FINANCIAL ASSURANCE GUIDANCE DOCUMENT

Transcription

1 i FINANCIAL ASSURANCE GUIDANCE DOCUMENT NORTH CAROLINA RULE.1628 North Carolina Solid Waste Section 401 Oberlin Road Raleigh, North Carolina (919) January 1994

2 TABLE OF CONTENTS Topic Financial Assurance Rule scope Implementation Schedule Record Retention Pay-in Period Plan contents... 2 Closure Post-closure Corrective Action Cost Estimates Closure Post-closure Corrective Action Items To Be Considered In Cost Estimates... 4 Closure costs Post-closure costs Cost Adjustment Trust Fund... 6 Surety Bond Guaranteeing Payment or Performance Letter of Credit Insurance Capital Reserve Fund Local Government Financial Test Use of Multiple Financial Mechanisms Appendix - Wording of Instruments....25

3 > FINANCIAL ASSURANCE RULE A. Scope Compliance is required of all owners and operators of Municipal Solid Waste h dfii (MSWLF) units that receive waste on or after October 9, 1993, except those who are state or federal government entities whose debts and liabilities belong to a state or the United States. B. Implementation Schedule The requirements of this rule are effective April 9, Owners and operators of existing MSWs shall submit financial instruments, cost estimates, and closure and post-closure plans by this date. Owners and operators of new MSWLFs shall submit these. documents before they receive any waste. C. RecordRetention When documents are required to be placed in the operating mrd of a MSWLF unit, three copies shall be forwarded to the Division of Solid Waste Management. On April 9, 1994, financial assurance should be submitted with closure and post-closure plans. Financial assurance cost estimates and documents will be reviewed for adequacy with these plans. If the plans are later found to be inadequate then the financial assurance cost estimates and documents must be adjusted and resubmitted with the new closure and post-closure plans. D. Pay-inperid If using a trust fund or a capital reserve fund, payments may be made over the life of the permit (5 years) or the life of the facility. However, the value of the fund must be sufficient to pay for closure or post-closure at any time when the costs are greatest. For an existing facility not designed and constructed with a base liner system approved by the division, the pay-in period shall not go beyond December 31,

4 PLAN C0"TS A. Closure Description of the cap system and the methods and procedures to be used to install the cap as required in Paragraph (c) of Rule Estimate of the largest a m of the M S W unit ever requiring the specified cap system at any time during the active life that is consistent with the drawings prepared for: a. operation plan (existing facility); b. engineering plan (new facility or lateral expansion); or c. facility plan (new facility or lateral expansion). Estimate of the maximum inventory of wastes ever on-site over the active life of the landfii facility. Schedule for completing all activities necessary to satisfy the closure criteria. Existing MSWLP unit not designed and constructed with a base liner system permitted by the division shall provide: a. local characterization study; b. capacity; and c. compliancereport. Cost estimate for closure required under Rule B. Post-Closure Description of the monitoring and maintenance activities required in Paragraph (d) of Rule.1627, and the frequency at which these activities will be performed. Name, address, and telephone number of the person or office to contact about the facility during the post-closure care period. Description of the planned uses of the property during the post-closure care period. Cost estimate for post-closure required under Rule C. Corrective Action 1. Ground-water monitoring program. 2. Corrective action remedy (this will vary depending on extent and nature of contamination). 3. Cost estimate for corrective action required under Rule.1628.

5 i '\ COST ESTIMATES A. Closure Estimates are made in connection with the closure plan required Estimates must assume that closure occurs at the time when costs incurred will be greatest. Greatest costs will be incurred when open area is greatest. Estimates must be adjusted annually for inflation within 60 days prior to the anniversary date of the establishment of the financial instrument. Estimates must be increased if changes to closure plan or MSWLF unit conditions increase the maximum cost of closure at any time during the remaining active life. Estimates may be reduced, with division approval, if the cost estimate exceeds the maximum cost of closure at any time during the remaining life of the MSWLF unit Estimates are made in connection with the post-closure plan required under.1629(c). Estimates must include annual and periodic costs over the entire post-closure care period. Estimates must be adjusted annually for inflation within 60 days prior to the anniversary date of the establishment of the financial instrument. This is during the active life and the post-closure care period. Estimates must be increased if changes in the post-closure plan or M S W unit conditions increase the maximum cost of post-closure care. Estimates may be reduced, with division approval, if the cost estimate exceeds the maximum cost of post-closure care remaining over the post-closure care period. C. Corrective Action Estimates are made in connection with the corrective action program required under Estimates must account for the total costs of corrective action activities for entire corrective action period. Estimates must be adjusted annually for inflation within 60 days prior to the anniversary date of the establishment of the financial instrument. Estimates must be increased if changes in corrective action program or MSWLP unit conditions increase the maximum cost of corrective action. Estimates may be reduced, with division approval, if the cost estimate exceeds the maximum cost of corrective action. 3

6 ITEMS TO BE CONSIDERED IN COST ESTIMATES Cost estimates should consider but not be limited to the following items. conditions may require additional items be considered in cost estimates. Site specific A. Closure Costs 1. Final cap systems a. Soil (clay, borrow soil,topsoil, etc.) b. Linermaterials c. Other materials (drainage nets, etc.) d. Testingldocumentation 2. Sedimentation and erosion contml devices 3. Gas controls a. Passive systems (collection, barriers, vents, other) b. Active systems ( collection, extraction, recovery, flaring systems, other) 4. Finallandscaping a. Seeding b. Feailizmg c. Mulching 5. Mobilizatioddemob~tion 6. Engineering construction management and construction quality assurance 7. Administration a. Announcements b. C. Deeds Fees 8. Labor B. Post-ClOSUre Care COStS 1. Inspections/record keeping 2. Monitoring a. Explosive gases b. Groundwater C. Surface water d. Leachate e. Air quality 3. Leachate collection and treatment 4. Maintenance (preventive/corrective) a. Leachate collection removal and treatment systems - annual cleaning b. Operate gas removal systems c. Wells (all) d. Final cover (mowing, replace plantings, fill for erosion, etc.) 5. Fees a. License b. Inspectiodregulatory charges 6. Administration 7. Labor 4

