S&P - Public Finance Criteria (2007). - The Global Clearinghouse

Solid Waste System Financingsmitigated is factored into the analysis. For example,if the revenue stream depends heavily on a secondaryrevenue stream, such as energy revenues, therisk of lower energy sales and the impact on householdcost are evaluated. The steps that an issuertakes to mitigate as many of it’s revenue generationrisks, that ultimately lessen the financial impact onhousehold cost, the stronger the rating.Additionally, Standard & Poor’s will focus onwhether a system is in compliance with its EPADocumentation RequirementsThe following materials should be submitted in conjunction with a rating request.Financial Information■ Three years of audited financial reports (if available)■ Current year’s budgetLegal Information■ Bond resolution or trust indenture■ Enabling legislation■ Disposal and transportation contracts■ Solid waste management planSystem Information■ Engineer’s report or feasibility study, if available■ Anticipated capital improvement plan■ Three to five years of historical and projected rates, with locallytargeted comparisons■ Three to five years of operating statistics (if applicable)■ Customer or hauler trends■ Waste-flow tonnage■ Per capita generation■ Recycling ratesEconomic Information■ Population trends■ Income trends■ Composition of employment by sector■ Unemployment rates■ Largest employers in service area■ Tax base trends■ Building permit activity■ Sales tax trendsAdditional Requirements For Project Financings■ Construction, electric sales, service, and operating contracts■ Site lease■ Vendor performance guarantee■ Project operating statistics (if applicable)■ Throughput■ Energy generation/revenue■ Capacity factormandated post closure costs, such as is managementsetting aside sufficient funds to meet thisfuture liability fully, and if not what plan does managementhave to eventually meet this liability. Whencalculating annual debt service coverage the operatingexpense labeled provision for post closure costwill not be included in determining total operatingexpenses, thereby insuring that debt service coveragewill not be adversely affected by the decision toannual fund the post closure cost liability.Management AssessmentAn assessment of management’s ability to adaptand respond within the business environment andconsider strategies for ensuring waste flow and revenuestreams is undertaken. One of the most criticalaspect is to determine whether the managementteam is proactive or reactive. Standard & Poor’sfocuses on who ultimately makes the key decisions(an elected versus appointed governing body), suchas when and how much to increase rates, what theadditional debt plans will be, and what policies areto be adopted. More importantly what has been thehistory of making timely and effective decisions.An independent consulting engineer’s report, historicaloperating records and a meeting with managementprovide information to evaluatemanagement’s ability to construct and operate thefacilities. If a private operator is contracted to runthe system or facility, Standard & Poor’s focuses onwhat the incentives there are for that operator toprovide efficient operations. In all cases, an equitableagreement for both parties and terminationclauses for nonperformance are necessary.Long Range PlanningPolicies focusing on short-and medium-term issuesmay be implemented with some success, but theyare likely to prove insufficient without some focuson relating the system’s current status to its longtermneeds. True operational stability assumes thata system’s current and likely future needs have beenmeasured and are relatively known.The average increase in rates to be targetedover the next decade cannot be known withoutsome idea of the cost pressures a utility may face,and without an honest effort to estimate theseneeds, it will be extremely difficult to educate andinform ratepayers. Cost pressures to be estimatedinclude those for operations, replacement, regulatorycompliance, and accommodating additionalgrowth. The nature of these cost increases shouldbe considered, that is, whether they are ongoingor likely to be diminished over time, along withtheir magnitude.Many utility officials cite the impossibility of correctlyestimating future economic developmentwww.standardandpoors.com129