Editor’s Note: The state Department of Environmental Management is holding a public hearing on Medrecycler-RI’s solid waste permit Monday, March 15, at 4 p.m. This is a time for people to comment publicly about the company’s plan. Here’s the Zoom link: https://us02web.zoom.us/j/5211383116, Meeting ID: 521 138 3116 by phone at: 1-929-205-6099.
Much has been written about the process Medrecycler-RI hopes to bring to 1600 Division Road – transforming medical waste into sludge through high heat aka pyrolysis – and the opposition the company is facing from residents as well as the East Greenwich Town Council. Less well known is how the plant is being financed.
One of the reasons owner Nick Campanella has said he’s coming to Rhode Island is because of the state’s economic development incentives. Campanella says the facility, which sits in West Warwick right over the East Greenwich line, will provide around 100 construction jobs to get the plant up and running and 30 jobs once the facility is operational.
Based on the economic development potential, the company has received preliminary approval from the R.I. Industrial Facilities Corporation (RIIFC), an arm of Rhode Island Commerce, to offer $17 million in tax-exempt bonds to interested investors.
During a virtual question-and-answer session with the Department of Environmental Management Jan. 25, Campanella said it was “a vehicle for us to be able to issue tax-free bonds. We’re not using taxpayer dollars or money from the state.”
According to Bill Ash, head of financial services at Rhode Island Commerce, that is accurate.
They are utilizing a program through the R.I. Industrial Facilities Corporation which provides financing to encourage economic development.
Ash said this type of program exists in every state in the country. For-profit entities can apply for either taxable or tax-exempt bonds known as “private activity bonds.”
Tax-exempt bonds must comply with IRS rules; Ash said a company seeking tax-exempt bonds “has to pass numerous IRS tests in order to qualify for financing.” The result of those tests determines how many of the bonds could be tax exempt and how many would be taxable.
Examples of other companies that have been granted RIIFC bond issues are Narragansett Brewing, Ash said.
“That bond issue was insured by Industrial-Recreational Building Authority (IRBA) and in the event that the brewery fails, and no one buys the assets to continue the operation, the assets (collateral) will be sold with proceeds going to pay off the bond. In the event that the proceeds are insufficient to pay off the bonds, the state’s bond insurance will pay off the remaining balance but in no case more than $5 million dollars. The insurance payment is not an immediate payment in full, rather it is paid over the remaining life of the bond had it not failed.”
Other examples of RIIFC bond issues are Isle Brewers Guild, Key Container Corporation and Ashaway Pines Campground.
What would happen if Medrecycler-RI fails?
Ash said defaults are “very rare. There has been one over the past decade or so.”
But even still, he said, the state would not be obligated, since the bond would not be a “moral obligation bond,” the type from the infamous 38 Studios/Curt Schilling video game company. In that instance, after 38 Studios went bankrupt, the state stepped in to pay off the bonds after bond rating agencies threatened to cut the state’s bond rating.
“In the event that RIIFC issues a bond without IRBA insurance (as is contemplated in the MedRecycler transaction), then there is no obligation,” said Ash. “The bond buyer assumes all risk.”
Opponents to the planned facility have noted the state declined to invest in Medrecycler-RI’s parent company, Sun Pacific, over concerns about its financial situation, prompting the creation of Medrecycler. Ash said Sun Pacific would not receive any of the bond proceeds – Medrecycler will get those and the bondholders would be paid back by that entity.
“Sun Pacific may get a share of the net income of MedRecycler and that is governed by the agreement between the bond buyer and MedRecycler,” Ash said.
He added, “RIIFC or the State of Rhode Island has no financial interest in the transaction.”
So, is the $17 million a done deal?
No. According to Ash, the company has to first get all its IRS, state and local approvals.
Speaking of local approvals, the West Warwick Planning Board has hired EA Engineering to review the company’s application and the DEM permitting process.
“At this point, EA Engineering has initiated its review of all submission materials, observed the last RIDEM informational meeting, is reviewing all state, federal and local requirements for compliance and has been researching other similar facilities,” said West Warwick Town Planner Mark Carrulo. “EA will also observe the March 15 RIDEM Zoom public hearing. EA Engineering will be advising the Planning Board moving forward through the next stages of approval. However, there is currently no action pending for Medrecycler before the WWPB. As you are aware, the PB issued a master plan (general conceptual) approval to Medrecycler. In order to commence operations, Medrecycler still needs to obtain all of the required state and local permits and apply to the PB for preliminary and final approval. Medrecycler is not able to proceed with its next stage of PB approval (preliminary plan) unless and until it receives the necessary permits and approvals from RIDEM and other local agencies.”
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