7 5 COST ADJUSTMENTS Every year an inflation adjustment must be made. The adjustment must be made within 60 days prior to the anniversary date of the establishment of the fmancial instrument used to demonstrate financial assurance. The only exception is if the local govemment financial test is being used. In that case the adjustment must be made within 30 days after the close of the local govemment s fiscal year and before submission of updated information to the division. The inflation measure used is derived from federal statistics. The source is the price deflator for gross national product that is published in the Commerce Department s Survey of Currenf Business. The adjustment is made by multiplying the cost estimate by an amount equal to one plus the inflation rate. For example, if the cost estimate is $550,000 and the inflation rate is 4.5 percent (0.045), the adjusting procedure is: $550,000 Lu2.45 $574,750 Adjustments must also be made if changes in site conditions cause changes in cost estimates. If a permittee knows immediately of such changes, the cost adjustment should be made promptly. The division will also require a reconsideration of relevant conditions at the time the annual inflation adjustment is made. The values of financial instruments must be changed to reflect any adjustments to cost estimates. For example, pay-in rates to trust funds should increase after inflation adjustments are made. 5

8 TRUST FUND A trust agreement is the contract that establishes a trust fund and governs its administration. The trust agreement involves three or more persons. The person who finances a trust is called the grantor. The fund s administrator is called a trustee, who holds legal title to the property in the trust. A trustee holds and administers a trust for the benefit of one or more persons, referred to as the beneficiary or beneficiaries. A trustee charges a fee for services. If a facility owner or operator chooses to comply with the rule by using a trust fund, the facility owner or operator must choose a trustee authorized under state law to administer trusts. Payments to the trust will be based on cost estimates. These payments will be set at levels that make the entrusted funds, at the time of facility closure, equal to the sum of closure and postclosure care. For c odve action, payments will be set at levels that make the entrusted funds equal to the cost estimate for corrective action at the time that one-half of the corrective action activities have been completed. Disbursements from the fund will require approval from the division. This approval is given after a review of evidence that qualifying expenses have been paid. Qualifying expenses are those associated with the closure and post-closure plans, and codve action programs developed for the site. The rule provides for release of the facility owner or operator from financial assurance responsibilities once the goals of the plans or programs have been met. Any balance remaining in the trust fund after the facility owner or operator has been released from financial assurance responsibilities will be retumed to the grantor. Paragraph (e)(l)(a) refers to the part of the rule that relates to trust funds. Subpart (i) requires the facility owner or operator to send the division an originally-signed duplicate of the trust agreement and a cemicate of acknowledgment. The division must know when and under what conditions the facility owner or operator has complied with the rule. This subpart also limits the choice of trustees. Not all financial institutions in the state have the authority to administer trust agreements. Financial institutions that administer trusts must comply with extra reserve and reporting requirements. This limitation helps facility owners and operators to exercise appropriate care in choosing a trustee. The rule also requires that the facility owner s or operator s trust agreement duplicates the model provided in another part of the rule paragraph (e)(2)(a)). This requirement reasonably limits the kinds of trust arrangements facility owners and operators can use. If all facility owners and operators use the same form, then planning and financial management will pmceed from the same basis at all facilities. This is another provision that helps avoid potential disnptions. It also helps to ensure equitable treatment of all facility owners and operators. The certitkation of acknowledgment is required because an independent authority must certify the authenticity of a copy of the trust agreement. Subpart (ii) requires facility owners and operators to make uniform annual payments into the trust fund. Periodic payments will help make fund development orderly and systematic. Steady and consistent fund development is preferable. 6

9 Subpart (iii) provides the method to calculate the required trust fund payments for closure and post-closure care. The fmt payment must equal the sum of the cost estimates divided by the number of years in the pay-in period. There is no need to take inflation into account for the first.payment. Subsequent payments must be determined by the following formula: payment = CE - CV Y in which CE = the current cost estimate, CV = the current value of the trust fund, and Y = the number of years remaining in the pay-in period. Apply the formula to two cases. For the first case; assume the current cost estimate is $1,000,000, the pay-in period is 5 years (life of permit), and the inflation rate is 3.00 percent. CE = $1,000,000 MTIALY =5 INFLATIONRATE = 3.00% Trust Fund Payments CE - CV Annual Cumulative Inflation m Y Pavment Value Factor , , L QQL!!x 207, , LO OQ 217, , (1 233, , ,125, , ,495 1,125,509 For the second case; assume the current cost estimate is $4,000,000, the pay-in period is 20 years (life of facility), and the inflation rate is 3.00 percent. CE = $4,000,000 INITIALY = 20 INFLATIONRATE = 3.00% Trust Fund Payments 7

10 m CE-CV Y AMUd Pavment Cumulative Value Inflation Factor Q.QQQ Q p m m ,014,024-6,170, , , , , , , , , , , , , , , , , , , , , , , , ,169 1,069,036 1,306,907 1,554,714 1,813,543 2,084,671 2,369,618 2,670,223 2,988,747 3,328,034 3,691,763 4,084,862 4,514,263 4,990,403 5,530,732 6,170,232 7,014, Subpart (iv) provides the method to calculate the required tnrst fund payments for corrective action. The frst payment must equal one-half of the current cost estimate. There is no need 8

11 to take inflation into account for the fmt payment. Subsequent payments must be determined by the following formula: payment = CE - Cy Y in which CE = the current cost estimate, CV = the current value of the trust fund, and Y = the number of years remaining in the pay-in period. Apply the formula to a case; assume the current cost estimate is $5,000,000, the estimated length of the corrective action program is 10 years so the pay-in period is 5 years, and the inflation rate is 3.00 percent. CE = $5,000,000 INITIALY =5 INFLATIONRATE = 3.00% First Payment = &OOO.OOQ = $2,500,000 2 Trust Fund Payments m CE - CV Y h U a l Cumulative Inflation Pavment Value Factor OOQ 662,500 3,162, ,000 3,876, ,568 4,670, ,627,544-4,670, ,476 5,627,544 These formulas are straightforward. They calculate uniform payments that, over a fixed period, will yield a desired sum. The CB variable will be adjusted annually for inflation and other changes. Subpart (v) sets the payment schedule for facility owners and operators. The owner or operator must make the first payment into their trust fund before they begin to receive waste at their facility or before the effective date of the rule (April 9, 1994), whichever is later, for closure and post-closure care. For c odve action, the fmt payment shall be no later than 120 days after the corrective action remedy has been selected in accordance with the requirements of Rule The mle thus requires these facility owners and operators to "prepay" a portion of their 9

