State Poised to Accept Grant Applications for Gas Station Cleanups

This Fall the Ohio Development Services Agency (ODSA) announced program implementation details for the newly created $20 million dollar Abandoned Service Station Fund.  ODSA sent out an announcement to contacts that it would likely begin accepting applications winter, however, to date the ODSA has yet to begin accepting applications.  ODSA developed the program in conjunction with Ohio EPA and the Bureau of Underground Storage Tank Regulation (BUSTR).

The Abandoned Gas Station Cleanup Grant was specifically created to target a certain segment of brownfields largely neglected in Ohio - abandoned gas stations and petroleum underground storage tanks.  The program provides grant funding to pay for sampling and clean up of BUSTR Class C sites (underground storage tanks with documented petroleum releases and the owner of the tank has no funds).

A key eligibility issue discussed in a prior post has been resolved favorably.  Local government entities do not need to actually own the site to be eligible to receive funding.  Local governments can work with the landowner, similar to other brownfield programs, and apply for funding so long as there is a development agreement between the government and the landowner.  However, the applicant and property owner cannot have contributed to the prior release of petroleum or other hazardous substance on the site.

Eligible activities include up to $100,000 for assessment and up to $500,000 for cleanup. Other eligible activities include costs to empty or remove underground storage tanks, abatement of asbestos, lead or other contamination, demolition and site clearance.

ODSA stated in its announcement that priority will be given to vacant gas or service station projects where cleanup provides the greatest environmental, community and economic impact.  This statement suggests that priority will be given actual abandoned gas stations.  There are also many instances where abandoned underground storage tanks exist on industrial or commercial property. It appears the State views these sites as less of a priority.

As discussed in the prior post, the State already maintains a list of BUSTR Class C tanks.  There are over 500 Class C tanks already appearing on the list.  With so many abandoned tanks, it is very likely that the $20 million in funding will be used up very quickly.  Therefore, it is important for any landowner or community seeking funding to make sure they are ready to submit an application as soon as the program opens.  

Update:  ODSA just released its webpage on the Abandoned Gas Station Cleanup Grant Fund.  Application materials and scoring matrices for projects will soon be availble

Court Finds Industrial Stormwater "Presumptively Dirty"

For a long period of time, U.S. EPA exempted stormwater from coverage under the Clean Water Act. This was largely due to the fact that EPA had enough on to do in simply regulating discharges from traditional point sources of water pollution.  In 1987, Congress gave EPA the authority to regulate stormwater discharges from "presumptively dirty sources" including industrial activity.  See, Ecological Rights Found. V. Pac. Gas and Elec. Co., 713 F. 3d 502, 505 (9th Cir. 2013)

After Congress acted, EPA passed regulations defining which businesses were "presumptively dirty" and needed to get permit coverage to better control discharges of stormwater.  40 C.F.R. Section 122.26(b)(14).  EPA also developed the NPDES Multi-Sector Stormwater Permit and identified eleven different industrial categories that must get coverage under the Multi-Sector NPDES Stormwater Permit. See, 40 CFR 122.26(b)(14)(i)-(xi)

If, despite being associated with an industrial activity as defined in the regulations, stormwater is not actually exposed to industrial materials or activities, the facility may be able to obtain a "conditional no exposure" ("CNE") exclusion from the permit requirement.  

If there is no sampling showing the stormwater contained pollutants is there a violation? 

A facility may be required to obtain a permit because its discharges are "presumptively dirty," however, is there an actual violation for polluting waters if there is no direct evidence that the stormwater discharge actually contains pollutants?  While Congress created the presumption that stormwater from industrial activity was presumptively dirty, the Clean Water Act definition of pollutant went unchanged:

Pollutant- "dredged spoil, solid waste, incinerator residue, sewage, garbage, sewage sludge, munitions, chemicals wastes, biological materials, radioactive materials, heat, wrecked or discarded equipment, rock, sand, cellar dirt and industrial, municipal, and agricultural waste discharged into water."  33 U.S. C. 1362(6)

The Court in Puget Soundkeeper Alliance v. Whitley Manufacturing Co., Inc. (Case No. C13-1690RSL, W.D. Wa., Nov. 9, 2015)  recently found that a Citizen Group did not need to prove stormwater from a business contained actual pollutants before it could assert a violation of the Clean Water Act.  The Citizen Group alleged the company violated the law by discharging stormwater from its business without a permit for a six year period.  

