.
    Response: Broadening the availability of the corporate guarantee to 
firms which do not have a substantial business relationship could 
affect the validity and enforceability of the guarantee. The scope of 
the corporate guarantee is the same as in the Subtitle C regulations 
that allow it for closure and post closure care liabilities (57 FR 
42832). This rule was an extension to closure and post closure care 
liabilities of an earlier rulemaking allowing the guarantee for 
liability coverage by firms with a substantial business interest (53 FR 
33938). In the preamble to the regulation establishing this mechanism 
for Subtitle C liability (53 FR 33942), EPA addressed whether a broader 
availability would be appropriate. The Agency determined that a 
substantial business relationship was necessary to ensure that the 
guarantee would be a valid and enforceable contract. ``EPA sought to 
ensure that a valid and enforceable contract was created. To this end, 
the Agency is requiring these firms to demonstrate a substantial 
business relationship with the owner or operator to ensure that the 
guarantee is a valid contract.'' As EPA noted in the preamble, ``A 
guarantee contract, by itself would be inadequate to demonstrate a 
substantial business relationship between two parties. However, an 
existing contract to supply goods or services, separate from the 
guarantee contract, could supply evidence of such a relationship. An 
example of such a relationship might be a contract for hazardous waste 
disposal between a generator and a disposal facility.'' The commenter 
provided no information on how to ensure that a guarantee between firms 
that do not have a substantial business relationship would be valid and 
enforceable, and therefore the Agency has insufficient basis for 
expanding the types of firms which can offer guarantees. To ensure the 
enforceability of the guarantee, EPA has retained the requirement that 
the guarantor have a substantial business relationship with the owner 
or operator.
    Comment: One commenter suggested that the rule require a guarantor 
to provide alternate financial assurance 30 days after the guarantor 
discovers that it no longer meets the terms of the financial test. This 
would limit the exposure to only 30 days versus possibly a year or 
longer under the current proposed requirement.
    Response: Under the commenter's suggestion, a guarantor would have 
thirty days once it discovers that it no longer meets the financial 
test to provide an alternative mechanism. Under the proposed 
regulation, the owner or operator must provide financial assurance 
within 90 days of the close of the guarantor's fiscal year if the 
guarantor no longer passes the financial test. If a guarantor no longer 
met the requirements of the financial test by, for example, losing an 
investment grade bond rating, the language in the proposal could have 
delayed when the owner or operator, or the guarantor, would have had to 
provide an alternative mechanism. In the rulemaking for the financial 
test for local governments who own or operate MSWLFs (61 FR 60328), the 
Agency faced similar issues. Today's rule adopts language consistent 
with the guarantee provision in the local government rule to reduce 
this potential delay. EPA has made this adjustment by essentially 
removing the words ``following the close of the guarantor's fiscal 
year'' in the proposal language. This clarifies that if a guarantor no 
longer meets the criteria of the financial test in the middle of a 
fiscal year, it would only have a total of 120 days to correct the 
problem. In the case of a guarantor whose year-end financial statement 
shows that the firm no longer meets the criteria of the financial test, 
the owner or operator would have 90 days from the close of the 
guarantor's fiscal year to obtain an alternative mechanism, and if the 
owner or operator does not obtain an alternative, then the guarantor 
must provide an alternative mechanism within the next 30 days.
    However, while the commenter suggested a 30 day deadline for the 
guarantor to secure an alternative instrument, EPA believes that this 
is an overly aggressive deadline to establish as a general rule. Thus, 
EPA has retained the requirement that the owner or operator secure an 
instrument within 90 days, and if the owner or operator fails to do so, 
then the guarantor must secure an alternative instrument within 120 
days. The 90 day deadline is consistent with the reporting deadlines of 
the rule for firms using the financial test mechanism, and the overall 
120 day deadline for the guarantor is consistent with the 120 day 
deadline for an owner or operator who has failed the financial test to 
obtain an alternative mechanism.

I. Impacts on Third Party Financial Assurance Providers

    Comment: Several commenters felt that by allowing the financial 
test, EPA would create a situation where the best risks would use the 
financial test and the highest risk owners or operators would be left 
to third party instruments. Sureties and insurance companies would be 
uninterested in making a market for the highest risks.
    Response: The financial test will allow firms with the least chance 
of bankruptcy to utilize the test rather than purchase third party 
mechanisms. However, with this flexibility EPA expects that there will 
still be a demand for third party instruments such as can be provided 
by insurers and sureties. Further, in addition to the financial test 
and guarantee, and sureties and insurance, the financial assurance 
regulations allow firms to demonstrate financial responsibility with 
trust funds, letters of credit, and other state-approved mechanisms 
meeting the performance criteria. Thus, even if sureties or insurers 
were no longer to provide a mechanism, firms that could not qualify for 
the financial test would still have mechanisms available to provide 
financial assurance.
    With the exception of the state-approved mechanisms, the RCRA 
Subtitle D mechanisms are substantially the same as those that are 
available for owners and operators of RCRA Subtitle C treatment, 
storage and disposal facilities. In Subtitle C, a financial test has 
been available since 1982, and firms demonstrate financial assurance 
with the full range of mechanisms including surety bonds and insurance. 
EPA believes that sureties and insurers will evaluate the market for 
their products and, as demand warrants, will continue to provide 
mechanisms, as they have in Subtitle C.