12 financial assurance responsibilities. This is similar to other customary business arrangements. Insurance and rent, for example, are ordinarily prepaid. The requirement puts financial assurance expenses on the same basis as other normal business costs. The rule requires that all subsequent payments be made no later than 30 days after each anniversary date of the first payment. That is, if the fust payment is made on April 1, 1994, the next payment must be made by April 30, This requirement is designed to make sure trust funds develop in an orderly manner. Subpart (vi) relates to cases in which facility owners and operators begin to comply with the rule through the use of some financial instrument other than a trust fund. This subpart requires those who switch to a trust fund to make their first deposit equal to the fund balance that would have resulted if they had chosen a trust fund from the beginning. For example, assume a facility owner or operator first submits a surety bond in compliance with the rule and maintains the bond for three years. If the facility owner or operator then wants to set up a trust fund, the calculation of the first payment made into the trust fund will be different from the provisions written in Subparts (i) and (iv). The facility owner or operator will have to follow the directions provided in Subparts (iii) or (iv), but the pay-in period changes. Instead of taking a current point of view, the facility owner or operator must make the pay-in period estimate from the initial point of compliance, i.e., when the surety bond is first submitted. Given a pay-in amount determined from the initial compliance date, the facility owner or operator then has to multiply that amount by the number of periods in which trust fund payments were not made. This makes the initial payment equal to the amount that would have been in the fund if the facility owner or operator had chosen to develop the trust fund from the start. Subpart (vii) specifies that money in the trust fund can only be used as reimbursements for expenses incurred. This means that the money cannot be released as an advance for upcoming expenses. When the division is satisfied that the reimbursement request is proper, the trustee will be told to release the funds to the facility owner or operator or an authorized contractor. However, if the division has reason to believe that costs will exceed the value of the trust fund, reimbursement may be withheld. Subpart (viii) describes the conditions under which the division must allow the trust agreement to end. The first condition is met if the facility owner or operator substitutes another allowable instrument for the trust fund. The second condition is met if the owner or operator is no longer required to demonstrate financial assurance in accordance with the requirements of (c)(2), or (d)(2) of the rule. 10

13 SURETY BOND GUARANTEEING PAYMENT OR PERFORMANCE Facility owners and operators may comply with the fmcial assurance requirement through the use of a payment bond which guarantees that before the facility is closed the owner or operator will establish a trust fund. Facility owners or operators who choose this option can keep setaside funds under their own control. The facility owners and operators can then use the funds any way they want to until it is time to close the facility. At closure, the facility owner or operator must place into a trust fund the full amount of the current cost estimate. This option reasonably allows facility owners or operators to maintain control of their resources while providing facility users and the division with assurance that the facility will be properly closed and maintained. Facility owners and operators may also choose to comply with the rule through the use of a performance bond. The surety is required under this part to guarantee that the facility owner or operator will perform facility closure, post-closure care, and corrective action as specified in the appropriate plans or programs. The payment bond uses balances held in trusts at specified times as the measure of the surety s liability. The performance bond requires performance of specified acts. Setting aside this difference, the two bonds operate in the same manner. The contract used to execute the surety agreement refers to the facility owner or operator as the principal. The agreement specifies a series of actions that the principal will perform, in this case the development of a standby trust Lid. If the principal fails to perform as specified, the division can call in the bond and the surety promises to place a specified amount, the penal sum, into a standby trust established when the surety agreement is executed. The division can then direct that the required work be financed from the trust fund. This leaves the surety with a loss that must be recouped from the principal. Sureties charge for their assumption of risk. The cost of a surety bond generally ranges from one percent to three percent of the bond s penal sum. Sureties may also require other conditions, such as collateral, before they will execute the surety agreement. Subpart (i) limits the facility owner s or operator s choice of sureties and establishes a compliance schedule. The limit on choice refers the facility owner or operator to a federal document, Circular 570 from the Department of the Treasury (published under Title 31, sections 9304 and 9308 of the U.S. Code). This document lists the sureties found to be acceptable bond writers for projects that involve federal funds. This list includes almost 300 companies with over 175 licensed in North Carolina. Referring to this circular helps facility owners and operators choose a responsible fm. It also relieves the division of the need to develop a ce~ication program for surety fms. This requirement takes advantage of certifkation work done by the federal government. The compliance schedule in this part is identical to the schedule applicable to trust funds in Part (A). The bond must be effective before the initial receipt of waste or before the effective date of the rule (April 9, 1994), whichever is later, for closure and post-closure care. For corrective action, the bond must be effective no later than 120 days after the corrective action remedy has been selected in accordance with the requirements of Rule

14 The rule also requires that the surety agreements duplicate a model provided in another part of the rule (Paragraph (e)(2)(b) or (C)). This requirement reasonably limits facility owners and operators choices in the interest of uniformity and equity. Subpart (ii) specifies the size required of the bond s penal sum. This amount must equal the sum of the current cost estimates for closure, post-closure care, and codve action. All parties interests are protected when the surety, the facility owner or operator, and the division know the extent of the surety s liabilities. This provision reasonably limits the surety s liability to the extent of the estimated need. Subpart (iii) states that the surety will become liable on the bond obligation when the owner or operator fails to perform as guaranteed by the bond. Under the terms of the payment bond, the surety is required to guarantee that: -the owner or operator will assure that the standby trust has a value at least equal to the penal sum of the bond before the owner or operator begins to close the site; or -the owner or operator will put into the standby tnist an amount equal to the penal sum within 15 days after the division or a court issues an order to close the site; or -the owner or operator will fmd another means to comply with the rule within 90 days the surety sends the owner or operator a notice of cancellation. Under the terms of the performance bond, the surety is required to guarantee that: -the facility owner or operator will perform the specified work (closure, post-closure care, corrective action) in the manner and at the times described in the appropriate plans and also that the facility owner or operator will satisfy all applicable facility permit conditions; or -the facility owner or operator will fmd another means to comply with the rule within 90 days after the surety sends the facility owner or operator a notice of cancellation. These conditions specify the circumstances that the owner or operator, the division, and the surety want to occur. As long as these conditions are met, there is no need to call in the bond. With a payment bond,the surety promises that either a trust fund will be developed or the surety will be ready to pay for the costs of closure andor post-closure care. With a performance bond, the suety promises that all necessary work will be done on time. These conditions provide for continuity in the coverage of the owner s and operator s obligations. These conditions also reasonably provide the surety with a specific description of the circumstances that will lead to the surety becoming liable on the bond. Subpart (iv) requires that the facility owners and operators who choose to execute surety agreements must also establish standby trust funds which meet the requirements of the appropriate rule (Paragraph (e)(l)(a) except Subparts (ii),(i), (iv), and (v)). This requirement is included as a practical matter. State agencies cannot take in money and manage it as though 12

