IRWINDALE — The plan to finance a waste-to-energy plant in Irwindale has collapsed with the redemption of $395 million in bonds issued by the city for Pacific Waste Management Corp.
Mark White, the company's senior vice president, said the bonds were redeemed last week after the bond counsel, a New York law firm, declined to issue an opinion affirming their tax-exempt status.
Irwindale City Manager Charles Martin said the loss of financing appears to kill Pacific Waste's three-year effort to build a waste-to-energy plant in Irwindale.
"I assume this is the end of it," Martin said.
But White said Pacific Waste has not given up and is looking at other financing alternatives. He said the area is running out of waste disposal facilities and needs a trash incineration plant. "The need has not decreased at all," White said.
Burn 3,000 Tons of Trash
The Irwindale Resource Recovery Authority, which was created by the city and its Redevelopment Agency, sold $395 million in bonds to bond underwriter Ehrlich-Bober & Co. Inc. in December, 1984, to finance a plant to burn 3,000 tons of trash a day, generating electricity for sale to Southern California Edison Co.
Martin said Pacific Waste's project had two key assets from the beginning--$395 million in financing and a potentially lucrative contract with Edison.
Now that financing has been lost, Martin said, the project is "back to Square One."
He noted that legal restrictions imposed in 1985 would prevent Irwindale from sponsoring a similar bond issue again.
Even when its financing was in place, Pacific Waste was facing long odds in its bid to develop a waste-to-energy plant here.
Neighboring cities, citizens groups, state and federal office holders and the Miller Brewing Co., which owns a brewery in Irwindale, have fought the project, charging that trash incineration would pollute the air and endanger public health.
Last April, the state Energy Commission rejected Pacific Waste's application to build a plant in Irwindale, and soon thereafter the city offered the proposed plant site--at the bottom of a rock and gravel quarry--to the Los Angeles Raiders for a football stadium.
Nevertheless, Pacific Waste has persisted with the project, looking for a new site in Irwindale and announcing that it would reduce the size of the proposed plant to 1,000 tons of trash a day, which would take it out of the jurisdiction of the state Energy Commission but require approval of several other agencies.
Bonds in Escrow
Meanwhile, the bonds for the project remained in escrow until last week. The bonds were sold initially under a plan that reinvested the proceeds with the Federal National Mortgage Assn., the nation's largest investor in home mortgages.
Because the bonds were tax-exempt, they were sold at an interest rate substantially below the rate gained from reinvestment of the proceeds. The difference generated about $13 million in 18 months to pay bond costs and finance work on the waste-to-energy project.
When the bonds were issued, Pacific Waste expected to start building the plant in 18 months and then tie repayment of the bonds to the plant's revenue. But the project never reached that stage.
After the reinvestment arrangement with the Federal National Mortgage Assn. ended last year, the bonds were kept alive by an interim financing arrangement that expired last week.
White asked the Irwindale City Council last week to agree to a proposal that would have redeemed $165 million of the bonds, leaving $230 million to be re-marketed for a waste-to-energy plant. White said Pacific Waste no longer needed the full amount because it intended to build a smaller plant. The City Council took White's request under consideration without acting on it.
Failure to Act Irrelevant
White said the city's failure to act turned out to be irrelevant because Pacific Waste was unable to obtain legal assurance that the bonds would remain tax-exempt. White said the difficulty stemmed from news reports about similar bond issues being under investigation and threatened with a loss of tax-exempt status.
The Associated Press reported three months ago that the U. S. Securities and Exchange Commission has launched a major investigation of the municipal bond market, focusing on tax-free municipal bonds that were sold for unrealistic projects but produced proceeds that were invested to yield large profits for municipalities and underwriters.
Several cases reportedly under investigation involve bonds underwritten by the firm of Matthews & Wright Inc., including a $335-million offering to finance a trash disposal plant in Chester, Pa. Opponents of the plant have charged that the Chester bond offering was a sham and say the project may never be built.