J. General Support of and Opposition to the Financial Test

    Comments: States and others expressed both general support of and 
opposition to the financial test. One State noted that a financial test 
does not provide a State or EPA access to funds to complete closure, 
post-closure, or corrective action should the financially responsible 
corporation refuse to take the needed action. The recourse for the 
State or EPA would be a lengthy and costly lawsuit.
    Response: While the commenter notes a circumstance in the financial 
responsibility test where the owner or operator has the financial 
wherewithal to comply but does not, this circumstance does not 
distinguish itself

[[Page 17726]]

from others where EPA or a State must undertake enforcement to obtain 
compliance. The likelihood of a financially sound firm nevertheless 
being reluctant to fulfill its obligations is not affected by today's 
final rule.
    Third party mechanisms do, however, provide easier access to funds 
to fulfill financial obligations. A State may, therefore, decide that 
it has facilities with poor compliance histories that do not make them 
a good candidate for the financial test in order to eliminate potential 
delays in obtaining closure, post-closure or corrective action. 
Similarly, States may decide to forego altogether adoption of the 
financial tests.

K. First Party Trust

    Comment: As an alternative to a financial test and guarantee, one 
commenter suggested allowing facility owners to establish funds under 
their administration and management which would be regulated by a State 
agency which would establish rules for deposits as a trust fund. Once 
closure was complete, the funds would revert to the owner.
    Response: The current financial responsibility standards allow 
owners and operators to establish financial responsibility through a 
trust fund managed by a third party. Under the commenter's plan, the 
facility would maintain control over the funds so the protections 
inherent in having a third party manage the funds would be lost. This 
plan would also require States to regulate these funds and ensure their 
safety. Since the funds remain under the control of the owner or 
operator, there could be concern for their safety unless the firm was 
in excellent financial condition. The mechanism to ensure this 
excellent financial condition could look substantially like a financial 
test so it is unclear what has been gained over EPA's approach of 
directly allowing a financial test. EPA does not consider this approach 
superior to its current system of allowing trust funds and a financial 
test and corporate guarantee.

L. Comments on the Notice of Data Availability

    EPA received two comments on the September 27, 1996 Notice of Data 
Availability (61 FR 50787) providing additional opportunity to comment 
on EPA's analysis of the Meridian Corporation's alternate financial 
test: one from a private operator of MSWLFs, and one from a State 
regulatory agency.
    Comment: The private operator who commented on EPA's analysis of 
the Meridian Report did not believe that each state should determine 
which mechanism(s) and the terms of the mechanism that an owner or 
operator should be able to use, but that the owner or operator should 
be allowed to use one or any combination of the following historically 
approved mechanisms: standby trust agreement, surety bond, letter of 
credit, insurance, or the financial test and corporate guarantees for 
closure, post closure, and/or corrective action.
    Response: The Subtitle D program is intended to be a state 
implemented program. The Agency has therefore left it to the states to 
determine what financial mechanism they will allow and specific details 
regarding those mechanisms. Indeed, a Congressional objective of RCRA 
is to establish a joint state and Federal partnership in administering 
the law. RCRA 6902(a)(7). Further, Sec. 3009 of RCRA explicitly allows 
a State to establish requirements more stringent than the federal 
requirements. Accordingly, EPA believes it would be inappropriate for 
policy and legal reasons to preempt disparate state requirements for 
MSWLFs. At the same time, EPA has developed sound national regulations 
that it encourages states to adopt that help to promote national 
uniformity.
    Comment: The State regulatory agency was not in support of the 
Meridian Test and generally supported the evaluation performed by ICF 
Incorporated for EPA. The commenter also expressed concerns about the 
following aspects of the Meridian Test. The commenter did not agree 
with capping the period for which financial assurance would be 
provided, assuming a three percent real interest rate when preparing 
cost estimates because closure estimates are usually underfunded, 
amending the requirements for financial assurance requirements for 
contingent events to allow combined coverage within and across 
programs, and amending the requirements for closure and post-closure 
care by allowing owners or operators of multiple facilities to 
demonstrate financial assurance for less than the total costs of all 
facilities.
    Response: EPA's regulations do not allow for capping the period for 
which financial assurance would be provided for MSWLFs. EPA's MSWLF 
regulations at 40 CFR 258.71(a)(1) require that closure cost estimate 
must equal the cost of closing the largest area of all MSWLF units ever 
requiring a final cover at any time during the active life when the 
extent and manner of its operation would make closure the most 
expensive. 40 CFR 258.72(a) requires that post-closure cost estimates 
include annual and periodic costs over the entire post-closure care 
period, and 40 CFR 258.73(a) requires that the corrective action cost 
estimate account for the total cost of the corrective action activities 
for the entire corrective action period.
    EPA agrees that estimates of environmental obligations can be 
underestimated and that discounting could exacerbate the attendant 
problems of insufficient funds being available. In the previously 
issued regulations allowing discounting, EPA requires that the State 
Director determine that cost estimates are complete and accurate and 
the owner or operator must submit a statement from a Registered 
Professional Engineer so stating. 61 FR 60339 (codified at 40 CFR 
258.75(a). This requirement is designed to ensure that the cost 
estimates are not underestimated.
    EPA agrees with the commenter that amending the requirements for 
contingent events is an irrelevant issue here because EPA has deferred 
any requirement for liability coverage as part of the MSWLF criteria.
    Today's regulation requires that an owner or operator using the 
financial test to demonstrate financial assurance must have a tangible 
net worth that is greater than the sum of current closure, post-closure 
care, corrective action cost estimates, and any other environmental 
obligations covered by a financial test plus $10 million. The rules do, 
however, provide that if an owner or operator has already recognized 
the value of these obligations as liabilities on its financial 
statements, then the State Director may allow the firm to use the 
financial test if it meets the other criteria and has at least $10 
million in net worth plus the amount of any guarantees extended by the 
firm that have not been recognized as liabilities on the financial 
statements. Thus, EPA's final rule requires that a firm must account 
for the value of all obligations covered by a financial test or 
guarantee.

