As you know, for more than three years CRRA has been defending itself against a lawsuit brought by the Town of New Hartford, a suit in which all 70 Mid-Connecticut Project towns were certified as plaintiffs (absent their affirmative consent) in a class against CRRA. Today we want to provide the people of Connecticut with an update on those proceedings.
The suit was originally filed because the Town of New Hartford didn’t like the fact that CRRA had to raise disposal fees after the Enron bankruptcy. Then the plaintiffs complained that we should have distributed the proceeds of the Enron bankruptcy settlement to them, even though that would have resulted in still-higher disposal fees for Mid-Connecticut Project towns. Their most recent complaint is that we’ve used money to pay off our bonds and fund capital projects – such as closing the Hartford landfill and siting a new landfill, all of which are project liabilities – rather than give money back to them and fund those projects out of future disposal fees. And they complain that they have suffered $63 million in losses due to the Enron bankruptcy, though testimony in the recent trial shows that our customer towns (excluding the haulers who are not included as plaintiffs) have paid disposal fee increases totaling less than $17 million as a result of the Enron-required increases.
We didn’t like raising the disposal fee either, but it was one of an array of actions we took to keep the Mid-Connecticut Project financially stable. What the plaintiffs have repeatedly failed to acknowledge is what could have happened had we done nothing but raise the disposal fee to fill in the hole caused when Enron stopped paying us $2.375 million per month. The towns could be paying $90 a ton, but thanks to our cost-cutting, reorganization, revenue enhancements and other actions – including raising the disposal fee – they’re paying $69 a ton.
Consider this: in March 2002 the previous CRRA board, trying to fill the Enron hole in project revenues, voted to raise the disposal fee from $51 to $67 but under enormous political pressure slid it back to $57, though neither figure would come close to making up for the revenue lost when Enron collapsed. It was politically expedient to keep the project running by draining project reserves rather than taking other, tougher courses of action. When our new board was seated in June 2002, its members quickly decided that the prudent thing to do was to take some tough actions but that ultimately the Mid-Connecticut Project would be in better shape for it. Their vision has become reality. The project is stable and strong.
This lawsuit boils down to the conflict between prudence and recklessness:
- Our board took the prudent approach and focused on paying off our debt. The plaintiffs' idea of distributing to them every dollar we had (which would force substantial disposal fee increases) instead of paying down our $211 million in debt would be reckless.
- Our board took the prudent approach and accrued reserves for upcoming major expenditures such as closing the Hartford landfill and siting a new ash disposal area. The plaintiffs’ preference would be a pay-as-you-go system that would lead to recklessly fluctuating disposal fees and make it difficult to borrow money needed to finance these initiatives.
- We maintain reserves as required for a variety of reasons, including reserves required by bond indentures or by statute. More importantly, our board and management believe it’s prudent to maintain reserves. In fact, any town finance director worth his salary believes the same thing. To satisfy the plaintiffs’ demand that we deplete our reserves once again to satisfy them and their lawyers would be reckless.
It’s hard to imagine that the couple of first selectmen who are driving this case would run their towns as recklessly as they want us to run CRRA.
After both sides rested their cases, a committee of our board members represented us in mediation with the plaintiffs. The plaintiffs and their lawyer knew full well that any settlement agreement would, as required by Connecticut law, have to be ratified with a two-thirds majority of our board, or eight directors. Our board had previously reluctantly authorized this committee to propose some very generous settlement terms. Ultimately, that didn’t matter, because the plaintiffs’ lawyer said he was insulted that we could not approve a settlement on his terms on the spot.
The plaintiffs’ lawyer has recently made a number of claims about CRRA and its management of Mid-Connecticut Project finances. Here are three of those claims and, more importantly, the facts about each:
- Claim: “CRRA has and will be receiving at least $41 million in Enron-related settlements during the next few months, of which $23 million is already received.” Facts: To date, we have received $23 million, which provided for the final retirement of the project debt and is the source of the $14.8 million distribution we announced in January. We are continuing to pursue court action against other Enron-related firms, but unless and until we receive any further settlements it would be reckless to spend that money before we have it.
- Claim: “According to CRRA’s financial witnesses at trial, the Mid-Conn Project budget for FY 07 (ending June 30, 2007) will result in a surplus of over $20 million.” Facts: The plaintiffs are basing this claim on a November 2006 cash flow statement, but as any first-year accounting major knows, an entity’s cash position after the first four months of a fiscal year is not equivalent to a surplus.
- Claim: “CRRA’s witnesses also testified that there is approximately $16 million in costs (if not more) in the FY 07 that does not need to be included in the FY 08 budget (ending June 30, 2008) – which would result in a tip fee savings of nearly $20.” Facts: No such testimony was made. The FY08 budget includes funding in anticipation of the closure of the Hartford landfill which will result in the project being forced to ship waste out of state. If our revised closure plan, which would extend the life of the landfill well into 2008, is approved by the Department of Environmental Protection some of that money would go toward closure and post-closure expenses required by DEP, while some would be used to mitigate future disposal fee increases or be distributed back to the towns. However, as we prepare our FY 08 budget there is no guarantee that the plan will be approved and we may have to begin exporting waste as early as March of 2007.
CRRA is self-funded. Every dollar we spend on operations (including legal costs), capital improvements and debt service is a dollar we have to take in through power sales, recycled commodities sales and the disposal fee (which in FY 2006 was about 62 percent of the project’s revenue). Depleting our capital funds and other reserves now means we’d have to charge still-higher disposal fees later. In simpler terms: Money paid out to the towns as a result of this lawsuit will mean higher disposal fees. This is a zero-sum game.
Our board members are primarily mayors, first selectmen and other municipal officials, and we’ve also benefited from directors with years of experience in the state Treasurer’s office and the state Office of Policy and Management. Our board has believed that the prudent approach was the right way to recover from the Enron loss, and that prudent approach has put us where we are today:
- We are about to completely retire our debt.
- We have money in the bank for needed major capital projects.
- We have $14.8 million in free cash to return to our towns.
- Our disposal fee is stable and will be stable and predictable for years to come.
In 2002, shortly after the previous board ratcheted back its disposal fee increase, Moody’s Investors Service downgraded CRRA's bond rating for the second time in two weeks. Moody's said CRRA needed to act “in a fiscally prudent manner free of political considerations.” That’s the course we’ve set, and to abandon that course in the name of short-term political expediency would be reckless. .