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2022-059 Solid Waste Closure Post Closure StudyDate: September 23, 2022 Report No. 2022-059 INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: Solid Waste Closure/Post Closure Study BACKGROUND: During the Spring of 2022, the Public Utilities Board (PUB) and City Council approved a contract with Burns and McDonnell to update the City’s Closure/Post Closure Study for the Solid Waste Fund. Burns and McDonnell has extensive knowledge in completing Closure/Post Studies and is familiar with the costs (direct and indirect) of closing and maintaining a landfill facility. This study is updated approximately every five-years and serves as a planning guide to ensure the City continues to meet the financial assurance requirements set forth by the various federal and state agencies. These requirements are met by making an annual transfer from the Solid Waste operating fund to the closure/post closure reserve. DISCUSSION: In summary, the Study identifies the cost associated with closing and monitoring the landfill facility after closure (i.e., post closure). Burns and McDonnell updated the Study based on current operational practices and the assumptions identified in the recent major amendment to the City’s landfill permit, Municipal Solid Waste (MSW) Permit 1590B. Closure costs are the costs incurred once the Landfill reaches capacity to ensure the long-term protection of the surrounding environment. Post-closure costs are the costs of monitoring and maintaining the expected useable Landfill area during the 30-year post-closure period. Based on current waste acceptance and operational factors the facility is currently forecasted to close in 2056, however, this date may change as the Solid Waste department continues to implement the Comprehensive Solid Waste Management Strategy. Below is a summary of the results, major assumptions and differences between the old and new Closure/Post Closure Study. The results and a complete list of the assumptions is available in the attached final report. • Current liability total $11 million, reserve balance totals $12 million. • Acceptance rates are slightly lower than those project in the 2017 Study. For example, the projected tonnage for FY 2025 was 544,466 tons in the 2017 Study and 483,411 in the updated Study. • Airspace utilization has increased from 1,100 pounds per cubic yard (lbs./Cubic Yard) to 1,276 pounds per cubic yard. In simplicity, this represents the amount of trash that can be compacted into one cubic yard of space. • The new Study decreases investment earnings from 2.15% to .33%. Date: September 23, 2022 Report No. 2022-059 STAFF CONTACT: Nick Vincent Assistant Director of Finance nicholas.vincent@cityofdenton.com Brian Boerner Solid Waste Director brian.boerner@cityofdenton.com REQUESTOR: Staff PARTICIPATING DEPARTMENTS: Finance Solid Waste STAFF TIME TO COMPLETE REPORT: Staff – 1 hours ATTACHMENTS Solid Waste Closure/Post Closure Study 8911 Capital of Texas Highway \ Building 3, Suite 3100 \ Austin, TX 78759 O 512-872-7130 \ 512-872-7127 \ burnsmcd.com September 14, 2022 Nicholas Vincent City of Denton 215 E McKinney St, Suite 600 Denton, Texas 76201 Re: Closure/Post-Closure Analysis City of Denton Landfill, Permit 1590B Dear Mr. Vincent: Burns & McDonnell has completed the attached Closure/Post-Closure Analysis (Analysis) for the City of Denton’s (City’s) current permitted Municipal Solid Waste Landfill, Permit 1590B (Landfill). The closure and post-closure care costs for the City were determined by estimating the total closure and post-closure care costs for the entire Landfill and the remaining life capacity estimates for the site. The 2022 Analysis was completed to ensure the City continues to meet financial assurance requirements placed forth by the appropriate federal and state regulatory agencies, and also serves as a planning guide for the City’s own reserve fund for closure and post-closure care. The 2022 Analysis was completed to reflect the recent Major Amendment to the MSW permit (1590B) and without mining of the Permit 1590, Phase 0 area or enhanced leachate recirculation (ELR) to be consistent with the City’s desired approach for future landfilling operations. The 1590B permit amendment included both a vertical expansion over the Unit 1 area and a lateral expansion (Unit 2). The 2022 Analysis examined total closure costs for the Landfill (Phase 0 (no mining), Unit 1, and Unit 2) and the City’s financial assurance liability and reserve fund health for a partial closure (including Phase 0) when Unit 1 reaches capacity. ASSUMPTIONS AND DIFFERENCES The following presents the assumptions used for the 2022 Analysis as well as provides a comparison to the 2017 Analysis. Please note that the results of the 2022 Analysis vary from the 2017 Analysis in part due to the approved expansion which increased time prior to closure. Differences from the 2017 Analysis include the following: • The 2022 Analysis focuses solely on the closure costs of the Landfill to understand the changes in closure cost liability related to the approved Landfill expansion. The 2017 Analysis included closure costs for the Household Chemical Center (HCC) Facility, Building Materials Recovery (BMR) Facility, and Source Separated Organics (SSO) Compost Facility. • Current waste acceptance rates are slightly lower than those projected in the 2017 Analysis. For example, the projected tonnage for FY 2025 was 544,466 tons in the 2017 Analysis and 483,411 tons for FY 2025 