Recycling is Entering a New Financial Era

California is offering a real-time look at how new recycling funding models can affect cash flow, financing, capital investment and the companies doing the work.

For decades, much of the cost of managing discarded packaging has ultimately fallen to local governments, recycling systems and ratepayers. That allocation of financial responsibility is now changing.

Across the United States, new laws are shifting more of the financial responsibility for packaging waste to the companies that introduce those materials into the marketplace.

The policy framework is known as Extended Producer Responsibility, or EPR. In practical terms, EPR shifts greater responsibility for post-consumer packaging to producers—typically brand owners, manufacturers, importers and other companies that sell packaged goods.

Most programs rely on a Producer Responsibility Organization, or PRO, to collect producer fees, manage reporting and help coordinate recycling infrastructure and program administration. Circular Action Alliance, or CAA, is serving that role in several state programs.

Seven states—California, Colorado, Maine, Maryland, Minnesota, Oregon and Washington—have enacted comprehensive packaging EPR laws. The programs are not identical, and they are moving on different timelines. But together they point to a significant change in how recycling will be financed in the United States.

Changing who pays for recycling also changes how money moves through the recycling system. That has implications for the businesses collecting, transporting, sorting and processing those materials, as well as their lenders, customers, investors and business partners.

California now provides a particularly useful view of what that shift can mean in practice.

California Is Moving From Legislation to Agreements

California’s SB 54 established an EPR framework for single-use packaging and plastic food service ware. Circular Action Alliance California has now released consultation drafts of the agreements that will govern capital investment, cost reimbursement and services for recycling service providers.

That is an important transition. The conversation is moving beyond what EPR is intended to accomplish and into the mechanics of how the companies performing the work may actually be funded.

A reimbursement program can sound straightforward until the agreement begins addressing collateral, payment timing, project economics, reporting requirements, repayment obligations and dispute procedures. Those details can affect far more than compliance. They can affect cash flow, borrowing capacity, capital investment decisions and the overall economics of participating in the program.

We decided that was a reason to contribute our perspective.

We Read the Agreements From the CFO’s Side of the Table

At netgainCFO, we have spent more than two decades working at the intersection of finance and environmental services. That experience changes the questions we ask when reviewing an agreement like this.

Our review is not intended to substitute for environmental, regulatory or legal counsel. Those disciplines raise important questions that belong with the appropriate specialists. Our focus is different.

We read the drafts thinking about an independent operator with trucks and processing equipment, an existing lender, payroll to fund, vendors that expect to be paid, a revolving credit facility, capital projects competing for investment dollars and a management team trying to forecast what the next several years will look like.

Viewed through that lens, several provisions stood out.

What happens when new funding meets existing debt?

One draft provision would give CAA a first-priority lien and security interest in funded equipment and related collateral, together with authority to file UCC financing statements.

For a company without existing debt, that may be one conversation. For an operator whose lender already has a blanket lien over company assets, it can be a very different one.

Equipment and receivables frequently form part of the collateral base supporting an environmental-services company’s credit facilities. Introducing another first-priority security interest could therefore create lender-consent, collateral and borrowing-base questions that should be understood before funding is accepted—not after.

What happens to the return on a capital project?

The proposed capital funding methodology also contemplates reducing funding by certain economic benefits associated with a project, including cost savings, incentives, tax benefits, trade-in value or additional revenue.

That deserves careful attention from anyone responsible for capital allocation. If a company purchases equipment because it improves throughput, lowers operating costs or creates another economic benefit, management normally incorporates those improvements into the investment case. If those same economic benefits can reduce the amount ultimately funded, management needs to incorporate that effect into the investment case from the outset.

Reimbursement does not eliminate the working-capital requirement

The draft Services Project Schedule provides for payment 60 days after invoice, with invoicing occurring after month-end.

For an operator, that timing matters. Payroll, fuel, maintenance, insurance and vendors continue to require cash while services are being performed. Depending on when work occurs during the billing cycle, the period between providing a service and receiving the related cash can extend considerably beyond 60 days.

That turns a reimbursement question into a working-capital question: How much cash will the company have tied up while it waits to be paid? If that gap is funded through a revolving credit facility, the reimbursement carries a financing cost as well.

When does approved funding become final?

Another provision allows CAA to nullify a previous funding approval based on subsequently discovered information, incomplete or inaccurate information, or noncompliance. The draft does not establish a clear time limit for that authority.

There are understandable reasons for retaining remedies in cases involving fraud or material misrepresentation. From a financial reporting perspective, however, management also needs to know when an approved reimbursement can reasonably be treated as final.

That matters when preparing forecasts. It matters when evaluating receivables. It can matter to auditors, lenders and potential acquirers. Financial certainty has value.

The data being exchanged has value, too

The proposed reporting requirements can reach deeply into an operator’s business, including information related to tonnage, scale tickets, tip fees, revenue per ton, customer counts, routes and end markets. The drafts also contain language concerning confidentiality and CAA’s rights relating to reported information.

For an independent operator, some of that information can reveal a great deal about how the business makes money.

The question is not whether a reimbursement program should require supporting information. It should. The more consequential question is whether the information requested is proportionate to its purpose and adequately protected given its commercial sensitivity and value.

There May Be Opportunity Here, Too

Our review was not limited to risk.

One issue worth examining involves capital investments that have already been made. The governing regulation identified in our review excludes covered costs incurred before January 1, 2023. The draft agreements, however, do not clearly address how qualifying investments made after that date but before execution of a funding agreement will be handled.

Trying to reconstruct that investment history several years from now is unlikely to be easier.

Twenty Comments From a Financial Perspective

After reviewing the drafts, netgainCFO submitted 20 comments to CAA California on September 7, 2026.

They address issues ranging from security interests and project economics to payment timing, audit provisions, confidentiality, dispute resolution, historical capital investments and terms that remain blank or bracketed in the current drafts.

We also prepared a shorter briefing identifying 12 provisions that haulers, material recovery facility operators and the lenders financing them may want to examine more closely.

Our purpose in publishing this analysis is not to suggest that every provision is unreasonable, nor to assume that our interpretation will ultimately prevail. These remain consultation drafts, and the applicable statutes and regulations control.

The value of a public comment period is that these questions can be raised before the agreements become part of ordinary business. There is value in having finance represented in that conversation.

Why Companies Outside California Should Pay Attention

California is the immediate story, but EPR is not a California-only issue.

Packaging EPR laws have now been enacted in seven states, and additional states are studying or considering their own approaches. The programs will not all look like California’s, and companies should not assume that a provision in one state’s program will appear in another.

The underlying financial questions, however, are unlikely to disappear.

As EPR programs develop, environmental-services companies may need to evaluate new reimbursement streams, capital requirements, reporting systems, payment cycles, financing arrangements and contractual obligations.

That conversation can begin before an agreement arrives for signature.

netgainCFO works alongside owners and management teams to translate industry developments into financial decisions—modeling capital investments, evaluating working-capital requirements, assessing financing implications, developing forecasts and helping companies prepare for changes that may affect the economics of their businesses.

The financial work begins with understanding what these changes mean for the business.

For environmental-services companies, that means looking beyond the requirements themselves and evaluating how new funding structures may affect cash flow, capital investment, financing, operating costs and long-term planning. Those decisions are better worked through before new reimbursement structures and contractual obligations become part of ordinary business.