15 it were their own. All receipts must become a part of general revenues. This means that if the standby trust fund were not required, payments made by banks to the division would have to be transferred to the state s general fund. The= would be no guarantee that the money paid by a surety would be appropriated back to the division to do the work needed. The standby trust offers a way for the surety to honor its commitment without having the division receive any money. If the division has to call in a bond, the trustee of the standby fund receives the bond s penal sum. The fund is then administered under Paragraph (e)(l)(a). The standby trust makes the trustee the owner and manager of funds collected from a surety. Subpart (vi) specifies the method by which the surety may cancel the bond. The surety has to notify the division and the facility owner or operator if the bond is to be canceled. The notices must be sent by certified mail. The cancellation cannot become effective until 120 days after the division receives the notice. This provision ensures that there will be no gaps in coverage caused by the surety s decision to cancel. The period between first notification and fmal effect allows the facility owner or operator time to fmd another surety or another means to comply with the rule. This period is 30 days longer than the time period set under the terms of the bond. The extra 30 days gives the division time to call on the bond, bemuse during this 30-day period the surety is liable under the bond s conditions. An example will provide some help in understanding the process. Consider a case in which a I facility owner or operator receives notice that the surety bond will be canceled. If the facility owner or operator fmds an acceptable alternative financial mechanism within 90 days, then the bond can be canceled 30 days later with no effect. There will be no gap in coverage. However, if the facility owner or operator does not fmd an alternative mechanism, this means that within 30 days the costs of closure, post-closure care, and comxtive action will not be covered by any instrument. The division can call on the bond during this 30-day period because one condition of the bond is that the facility owner or operator will fmd an acceptable altemative within 90 days. This provision gives the division a reasonable means to ensure that coverage will not lapse. Either the surety will guarantee that the facility owner or operator will fund the trust or the trustee will manage an adequately funded trust after the surety pays the correct amount into the fund. Subpart (vii) describes the conditions under which the facility owner or operator may cancel the bond. The fmt condition is met if the facility owner or operator substitutes another allowable instrument for the bond. The second condition is met if the owner or operator is no longer required to demonstrate financial assurance in accordance with the requirements of (c)(2), or (d)(2) of the rule. 13

16 LEITER OF CREDIT Facility owners and operators may choose to comply with the financial assurance requirement through the use of an irrevocable standby letter of credit. A letter of credit extends the credit of one individual or organization (normally a bank) which is superior to that of a second individual or organization (the facility owner or operator in this case) to a third individual or organization (the division in this case) for the benefit of the second individual. The letter of credit will operate very much like the performance bond. A bank issues the facility owner or operator credit equal to the sum of the current cost estimate. The letter of credit will remain in effect until the facility owner or operator is released from responsibility to comply with the rule. While the letter is in effect, the bank will honor any draft properly presented by the division. The division can present a draft only if the facility owner or opexator has failed to perform a specified action (closure, post-closure care, corrective action). A bank will recover credits extended in this manner from the facility owner or operator. Banks charge for letters of credit at rates which are comparable to rates charged for surety bonds. Banks also charge interest on outstanding balances of extended credit. Subpart (i) limits the facility owner s and operator s choice of banks and establishes a compliance schedule. The limit on dhoice is that the institution must be regulated by a federal or state of North Carolina agency. This helps facility owners and operators choose a responsible fa. It also relieves the division of the need to develop a certifkation program for fms. This quirement takes advantage, to the benefit of facility owners and operators and the division, of regulatory work routinely done by federal or state govenunent. The compliance schedule in this paxt is identical to the schedule written in Part (A). The letter of credit must be effective before the initial receipt of waste or before the effective date of the mle (April 9, 1994), whichever is later, for closure and post-closure care. For corrective action, the letter of credit must be effective no later than 120 days after the corrective action remedy has been selected in accordance with the requirements of Rule The rule also requires that the facility owner s or operator s letter of credit agreement duplicates a model provided in another part of the rule (Paragraph (e)(2)@)). This requirement reasonably limits facility owners and operators choices in the interest of uniformity and equity. Subpart (ii) quires that the facility owner or operator carefully identify the institution that issues the letter of credit. This requirement is reasonable because the agreement needed to issue a letter of credit is not nearly as detailed as the instruments used to execute trusts or surety bonds. The facility owner or operator must send the division a letter that refers to: -the identification number of the letter of credit; -the name of the issuing institution; -the date on which the letter is issued; 14

17 -the name and address of the facility; and -the amount of the current cost estimates, separately and in total. This information provides the division with the data that reasonably will be needed to administer this system. Subpart (iii) speczies certain conditions the bank must include in the letter of credit. The credit must be irrevocable for a period of one year. This requirement reasonably gives the facility owner or operator and the division certainty about the period that is covered. The letter of credit must also be extended automatically for one year following the expiration date, This extension is not absolute. It would not be reasonable to make the bank extend credit indefdtely. Banks can cancel the letter of credit under certain conditions. The main condition is proper notification. The bank has to notify the division and the facility owner or operator if the letter of credit is to be caneled. The notices must be sent by certified mail. The cancellation cannot become effective until 120 days after the division receives the notice. Subpart (iii) also specifies the size required of the letter of credit. This amount must at least equal the sum of the current cost estimate for closure, post-closure care, or corrective action. All parties intemsts are protected when the bank, the facility owner or operator, ar.3 the division know the extent of the bank s liabilities. This provision reasonably limits the bank s liability to the extent of the estimated need. Subpart (iv) describes the conditions under which the facility owner or operator may cancel the letter of credit. The fvst condition is met if the facility owner or operator substitutes another allowable instrument for the letter of credit. The second condition is met if the owner or operator is no longer required to demonstrate financial assume in accordance with the requirements of Paragraph (b)(2), (c)(2), or (d)(2) of the rule. Subpart (v) requires that the facility owners and operators who choose to use letters of credit must also establish a standby trust fund which meets the requirements of the appropriate rule (Paragraph (e)(l)(a) except Subparts (ii), (iii), (iv), and (v)). This requirement is included as a practical matter. State agencies cannot take in money and manage if as though it were their own. All receipts become a part of general revenues. This means that if the standby trust fund was not required, payments made by banks to the division would have to be transferred to the state s general fund. There would be no guarantee all of the money paid by a bank would be appropriated back to the division so that the needed work could be done. The standby trust offers a way for the bank to honor its commitment without having the division receive money. If the division has to call on a letter of credit, the trustee of the standby fund receives the payment. The fund is then administered under Paragraph (e)(l)(a). The standby trust makes the trustee manager of any funds collected from a bank. 15