VII. Miscellaneous

    The discussion below addresses Executive Order 12866 (interagency 
regulatory review), the Unfunded Mandates Reform Act, the Regulatory 
Flexibility Act, the Small Business Regulatory Enforcement Fairness 
Act, the Paperwork Reduction Act, and Executive Order 12898 
(Environmental Justice).

A. Executive Order 12866

    Under Executive Order 12866, the Agency must determine whether a 
regulatory action is ``significant'' and, therefore, subject to Office 
of Management and Budget (OMB) review

[[Page 17727]]

and other requirements of the Executive Order. The Order defines 
``significant regulatory action'' as one that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    Even though this rule provides owners and operators of MSWLFs with 
regulatory relief in meeting the existing requirements for financial 
assurance, EPA has submitted this rule to OMB for review because it 
raises important policy issues. The text of the draft final rule 
submitted to OMB, accompanying documents, and changes made in response 
to OMB suggestions or recommendations are in the public docket listed 
at the beginning of this notice.
    EPA has evaluated the economic impact of the final rule. The Agency 
estimates that today's rule will save approximately $65.8 million 
annually. This figure is higher than the estimate for the proposed rule 
because it reflects additional analysis EPA performed in response to 
public comments, using updated financial and cost information. As 
explained above in the discussion of public comments, EPA's analysis 
for this final rule includes the costs for firms with less than $10 
million in net worth. The underlying analysis, which followed the same 
methodology as the analysis supporting the proposed rule, can be found 
in the public docket for today's rule.
    More specifically, EPA relied on updated (1995) financial 
information from Dun and Bradstreet on the firms in the MSWLF industry, 
bond rating information from Standard & Poor's, and Moody's, and 
augmented information on the financial characteristics of firms that 
entered bankruptcy. The economic impact analysis for this final rule 
estimated the availability of the financial test to firms in the MSWLF 
industry. If a firm was unable to cover any portion of its obligations, 
the analysis estimated the cost of the third party instruments that 
would be necessary. This inability to use the financial test could 
arise if, for example, the firm did not meet the ratio or bond rating 
requirements, or if its obligations were more than allowable under the 
tangible net worth requirement. The cost of the third party instruments 
was labeled the private cost of the test. It is the existing financial 
assurance requirements for owners and operators of MSWLFs under 40 CFR 
part 258 subpart G that imposes such costs, not the financial test 
being promulgated today.
    As examined earlier in the notice, no financial test can perfectly 
discriminate between firms that should be allowed to use the financial 
test and therefore not have to pay the cost of a third party mechanism, 
and firms that will go bankrupt and so should have to use a third party 
instrument. Since a test will not be perfect at screening out firms 
that will enter bankruptcy, such costs are borne by the public. These 
public costs are the costs to the public sector of paying for financial 
assurance obligations, such a closure or post-closure costs, for firms 
that pass the test but later go bankrupt without funding their 
obligations. EPA analyzed the public costs associated with today's 
rulemaking. EPA's analysis assessed the misprediction of the various 
tests and the attendant public costs. As noted earlier in the notice, 
another relevant factor in designing a reasonable financial test is who 
should bear the costs, or how they should be reasonably allocated. In 
other words, there are public policy issues in deciding whether 
financial assurance costs should be borne by the owners or operators of 
MSWLFs (and their customers), or the public generally.
    To calculate the cost savings of today's rule, EPA first estimated 
the cost for private owners or operators of MSWLFs of obtaining third 
party mechanisms (e.g., letters of credit) to assure their MSWLF 
obligations which the Agency estimates total approximately $7 billion 
for closure and post-closure obligations. EPA estimates that the cost 
of such financial assurance instruments under the existing financial 
assurance requirements would total $123.0 million annually. (See 
``Analysis of Subtitle D Financial Tests in Response to Public 
Comments'' in the docket to this rule.)
    There are a few potential adjustments to those costs. To the extent 
that owners or operators are able to use alternative mechanisms such as 
captive insurance that could be less expensive, this estimate of the 
cost of financial responsibility in the absence of this rule would be 
somewhat overstated. Also, on November 27, 1996 (61 FR 60328) EPA 
promulgated 40 CFR 258.75 that provided State Directors with the 
authority to allow the discounting of closure, post-closure and 
corrective action costs. EPA did not estimate the potential cost 
savings from that provision at that time, and does not have information 
regarding the extent to which State Directors have provided this 
allowance. However, to the extent that State Directors have provided 
that allowance to privately owned or operated MSWLFs, this allowance 
could lead to a relatively small overstatement of the savings 
associated with this rule. For more information on the changes in costs 
potentially associated with discounting, please see ``Analysis of 
Subtitle D Financial Tests in Response to Public Comments'' in the 
docket.
    As described earlier, in the analysis for this rule EPA has 
evaluated the private and public costs and savings associated with a 
number of regulatory alternatives. The regulatory alternative adopted 
in today's final rule is estimated to result in an annual savings of 
approximately $65.8 million or more, which puts it at the forefront in 
cost savings among the regulatory alternatives. Under the alternative 
adopted in today's final rule, an owner or operator could assure 
obligations so long as the firm's tangible net worth is at least $10 
million larger than the obligation. This test had a private cost of 
$45.6 million annually and a public cost of $11.7 million annually for 
a total annual cost of $57.3 million. Subtracting the total cost from 
the cost of the existing requirement without a test ($123.0 million) 
gives a savings of $65.8 million annually.
    Further, as noted earlier, EPA was concerned that this alternative 
could discriminate against firms which had already recognized all of 
their environmental obligations as liabilities on their audited 
financial statements. Therefore, EPA has given to State Directors the 
ability to allow firms that have their environmental obligations fully 
reflected in their liabilities on their audited financial statements to 
cover these obligations so long as they have a net worth of at least 
$10 million plus the amount of any guarantees that do not appear on 
their financial statements. The maximum annual savings from this rule 
as a result of this allowance are estimated to total $ 73.1 million, or 
$7.3 million more than $65.8 million.
    The document entitled ``Analysis of Subtitle D Financial Tests in 
Response to Public Comments,'' contains additional information on the 
estimated cost savings of this rule, and is available in the public 
docket for this rulemaking.

[[Page 17728]]

B. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. 
L. 104-4, establishes requirements for Federal agencies to assess the 
effects of certain regulatory actions on state, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, EPA 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures to state, local, and tribal governments, in 
the aggregate, or to the private sector, of $100 million or more in any 
one year. Before promulgating a final rule for which a written 
statement is needed, section 205 of the UMRA generally requires EPA to 
identify and consider a reasonable number of regulatory alternatives 
and adopt the least costly, most cost-effective or least burdensome 
alternative that achieves the objectives of the rule. The provisions of 
section 205 do not apply when they are inconsistent with applicable 
law. Moreover, section 205 allows EPA to adopt an alternative other 
than the least costly, most cost-effective or least burdensome 
alternative if the Administrator publishes with the final rule an 
explanation why that alternative was not adopted. Before EPA 
establishes any regulatory requirements that may significantly or 
uniquely affect small governments, including tribal governments, it 
must have developed under section 203 of the UMRA a small government 
agency plan. The plan must provide for notifying potentially affected 
small governments, enabling officials of affected small governments to 
have meaningful and timely input in the development of EPA regulatory 
proposals with significant Federal intergovernmental mandates, and 
informing, educating, and advising small governments on compliance with 
the regulatory requirements. Section 204 of UMRA requires each agency 
to develop ``an effective process to permit elected officers of state, 
local, and tribal governments . . . to provide meaningful and timely 
input'' in the development of regulatory proposals containing a 
significant Federal intergovernmental mandate.
    Today's rule is not subject to the requirements of sections 202, 
203, 204, and 205 of the UMRA. EPA has determined that this rule does 
not contain a Federal mandate that may result in expenditures of $100 
million or more for state, local, and tribal governments, in the 
aggregate, or the private sector in any one year. On the contrary, as 
described above, the Agency estimates that today's rule will save $65.8 
million annually by allowing the use of a financial test or a corporate 
guarantee to demonstrate financial responsibility for environmental 
obligations without incurring the costs of obtaining a third-party 
mechanism. Further, as discussed previously in the notice, neither 
State nor local governments are subject to the requirements under this 
rule, but state governments have considerable flexibility in deciding 
how to implement the regulatory relief provided in this rule.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
provides that, whenever an agency is required to publish a general 
notice of rulemaking for a proposal, the agency must prepare an initial 
regulatory flexibility analysis for the proposal unless the head of the 
agency certifies that the rule will not, if promulgated, have a 
significant economic impact on a substantial number of small entities 
(section 605(b)). The EPA certified that the October 12, 1994 proposal 
for today's rule would not have a significant economic impact on a 
substantial number of small entities. 59 FR 51534. Accordingly, the 
Agency did not prepare an initial regulatory flexibility analysis for 
the proposed rule.
    EPA has not received any adverse public comments on its decision 
under the RFA to certify the proposed rule and declining to prepare an 
initial regulatory flexibility analysis for the proposed rule. As 
discussed above, EPA did receive public comments that the tangible net 
