CHAPTER 16
LANDFILL CLOSURE AND POSTCLOSURE CARE COSTS
Introduction
Applicability
Municipal Solid Waste Landfills
Estimated Total Current Cost of Closure and Postclosure Care
Recording Closure and Postclosure Care Costs—Proprietary Funds and Government-Wide Financial Statements
Recording Closure and Postclosure Care Costs—Governmental Funds
Reporting Changes in Estimates
Accounting for Assets Placed in Trust
Responsibility for Landfill Closure and Postclosure Care Assumed by Another Entity
Disclosures
Summary
INTRODUCTION
The GASB issued Statement 18 (GASBS 18), Accounting for Municipal Solid Waste Landfill Closure and Postclosure Care Costs, to address a very specific issue, the accounting and financial reporting for landfill closure and postclosure care costs. However, since many governmental entities operate these types of facilities, GASBS 18 affected many governmental entities.
GASBS 18 was issued in response to requirements promulgated by the United States Environmental Protection Agency (EPA). Landfill operators became obligated to meet certain requirements of the EPA as to closure and postclosure requirements. The postclosure requirements extend for a period of thirty years. Landfill operators are also subject to closure and postclosure care costs resulting from state and local laws and regulations. The GASB issued GASBS 18 to require governments to recognize the liability for these closure and postclosure conditions as the landfill is being used, so that by the time the landfill becomes full and no longer accepts waste, the liability is recorded in the financial statements of the governmental entity that operates the landfill and is responsible for these requirements.
This chapter describes the applicability and requirements of GASBS 18. It also provides examples of detailed calculations of the liabilities for these types of costs that must be recorded in the governmental entity’s financial statements.
APPLICABILITY
The provisions of GASBS 18 apply to all state and local governmental entities, including public benefit corporations and authorities, governmental utilities, governmental hospitals and other health care facilities, and governmental colleges and universities. GASBS 18 establishes accounting and financial reporting standards for municipal solid waste landfill (hereafter MSWLF, or simply landfill) closure and postclosure care costs that are required by federal, state, and local laws and regulations. In order to meet these requirements, financial statement preparers need to understand (1) what a MSWLF is and how it operates and (2) closure and postclosure care costs that will be incurred and are covered by this Statement. These two items are addressed in the following paragraphs.
MUNICIPAL SOLID WASTE LANDFILLS
A municipal solid waste landfill is an area of land or an excavation that receives household waste. What makes a landfill “municipal” is not the ownership of the landfill, but the type of waste that is received by the landfill—municipal waste means household waste. Thus, a private, nongovernmental enterprise could own and operate a MSWLF (although it wouldn’t be subject to the requirements of GASBS 18).
Landfills (which, for purposes of this chapter, is used interchangeably with MSWLF) operate in many different ways. Their operating methods, along with their closure and postclosure care plans, are filed with regulatory bodies. Many landfills operate on a “cell” basis, where the total landfill is divided into sections that are used one at time. Each cell can then be closed when it reaches capacity and the waste is then received by the next cell that will be used.
Certain of the closure materials and equipment used to contain wastes and to monitor the environmental impact of landfill operations (such as liners and leachate collection systems) must be installed before the cells are ready to receive waste. These prereception activities are sometimes needed in order to comply with federal, state, or local regulations or requirements. After each cell (or the entire landfill, if it is operated as one large cell) is filled to capacity and no longer accepts waste, a final cover is applied to the cell. Sometimes even when the landfill is operated as a number of cells, the final cover is not applied until the entire landfill is filled to capacity and no longer accepts solid waste.
Estimated Total Current Cost of Closure and Postclosure Care
There are a variety of costs that the operator of a landfill will incur for protection of the environment. These costs will be incurred during the period that the landfill is in operation and after the landfill is closed and no longer accepting waste. GASBS 18 addresses the recording of costs relating both to the closure of the landfill and to costs incurred after the landfill is closed (postclosure costs). These costs include the cost of equipment and facilities (such as leachate collection facilities and final cover) as well as the cost of services (such as postclosure maintenance and monitoring costs). Certain of these costs, which result in the disbursement of funds near or after the date that the landfill stops accepting solid waste and during the postclosure period, are included in the “estimated total current cost” of landfill closure and postclosure care, regardless of whether they are capital or operating in nature. (Current cost is the amount that would be paid if all equipment, facilities, and services included in the estimate were acquired during the current period.)
