An owner or operator may satisfy the requirements of financial assurance for closure, post closure, or corrective action by establishing a local government financial test or a local government financial test and local government guarantee, which conforms to the requirements of this section, in addition to the requirements specified in Subchapters A and B of this chapter (relating to General Financial Assurance Requirements; and Financial Assurance Requirements for Closure, Post Closure, and Corrective Action). An owner or operator who satisfies the requirements of paragraphs (1) - (3) of this section may demonstrate financial assurance up to the amount specified in paragraph (4) of this section.     
       (1) In order to satisfy the financial component of the test, the owner or operator must meet the criteria of either subparagraph (A) or (B) of this paragraph and in addition must meet certain general conditions outlined in subparagraph (C) of this paragraph.                (A) The owner or operator must satisfy each of the following financial ratios based on its most recent audited annual financial statement:                    (i) a ratio of cash plus marketable securities to total expenditures greater than or equal to 0.05; and                     (ii) a ratio of annual debt service to total expenditures less than or equal to 0.20.                   (B) If the owner or operator:                    (i) of a facility other than a municipal solid waste landfill has outstanding, rated, general obligation bonds that are not secured by insurance, a letter of credit, or other collateral or guarantee, those bonds must have a current rating of Aaa, Aa, A, or Baa, as issued by Moody's, or AAA, AA, A, or BBB, as issued by Standard and Poor's on all such general obligation bonds; or                     (ii) of a municipal solid waste landfill subject to Chapter 330 of this title (relating to Municipal Solid Waste) has bonds as defined in Subchapter R of this chapter (relating to Financial Assurance for Municipal Solid Waste Facilities) and those bonds are not secured by insurance, a letter of credit, or other collateral or guarantee, those bonds must have a current rating of Aaa, Aa, A, or Baa, as issued by Moody's, or AAA, AA, A, or BBB, as issued by Standard and Poor's on all such financial obligations.                   (C) In addition to meeting the criteria listed under subparagraph (A) or (B) of this paragraph, the following general conditions must be met.                    (i) The owner or operator shall prepare its financial statements in conformity with Generally Accepted Accounting Principles for governments and have its financial statements audited by an independent certified public accountant (or appropriate state agency).                     (ii) The owner or operator must not have operated at a deficit equal to 5.0% or more of total annual revenue in each of the past two fiscal years.                     (iii) The owner or operator must not currently be in default on any outstanding general obligation bonds.                     (iv) The owner or operator must not have any outstanding general obligation bonds rated lower than Baa as issued by Moody's or BBB as issued by Standard and Poor's.                     (v) The owner or operator must not have received an adverse opinion, disclaimer of opinion, or other qualified opinion from the independent certified public accountant (or appropriate state agency) auditing its financial statements as required under clause (i) of this subparagraph. However, the executive director may evaluate qualified opinions on a case-by-case basis and allow use of the financial test in cases where the executive director deems the qualification insufficient to warrant disallowance of use of the test.                   (D) The following terms used in this section are defined as follows.                    (i) Deficit equals total annual revenues minus total annual expenditures.                     (ii) Total revenues is the sum of the following seven items:                        (I) "Total Revenues" of the General Fund;                         (II) "Total Revenues" of Special Revenue Funds;                         (III) "Total Revenues" of the Debt Service Fund;                         (IV) "Total Revenues" of Capital Project Funds;                         (V) "Total Operating Revenues" of Enterprise Funds;                         (VI) if positive, "Total Non-Operating Revenues (Net)" of Enterprise Funds; and                         (VII) if positive, "Total Non-Operating Revenues (Net)" of Internal Service Funds.                       (iii) Total expenditures is the sum of the following six items:                        (I) "Total Expenditures" of the General Fund;                         (II) "Total Expenditures" of Special Revenue Funds;                         (III) "Total Expenditures" of the Debt Service Fund;                         (IV) "Total Operating Expenses Before Depreciation" of Enterprise Funds;                         (V) if negative, "Total Non-Operating Revenues (Net)" of Enterprise Funds; and                         (VI) if negative, "Total Non-Operating Revenues (Net)" of Internal Service Funds; except if the local government is not using accrual accounting and is not including depreciation in its expenditures, include routine capital outlays and debt repayment as a substitute for depreciation.                       (iv) Cash and current investments is the sum of "Cash," "Cash Equivalents" (e.g., bank deposits, very short-term debt securities, money market funds), and "Current Investments" (e.g., interest or dividend bearing securities that are expected to be held for less than one year), in the General Fund, Special Revenue Funds, Debt Service Fund, Enterprise Funds, and Internal Service Funds, as reported on the Comprehensive Annual Financial Report's (CAFR) Combined Balance Sheet. Note that cash, cash equivalents, and current investments are included in this term even if they are: pooled; with a fiscal agent; or restricted, provided that the assets belong to the General Fund, Special Revenue Funds, Debt Service Fund, Enterprise Funds, and Internal Service Funds. Specifically excluded from this definition are accounts receivable, retirement assets, real property, fixed assets, and other non-current assets, as well as any assets (including cash) in Capital Project Funds.                     (v) Debt service is the sum of all amounts in any Debt Service category (including bond principal, other debt principal, interest on bonds, interest on other debt) in the General Fund, Special Revenue Funds, Debt Service Fund, and Capital Projects Funds as reported on the CAFR's Combined Statement of Revenues, Expenditures and Changes in Fund Balances/Equity; plus all principal and interest expense in Enterprise Funds and Internal Service Funds, as reported on the CAFR's Combined Statement of Revenues, Expenses and Changes in Retained Earnings/Fund Balances.          