worth requirement under the financial test is unnecessary and has an 
anticompetitive effect on small firms in the MSWLF industry, but these 
comments did not raise questions regarding the RFA certification. In 
the discussion of public comments, above, and in the ``Response to 
Public Comments'' document accompanying this rulemaking, EPA addresses 
the concerns about the proposed minimum net worth requirement. The 
discussion of public comments in section VI.A. above regarding the 
minimum tangible net worth requirement and other aspects of the 
preamble help explain EPA's decision here to also certify that the 
final rule will not have a significant adverse impact on a substantial 
number of small entities.
    For the following reasons, EPA concludes that certification is 
still proper. As noted above, the RFA requires a regulatory flexibility 
analysis unless the rule ``will not have, if promulgated, a significant 
economic impact on a substantial number of small entities.'' RFA 
section 605(b). For purposes of the RFA, the ``impact'' of concern is 
the impact the rule at issue will have on the small entities that will 
have to comply with the rule. The stated purpose of the RFA, its 
requirements for regulatory flexibility analyses, its legislative 
history, the amendments made by the Small Business Regulatory 
Enforcement Fairness Act of 1996 (SBREFA) (Pub. L. 104-121), and case 
law all make clear that an agency must assess the impact of a rule on 
small entities to the extent that small entities will be subject to the 
requirements of the rule. Thus, the RFA is appropriately interpreted to 
require a regulatory flexibility analysis only for rules imposing 
requirements on small entities. See RFA Secs. 603 (b) & (c), and 
604(a); Mid-Tex Electric Co-op., Inc. v. FERC, 773 F.2d 327, 340-43 
(D.C. Cir. 1985) (holding the RFA does not require agencies to examine 
the economic impact on small entities that are not directly regulated 
by the rule or subject to the regulatory requirements of the rule); 
United Distribution Companies v. FERC, 88 F.3d 1105 (D.C. Cir. 1996), 
cert. denied, Associated Gas Distributors v. FERC, 117 S.Ct. 1723 
(1997) (same).
    As discussed in greater detail in section VI.A. above and other 
sections of this preamble, today's rule does not impose new regulatory 
requirements on any firms, including small entities. Rather, the rule 
provides additional flexibility for owners or operators of MSWLF units 
in meeting the existing financial assurance requirements established 
under 40 CFR part 258, subpart G.
    The comments discussed in section VI.A. do not relate to compliance 
burdens imposed on firms subject to the rule, but rather to secondary 
competitive effects that the commenters believe may result from a 
minimum net worth requirement. These are not the kinds of effects that 
a regulatory flexibility analysis is intended to address. Therefore, 
after considering public comments and other relevant information, EPA 
continues to believe that this deregulatory final rule will not have a 
significant economic impact on a substantial number of small entities. 
Accordingly, the Agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities, 
and EPA has not prepared a final regulatory flexibility analysis for 
this rule.

D. Submission to Congress and the General Accounting Office

    Under 5 U.S.C. 801(a)(1)(A) as added by the Small Business 
Regulatory Enforcement Fairness Act of 1996, EPA

[[Page 17729]]

submitted a report containing this rule and other required information 
to the U.S. Senate, the U.S. House of Representatives, and the 
Comptroller General of the General Accounting Office prior to 
publication of the rule in today's Federal Register. This rule is not a 
``major rule'' as defined by 5 U.S.C. 804(2).