GASBS 18 requires that the estimated total current cost of landfill closure and postclosure care, based on the applicable federal, state, and local laws and regulations, include the following:
- The cost of equipment expected to be installed and facilities expected to be constructed (based upon the landfill’s operating plan) near or after the date that the landfill stops accepting solid waste and during the postclosure period. Equipment and facilities that are considered as part of these costs should only be those that will be used exclusively for the landfill. This may include gas monitoring and collection systems, storm water management systems, groundwater monitoring wells, and leachate treatment facilities. The costs for equipment and facilities that are shared by more than one landfill should be allocated to each user landfill based on the percentage of use by each landfill.
- The cost of final cover (sometimes called capping) expected to be applied near or after the date that the landfill stops accepting waste.
- The cost of monitoring and maintaining the expected usable landfill area during the postclosure period. Postclosure care may include maintaining the final cover; monitoring groundwater; monitoring and collecting methane and other gases; collecting, treating, and transporting leachate; repairing or replacing equipment; and remedying or containing environmental hazards.
In determining the estimated total current costs, the governmental financial statement preparer should consider whether all of the requirements of the EPA, as well as state or local requirements, apply as to what facilities need to be installed and what activities need to take place for the closure and postclosure periods. In other words, what is the governmental operating the landfill required to do and what does it plan to do to close and thereafter care for the landfill? The current cost of these facilities and activities need to be considered as part of the total estimated current cost.
After the governmental entity makes an initial calculation of the estimated current cost of landfill closure and postclosure costs, the estimate should be adjusted each year to reflect any changes that should be made to the estimate. For example, the current cost or the estimated costs may increase or decrease simply due to inflation or deflation. On the other hand, there may be changes in the operating conditions of the landfill that may affect the closure and postclosure costs. These changes might include the type of equipment that will need to be acquired, as well as facilities or services that will be used to perform closure and postclosure care. In addition, there may be changes in cost estimates due to changes in the technologies that will be used for closure and postclosure care activities, changes in the expected usable landfill area, and changes in closure and postclosure legal and regulatory requirements that must be considered.
Recording Closure and Postclosure Care Costs—Proprietary Funds and Government-Wide Financial Statements
The true impact of applying GASBS 18’s requirements of recognizing a liability is seen in the government-wide financial statements and in proprietary funds. This is because as a liability is recorded proportionally each year for total estimated current costs, a corresponding expense is recorded in the operating statements. This results in a matching of the period in which the cost of the closure and postclosure care activities occur with the period that is benefited by the landfill activities—that is, when the solid wastes are actually put into the landfill. As described later in this chapter, governmental funds do not recognize the estimated closure and postclosure care costs. These funds record an expenditure when the actual closure and postclosure care costs are expended.
For landfill activities reported using proprietary fund accounting and reporting, and for reporting in the government-wide financial statements, a portion of the estimated total current cost of landfill closure and postclosure costs is recognized as an expense and as a liability in each period that the landfill accepts solid waste. Recognition should begin on the date that the landfill begins accepting solid waste, continue in each period that it accepts waste, and be completed by the time that it stops accepting waste. Estimated total current cost is assigned to periods based on the landfill use rather than on the passage of time. Accordingly, some measure of landfill capacity used each period is used to compare with the total landfill capacity, such as cubic yards of solid waste, airspace, or any other reasonable measure.