The Court held that because the companies stormwater was associated with industrial activity, the stormwater "is, in and of itself, a pollutant." The Court found that:

"Even if the definition of ‘pollutant’ is strictly and narrowly construed to include only those items specifically listed (a theory that does not have universal acceptance), Congress was well within its discretion to clarify that the phrase ‘industrial, municipal, and agricultural waste’ includes stormwater that comes in contact with those materials...” 

An interesting fact in this case was that in 2014 the facility obtained a CNE exclusion from permitting. However, the Court was still willing to found the company liable for discharging stormwater without a permit for the years prior to the CNE exclusion.

Why this decision is important

  • Companies can be liable for Clean Water Act violations, including significant civil penalties, if they simply discharge stormwater from their business without a permit, even if there is no sampling that shows the stormwater contains contaminants;
  • Companies should evaluate whether permit coverage for stormwater discharges is required for their business or seek a certification that their facility is exempt (i.e. No Exposure Certification- All industrial material are sheltered from exposure to stormwater);
  • This case highlights the fact that companies don't just face potential enforcement from regulators. Any person or entity with standing under the Clean Water Act Citizen Suit provisions can bring an action.

U.S. Supreme Court to Decide Whether Army Corps JDs Can be Challenged in Court

In prior posts, I have discussed the split in the federal circuit courts over whether Army Corps of Engineers (ACOE) Jurisdictional Determinations (JDs) can be challenged in Court.  A JD is the ACOE formal determination as to whether streams and wetlands are federally protected under the Clean Water Act and whether a 404/401 permit is needed prior to any disturbance or impact.

The Eighth Circuit Court of Appeals determined that an approved JD is a final agency action that can be challenged. See, Hawkes Co., Inc. et al v. Corps, Case No. 13-3067 (April 10, 2015). The Eighth Circuit Court decision reached the opposite conclusion as the Fifth Circuit in Belle v. Corps., 761 F. 3d 383 (5th Cir. 2014) which held JDs could not be challenged in Court and can only be challenged through administrative procedures before the ACOE.

On December 11, 2015, the Supreme Court agreed to hear the case due to the split in the circuits.   A decision in this case is expected some time before June 2016.  

Property owners face a Hobson choice if JDs cannot be challenged in Court.  They can defer their legal challenge and start the permitting process, forgo the development altogether or risk enforcement by proceeding without the proper permits.   

The ACOE and U.S. EPA argue that JDs do not make any final legal determinations because the property owner still has the options outlined above.  Frankly, this seems ridiculous.  There should be a legal means to argue the ACOE overstretched and asserted jurisdiction over wetlands that were outside the coverage of the Clean Water Act.  Especially when the scope of jurisdiction under the Clean Water Act is still so unclear, even after two separate Supreme Court decisions.  Why not give the property owner their day in Court?

I have heard legal scholars opine that the Court will look to the Administrative Procedures Act and will determine, from a legal perspective, JDs are not appealable.  If the Supreme Court reaches that conclusion it will be an unfortunate circumstance for property owners.  Purely from a policy perspective, their should be a way to challenge Corps decisions before a neutral third party.

Some also speculate that that if the Court does find JDs are appealable, the ACOE may simply stop issuing approved JDs.   Again, from a policy perspective that would be a very unfortunate result.

The Significant Nexus Test used to determine jurisdiction established by the Justice Kennedy in Rapanos is by no means clear cut.  It involves balancing various factors as to how closely related small water bodies are to larger water bodies.   Under the test, a waterway is evaluated to determine whether it impacts the "chemical, physical, and the biological integrity" of a navigable water. If it does impact a navigable water in that manner, then it falls under federal jurisdiction.

With such a subjective method of determining jurisdiction, property owners should be entitled to have a legal determination as to whether the wetlands or streams on their property fall under federal protection.  After receiving a legal determination, the property owner should also have a means to challenge the federal agency's determination.

