To cover the increasing financial liability of the city’s land preserve once it closes, the Riverview City Council authorizes the execution of a standby letter of credit with PNC Bank at its Dec. 19 meeting.
City must ensure compliance with surety bond or letter of credit
By SUE SUCHYTA
Sunday Times Newspapers
RIVERVIEW – To cover the increasing financial liability of the city’s land preserve once it closes, the City Council authorized the execution of a standby letter of credit with PNC Bank.
Because of inflation, the cost for perpetual care and financial assurance for the post-closure landfill has increased: The new total requirement is $18,864,809, up from an earlier $16,430,280 combined account total. With inflation, city officials expect the liability to increase to more than $22 million in the future.
To bring the city’s post-closure land preserve liability into compliance, the city can either obtain a surety bond or a standby letter of credit.
Surety bonds protect those owed a benefit from financial loss if the principal fails on the terms of its contract or obligation. It provides a guarantee that consumers and government entities will be protected if the principal doesn’t fulfill the bond’s terms, allowing the harmed party to recover its losses.
A standby letter of credit, on the other hand, guarantees a commitment of payment if the bank’s client defaults on the agreement.
City officials approached financial institutions with which the city has relationships, and found that the least expensive surety bond available required an annual fee of 1 percent, which is about $190,000 for the current year.
They then researched standby letters of credit, and discovered that PNC will offer one for 0.55 percent, which is roughly $103,756 for the current year.
To enter into a standby letter of credit with PNC, the city would incur one-time legal fees between $10,000 and $13,000, a $100 issuance fee and a $25 courier fee.
The ad hoc land preserve committee concurred with this course of action at its Dec. 12 meeting.
At its Dec. 12 meeting, the land preserve committee also approved a higher landfill rate for its prepaid customers, which will allow it to more easily adapt to rising market conditions and changes in specific waste stream pricing.