Using this approach, the current period amount to be expensed is calculated as follows:
| 1. Equipment and facilities costs | |
| Near date landfill stops accepting waste | $ 10,000 |
| During closure/postclosure period: | |
| –– Maintenance and upgrading of leachate treatment system | 5,000 |
| –– Expected renewals and replacements of storm water and erosion control facilities ($5,000 per year) | 150,000 |
| –– Monitoring and well replacements (10 wells at $3,000 each) | 30,000 |
| 2. Final cover costs, including vegetative cover | 10,000 |
| 3. Postclosure care cost | |
| –– Inspection and maintenance of final cover ($2,000 per year) | 60,000 |
| –– Groundwater monitoring ($5,000 per year) | 150,000 |
| –– On-site leachate pretreatment and off-site treatment (1,000,000 gallons @ $.05) | 50,000 |
| –– Projected remediation costs based on similarly situated landfills | 35,000 |
| $500,000 |
| Expenses—landfill closure and postclosure care costs | 10,000 | |
| Liability—landfill closure and postclosure | 10,000 | |
| To record expenses for landfill closure and postclosure costs. | ||
| 1. Equipment and facilities costs | |
| Near date landfill stops accepting waste | $ 10,500 |
| During closure/postclosure period: | |
| –– Maintenance and upgrading of leachate treatment system | 5,000 |
| –– Expected renewals and replacements of storm water and erosion control facilities ($4,000 per year) | 120,000 |
| –– Monitoring and well replacements (10 wells at $3,250 each) | 32,500 |
| 2. Final cover costs, including vegetative cover | 12,000 |
| 3. Postclosure care cost | |
| –– Inspection and maintenance of final cover ($2,000 per year) | 60,000 |
| –– Groundwater monitoring ($5,500 per year) | 165,000 |
| –– On-site leachate pretreatment and off-site treatment (1,000,000 gallons @ $.06) | 60,000 |
| –– Projected remediation costs based on similarly situated landfills | 45,000 |
| $510,000 |
| Expenses—landfill closure and postclosure care costs | 14,158 | |
| Liability—landfill closure and postclosure care costs | 14,158 | |
| To record expenses for landfill closure and postclosure costs for Year 2 of landfill operations. | ||
Equipment, facilities, services, and final cover that are included in the estimated total current cost should be reported as a reduction of the accrued liability for the landfill closure and postclosure care when they are acquired.
Capital assets that will be used exclusively for a landfill that are not included as part of the calculation of closure and postclosure care should be fully depreciated by the date that the landfill stops accepting solid waste. If capitalized, facilities and equipment installed or constructed for a single cell should be depreciated over the estimated useful life of that cell. If these capital assets are shared among landfills, the portion assigned to each landfill should be fully depreciated by the date that each stops accepting solid waste.
Recording Closure and Postclosure Care Costs—Governmental Funds
For landfills reported using governmental fund accounting and financial reporting, the measurement and recognition of the accrued liability for landfill closure and postclosure care should be consistent with the calculations described above for proprietary funds. However, the governmental funds should recognize expenditures and fund liabilities using the modified accrual basis of accounting. The remainder of the liability that is not recorded in the fund would only be reflected in the government-wide financial statements.
Eventually, the equipment and facilities needed for closure and postclosure care of the landfill will be purchased by the governmental fund. When that occurs, the governmental fund will recognize an expenditure for the costs that will use the current expendable financial resources of the governmental fund.
In recording capital assets related to closure and postclosure care, GASBS 18 provides that equipment and facilities included in the estimated total current cost of closure and postclosure care should not be reported as capital assets. Governments that are only able to use bond proceeds for capital expenditures may find themselves unable to finance their equipment and facilitates related to landfill closure and postclosure with bond proceeds. Specific requirements for individual government will need to be checked.
Equipment, facilities, services, and final cover included in the estimated total current cost should be reported as a reduction of the recorded liability for the landfill closure and postclosure care when they are acquired. In the operating statement, facilities and equipment acquisitions included in estimated total current cost should be reported as closure and postclosure care expenditures.
Reporting Changes in Estimates
When the formula for determining the periodic liability accrual for landfill closure and postclosure care costs is used, any changes in the estimated total current costs that occur before the landfill stops accepting solid waste are reported in the period of the changes and an adjustment is made to the calculation using the formula. (The example provided in this chapter demonstrates how a change in the estimated total current costs from $500,000 to $510,000 is generally treated as a change in an accounting estimate and recognized prospectively in the calculation, since it is allocated over the remaining estimated life of the landfill.)