E. Paperwork Reduction Act

    OMB approved the information collection requirements of the MSWLF 
criteria, including financial assurance criteria, under the provisions 
of the Paperwork Reduction Act, 44 U.S.C. 3501, et seq., and assigned 
OMB control number 2050-0122. The burden estimate for the financial 
assurance provisions included the burden associated with obtaining and 
maintaining any one of the allowable financial assurance instruments, 
including a financial test.

F. Environmental Justice

    Executive Order 12898 requires that each Federal agency make 
achieving environmental justice part of its mission by identifying and 
addressing, as appropriate, disproportionately high and adverse human 
health or environmental effects of its programs, policies, and 
activities on minorities and low-income populations. This regulation 
provides additional mechanisms by which firms can demonstrate financial 
assurance for their MSWLF closure, post-closure, and if necessary, 
corrective action obligations. It is not expected to have any impact on 
minorities or low-income populations.

G. National Technology Transfer and Advancement Act

    Under section 12(d) of the National Technology Transfer and 
Advancement Act (``NTTAA''), the Agency is required to use voluntary 
consensus standards in its regulatory activities unless to do so would 
be inconsistent with applicable law or otherwise impractical. Voluntary 
consensus standards are technical standards (e.g., materials 
specifications, test methods, sampling procedures, business practice, 
etc.) which are developed or adopted by voluntary consensus standard 
bodies. Where available and potentially applicable voluntary consensus 
standards are not used by EPA, the Act requires the Agency to provide 
Congress, through the Office of Management and Budget, an explanation 
of the reasons for not using such standards. EPA identified no 
potentially applicable voluntary consensus standards for today's final 
rule.

List of Subjects in 40 CFR Part 258

    Environmental protection, Closure, Corrective action, Financial 
assurance, Reporting and recordkeeping requirements, Waste treatment 
and disposal, Water pollution control.

    Dated: April 3, 1998.
Carol M. Browner,
Administrator.
    For the reasons set forth in the preamble, title 40, Chapter I of 
the Code of Federal Regulations is amended as follows:

PART 258--CRITERIA FOR MUNICIPAL SOLID WASTE LANDFILLS

    1. The authority citation for part 258 is revised to read as 
follows:

    Authority: 33 U.S.C. 1345(d) and (e); 42 U.S.C. 6902(a), 6907, 
6912(a), 6944, 6945(c) and 6949a(c).

    2. Section 258.74 is amended by revising paragraphs (e), (g), and 
(k) to read as follows:


Sec. 258.74  Allowable mechanisms.

* * * * *
    (e) Corporate financial test. An owner or operator that satisfies 
the requirements of this paragraph (e) may demonstrate financial 
assurance up to the amount specified in this paragraph (e):
    (1) Financial component. (i) The owner or operator must satisfy one 
of the following three conditions:
    (A) A current rating for its senior unsubordinated debt of AAA, AA, 
A, or BBB as issued by Standard and Poor's or Aaa, Aa, A or Baa as 
issued by Moody's; or
    (B) A ratio of less than 1.5 comparing total liabilities to net 
worth; or
    (C) A ratio of greater than 0.10 comparing the sum of net income 
plus depreciation, depletion and amortization, minus $10 million, to 
total liabilities.
    (ii) The tangible net worth of the owner or operator must be 
greater than: (A) The sum of the current closure, post-closure care, 
corrective action cost estimates and any other environmental 
obligations, including guarantees, covered by a financial test plus $10 
million except as provided in paragraph (e)(1)(ii)(B) of this section.
    (B) $10 million in net worth plus the amount of any guarantees that 
have not been recognized as liabilities on the financial statements 
provided all of the current closure, post-closure care, and corrective 
action costs and any other environmental obligations covered by a 
financial test are recognized as liabilities on the owner's or 
operator's audited financial statements, and subject to the approval of 
the State Director.
    (iii) The owner or operator must have assets located in the United 
States amounting to at least the sum of current closure, post-closure 
care, corrective action cost estimates and any other environmental 
obligations covered by a financial test as described in paragraph 
(e)(3) of this section.
    (2) Recordkeeping and reporting requirements. (i) The owner or 
operator must place the following items into the facility's operating 
record:
    (A) A letter signed by the owner's or operator's chief financial 
officer that:
    (1) Lists all the current cost estimates covered by a financial 
test, including, but not limited to, cost estimates required for 
municipal solid waste management facilities under this part 258, cost 
estimates required for UIC facilities under 40 CFR part 144, if 
applicable, cost estimates required for petroleum underground storage 
tank facilities under 40 CFR part 280, if applicable, cost estimates 
required for PCB storage facilities under 40 CFR part 761, if 
applicable, and cost estimates required for hazardous waste treatment, 
storage, and disposal facilities under 40 CFR parts 264 and 265, if 
applicable; and
    (2) Provides evidence demonstrating that the firm meets the 
conditions of either paragraph (e)(1)(i)(A) or (e)(1)(i)(B) or 
(e)(1)(i)(C) of this section and paragraphs (e)(1)(ii) and (e)(1)(iii) 
of this section.
    (B) A copy of the independent certified public accountant's 
unqualified opinion of the owner's or operator's financial statements 
for the latest completed fiscal year. To be eligible to use the 
financial test, the owner's or operator's financial statements must 
receive an unqualified opinion from the independent certified public 
accountant. An adverse opinion, disclaimer of opinion, or other 
qualified opinion will be cause for disallowance, with the potential 
exception for qualified opinions provided in the next sentence. The 
Director of an approved State may evaluate qualified opinions on a 
case-by-case basis and allow use of the financial test in cases where 
the Director deems that the matters which form the basis for the 
qualification are insufficient to warrant disallowance of the test. If 
the Director of an approved State does not allow use of the test, the 
owner or operator must provide alternate financial assurance that meets 
the requirements of this section.
    (C) If the chief financial officer's letter providing evidence of 
financial assurance includes financial data showing that owner or 
operator satisfies