Ohio Attorney General Releases Economic Development Manual

Attorney General Mike DeWine should be commended for putting together a comprehensive manual regarding legal issues, resources and incentives available to assist with economic development. The manual is called the 2015 Ohio Economic Development Manual.  

The Attorney General collaborated with a number of state agencies and local economic development organizations in putting together the manual.  These collaborators helped summarize a number of highly complex issues and programs.  

To my knowledge, no other state official has attempted to compile such a manual.  For those like myself who are engaged in economic redevelopment projects, in particular brownfield redevelopment, it can take a significant amount of time to stay up on the latest issues, programs and incentives.  

While the manual is an excellent resource, there is no way it can provide anything other than a basic level of understanding regarding complex issues such as brownfield redevelopment.  The purpose of this post is to raise awareness of the various layers of complexities related to brownfield redevelopment that are not discussed or oversimplified in the manual.

Overview of Brownfield Section of the Manual

The manual provides an overview of the stages of brownfield redevelopment as well as a quick summary of possible incentives.

Stages of Brownfield Redevelopment

The manual states the following as the stages for brownfield redevelopment:

  • Identify Site
  • Develop remediation Plan
    • Due Diligence
      • Phase I (paperwork, database review and site visit)
      • Phase II (sampling)
    • Cleanup- Under Ohio EPA's Voluntary Action Program (VAP). Once cleanup complete a Covenant-Not-to-Sue (CNS) will be issued by the State

The manual provides an overly simplistic view of brownfield redevelopment.  Here are just some of the issues with this summary:

  1. Review of Phase I and Phase II Reports-  As discussed numerous times on this blog, it is very important to closely review any Phase I report received on a property to make sure it was done correctly (ASTM or VAP standards).  Also, it is not uncommon for different consultants to reach different conclusions as to whether something constitutes an issue to be identified in a Phase I report.  Finally, formulating the purpose and scope of Phase II testing is a critical component to the due diligence process. Phase II costs can range from $10,000 to $300,000 depending on the site and risk mitigation strategy to be employed.
  2. Alternatives to Full Cleanup-  There are alternatives available to property owners to mitigate environmental risk other than full cleanup of the property.  A very common approach discussed at length in prior blog posts is the Bona Fide Purchaser Defense (BFPD) under CERCLA. Depending on the Client's risk tolerance and the issues presented at the site, BFPD can be a much faster and less expensive option to the VAP to mitigate risk and address the more serious threats a property may present.
  3. Eligibility Issues in the VAP-  There are different types of contamination and sites that are not eligible for remediation under the VAP.  These include, but are not limited to: underground storage tanks (USTs), hazardous waste management units (RCRA closure), PCBs, (TSCA) and sites under federal or state enforcement.
  4. Environmental Insurance-  No where does the manual discuss the possibility of environmental insurance to address risks presented by a site.  Such insurance is commonly used in business transactions as well as brownfield redevelopment projects.
  5. Cleanup Design-  The manual suggests that a party can consult with Ohio EPA's VAP Technical Assistance program in developing its cleanup plan for a project.  While Ohio EPA's Technical Assistance program is an extremely useful tool, the manual does not indicate that a private party has a great deal of control over designing a cleanup to meet applicable standards.  Since the cleanup is the most expensive component, it is critical to evaluate the options available to meet standards (i.e. engineering controls, institutional controls and addressing exposure pathways).

Incentives Available

The manual discusses the following incentives available to assist with brownfield redevelopment:

  • Ohio EPA Targeted Brownfield Assessment- Ohio EPA program to pay for Phase I assessments and potentially Phase II activities using its Site Investigation Field Unit (SIFU).
  • EPA VAP Technical Assistance- Ohio EPA provides technical assistance on how to complete a VAP cleanup on the property.
  • Ohio Brownfield Fund- Loans up to $500,000 for Phase II activities and $5 million for cleanup
  • JobsOhio Revitalization Loan and Grant Fund-  Up to $200,000 for Phase II, $1 million in grant funds and $5 million in loan funds for cleanup activities.
  • Abandoned Service Station Fund Program-  Class C underground storage tank (USTs) cleanup fund for abandoned tanks.  Up to $100,000 for assessment and $500,000 for cleanup activities.