18 INSURANCE Facility owners and operators may choose to comply with the ficial assurance requirement through the use of insurance for closure and post-closure care. This mechanism ensures payment of closure and post-closure expenses regardless of whether the facility owner or operator is able to pay these costs. The contract used to execute the insurance agreement refers to the facility owner or operator as the insured and the insurance company as the insurer. The agreement specifies a series of actions that the insured will perform, in this case either pay for or perform closure or postclosure care as directed by a third patty, the division. If the insured fails to perform as specified, the insurer promises payment of closure or post-closure costs on behalf of the insured. The insurer agrees to reimburse providers of closure and post-closure care. The facility owner or operator pays premiums to the insurance company for the policy. Subpart (i) limits the facility owner s or operator s choice of insurance companies and establishes a compliance schedule. The limit on choice is that the company must be licensed to transact the business of insurance or eligible to provide insurance as an excess or surplus lines insurer in North Carolina. This helps facility owners and operators choose a responsible fm. This requirement takes advantage, to the benefit of facility owners and operators and the division, of regulatoq work routinely done by federal or state government. The compliance schedule in this part is identical to the schedule written in Part (A). The insurance must be effective before the initial receipt of waste or Before the effective date of the rule (April 9, 1994), whichever is later, for closure and post-closure care. The rule also requires that the facility owner s or operator s insurance agreement duplicates a model provided in another part of the rule (parilgraph (e)(2)@)). This requirement reasonably limits facility owners and operators choices in the interest of uniformity and equity. Subpart (ii) specifies that the insurance policy must guarantee that funds will be available to close the landfii whenever find closure occurs or to provide post-closure care whenever the post-closure care period begins. The policy must also guarantee that once closure or postclosure care begins, the insurer will be responsible for the paying out of funds to the owner or operator or other person authorized to conduct closure or post-closure care, up to an amount equal to the face amount of the policy. Subpart (5) specifies the size required of the policy s face amount. This amount must equal the sum of the current cost estimates for closure or post-closure care. AU parties interests are protected when the insurance company, the facility owner or operator, and the division know the extent of the company s liabilities. This provision reasonably limits the company s liability to the extent of the estimated need. Subpart (iv) states that whoever is authorized to conduct closure or post-closure care may receive reimbursements for these expenditures. When the division is satisfied that the reimbursement request is proper, the insurer will be told to release the funds to the facility owner or operator 16

19 or an authorized contractor. However, if the division has reason to believe that costs will exceed the value of the policy, reimbursement may be withheld. Subpart (v) requires that each policy contains a provision allowing assignment of the policy to a successor owner or operator. Such an assignment may be conditional upon the consent of the insurer, provided that such consent is not unreasonably refused. This provision ensures that there will be no gaps in coverage caused by the change of the facility owner or operator. Subpart (vi) requires automatic renewal of the insurance policy. The insurer may not cancel, terminate, or fail to renew the policy except for failure to pay the premium. The automatic renewal of the policy must provide, at a minimum, the insured with the option of renewal at the face amount of the expiring policy. The insurance company has to notify the division and the facility owner or operator if the insurance policy is to be canceled. The notices must be sent by certeed mail. The cancellation cannot become effective until 120 days after the division receives the notice. Subpart (vii) specifies that during the post-closure care period, the insurer will annually increase the face amount of the policy, less any payments made. This increase will equal the face amount multiplied by an amount equivalent to 85 percent of the most recent investment rate or the equivalent coupon-issue yield announced by the U.S. Treasury for 26-week treasury securities. Subpart (viii) describes the conditions under which the facility owner or operator may cancel the insurance policy. The f it condition is met if the facility owner or operator substitutes another allowable instrument for the insurance policy. The second condition is met if the owner or operator is no longer required to demonstrate fmcial assurance in accordance with the requirements of Paragraph (b)(2), (c)(2), or (d)(2) of the rule. 17

20 CAPITAL RESERVE FUND Any local government or public authority may establish and maintain a capital reserve fund. It must be established by resolution or ordinance of the governing board which shall state (i) the purposes for which the fund is created, (ii) the approximate periods of time during which the moneys axe to be accumulated for each purpose, (iii) the approximate amounts to be accumulated for each purpose, and (iv) the sources from which moneys for each purpose will be derived. The cash balances, in whole or in part, of capital reserve funds may be deposited at interest or invested as provided by G.S Withdrawah from a capital reserve fund may be authorized by resolution or ordinance of the governing board of the local government or public authority. No withdrawal may be authorized for any purpose not specified in the resolution or ordinance establishing the fund. No withdrawal may be made which would result in an appropriation for purposes for which an adequate balance of eligible moneys or investment securities is not then available in the capital reserve fund. Subpart (i) specifies that the unit of local government or public authority must be an entity which has the authority to establish a capital reserve fund under authority of G.S. 159 and whose financial operations are regulated and examined by a state agency. The capital reserve fund must be established consistent with auditing, budgeting, and government accounting pctices as prescribed in G.S. 159 and by the Local Government Commission. The rule requires that the capital reserve fund resolution duplicates the model provided in another part of the rule (Paragraph (e)(2)0). This requirement reasonably limits local governments and public authorities choices in the interest of uniformity and equity. Subpart (ii) requires the unit of local government or public authority to make uniform annual payments into the capital reserve fund. Pericdic payments will help make fund development orderly and systematic. Steady and consistent fund development is preferable. Subpart (iii) provides the method to calculate the required capital reserve fund payments for closure and post-closure care. The fmt payment must equal the sum of the cost estimates divided by the number of years in the pay-in period. There is no need to take inflation into account for the first payment. Subsequent payments must be determined by the following formula: payment = CE - CV Y in which CE = the current cost estimate, CV = the current value of the capital reserve fund, and Y = the number of years remaining in the pay-in period. 18

21 Subpart (iv) provides the method to calculate the required capital reserve fund payments for corrective action. The first payment must equal one-half of the current cost estimate. There is no need to take inflation into account for the first payment. Subsequent payments must be determined by the following formula: payment = CE - Cy Y in which: CE = the current cost estimate, CV = the current value of the capital reserve fund, and Y = the number of years remaining in the pay-in period. These formulas are straightforward. They calculate uniform payments that, over a frxed period, will yield a desired sum. The CE variable will be adjusted annually for inflation and other changes. For an example of how these formulas work see three cases presented earlier under the tmst fund section. Subpart (v) sets the payment schedule for local governments and public authorities. The local government or public authority must make the first payment into their capital reserve fund before they begin to receive waste at their facility or before the effective date of the rule (April 9, 1994), whichever is later, for closure and post-closure care. For corrective action, the first payment shall be no later than 120 days after the corrective action remedy has been selected in accordance with the requirements of Rule The rule requires that all subsequent payments be made no later than 30 days after each anniversary date of the first payment. For example, if the first payment is made on April 1, 1994, the next payment must be made by April 30, This requirement is designed to make sure capital reserve funds develop in an orderly manner. Subpart (vi) relates to cases in which local governments or public authorities begin to comply with the rule through the use of some financial instmment other than a capital reserve fund. This subpart requires those who switch to a capital reserve fund to make their first deposit equal to the fund balance that would have resulted if they had chosen a capital reserve fund from the beginning. For example, assume a local government first submits a surety bond in compliance with the rule and maintains the bond for three years. If the local government then wants to set up a capital reserve fund, the calculation of the first payment made into the capital reserve fund will be different from the provisions written in Subparts (iii) and (iv). The local government will have to follow the directions provided in Subparts (iii) or (iv), but the pay-in period changes. Instead of taking a current point of view, the local government must make the pay-in period estimate from the initial point of compliance, Le., when the surety bond is first submitted. Given a payin amount determined from the initial compliance date, the local government then has to multiply that amount by the number of periods in which capital reserve fund payments were not made. 19