[[Page 17730]]

paragraph (e)(1)(i)(B) or (e)(1)(i)(C) of this section that are 
different from data in the audited financial statements referred to in 
paragraph (e)(2)(i)(B) of this section or any other audited financial 
statement or data filed with the SEC, then a special report from the 
owner's or operator's independent certified public accountant to the 
owner or operator is required. The special report shall be based upon 
an agreed upon procedures engagement in accordance with professional 
auditing standards and shall describe the procedures performed in 
comparing the data in the chief financial officer's letter derived from 
the independently audited, year-end financial statements for the latest 
fiscal year with the amounts in such financial statements, the findings 
of that comparison, and the reasons for any differences.
    (D) If the chief financial officer's letter provides a 
demonstration that the firm has assured for environmental obligations 
as provided in paragraph (e)(1)(ii)(B) of this section, then the letter 
shall include a report from the independent certified public accountant 
that verifies that all of the environmental obligations covered by a 
financial test have been recognized as liabilities on the audited 
financial statements, how these obligations have been measured and 
reported, and that the tangible net worth of the firm is at least $10 
million plus the amount of any guarantees provided.
    (ii) An owner or operator must place the items specified in 
paragraph (e)(2)(i) of this section in the operating record and notify 
the State Director that these items have been placed in the operating 
record before the initial receipt of waste or before the effective date 
of the requirements of this section (April 9, 1997 or October 9, 1997 
for MSWLF units meeting the conditions of Sec. 258.1(f)(1)), whichever 
is later in the case of closure, and post-closure care, or no later 
than 120 days after the corrective action remedy has been selected in 
accordance with the requirements of Sec. 258.58.
    (iii) After the initial placement of items specified in paragraph 
(e)(2)(i) of this section in the operating record, the owner or 
operator must annually update the information and place updated 
information in the operating record within 90 days following the close 
of the owner or operator's fiscal year. The Director of a State may 
provide up to an additional 45 days for an owner or operator who can 
demonstrate that 90 days is insufficient time to acquire audited 
financial statements. The updated information must consist of all items 
specified in paragraph (e)(2)(i) of this section.
    (iv) The owner or operator is no longer required to submit the 
items specified in this paragraph (e)(2) or comply with the 
requirements of this paragraph (e) when:
    (A) He substitutes alternate financial assurance as specified in 
this section that is not subject to these recordkeeping and reporting 
requirements; or
    (B) He is released from the requirements of this section in 
accordance with Sec. 258.71(b), Sec. 258.72(b), or Sec. 258.73(b).
    (v) If the owner or operator no longer meets the requirements of 
paragraph (e)(1) of this section, the owner or operator must, within 
120 days following the close of the owner or operator's fiscal year, 
obtain alternative financial assurance that meets the requirements of 
this section, place the required submissions for that assurance in the 
operating record, and notify the State Director that the owner or 
operator no longer meets the criteria of the financial test and that 
alternate assurance has been obtained.
    (vi) The Director of an approved State may, based on a reasonable 
belief that the owner or operator may no longer meet the requirements 
of paragraph (e)(1) of this section, require at any time the owner or 
operator to provide reports of its financial condition in addition to 
or including current financial test documentation as specified in 
paragraph (e)(2) of this section. If the Director of an approved State 
finds that the owner or operator no longer meets the requirements of 
paragraph (e)(1) of this section, the owner or operator must provide 
alternate financial assurance that meets the requirements of this 
section.
    (3) Calculation of costs to be assured. When calculating the 
current cost estimates for closure, post-closure care, corrective 
action, or the sum of the combination of such costs to be covered, and 
any other environmental obligations assured by a financial test 
referred to in this paragraph (e), the owner or operator must include 
cost estimates required for municipal solid waste management facilities 
under this part, as well as cost estimates required for the following 
environmental obligations, if it assures them through a financial test: 
obligations associated with UIC facilities under 40 CFR part 144, 
petroleum underground storage tank facilities under 40 CFR part 280, 
PCB storage facilities under 40 CFR part 761, and hazardous waste 
treatment, storage, and disposal facilities under 40 CFR parts 264 and 
265.
* * * * *
    (g) Corporate Guarantee. (1) An owner or operator may meet the 
requirements of this section by obtaining a written guarantee. The 
guarantor must be the direct or higher-tier parent corporation of the 
owner or operator, a firm whose parent corporation is also the parent 
corporation of the owner or operator, or a firm with a ``substantial 
business relationship'' with the owner or operator. The guarantor must 
meet the requirements for owners or operators in paragraph (e) of this 
section and must comply with the terms of the guarantee. A certified 
copy of the guarantee must be placed in the facility's operating record 
along with copies of the letter from the guarantor's chief financial 
officer and accountants' opinions. If the guarantor's parent 
corporation is also the parent corporation of the owner or operator, 
the letter from the guarantor's chief financial officer must describe 
the value received in consideration of the guarantee. If the guarantor 
is a firm with a ``substantial business relationship'' with the owner 
or operator, this letter must describe this ``substantial business 
relationship'' and the value received in consideration of the 
guarantee.
    (2) The guarantee must be effective and all required submissions 
placed in the operating record before the initial receipt of waste or 
before the effective date of the requirements of this section (April 9, 
1997 or October 9, 1997 for MSWLF units meeting the conditions of 
Sec. 258.1(f)(1), whichever is later, in the case of closure and post-
closure care, or in the case of corrective action no later than 120 
days after the corrective action remedy has been selected in accordance 
with the requirements of Sec. 258.58.
    (3) The terms of the guarantee must provide that:
    (i) If the owner or operator fails to perform closure, post-closure 
care, and/or corrective action of a facility covered by the guarantee, 
the guarantor will:
    (A) Perform, or pay a third party to perform, closure, post-closure 
care, and/or corrective action as required (performance guarantee); or
    (B) Establish a fully funded trust fund as specified in paragraph 
(a) of this section in the name of the owner or operator (payment 
guarantee).
    (ii) The guarantee will remain in force for as long as the owner or 
operator must comply with the applicable financial assurance 
requirements of this Subpart unless the guarantor sends prior notice of 
cancellation by certified mail to the owner or operator and to the 
State Director. Cancellation may not occur,