On the other hand, accounting for a horizontal expansion of the landfill is handled differently. This type of change is viewed by GASBS 18 as an expansion of the landfill capacity and should not affect the factors used to calculate the accrued liability for the closure and postclosure costs of the original landfill. In this case, a separate calculation of the closure and postclosure care costs for the expanded portion of the landfill would need to be made for each financial reporting period.
Changes in the estimated total current cost for landfill closure and postclosure care may also occur after the date that the landfill stops accepting solid waste. These changes may include changes due to inflation (or deflation), changes in technology, changes in closure and postclosure care requirements, corrections of errors in estimation, and changes in the extent of environmental remediation that is required. Changes in these estimates should be reported in the period in which the change is probable and reasonably estimable. Recording these changes by governmental funds within the governmental fund itself must also take into account the modified accrual basis of accounting and consideration for whether the costs will be paid from the fund’s current expendable financial resources.
Accounting for Assets Placed in Trust
Landfill owners or operators may be required by EPA (or state or local laws or regulations) rules to provide financial assurances for closure, postclosure care, and remediation of each landfill. This financial assurance may require the owners or operators to place assets with third-party trustees. For example, owners and operators that use surety bonds to provide financial assurance for closure and postclosure care are required by the EPA to establish a surety standby trust fund and make deposits directly into this standby trust fund.
These amounts should be reported in the fund (e.g., the general fund, special revenue fund, or enterprise fund) used to report the landfill’s operations. These assets should be identified by an appropriate description, such as “amounts held by trustee.” Any investment earnings on amounts set aside to finance closure and postclosure care costs should be reported as revenue and not as reductions of the estimated total current cost of landfill closure and postclosure care costs and the related accrued liability.
RESPONSIBILITY FOR LANDFILL CLOSURE AND POSTCLOSURE CARE ASSUMED BY ANOTHER ENTITY
The owner or operator of a landfill may transfer all or part of its responsibilities for closure and postclosure care to another entity. A typical example is where a private company agrees to provide closure and postclosure care as part of its contract to operate a government-owned landfill.
Owners and operators of landfills should report a liability for closure and postclosure care costs whenever an obligation to bear these costs has been retained. However, GASBS 18 provides that even when the liability has been transferred, a governmental entity may be contingently liable under applicable federal, state, or local laws and regulations. Accordingly, the governmental entity should also consider the financial capability or stability of any other entity that assumes the responsibility to meet the closure and postclosure care obligations when these obligations become due.
If it appears that the entity assuming the responsibility will not be able to meet its obligations and it is probable that the landfill owner will be required to pay closure and postclosure care costs, then the amount of the obligation should be reported in accordance with the guidance provided for proprietary and governmental funds earlier in this chapter for measuring and recording the accrued liability for closure and postclosure care costs.
DISCLOSURES
GASBS 18 contains several disclosure requirements that relate to landfill closure and postclosure costs, as follows:
- The nature and source of landfill closure and postclosure care requirements—federal, state, or local laws and regulations
- The fact that the recognition of a liability for closure and postclosure costs is based on landfill capacity used to date
- The reported liability for closure and postclosure care at the balance sheet date (if not apparent from the financial statements) and the estimated total current cost of closure and postclosure care remaining to be recognized
- The percentage of landfill capacity used to date and estimated remaining landfill life in years
- The way in which financial assurance requirements relating to closure and postclosure requirements are being met; in addition, any assets restricted for payment of closure and postclosure care costs should be disclosed if this amount is not apparent from the financial statements
- The nature of the estimates and the potential for changes due to inflation or deflation, technology, or applicable laws and regulations
SUMMARY
The accounting and financial reporting for landfills is an important consideration for the financial statement preparer of a governmental entity that operates or owns a landfill. While the accounting itself for landfill closure and postclosure costs is not complicated, the determination and estimation of these future costs often requires the work of a specialist to assist the financial statement preparer in complying with the accounting and disclosure requirements of GASBS 18.