22 This makes the initial payment equal to the amount that would have been in the fund if the local government had chosen to develop the capital reserve fund from the start. Subpart (vii) specifies that money in the capital reserve fund can only be used as reimbursements for expenses incurred. This means that the money cannot be released as an advance for upcoming expenses. Subpart (viii) describes the conditions under which the unit of local government or public authority may cancel the capital reserve fund. The fmt condition is met if the local government or public authority substitutes another allowable instrument for the capital reserve fund. The second condition is met if the local government or public authority is no longer required to demonstme fmcial assurance in accordance with the requirements of Paragraph (b)(2), (c)(2), or (d)(2) of the rule. 20

23 LOCAL. GOVERNMENT FJINANCIAL TEST Local governments may choose to comply with the financial assumnce requirement through the use of the local government fmcial test. This mechanism consists of a financial component, a public notice component, and a record-keeping and reporting component. A local government must satisfy each of the three components to pass the test. In addition, a local government using the test must meet certain general conditions necessary to assure the effectiveness of the test. In order to continue to use the test, owners and operators must pass the test on an annual basis. Subpart (i) describes the financial component of the local government financial test. The test reflects a local government s financial health and strength and thus serves as a measure of the local government s financial capability to meet its assured obligations. To satisfy the financial component of the test, a local government owner or operator must: (1) meet either of two sets of criteria (Ratio Indicators of Financial Health or Bond Rating Indicator of Financial Health), (2) meet an operating deficit requirement, (3) not be in default on any outstanding general obligation debt or any long-term obligations, and (4) not have outstanding general obligation bonds rated lower than investment grade. Sub-subpart (I) defmes the Ratio Indicators of Financial Health. Financial ratios are commonly accepted in the area of finance as indicators of the financial health of entities. They provide an easily executable method of assessing the financial strength of local governments. A local government must satisfy three financial ratios: (1) a relative financial strength ratio, (2) a liquidity ratio, and (3) a debt service ratio. The relative financial strength ratio measures local government financial strength (as judged by total annual revenue) relative to the local government s total assured envhmnental obligations. These include obligations for MSWLFs; hazardous waste treatment, storage, and disposal facilities; petroleum underground storage tanks; underground injection control system facilities; and polychlorinated biphenyl commercial storage facilities. A local government s assured costs could not total more than 43 percent of its total annual revenue. Unlike the other ratios, the relative fmancial strength ratio does not limit the number of local governments that meet the requirements of the test, but it does determine the amount a local government can assure through the fmancial test. A local government that cannot meet the requirements for the full amount of its obligations can use the test to assure its obligations in part. For example, assume that a local government meets all of the other requirements of the test and seeks to assure costs of $15 million but can satisfy the relative financial strength ratio for only $10 million. That local government could use the financial test to assure for $10 million, but then would be required to procure an alternate instrument for the remaining $5 million in costs. The liquidity ratio is defmed as the sum of operating cash and investments divided by total operating expenditures and is designed to measure the degree to which an entity has cash or other assets that can quickly be converted to cash available to meet its current or upcoming expenses. Liquidity is essential to meet current obligations or execute transactions, and can provide an impomt cushion to protect funds intended for upcoming expenses against 21

24 unexpected or emergency costs. Local governments must have a liquidity ratio value of at least 0.05 in order to pass this ratio. The debt service ratio is defined as annual debt service divided by total operating expenditures and measures local government debt service as a percentage of operating total expenditures. Debt service is the amount of principal and interest due on a loan in a given time period (i.e. the current year). Debt service represents a fmed expense that cannot be reduced by government planners except by prepayment or refinancing. High debt service significantly reduced the resources available to fund current operating expenses, the flexibility to fund unexpected needs, and the ability to obtain additional loans or issue additional debt. Local governments must have a debt service ratio value of no greater than 0.20 in order to pass this ratio. Sub-subpart 0 defines the Bond Rating Indicator of Financial Health. A local government must satisfy the relative financial strength ratio (discussed above) and a bond rating requirement. To satisfy the bond rating requirement, local governments must have a current bond rating of Baa or higher as issued by Moody s, BBB or higher as issued by Standard and Poor s, BBB or higher as issued by Fitch s, or 75 or higher as issued by the Municipal Council on the local government s outstanding general obligation bonds. Bond ratings are widely used as a measure of credit risk associated with a long-tem general obligation debt instmment. In order to receive an investment grade rating or higher, local governments must demonstrate a record of adequate financial management and accounting contmls, and an ability to repay the bond holders. Only ratings on bonds that pledge a local government s full faith and credit (i.e., general obligation bonds) would be allowed for use in satisfying the local government financial test. Sub-subpart (III) states three requirements that must be satisfied in order to pass the financial test. The local government must not have operated at a total operating fund deficit equal to five percent or more of its total annual revenue in either of the past two years. Local governments must not be currently in default on any outstanding general obligation debt or any long-term obligations. Local governments must not have a rating on any outstanding general obligation bonds lower than Baa as issued by Moody s, BBB as issued by Standard & Poor s, BBB as issued by Fitch s, or 75 as issued by the Municipal Council. Local governments failing these conditions may be experiencing some financial hardship that would make them poor candidates for using a financial test. A local government that satisfies the Ratio Indicators of Financial Health option, but has a bond rating that would not satisfy the Bond Ratings Indicators of Financial Health option would not pass the test. Subpart (ii) describes the public notice component of the local government financial test. It is intended to ensure that a local government using the test acknowledges the obligations it is seeking to assu~ and that the community decision makers are aware of and agree to the commitment of future local government funds. To comply with this public notice requirement, a local government must identify, in each year that the financial test or guarantee is used, the assured costs in accordance with generally accepted accounting principles. 22

