1303003 Informal Interpretation

Date:
Rule:
801.1
Staff:
Michael Verne
Response/Comments:

    Agree. K Walsh and S Pope Concur.

Question

From: (Redacted)

Sent: Wednesday, March 13, 2013 1:55 PM

To: Verne, B. Michael,Walsh, Kathryn

Subject: 8011(a)(2) - State Agency/Political Subdivision Question

Hi guys,

Here is another question (a little more complicated than my earlierquestion. Facts:

1. The transaction meets the size of transaction and size of person tests.

2. As detailed below, the acquiringperson is a municipalauthority ("the Authority")under Pennsylvania Municipal Authorities Act. The Authority's mission, as stated in its Articles of Incorporation, is to managesolid waste and recyclable materialsin an environmentally safe, reliableand efficient mannerto benefit the residents of County A ("theCounty") and contiguous counties.

3. The Authority will purchasea waste-to-energy facility("the Facility") from another Pennsylvania municipal authority. Under the County's2010 Waste Management Plan, which was approvedby the County Commissionersand the Pennsylvania Department of EnvironmentalProtection, the Authority is responsible for securing adequate processing and disposal capacityfor the County's municipal waste. The Authority's objective in purchasing the Facility is to meet the Plan's requirement that it secure such adequatecapacity.

HSR Analysis

1. Section 7A(c)(4)exempts "transfers to or from a Federal agencyor a State or politicalsubdivision thereof." Section 801.1(a)(2) defines the term "entity" under the Act and providesthat "the term 'entity' shall not include ... the UnitedStates, any of the Statesthereof, or any political subdivision or agency of either(other than a corporation or unincorporated entity engagedin commerce)."

2.By informal interpretation, municipal entitiesthat engage in governmental functions have been treatedas political subdivisions or agencies and therefore excludedfrom the definition of "entity"under Section 801.1(a)(2). Informal interpretation 1011009 (http://www.ftc.gov/bc/hsr/informalopinions/1011009.htm), forexample, agreed that a local government corporation which was purchasing assetsof an electrical power generating plant in West Texas constituted a governmentagency rather than an "entity." Similarly, informal interpretation0711008 (http://www.ftc.gov/bc/hsr/informalopinions/0711008) agreed that theacquisition of a power plant in Ohio by a Municipal Power Agency that was organized by specific legislative act of its members, all political subdivisions, for the sole purpose of benefiting its members, was not an "entity." See also 0211005 (agreeing that a development authority formed by two counties pursuant to state legislation was not an "entity"),
http://www.ftc.gov/bc/hsr/informalopinions/0211005

3. We have concludedthat the Authority constitutes a political subdivision or agency of the Commonwealth of

Pennsylvaniaand is not an "entity" based on the followingfactors:

a. Authorizing Statute. The Authorityis a Pennsylvania municipal authority organized and operating under thePennsylvania Municipal Authorities Act, 53 Pa. C.S. 5601, et seq.Section 5620 of the Act states that municipal authorities "perform[] essential governmental functions." SeeCommonwealth v. Erie MetropolitanTransit Authority, 281A.2d 882, 884 (1971) (Pennsylvania Supreme Court holding "thatmunicipal authorities are independent agencies of the Commonwealth, and part of its sovereignty"); Commonwealth v. Lucas, 632A.2d 868, 870 (1993) (Pennsylvania SupremeCourt stating that municipal authorities are "independent agencies of the Commonwealth"). Section5607(b) of the Act states that the purposeof municipal authorities is to benefit the "commerce, health, safety and prosperity" of the people of the Commonwealth of Pennsylvania, and that municipal authorities must not"interfere with existingbusiness by the establishmentof competitive enterprises." As further evidence of their inherently governmental nature, Section S614 of the Act requiresthat municipal authorities conduct a public biddingprocess before awarding a work contract to a private contractor and Section 5615(a)grants municipal authoritiesthe power to acquire title to land, water andwater rights by eminent domain, both within andoutside the municipality which createdthe municipal authority.

b. The Authority Serves a Government Function. Under the Pennsylvania Solid Waste Management Act ("Act 97") and the Pennsylvania MunicipalWaste Planning, Recyclingand Waste ReductionAct ("Act 101"), each Pennsylvaniacounty is required to adopt a municipal wastemanagement plan for municipal waste generated within itsboundaries. Under the County's 2010 Waste Management Plan ("the Plan"), the Authority is a publicagency responsible for operating an integrated system of managingmunicipal solid waste and implementing the Plan. The effect of the Plan, and all implementing ordinances and agreements, is todelegate the County'srights, duties and obligations for implementation of the Plan to the Authority. The Plan has the force of law and violatorsare subject to civiland criminal penalties.

c. Taxation. TheAuthority is an entityqualified to issue bonds exemptfrom federal taxation under present statutes, regulations, and judicial decisions. The Authority is exemptfrom federal income taxation on its gross income. Section 5620 of the MunicipalAuthorities Act exempts the Authority from taxation by the Commonwealth, provided that the Authority acts within the express purposesof the Municipal Authorities Act. Section 5620 additionally holds that bonds issued by a municipalauthority are exemptfrom taxation by the Commonwealth.

d. Governance. TheCommissioners of the County appointthe Authority's board of directors. All of the membersof the board are residents of the Countyas required by Section 5610 of the Municipal Authorities Act. The Authority is subject to Pennsylvania's Right-to-Know Law, 65 P.S. 67.101, et seq., as a government agency.

e. Income. The Authority is not operated with the possibility of or motive for profit, and the excess of revenuesgenerated over expenses cannotbenefit any private party.

Please confirmthat you agree that the Authority constitutes a stateagency or politicalsubdivision and is thereforenot an "entity" underSection 801.1(a)(2).

About Informal Interpretations

Informal interpretations provide guidance from previous staff interpretations on the applicability of the HSR rules to specific fact situations. You should not rely on them as a substitute for reading the Act and the Rules themselves. These materials do not, and are not intended to, constitute legal advice.

Learn more about Informal Interpretations.