This list of available incentives provided in the manual is a good basic overview of the major state programs in Ohio.  However, the manual does not mention the fact there are a number of local brownfield incentive programs that will provide grant funds for Phase Is, Phase IIs and cleanup activities. In many instances, these local programs can be a better fit for a particular project.

Furthermore, each of the programs listed above have important eligibility criteria, limits on reimbursable costs as well as development or job creation requirements in order to secure funding.  It is critical for a party to understand these commitments prior to accepting grant or loan funding.

Conclusion

This post is not meant as a criticism of the Attorney General's efforts in putting together the manual.  The manual is a good place to start to get a basic understanding of various issues and programs that can impact economic development.  However, with complex issues like brownfield redevelopment, the redevelopment process is more of an art than exact science.  An over simplified view can result in failed projects or unnecessary costs.  

Oil & Gas Triggers Renewed Focus on Ohio Water Rights

Oil & gas development in Ohio has reinvigorated an area of law- water rights- that had laid mostly dormant for more than a century.  The need for fresh water for fracking has resulted in large investments in water infrastructure and competition among companies to secure access to prime sources of fresh water. 

According to the "Explore Shale" website, each drill site that utilizes hydraulic fracturing requires between 3 to 5 million gallons of water. The site states that, based upon 2011 information, there were 1,500 active wells in Pennsylvania which resulted in between 12- 20 million gallons of water used per day.  According to the Ohio Department of Natural Resources (ODNR), in 2015 Ohio had 1134 wells.  This likely correlates to approximately 8-15 million gallons of water used per day (extrapolating the Pennsylvania figures to Ohio). 

The increased demand for water has triggered renewed interest in how Ohio regulates water withdrawals and water rights of property owners.  Below is a quick overview of current Ohio law.

When is a water withdrawal permit required?

In 2012, the Ohio Legislature passed H.B. 473 which implemented the Great Lakes Compact.  The bill established new regulatory standards for water withdrawals from the Lake Erie basin.  From the map below you can see the most of the State lies outside the Lake Erie basin.  

The majority of oil & gas drilling activity takes place in the Ohio River Basin.  Therefore, the regulatory standards for new water withdrawals established in H.B. 473 typically do not apply to oil & gas play and will not be covered in this post.

In all other areas outside the Lake Erie Basin, Ohio has very limited regulations on water withdrawals. New withdrawals over 100,000 gallons per day are required to register with the Ohio Department of Natural Resources (ODNR).  See, R.C. 1521.16  

In the Ohio River Basin, a water withdrawal permit is not triggered unless the new or increased consumptive use exceeds 2 million gallons of water per day (averaged over any 30-day period - 60 million gallons per month).  See, R.C. 1501.33  Many operations elect to keep withdrawals below 2 million gallons per day in order to avoid triggering the need for a permit from ODNR.  

How much water can be used?

There are no regulations in Ohio establishing the exact quantity of water a property owner may use. Going back to the 1850's, Ohio has followed the "reasonable use" standard for determining the quantity of water a property owner may use.  In 2008, Ohio amended its constitution to include the reasonable use standard to govern water rights for both surface and groundwater. Article I, Section 19d states:

"Owners of riparian land have a property interest in the reasonable use of the water in the non-navigable lake or watercourse located on or flowing through their land." 

Key terms have been underlined.  First, the water rights are held by property owners whose property fronts a waterway (or the groundwater beneath their property).  Second, the right is a property right established by Ohio's constitution.  This gives more legal weight to the right.  Third, each riparian property owner has a right to "reasonable use" of the water.  

