The Virginian-Pilot
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Norfolk and Chesapeake officials have crafted a bailout plan for SPSA that could drive up trash disposal fees to keep the regional trash authority afloat until it can sell off some of its assets.
Top executives with the Southeastern Public Service Authority say the agency will not be able to pay basic operating costs by April or May if nothing is done. They said the new proposal appears "doable."
Essentially, the proposal would infuse millions of dollars into SPSA over the next 16 months, until the agency can unload key assets, use that money to pay off $240 million in debt and eventually shrink to a much smaller group that mainly handles waste management contracts for the region.
The biggest piece of the proposal would be an increase in the trash disposal fees most member localities pay to SPSA - from $104 per ton to about $175 per ton. That increase would probably be passed on to residents in some communities.
Chesapeake administrators said Tuesday that they were not happy with the potential increase, which they hope would be temporary. But it was better than SPSA's proposal of raising trash disposal fees to $245 per ton, which would be the highest in the country.
The proposal, presented at a Chesapeake City Council meeting Tuesday, was sent out last week to SPSA's other member localities: Virginia Beach, Suffolk, Portsmouth, Franklin, Isle of Wight County and Southampton County.
"We are certainly very appreciative to the communities," said Rowland "Bucky" Taylor, SPSA's executive director. "We may be able to make it work."
Taylor said he has not reviewed the entire proposal, and it has not yet been sent to the Virginia Resources Authority, the state lending agency to which SPSA owes $129 million.
Don Williams, SPSA board chairman and a Norfolk city councilman, said the plan Chesapeake officials talked about is one of "a couple" SPSA officials are considering. Any proposal would have to be endorsed by the localities and SPSA's board.
"Nobody has agreed to this yet," he said. "We're still talking about it. But it has a lot of very good elements."
Williams said he called a special meeting of the SPSA board and the city and county managers on Monday. He said the city managers were told that SPSA plans to sell its waste-to-energy plant in Portsmouth this summer and close on the sale by Sept. 1. Williams said the proceeds, expected to be more than $200 million, will be used to pay down SPSA's debt.
Taylor blames SPSA's financial condition on a drop in revenues caused by a decrease in trash, although a report by the state's auditor of public accounts accused the agency of poor financial discipline and leadership.
As part of the new proposal, each member locality would have a role in helping SPSA raise cash and spread out debt payments, Chesapeake officials said. Chesapeake and Norfolk would guarantee SPSA's line of bank credit, if needed, for a short period of time, Chesapeake City Manager William Harrell said.
SPSA already owes Virginia Beach $5 million over the past six months, and the city would defer less than $1 million a month in payments from the trash authority until June, city officials said.
The other five localities would guarantee the restructuring of $72 million worth of debt, said Chesapeake Deputy City Manager Betty J. Meyer. Harrell said the plan creates some "skin in the game" for Suffolk and Virginia Beach, two cities that have deals with SPSA that have limited their trash-disposal fees even as other localities are paying more.
Even as Harrell presented the plan, he said SPSA doesn't have the "horse power... or the know-how to navigate through these waters." Meyer said it was difficult for SPSA's staff to "even tell us what outstanding debt is on their assets, which is amazing but it's true."
Several Chesapeake council members expressed reservations about the proposal. A tipping-fee increase to $175 would have a powerful effect on city budgets, adding $11 million in costs for Chesapeake alone over the next year, officials said.
Norfolk City Manager Regina V.K. Williams has said the city can't afford to absorb tipping-fee increases this year.
Pilot writers Deirdre Fernandes, Harry Minium and Jen McCaffery contributed to this report.
Mike Saewitz, (757) 222-5207, mike.saewitz@pilotonline.com
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Intentional Default?
No, sorry, I did not address that. The city is committed to its contract with SPSA through January, 2018, just like every other member. Now post 2018, the city is exploring options, and membership in a regional alliance is certainly one of those options. The recent report by SCS that was commissioned by the CAO's says that a regional alliance using existing and expanded facilities is the least expensive method of disposing of municipal solid waste, but it is today, yet we have a crisis of cost allocation that must be resolved. You raise some perplexing issues, which frankly, are only relevant if members do not fulfill their contractual obligations. If some members are successful in causing SPSA to default, I can only assume they think that is to their advantage. They have decided it is cheaper to cause the default of SPSA so they can make other arrangements. Why else would they do so?
Nothing is simple
So, do you deny that VB has any intention to handle it's own waste after 2015?
You are certainly right from a legal standpoint that all the members should abide by their contracts but, you cannot deny that a cap on VB's fees at a rate far less than it would be if the expense where equitably distributed directly benefits VB at the expense of others nor can it be denied that faced with the prospect of having to pay what will among the highest tip fees in the country Chesapeake and others are rightly indignant. SPSA only works well insomuch as trash is picked up weekly but, that's where it ends, as evidenced by it's near insolvency. As such, it has everything to do with regional cooperation as it is prima facie evidence of what Hampton Roads is capable of as a region. When one considers that SPSA is worth less than what Norfolk's portion of LRT will cost, the thought of what we will do to the completed multi-billion dollar LRT system is frightening in deed.