       (2) In order to satisfy the public notice component of the test, the local government owner or operator must place a reference to the closure, post closure, or corrective action costs assured through the financial test into its next CAFR after the effective date of this section or prior to the initial receipt of waste at the facility, whichever is later. Disclosure must include the nature and source of closure, post closure, or corrective action requirements; the reported liability at the balance sheet date; the estimated total closure or post closure cost remaining to be recognized; the percentage of landfill capacity used to date; and the estimated landfill life in years. A reference to corrective action costs must be placed in the CAFR not later than 120 days after the corrective action remedy has been selected in accordance with the requirements of §330.415 of this title (relating to Implementation of the Corrective Action Program). For the first year the financial test is used to assure costs at a particular facility, the reference may instead be placed in the operating record until issuance of the next available CAFR if timing does not permit the reference to be incorporated into the most recently issued CAFR or budget. For closure and post closure costs, conformance with Government Accounting Standards Board Statement 18 assures compliance with the public notice component.      
       (3) In order to satisfy the recordkeeping and reporting component of the test, the local government owner or operator must submit the following four items to the executive director:                (A) a letter signed by the local government's chief financial officer worded as specified in §37.371 of this title (relating to Local Government Financial Test) that:                    (i) lists all the current cost estimates covered by a financial test as described in paragraph (4) of this section;                     (ii) provides evidence and certifies that the local government meets the conditions of either paragraph (1)(A) or (B), and (1)(C) of this section; and                     (iii) certifies that the local government meets the conditions of paragraphs (2) and (4) of this section;                   (B) the local government's independently audited year-end financial statements for the latest fiscal year, including the unqualified opinion of the auditor. The auditor must be an independent certified public accountant (CPA) or an appropriate state agency that conducts equivalent comprehensive audits;                 (C) a report to the local government from the local government's independent CPA or the appropriate state agency which:                    (i) is based on performing an agreed upon procedures engagement relative to the financial ratios required by paragraph (1)(A) of this section, if applicable, and the requirements of paragraph (1)(C)(i), (ii), and (v) of this section; and                     (ii) the CPA or state agency's report states the procedures performed and the CPA or state agency's findings; and                   (D) a copy of the CAFR used to comply with paragraph (2) of this section and certification that the requirements of General Accounting Standards Board Statement 18 have been met.        
       (4) The portion of the closure, post closure, or corrective action costs for which an owner or operator can assure under this paragraph is determined as follows.                (A) If the local government owner or operator does not assure other environmental obligations through a financial test, it may assure closure, post closure, or corrective action costs that equal up to 43% of the local government's total annual revenue.                 (B) If the local government owner or operator assures other environmental obligations through a financial test, including, but not limited to, those associated with hazardous waste treatment, storage, and disposal facilities under Chapter 335 of this title (relating to Industrial Solid Waste and Municipal Hazardous Waste) and 40 Code of Federal Regulations (CFR) Parts 264 and 265, petroleum underground storage tank facilities under Chapter 334 of this title (relating to Underground and Aboveground Storage Tanks) and 40 CFR Part 280, underground injection control facilities under Chapter 331 of this title (relating to Underground Injection Control) and 40 CFR §144.62, polychlorinated biphenyl storage facilities under 40 CFR Part 761, it must add those costs to the closure, post closure, or corrective action costs it seeks to assure under this paragraph. The total that may be assured must not exceed 43% of the local government's total annual revenue.        
       (5) Annual updates of the financial test documentation must be submitted to the executive director within 180 days after the close of each succeeding fiscal year. This information must consist of all the items required under paragraph (3) of this section.      
       (6) A local government must satisfy the requirements of the financial test at the close of each fiscal year. If the local government owner or operator no longer meets the requirements of paragraphs (1) - (4) of this section, the local government must send notice to the executive director of intent to establish alternate financial assurance. This notice must be sent within 90 days after the end of the fiscal year for which the year-end financial data shows that the local government no longer meets the requirements. The local government must provide alternate financial assurance within 120 days after the end of such fiscal year.      
       (7) The local government is no longer required to comply with the requirements of this section when the conditions as specified in §37.61 of this title (relating to Termination of Mechanisms) are met.      
       (8) The executive director, based on a reasonable belief that the local government owner or operator may no longer meet the requirements of the local government financial test, may require additional reports of financial condition from the local government at any time. If the executive director finds on the basis of such reports or other information, that the local government owner or operator no longer meets the requirements of the financial test, the local government must provide alternate financial assurance as specified in this subchapter within 30 days after notification of such a finding.      
     Source Note:        The provisions of this §37.271 adopted to be effective March 21, 2000, 25 TexReg 2347; amended to be effective September 14, 2006, 31 TexReg 7353