Opinion ID: 1891394
Heading Depth: 1
Heading Rank: 5

Heading: The PCUA's EIC

Text: In November 1997 the PCUA, pursuant to section 6 of the Local Authorities Fiscal Control Law, N.J.S.A. 40A:5A-1 to -27, applied to the Local Finance Board of the Department of Community Affairs for approval of a refinancing proposal involving the issuance of refunding bonds in an amount not to exceed $40,165,000, the use of part of the proceeds of the refunding bonds to retire $21.4 million of the approximately $27 million balance of a 1991 revenue bond issue, the imposition of an EIC for ten years on all prior users of the PCUA's waste disposal facilities in an amount sufficient to pay the debt service on all of the PCUA's outstanding debt (including the proposed refunding bond issue), and execution of the 1997 Deficiency Agreement with Passaic County pursuant to which, in return for solid waste services, the County agreed to pay to PCUA any amounts necessary to enable PCUA to pay the debt service on its outstanding obligations if its revenues are inadequate. In executing the 1997 Deficiency Agreement, the County anticipated, consistent with the PCUA's representations to the LFB, that the PCUA's revenues from the EIC would be sufficient to maintain all debt service payments. When the PCUA submitted its application to the LFB, its outstanding indebtedness was approximately $76.9 million, almost all of which was attributable either to costs incurred in connection with land acquisition and planning for construction of an incinerator, a project ultimately abandoned by the PCUA, or to cost incurred in connection with the purchase of waste disposal rights in Pennsylvania landfills. The PCUA's outstanding debt as of December 1, 1997 consisted of the following items: PASSAIC COUNTY UTILITIES AUTHORITY DEBT OUTSTANDING DECEMBER 1, 1997 Project Notes Solid Waste System Taxable Project Notes, Series, 1997, Due August 4, 1998, 5.95% $ 2,546,000 Solid Waste System Taxable Project Notes, Series 1997A, Due August 4, 1998, 5.95% 2,500,000 Solid Waste System Tax Exempt Project Notes, Series 1997B Due August 4, 1998, 3.90% 6,400,000 ____________ $ 11,446,000 ------------ Landfill Bonds and Notes Solid Waste System Project Notes, Series 1996 Due March 1, 1999, 5.00% (Accreted Value at Maturity $3,725,000) (Includes Accretion of $263,673 at E.O.P.) 3,502,263 Solid Waste Disposal Revenue Bonds; Refunding Series 1997 Landfill Bonds Payable 5.00-5.42% (Accreted Value at Maturity $31,535,000) (Includes Accretion of $1,837,975 at E.O.P.) 25,428,216 Solid Waste (Landfill) Revenue Bond, Refunding Series 1992A Due March 1, 1998, 5.70% 8,690,000 __________ 37,620,470 ---------- Resource Recovery Bonds Solid Waste System Revenue Bonds 1991 Series Revenue Serial Bonds Payable 6.25% 2,035,000 Term Bonds Payable 7.00% 25,870,000 __________ 27,905,000 ---------- TOTAL $ 76,971,479 PCUA's application to the LFB revealed that the $27.9 million outstanding in 1991 Series Solid Waste Systems Revenue Bonds, issued to finance costs incurred for the Authority's aborted incinerator project, were secured only by PCUA tipping fees, which accounted for their Baa-1 Moody's Investor service rating and relatively high interest rates. The Refunding Series 1996 and 1992A Revenue Bonds, which accounted for approximately $34 million of the PCUA's outstanding debt, had been issued to finance the refunding of the outstanding balance of the PCUA's 1987 Landfill Bonds issued to finance the acquisition of certain easement and license rights for the disposal of solid waste at out-of-state landfills. The 1987 Landfill Bonds, as well as the 1992 and 1996 Refunding Bonds issued to retire the balance of the 1987 bond issue, were secured by a 1987 County Deficiency Agreement pursuant to which the County agreed to pay the PCUA such amounts as the PCUA may require to maintain debt service payments on those bond issues. The PCUA's remaining indebtedness included three series of Project Notes issued in 1997 aggregating approximately $11.4 million. Approximately $2.5 million of those notes were issued in connection with the financing of a settlement with an owner of property condemned for the abandoned incinerator project; another $2.5 million in notes were issued in connection with the settlement of litigation relating to a Passaic County transfer station; and the balance of $6.4 million in Notes were issued in connection with a contract to acquire disposal rights at the Empire landfill in Pennsylvania. The final item of outstanding debt was $3.5 million in Series 1996 Project Notes, but PCUA's application to the LFB did not disclose the reason for their issuance. A critical component of the PCUA's LFB submission, for which the LFB's approval was sought, was the 1997 Deficiency Agreement pursuant to which Passaic County would agree to pay the PCUA any amounts required to meet its debt service obligations on the proposed 1997 Refunding Bonds. Because those Refunding Bonds were intended to refinance $21.4 million of the unsecured Series 1991 Revenue Bonds, the holders of those Bonds would benefit substantially by obtaining the added security provided by the County's guarantee. Pursuant to a December 1997 amendment to the Deficiency Agreement Passaic County also agreed to guarantee payment of the debt service on the approximately $6.5 million of the 1991 Series Revenue Bonds not originally to be refinanced by the 1997 Refunding Bonds, but which pursuant to the PCUA's amended application would be refunded by the 1997 bond issue. Concurrently with the submission of its application to the LFB, the PCUA retracted and renewed a previously filed petition with the LFB, pursuant to N.J.S.A. 40A:5A-18 and -19, seeking a determination of financial difficulty and ordering implementation of the proposed EIC to alleviate that difficulty. In support of its submissions to the LFB, the PCUA asserted that the changes in waste flow rules required by the Third Circuit's decision in Atlantic Coast II have resulted in significant tonnage losses through the Authority's system which have resulted in revenue shortfalls