Not the case
No, we would much prefer that the members meet their contractual obligations. If they do, that is, adopt a tip fee sufficient to cover the cost of operations, debt service, and a margin of safety, there is no need for the Beach or for Suffolk to provide any additional assistance. It really is that simple, yet all this turmoil created by the members by failing to meet their obligations has created this need for an emergency solution and the call for help from others. It is incredibly embarrassing that a compact between eight participating jurisdsictions will fail because those who signed it have failed to live up to their obligations. This really has nothing to do with regional cooperation; fact is, the service provided by SPSA works quite well. It has much more to do with the fact that a few dissidents feel they can gain more financially from failure than from meeting their obligations.
I get all that. It's just
I get all that. It's just that, to me, it sounds like VB is talking out of both side of it's mouth. From one side you support "a tip fee sufficient to cover operating costs ..." but, from the other you say your tip fee is contractually capped at $54 until 2015 no matter what. I suspect VB will be more than willing to "help" the other communities fulfill their commitments up to the point where it would be cheaper not to do so. I also suspect VB has an eye toward handling their own trash come 2015 since everything is in place now to do so and at that point would have no need for SPSA and it is always with this in mind they "help" other SPSA members. There is, of course, nothing wrong with this, if you live in VB but, from a regional standpoint, it seems to exemplify the very attitude that prevents real regional development. If we cannot fairly distribute the costs of garbage disposal and SPSA is what we end up with after 25 years of "regional cooperation" then how can anyone realistically expect to cooperate long term on anything else? Light Rail, for instance.
my 2cents
Quite to the contrary. I am
Quite to the contrary. I am saying that the Beach is committed to paying what it is required to pay under the terms of our contract with SPSA, and we urge the other members to do the same. Perhaps you are not aware that SPSA is open and processing waste for energy and disposal only because Virginia Beach has helped the other members to deal with a financial crisis brought on by their decision not to comply with their contracts. We urge these members to evaluate and understand the implications of default, and to come to their senses and pay the tip fee required by their contract so that the sale of the RDF/WTE plants can be consummated and tip fees adjusted downward in accordance with the debt reduction that will occur when the sale is complete. If SPSA defaults, the damage to the credit rating of each member will be severe and irreversible for a long period of time, and the cost of the damage will exceed the cost of complying with their agreements.
Mr Barrett
Obtuse: lacking sharpness or quickness of sensibility or intellect.
What an unfortunate choice of words. HaHa Lighten up a little.
Moving on ... So, what you are saying is that Va Beach is for other cities paying tip fees "sufficient to pay the cost of operations, debt service, with a margin of safety" until 2015 and it's just too bad and tough luck that they didn't negotiate better terms and despite any long term consequences and with no further explanation Va Beach is unwilling to compromise on this point. Is that about right? I'm just trying to understand your perspective.
I should say that I'm not simply picking on Va Beach. It's just that, through you, we seem to to have a clear view into the mind of a SPSA board member. A view which gets curiouser and curiouser every time you post a comment.
SPSA is broken.
SPSA is broken and the current Board and Administration is not capable of fixing it. Sessoms and the Virginia Beach City Council will be no help.
Legal Agreement
Well, not to be obtuse, but that tip fee is exactly what is called for in our contract with SPSA. Pure and simple, that is what the agreement says, just like it says that the fee for Suffolk is zero. Now, you may not like that, and you may want to walk away from your contract if you were one of the other cities, but frankly, that is what each bargained for when they joined SPSA. Virginia Beach has a cap on our tip fee until 2015, and then we will pay the same fee as the others. That is why we have always lobbied for a municipal tip fee sufficient to pay the cost of operations, debt service, with a margin of safety. But we are one vote, and our view has more than often not prevailed. Chesapeake has sued to abrogate their agreement, and while they lost, they have pursued the same tactics through Legislative action. They may just yet be successful in transferring their obligation to others.
Mr. Barrett
I'm surprised you took 2cents' bait. Oh well. Anyway, since Va Beach has always "supported a tip fee sufficient to cover operating costs", how does Va Beach justify a tip fee cap of $53.88 when the other cities are paying twice that now and according to this proposal would soon be paying three times that much? You have to admit the potential for an illusion of impropriety is high and as such it is difficult believe that Va Beach has SPSA's best interest in mind and not their own. Perhaps some explanation is in order. People are right to be frustrated and distrustful with regard to this matter and nowhere have I seen any city official put forth a thorough public explanation of the SPSA problem so, in lieu of that, the closest things we have to go by are the APA report which you imply is less than accurate and SPSA's own, less than stellar, track record. Who's a person to believe?
So what would aalto do?
It must be nice to be able to sit on the sideline and throw hand grenades, but someone needs to deal with this situation; afterall, the waste does have to be disposed of at at reasonable price. And of course, it is, or most of it is, with just six customers complaining. Those are the members who will have to pay the higher tip fees. Yet ironically, it is they who failed to set tip fees high enough years ago to pay off debt. So aalto, how would you deal with a board that was made up of your customers, who on one hand wanted tip fees to be as low as possible, but who had to ensure that the organization could function? How would you have voted? Would you have favored the member city/county or would you have voted for tip fees sufficient to fund operations, debt, and a margin of safety? Since you are so opinionated, let's hear your prescription for a solution.