in the 2022 Analysis. Waste growth rates are projected to continue in the future based on discussions with City staff, projected population growth in September 14, 2022 Page 2 the City, and priorities from the City’s 2022 Comprehensive Solid Waste Management Strategy (CSWMS). See graph below for historic waste tonnages: • The 2017 Analysis estimated an airspace utilization factor (AUF) of approximately 1,100 pounds per cubic yard (lbs/CY) based on recent surveys completed at that time. The 2022 Analysis uses an AUF of 1,276 lb/CY based on the most recent survey. Historically, the City had implemented strategic programs to increase the utilization of the City’s permitted capacity (including ELR); however, recent discussions with City staff indicate that ELR is not currently used and not planned as part of future Landfilling practices. While the Landfill may still recognize long-term settlement due to ELR and therefore, an increased AUF, the model was based on current achieved waste densities to be conservative. • There has been further decrease in interest achieved on investments since 2017. The interest achieved on investments in the 2017 Analysis was set to 2.15% (based on the 10- year treasury yield); however, the 2022 Analysis used a 0.33% interest rate on investments, reflecting recently achieved rates and anticipated future yields. The inflation rate was set to 2.30% based on to the 10-year CPI long-term forecast as published by the Federal Reserve Bank of Philadelphia for 2021. REGULATORY REQUIREMENTS Financial assurance estimates are required to meet regulations related to the expenses recognized for closure and post-closure care as well as for funding mechanisms available to meet these requirements. The following are the regulatory requirements followed for the 2017 Analysis: • Statement 18 of the Governmental Accounting Standards Board (GASB 18) defines the standards for accounting and financial reporting for closure and post-closure financial assurance at municipal solid waste landfills. The landfill owner/operator is required to recognize an expense each period for closure and post-closure care costs, which is the 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 Annual Tonnage September 14, 2022 Page 3 current liability less the previous period liability. Per GASB 18, the following are utilized to calculate the current liability: o Estimated total closure costs and costs for performing 30-years of post-closure care; o Cumulative capacity used; and o Total estimated capacity of the permitted facility. • Title 30, Part 1, Chapter 37 of the Texas Administrative Code (TAC) defines the Texas Commission on Environmental Quality (TCEQ) requirements for funding for financial assurance and the mechanisms available to meet the requirements. The following mechanisms are available for Landfills to meet financial assurance requirements: o Surety bond guaranteeing payment; o Surety bond guaranteeing performance; o Irrevocable standby letter of credit; o Insurance; o Financial test; or o Corporate guarantee. Municipalities (including the City of Denton) often choose to meet financial assurance requirements utilizing a local government financial test; however, it is recommended that a restricted reserve account is also maintained to fund liability as it is accumulated so that current Landfill customers are responsible for paying for the closure/post-closure costs of the facility instead of delaying the costs so they are incurred by future generations. The City current follows the practice of maintaining a restricted reserve account. TOTAL CLOSURE COSTS Closure costs are the costs incurred once the Landfill reaches capacity to ensure the long-term protection of the surrounding environment. The total closure costs are the costs to close the largest area of the Landfill that will accept waste, which is estimated to be the entire Landfill (i.e., 258 acres) for the purposes of this analysis The total closure costs were estimated for the Landfill (all Units; 258 acres) based on engineering drawings and permit documents provided by the City, quotes from private contractors, and Burns & McDonnell’s experience on similar projects. The closure profiles varied slightly between Phase 0 (which is closed with a pre-Subtitle-D closure profile) and the Unit 1 and Unit 2 Subtitle-D areas, as shown below. The pre-Subtitle-D closure profile consists of (bottom to top): • 18-inch infiltration layer; • 6-inch topsoil; and • Vegetative cover. The Subtitle-D closure profile consists of (bottom to top): September 14, 2022 Page 4 • 18-inch infiltration layer; • 40 mil geomembrane liner (assumed linear low-density polyethylene LLDPE textured liner); • Geocomposite drainage layer; • Erosion layer (18-inches on the crown; 30-inches on the side-slopes); • 6-inches of topsoil; and • Vegetative cover. The total closure costs (2021 dollars) are estimated at $30,713,918 (all Units) or equivalent to an estimated $18,106,926 for closure of the Phase 0 and Unit 1 area based on an average closure cost of $119,046 per acre. See Attachment A for a summary of the closure cost analysis. TOTAL POST-CLOSURE COSTS Post-closure costs are the costs of monitoring and maintaining the expected useable Landfill area during the post-closure period. Per GASB 18, the expected useable life is defined as the total area expected to receive solid waste during the Landfill operating life. This is the area the City has currently filled, is filling, or intends to develop per the current TCEQ permit (1590B). The total post-closure costs of the Landfill were estimated based on engineering drawings and permit documents provided by the City, quotes from private contractors, and Burns & McDonnell’s experience on similar projects. The total annual post-closure costs (2021 dollars) are estimated at $297,300 (all Units). The present value worth of the 30-year post-closure (2021 dollars) is $23,684,758. This accounts for inflation from 2021 through closure and then 30 years of post-closure, with the cost discounted to present value at the City’s current investment earning rate of 0.30 percent. See Attachment B for a summary of the post-closure cost analysis. DISPOSAL CAPACITY PROJECTIONS As discussed previously, the City has had significant tonnage growth at the Landfill in the past several years and is projecting a similar tonnage growth moving forward. Since the 2017 Analysis, Landfill Permit 1590B approval provided both lateral and horizonal expansions. This had a significant impact on the remaining capacity of the Landfill Permit 1590A area. The estimated closure year for the 2017 Analysis was 2028; whereas the 2022 Analysis estimated the closure year for Unit 1 of the Landfill as 2041, an increase of 13 years from the vertical expansion. The Landfill Permit 1590B Unit 2 provides additional capacity, resulting in the Landfill reaching capacity in 2056 based on the current tonnage acceptance and projected growth rates. See Attachment C for the disposal capacity projections and waste tonnage growth rates. FINANCIAL ASSURANCE LIABILITY The currently closure and post-closure liability for the Landfill is provided in Table 1 below. The current liability is the present value (2021 dollars) the City would pay to close the portions of the Landfill that have accepted waste. September 14, 2022 Page 5 Table 1: Current Liability (2021 Dollars) Description Amount Closure Costs $30,713,918 Post-Closure Costs $23,684,758 Total Liability $54,398,676 Percent of Airspace Consumed 20.32% Total Current Liability $11,051,945 ANNUAL FINANCIAL ASSURANCE EXPENSE (GASB 18) The accounting expense to recognize per GASB 18 is based on the current liability less the liability recognized in the previous period. At the end of FY 2021, the City recognized a liability of $12,076,086 for the closure and post-closure care of the Landfill. Based on the current liability calculated in Table 1, the City would have lower liability in FY 2022 and therefore need to recognize an expense of ($1,024,141) for FY 2022. See Attachment D (column labeled “Accounting Expense to Recognize”) for the annual accounting expenses the City is expected to recognize per GASB in FY 2022 and in future years. However, the accounting expenses associated with financial assurance and have no bearing on how the City decides to accumulate funds in its closure and post-closure reserve (after meeting financial assurance through the local government test). The reserve fund contributions are discussed in the section below. CLOSURE AND POST-CLOSURE RESERVE FUND As discussed previously, although the City relies on local government financial test to meet financial assurance requirements for closure and post-closure care, the City has a separate reserve fund intended for funding future closure and post-closure costs. At the end of FY 2021, the City had $11,992,859 accumulated in its reserve fund. Attachment D outlines two approaches, or options, to making annual contributions to the reserve fund: • Option 1 – Increase annual contribution (a combination of cash contribution and interest income) by an inflationary amount each year, starting in FY 2022. • Option 2 – Make the annual contribution (a combination of cash contribution and interest income) equal the GASB 18 accounting expense and therefore the reserve balance equal to the current liability. This results in a deduction in FY2022 but requires increasing contributions in all subsequent years. Using Option 1, the City would need to make a fund contribution of $1,879,657 for FY 2022. Using Option 2, the City would reduce its fund balance by ($980,491) for FY 2022. These contributions are inclusive of both interest income and cash contribution. If interest rates September 14, 2022 Page 6 received are less than estimated in Attachment D, the City will need to recognize a greater cash contribution. Burns & McDonnell also evaluated the projected fund balance allocated to closure costs for the interim closure of Unit 1 and believes, based on the assumptions discussed and projections in Attachment D, that either option would provide adequate funding to perform closure of Unit 1 when that portion of the Landfill reaches capacity. CLOSING The permitting of the Landfill expansion (1590B) and slight decreases in waste disposal rates have resulted in reduced current liability due to an increased time period until closure. However, multiple factors have increased the present value of total closure and post-closure costs, including increased total closure costs due to the expansion area, inflation rates and low savings yield. If you have any questions or comments regarding the 2022 Analysis, please contact Seth at 737-787-6686. Sincerely, Seth Cunningham, PE Project Manager STC/dlk Attachments: Attachment A: Closure Cost Analysis Attachment B: Post-Closure Cost Analysis Attachment C: Disposal Capacity Projections Attachment D: Annual Expense Recognition and Funding Options cc: Brian Boerner, City of Denton Cassandra Ogden, City of Denton Danielle Stanford, City of Denton