Ohio courts are left to decide when a property owner has used too much water.  The factors used by courts to determine "reasonable use" have been codified in Ohio law in R.C. 1521.17.  These factors include:

  1. The purpose of the use
  2. Economic value of the use
  3. Social value of the use
  4. Extent and amount of harm the use causes
  5. Practicality of avoiding harm to other by adjusting the use or the method of use of one person or the other

Each riparian property owner has an equal right to use of water.  Canton v. Shock, 66 Ohio St. 19 (1902) In order to sustain a claim that a riparian property owner's use of water has been unreasonable, it must be demonstrated that the use is causing "material and substantial injury" to another landowner.  See, Cooper v. Hall, 5 Ohio 320 (1832)

Note the age of the cases cited in the preceding paragraph- each is over 100 years old.  Due to the age of the case law, there is little guidance offered by the courts as to how today's water use issues will likely be resolved.  These vague standards provide little guidance to Ohio property owners or companies looking to secure access to water to support their business. 

Water use and water rights in focus

In 2010, Congress urged EPA to examine the relationship between hydraulic fracturing and drinking water resources in the United States.  In May of 2015, U.S. EPA issued its highly detailed analysis of the impacts on drinking water resources from hydraulic fracturing.  The report contained a detailed analysis of water use impacts on water supplies in the West as well as in the Marcellus and Utica shale areas.

While complex water acquisition regulations have long been in place in Western States, increased water withdrawal regulations have been initiated in the eastern Marcellus and Utica shale plays. For example, in the summer of 2012, the Susquehanna River Basin Commission developed strong new regulations regarding water withdrawals and use.  The Commission strengthened its regulations to require permits to constrain the volume, rate and timing of water withdrawals. 

This increased focused on oil & gas drilling and fresh water supplies in the Eastern States has resulted in the oil & gas industry investing millions of dollars in new water infrastructure to better secure reliable sources of fresh water.  As drilling activity continues to increase, Ohio is very likely to see increased focus on the issue of water rights, particularly in the Ohio River basin area.  

Transactions- State EPA Had No Duty to Disclose to Buyer

In a novel case, the Court of Appeals (Second District Montgomery County) held that Ohio EPA had no duty to disclose knowledge of contamination to a buyer of a contaminated property, even though the Agency had records in its files documenting additional contamination.  See, Ohio v. Republic Envrtl. Sys. (Ohio), Inc., 2015 WL 5783650 (Ohio Ct. App. Sept. 30, 2015).  

Key Facts 

Buyer purchased a property that was in the middle of a hazardous waste cleanup (RCRA).  Seller makes no representations regarding the condition of the property (agreement contains an "as is" clause). Buyer also agrees to assume Seller's cleanup obligations.

Prior to purchase, Ohio EPA approves a cleanup plan ("RCRA Closure Plan").  The Buyer purchased the property in reliance on the closure cost estimates in the plan.  After Buyer purchases the property, it is later discovered that additional contamination is present on the property which will result in a significant increase in cleanup costs.  Buyer asserts Ohio EPA knew the contamination was present based upon documents it had in its files.

Court Holds Ohio EPA Has No Duty to Disclose

Buyer argued that Ohio EPA had a duty to disclose all known contamination because the Agency had records in its files showing additional contamination.  Buyer asserted that the Ohio Administrative Code provisions related to approval of cleanup plans (RCRA Closure Plans) placed an affirmative duty on the Agency to inform the Buyer of everything it knew regarding the property.

Court disagrees, holding that the Agency simply oversee the cleanup process.  Owners or operators are responsible for identifying all contamination and cleaning up the property to meet standards.  

The Court noted that the Buyer did not perform any independent due diligence prior to purchasing the property.  The Court said, Buyer should not have relied only upon the Agency's approved cleanup plan cost estimate.

Lessons

Key lessons from this case:

  1. The burden is on the Buyer to perform sufficient due diligence prior to purchase;
  2. Don't rely upon Agency approved cleanup cost estimates, Buyer should perform their own independent analysis of cleanup requirements; and
  3. Cleanup of environmental sites always involve the risk that additional contamination will be discovered during the cleanup process.  

Highlights from 2015 ABA SEER Spring Meeting

The Clean Power Plan and Waters of the U.S. Rule have dominated much of the discussion at the ABA's Spring Meeting of the Section of the Environment, Energy and Resources (SEER) in Chicago.  SEER is a gathering of nations prominent environmental and energy attorneys from both the private sector and government.