25 Subpart (iii) describes the record-keeping and reporting component of the financial test. A letter signed by the local govemment s chief financial officer (CFO) stating the following three things must be submitted to the division: (1) all the current cost estimates covered by the financial test, (2) that the unit of local govemment meets the conditions of either Sub-subpart (i)o or (i)(ii), and (3) that the unit of local govemment meets the conditions of Sub-subpart (i)@i). Subpart (iv) states the compliance schedule for items submitted to the division and is identical to the schedule written in Part (A). The items must be submitted to the division before the initial receipt of waste or before the effective date of the rule (April 9, 1994), whichever is later, for closure and post-closure care. For corrective action, the items must be submitted no later than 120 days after the comxtive action remedy has been selected in accordance with the requirements of Rule Subpart (v) lists all the facilities to be considered in the relative ficial strength ratio when calculating the current cost estimates for closure, post-closure, corrective action, or the sum of the combination of such costs to be covered. Subpart (vi) requires a local govemment to annually update all financial test documentation within 120 days of the close of the local government s fiscal year. Local govemments with fiscal cycles that are more than one year must update their estimate at least every 12 months based on an unaudited financial statement and must also update the documentation based on audited information at the close of the fiscal cycle.. Subpart (vii) states that if the local govemment can no longer meet the terms of the financial test, the owner or operator must send notice to the division of intent to establish altemative financial assurance. This notice must be sent within 120 days after the end of the fiscal year and altemative fmancial assurance must be provided within 150 days after the end of the fiscal year. Subpart (viii) describes the conditions under which the local govemment may cancel the financial test. The first condition is met if the facility owner or operator substitutes another allowable instrument for the fmancial test. The second condition is met if the owner or operator is no longer required to demonstrate fmancial assurance in accordance with the requirements of Paragraph (b)(2), (c)(2), or (d)(2) of the rule. 23

26 USE OF MULTLPLE FINANCIAL MECHANISMS This part allows the facility owner or operator to comply with the rule by using more than one financial mechanism. Facility owners and operators can use any combination of trust funds, letters of credit, surety bonds guaranteeing payment, insurance, and capital reserve funds. The instruments must conform to applicable parts of the rule. This provision is included as a means to help facility owners and operators manage changing circumstances. For example, ifa facility owner or operator has a bond or a letter of credit and a short-tem condition arises which changes a cost estimate the surety or bank may not want to extend the terms of its agreement on short notice. The facility owner or operator may use this provision to fmd another instrument or alter an existing instrument so that the total of the fmcial mechanisms once again complies with the rule. The list of available instruments excludes the surety bond that guarantees perfonnance. If there is a case of default, combining a performance bond with funds derived from other instruments would become extremely complex. Other instruments are available to allow facility owners and opemtors the range of choice they wilf need. Ifthe facility owner or operator chooses to use more than one fmcial instrument, the combined value of these instruments must equal the sum of the current cost estimates. The division must make sure that the instruments afford complete coverage of the costs involved. When fmancial instruments are used in combination to provide financial assurance for closure, post-closure care, or comtive action, no more than one instrument can be provided by the same financial institution or its corporate entities. This provision protects against misrepresentation of actual available resources. If a trust fund is used in combination with other instruments, it can serve as the standby trust for the bond or letter of credit. A single standby trust can be used for two or more instruments. This provision helps the facility owners and operators hold down the costs of compliance. 24

27 APPENDIX TRUST A G"T Trust Agreement, the "Agreement," ented into as ofidate] by and between [name of the owner or operator], a [name of State] [insert "corporation," "partnership," "association," or "proprietorship"], the "Grantor," and [name of corpomte trustee], [insert "incorporated in the state of " or "a national bank"], the "Trustee." Whereas, the Division of Solid Waste Management, the "Division," an agency of the State of North Carolina, has established certain regulations applicable to the Grantor, requiring that an owner or operator of a solid waste management facility shall provide assurance that funds will be available when needed for closure, post-closure care, or corrective action of the facility, Whereas, the Grantor has elected to establish a trust to provide all or part of such financial assurance for the facilities identitied herein, Whereas, the Grantor, acting through its duly authorized officers, has selected the Trustee to be the trustee under this agreement, and the Trustee is willing to act as trustee. Now, therefore, the Grantor and the Trustee agree as follows: Section 1. Definitions. As used in this Agreement: (a) The term "Grantor" means the owner or operator who enters into this Agreement and any successors or assigns of the The term "T~stee" means the Trustee who enters into this Agreement and any successor Trustee. Section 2. Identification of Facilities and Cost Estimates. This Agreement pertains to the facilities and cost estimates identified on Schedule A [on Schedule A, for each facility list the Solid Waste Section Permit Number, name, address, and the current closure, post-closure, or cormtive action cost estimates, or portions thereof, for which financial assurance is demonstrated by this Agreement]. Section 3. Establishment of Fund. The Grantor and the Trustee hereby establish a trust fund, the "Fund," for the benefit of the Division. The Grantor and the Trustee intend that no third party have access to the Fund except as henin provided. The Fund is established initially as consisting of the property, which is acceptable to the Trustee, described in Schedule B. Such propeq and any other property subsequently transferred to the Trustee is referred to as the Fund, together with all earnings and profits thereon, less any payments or distributions made by the Trustee pursuant to this Agreement. The Fund shall be held by the Trustee, IN TRUST, as hereinafter provided. The Trustee shall not be responsible nor shall it undertake any responsibility for the amount or adequacy of, nor any duty to collect from the Grantor, any payments necessary to discharge any liabilities of the Grantor established by the Division. 25