[[Page 17731]]

however, during the 120 days beginning on the date of receipt of the 
notice of cancellation by both the owner or operator and the State 
Director, as evidenced by the return receipts.
    (iii) If notice of cancellation is given, the owner or operator 
must, within 90 days following receipt of the cancellation notice by 
the owner or operator and the State Director, obtain alternate 
financial assurance, place evidence of that alternate financial 
assurance in the facility operating record, and notify the State 
Director. If the owner or operator fails to provide alternate financial 
assurance within the 90-day period, the guarantor must provide that 
alternate assurance within 120 days of the cancellation notice, obtain 
alternative assurance, place evidence of the alternate assurance in the 
facility operating record, and notify the State Director.
    (4) If a corporate guarantor no longer meets the requirements of 
paragraph (e)(1) of this section, the owner or operator must, within 90 
days, obtain alternative assurance, place evidence of the alternate 
assurance in the facility operating record, and notify the State 
Director. If the owner or operator fails to provide alternate financial 
assurance within the 90-day period, the guarantor must provide that 
alternate assurance within the next 30 days.
    (5) The owner or operator is no longer required to meet the 
requirements of this paragraph (g) when:
    (i) The owner or operator substitutes alternate financial assurance 
as specified in this section; or
    (ii) The owner or operator is released from the requirements of 
this section in accordance with Sec. 258.71(b), Sec. 258.72(b), or 
Sec. 258.73(b).
* * * * *
    (k) Use of multiple mechanisms. An owner or operator may 
demonstrate financial assurance for closure, post-closure, and 
corrective action, as required by Secs. 258.71, 258.72, and 258.73 by 
establishing more than one mechanism per facility, except that 
mechanisms guaranteeing performance rather than payment, may not be 
combined with other instruments. The mechanisms must be as specified in 
paragraphs (a), (b), (c), (d), (e), (f), (g), (h), (i), and (j) of this 
section, except that financial assurance for an amount at least equal 
to the current cost estimate for closure, post-closure care, and/or 
corrective action may be provided by a combination of mechanisms rather 
than a single mechanism.
* * * * *
[FR Doc. 98-9558 Filed 4-9-98; 8:45 am]
BILLING CODE 6560-50-P