that place in jeopardy the Authority's ability to pay these bonds. Although we need not and do not address in this opinion plaintiff City of Paterson's (Paterson) objections to the lack of process afforded it by the LFB, we note with concern Paterson's allegations. Despite its obvious financial interest that we elaborate on subsequently, infra at 286-88, 753 A. 2d at 670-71, Paterson asserts that it received no notice of the PCUA's financing application and petition to the LFB, was afforded less than twenty-four hours to review the pertinent documents, was allotted five minutes to speak at the LFB hearing, and was afforded three working days to prepare and submit written comments. If proved, those allegations significantly would diminish the reliability of the proceedings before the LFB. On December 6, 1997 the LFB adopted resolutions pursuant to sections 6 and 19 of the Local Authorities Fiscal Control Law, N.J.S.A. 40A:5A-6 and -19, respectively approving the PCUA's proposed refunding bond issue and ordering implementation of its proposed financial plan, which included imposition and collection of an EIC. The LFB's authority to authorize imposition of an EIC is an issue sharply contested by the parties.
In January 1988 Paterson and Martin G. Barnes, a Paterson resident and taxpayer, filed two actions in lieu of prerogative writ against Passaic County and the PCUA in the Law Division. The first action primarily sought a declaration that the 1997 Deficiency Agreement between the County and the PCUA was invalid and unenforceable, and sought an injunction restraining its enforcement. That suit also challenged the validity of the EIC imposed on Paterson by the PCUA. The second suit primarily challenged the validity of Passaic County's adoption of an amendment to its District Solid Waste Management Plan, including the PCUA's issuance of refunding bonds and imposition of the EIC authorized by the LFB. In that same month plaintiffs filed in the Appellate Division a Notice of Appeal from the LFB's orders, and subsequently filed an amended Notice of Appeal challenging the LFB's grant of the PCUA's supplemental application to increase the amount of refunding bonds issuable by $6.5 million to enable Passaic County to guarantee the balance of the heretofore unsecured 1991 revenue bonds. Early in 1998 the PCUA gave Paterson formal notice of its EIC obligation. EIC assessments on municipalities were based on the volume of municipal waste collected for disposal in 1996, and assessments to commercial generators were based on average commercial flows between 1993 and 1996. Paterson's 1998 EIC rate was $29.64 per ton and its 1998 assessment was $2,500,122, payable quarterly. Paterson's aggregate EIC obligation over ten years is in excess of $20 million, of which it estimates that approximately $7.5 million would be allocated to payment of debt service on that portion of the 1997 refunding bonds that refunded the heretofore unsecured 1991 revenue bonds. On receipt of its EIC bill, plaintiffs amended their complaint to assert a direct challenge to the PCUA's authority to assess an EIC against Paterson. To provide a frame of reference against which to compare the EIC assessed against Paterson, the record informs us that prior to the Third Circuit's decision in Atlantic Coast II, the PCUA charged Paterson $103 per ton for waste removal, a fee that included all of the PCUA's costs for operating and administrative expenses, as well as debt service. After the Atlantic Coast II decision, the PCUA offered to Paterson and other prior users of its system waste-disposal services for processible waste at a rate of $47.75 per ton, a rate the PCUA asserts is less than the rate Paterson presently pays. Paterson asserts that neither it nor any other Passaic County municipalities are disposing of waste through the PCUA, and that its current costs are $75,000 less per month than the price offered by the PCUA. In any event, the EIC charge of $29.64 per ton, for which Paterson receives no current PCUA services, is about two-thirds of the cost per ton Paterson would have to pay the PCUA to dispose of its solid waste. The Law Division judge consolidated the prerogative writ actions and transferred the consolidated action to the Appellate Division. Plaintiffs filed a Notice of Appeal of that transfer order. (Although petitioners continue to challenge the correctness of that transfer order, we need not and do not address that issue.) The Appellate Division consolidated plaintiffs' appeal of the transfer order with their appeal of the LFB orders, and subsequently consolidated those appeals with the prerogative writ actions that had been transferred by the Law Division. The Law Division also granted a motion to intervene in the consolidated prerogative writ actions filed on behalf of ten Passaic County municipalities. The brief filed on behalf of those municipalities supported the validity of the EIC, contending that Paterson's opposition to the EIC reflected a preference that the PCUA's stranded debt be paid through the imposition of property taxes rather than through user fees calculated on the basis of the 1996 waste generation. For example, the intervenors noted that the Township of Wayne contributes approximately twenty-six percent of the county's property tax revenue, but generated only 5.24% of the County's 1996 solid waste flow. The intervenors asserted that if the EIC were invalidated, Wayne's 1998 share of the PCUA's stranded debt would increase from approximately $575,000 to over $3.8 million. Similarly, invalidation of the EIC would increase Clifton's 1998 share of the PCUA's stranded debt from approximately $900,000 to over $3.7 million. We note that Paterson's opposition to the EIC in part reflects its preference that the portion of the PCUA's stranded debt validly guaranteed by Passaic County be paid out of county general revenues rather than an EIC, with the result that Paterson's share, because of its relatively low property valuations, would be reduced from over thirty percent of the aggregate debt to approximately eleven percent.