28 APPENDIX Section 4. Payment for Closure, Post-Closure Care, and Corrective Action. The Trustee shall make payments from the Fund as the Division of Solid Waste Management (the "Division") shall direct, in writing, to provide for the payment of the costs of closure, post-closure care, or corrective action of the facilities covered by this Agreement. The Trustee shall reimburse the Grantor or other persons as specified by the Division from the Fund for closure, post-closure, and corrective action expenditures in such amounts as the Division shall direct in writing. In addition, the Trustee shall refund to the Grantor such amounts as the Division specifies in writing. Upon refund, such funds shall no longer constitute part of the Fund as defied herein. Section 5. Payments Comprising the Fund. Payments made to the Trustee for the Fund shall consist of cash or securities acceptable to the Trustee. Section 6. Trustee Management. The Trustee shall invest and reinvest the principal and income of the Fund and keep the Fund invested as a single fund, without distinction between principal and income, in accordance with general investment policies and guidelines which the Grantor may communicate in writing to the Trustee from time to time, subject, however, to the provisions of this Section. In investing, reinvesting, exchanging, selling, and managing the Fund, the Trustee shall discharge his duties with respect to the trust fund solely in the interest of the beneficiary and with the care, skill, prudence, and diligence under the circumstances then prevailing which persons of prujence, acting in a like capacity and familiar with such matters, would use in the conduct of an enterprise of a like character and with like aims; except that: (i) (i) (iii) Securities or other obligations of the Grantor, or any other owner or operator of the facilities, or any of their affiliates as defied in the Investment Company Act of 1940, as amended, 15 U.S.C. 80a-2.(a), shall not be acquired or held, unless they are securities or other obligations of the Federal or State government; The Trustee is authorized to invest the Fund in time or demand deposits of the Trustee, to the extent insured by an agency of the Federal or State government; and The Trustee is authorized to hold cash awaiting investment or distribution uninvested for a reasonable time and without liability for the payment of interest thereon. Section 7. discretion: commingling and Investment. The Trustee is expressly authorized in its (a) (b) To transfer from time to time any or all of the assets of the Fund to any common, commingled, or collective trust fund created by the Trustee in which the Fund is eligible to patticipate, subject to all of the provisions themf, to be commingled with the assets of other trusts participating thereiq and To purchase shares in any investment company registered under the Investment Company Act of 1940, 15 U.S.C. 80a-1 et seq., including one which may be created, managed, underwritten, or to which investment advice is rendered or the shares of which are sold by the Trustee. The Trustee may vote such shares in its discretion. 26

29 APPENDIX Section 8. Express Powers of Trustee. Without in any way limiting the powers and discretions conferred upon the Trustee by the other provisions of this Agreement or by law, the Trustee is expressly authorized and empowered: (a) (b) (c) (d) (e) To sell, exchange, convey, transfer, or otherwise dispose of any propeay held by it, by public or private sale. No person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity or expediency of any such sale or other disposition; To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted; To register any securities held in the Fund in its own name or in the name of a nominee and to hold any security in bearer form or in book entry, or to combine certificates representing such securities with certif3ates of the same issue held by the Trustee in other fiduciary capacities, or to depmit or arrange for the deposit of such securities in a qualified centml depository even though, when so deposited, such securities may be merged and held in bulk in the name of the nominee of such depository with other securities deposited therein by another person, or to deposit or arrange for the deposit of any securities issued by the United States Government, or any agency or instrumentality thereof, with a Federal Reserve bank, but the books and m ds of the Trustee shall at all times show that all such securities are part of the Fund; To deposit any cash in the Fund in interest-bearing accounts maintained or savings cert5cates issued by the Trustee, in its separate corporate capacity, or in any other banking institution afffited with the Trustee, to the extent insured by an agency of the Federal or State government; and To compromise or otherwise adjust all claims in favor of or against the Fund. Section 9. Taxes and Expenses. All taxes of any kind that may be assessed or levied against or in respect of the Fund and all brokerage commissions incurred by the Fund shall be paid from the Fund. All other expenses incurred by the Trustee in connection with the administration of this Trust, including fees for legal services rendered to the Trustee, the compensation of the Trustee to the extent not paid k t l y by the Grantor, and all other proper charges and disbursements of the Trustee shall be paid from the Fund. Section 10. Annual Valuation. The Trustee shall annually, at least 30 days prior to the anniversary date of establishment of the Fund, furnish to the Grantor and to the Division a statement confuming the value of the Trust. Any securities in the Fund shall be valued at market value as of no more than 60 days prior to the anniversary date of establishment of the Fund. The failure of the Grantor to object in writing to the Trustee within 90 days after the statement has been furnished to the Grantor and the Division shall constitute a conclusively binding assent by the Grantor, barring the Grantor from asserting any claim or liability against the Trustee with respect to matters disclosed in the statement. 27

30 APPENDIX Section 11. Advice of Counsel. The Trustee may from time to time consult with counsel, who may be counsel to the Grantor, with respect to any question arising as to the construction of this Agreement or any action to be taken hereunder. The Trustee shall be fully protected, to the extent permitted by law, in acting upon the advice of counsel. Section 12. Trustee Compensation. The Trustee shall be entitled to reasonable compensation for its services as agreed upon in writing from time to time with the Grantor. Section U. Successor Trustee. The Trustee may resign or the Grantor may replace the Trustee, but such resignation or replacement shall not be effective until the Grantor has appointed a successor trustee and this successor accepts the appointment. The successor trustee shall have the same powers and duties as those conferred upon the T ~~tee hereunder. Upon the successor trustee s acceptance of the appointment, the Trustee shall assign, transfer, and pay over to the successor trustee the funds and properties then constituting the Fund. If for any reason the Grantor cannot or does not act in the event of the resignation of the Trustee, the Trustee may apply to a court of competent jurisdiction for the appointment of a successor trustee or for instructions. The successor trustee shall specify the date on which it assumes administration of the trust in writing sent to the Grantor, the Division, and the present Trustee by certifkd mail 10 days before such change becomes effective. Any expenses incurred by the Trustee as a result of any of the acts contemplated by thi: Section shall be paid as provided in section 9., Section 14. Instructions to the Trustee. All orders, requests, and instructions by the Grantor to the Trustee shall be in writing, signed by such persons as are designated in the Exhibit A or such other designees as the Grantor may designate by amendment to Exhibit A. The Trustee shall be fully protected in acting without inquiry in Bccordance with the Grantor s orders, requests, and instructions. All orders, requests, and instructions by the Division to the Trustee shall be in writing, signed by the Division, or his designee, and the Trustee shall act and shall be fully protected in acting in accoiclance with such orders, requests, and instnrctions. The Trustee shall have the right to assume, in the absence of written notice to the contrary, that no event constituting a change or a termination of the authority of any person to act on behalf of the Grantor or Division hereunder has occurred. The Trustee shall have no duty to act in the absence of such orders, requests, and instructions from the Grantor or Division, except as provided for herein. Section 15. Notice of Nonpayment. The Trustee shall notify the Grantor and the Division by certifkd mail within 10 days following expiration of the 30-day period after the anniversary of the establishment of the Trust, if no payment is received from the Grantor during that period. After the pay-in period is completed, the Trustee shall not be required to send a notice of nonpayment. Section 16. Amendment of Agreement. This Agreement may be amended by an instrument in writing executed by the Grantor, the Trustee, and the Division, or by the Trustee and the Division if the Grantor ceases to exist. 28