Before addressing the legal issues presented by this appeal, we take note of other pending litigation that involves substantially similar issues.
These consolidated appeals, argued in the Appellate Division in February 2000, and awaiting decision, were transferred by the Chancery Division to the Appellate Division in September 1998. In the first action, plaintiffs were two Atlantic County municipalities, a waste hauler, and three Galloway Township residents. Plaintiffs in the second action were two solid waste hauler associations and four waste haulers collecting waste in Atlantic County. Both suits challenged the authority of the Atlantic County Utilities Authority (ACUA) to impose an EIC on municipalities and waste haulers to supplement the ACUA's tipping-fee revenues and enable it to pay debt service obligations on approximately $87 million of revenue bonds issued to fund the costs of a transfer station, expansion of the ACUA's landfill, and the Authority's obligations under its waste-disposal contract with a Pennsylvania landfill owner. In ruling on plaintiffs' application for injunctive relief, the Chancery Division reached the preliminary conclusion that the EIC does not appear to be authorized by statute, but that court later determined that it was without jurisdiction to decide the matter. 2. IMO Certain Amendments to the Adopted and Approved Solid Waste Management Plan (A-5964-97T3) This appeal, now pending in the Appellate Division with its disposition stayed pending our resolution of the matter before us, originated as a suit filed by two associations of solid waste haulers and three solid waste collection companies challenging the DEP's decision to approve an amendment to the Union County District Solid Waste Management Plan (Plan Amendment). The Plan Amendment proposed a substantial reduction in the outstanding bonded indebtedness of the Union County Utilities Authority (UCUA) consisting of approximately $294 million, incurred to finance acquisition and construction costs associated with a resource-recovery facility and other ancillary solid-waste disposal facilities, as well as for recycling and landfill costs. The debt reduction was achieved in part by using funds on hand to reduce part of the debt, by refinancing and extending the debt's maturity, and by leasing the resource-recovery facility to its private operator in return for lease payments totaling $180 million. That lease agreement was facilitated by long-term waste delivery contracts with thirteen Union County municipalities guaranteeing substantial annual flow of waste to the resource-recovery facility. The balance of the UCUA's debt is to be funded by an EIC imposed on non-users of the UCUA's facilities, specifically haulers that pick up waste generated in Union County and dispose of the waste elsewhere. Appellants contend that the UCUA's EIC is unauthorized by statute and that it violates the Commerce Clause in view of the principles established by the United States Supreme Court in C & A Carbone, Inc. v. Town of Clarkstown, supra, 511 U.S. 383, 114 S.Ct. 1677, 128 L.Ed. 2d 399. 3. National Solid Waste Management Association v. Gloucester County Improvement Authority (A-1041-98T3) This action, instituted by two solid waste management associations and four solid waste haulers, challenges the imposition of an EIC by the Gloucester County Improvement Authority (GCIA) that is assessed against solid waste haulers not using the facilities of the GCIA to dispose of solid waste generated in Gloucester County. Approval to impose an EIC was sought by the GCIA because of a shortfall of revenue to pay debt service on approximately $28 million of outstanding bonded indebtedness issued to finance the landfill operated by the GCIA. Analogous to the legal issue in the appeal before us that requires an interpretation of section 22.1 of the Municipal and County Utilities Authorities Law, the validity of the EIC imposed by the GCIA is to be determined by the provisions of the County Improvement Authorities Law, N.J.S.A. 40:37A-44 to -135, under which it is organized. After the Appellate Division remanded the matter to the Law Division to develop a factual record, appellants filed a Petition for Certification with this Court seeking review of the Appellate Division's disposition. That Petition remains pending.