Waters of the U.S. Rule (WOTUS)

The WOTUS rule defines the jurisdiction of the Clean Water Act.  WOTUS was issued after the Supreme Court suggested in the Rapanos decision that the regulated community would benefit from a rule.  EPA released the rule earlier this summer.  As previously discussed in a prior post, the Sixth Circuit has issued a stay of the EPA's WOTUS rule after numerous lawsuits have been filed.  

Steven Neugeboren, Associate General Counsel, Water Law Office, U.S. EPA, discussed the Agency's development of the rule.  He emphasized that the Administrator's directive in developing WOTUS was to "follow the science."   He opined that part of the reason for all of the litigation and controversy surrounding the rule is based upon "speculation" and "fear" fostered by some in the regulated community regarding the scope of the rule.  

As an example, Mr. Neugeboren cited to public comments on the draft of the rule that argued EPA was trying to regulate puddles.  EPA responded by putting specifically in the final rule that puddles are exempt form regulation.  In response, he indicated some commented that the inclusion of the exemption was an indication EPA planned to regulate puddles all along.

Comments on the private bar during the conference have centered on the broad scope of the rule. EPA's approach in the rule was described as extending regulation to virtually every waterway and relying upon narrow exemptions to carve out instances EPA deems regulations unnecessary.  Due to the broad and vague language used in WOTUS there is tremendous uncertainty as exactly what is covered under the rule.

Are Wetland/Stream JD's Appeallable?  The Supreme Court Will Decide

As a first step in wetland/stream permitting, many developers and property owners will hire a consultant to perform a wetland and/or stream delineation on the property. The delineation is the consultant's opinion as to whether federally protected wetlands or streams exist on the property. The delineation will also determine the size and quality of the water resources on the property. However, the consultant's delineation is not a legal determination. Only the Army Corps of Engineers (ACOE) can determine if wetland or streams are federally protected. Therefore, although not required, many property owners/developers submit their wetland delineations to the ACOE for concurrence. This is called a "Jurisdictional Determination" or JD. See, 33 CFR 320.1(a)6)

The Eighth Circuit Court of Appeals determined that an approved jurisdictional determination (JD) is a final agency action that can be challenged. See, Hawkes Co., Inc. et al v. Corps, Case No. 13-3067 (April 10, 2015).  The Court determined that if a JD is not appeallable a property owner is left with the Hobson choice of risking enforcement or acquiescing to the ACOE permitting process.

At the conference, a panel discussed the likelihood the the Hawkes case would be heard by the U.S. Supreme Court.  Because there has been a split in the circuits, the panelists all believed the case would likely be heard.  

Panelist Ray Ludwiszewski, attorney at Gibson, Dunn & Crutcher, offered his opinion that while the case would be heard, he believed the Court would determine a JD is not appeallable because JDs are voluntary.  He distinguished JDs to the enforcement order that was issued by EPA in the Sackett case which compelled the property owner to comply.  

Professor Richard Lazarus, Harvard, agreed that the voluntary nature of JDs may be a key factor in how the Court would rule, but he said the Court may rule JDs are appeallable because the Court, in prior decisions like Sackett, showed its "anger" over the EPA's application of the 404 wetland/stream permitting and the "heavy handed nature of government regulation" in this area.

Clean Power Plan

Not surprisingly, EPA strongly defended the legality of the rule at the conference while attorneys from the private sector questioned its legal foundation.  The biggest open issue regarding the legality of the Clean Power Plan was the scope of Section 111(D) of the Clean Air Act.   Conference participants agreed the key issue is whether EPA's authority Section 111(D) is limited to the "fence line" at a power plant or provides much broader authority to regulate the mix of energy (coal, natural gas and renewables) across the country.

Another issue discussed was the uncertainty caused by litigation  The States must file their plans to comply (referred to as a "State Implementation Plan" or "SIP") by September 2016.  The rule allows incentives to State's to file SIPs.  For example, states can get more time to develop their plans and cannot participate in a emission trading plan if they don't submit a compliance plan. Despite the incentives, states that strongly oppose the rule may elect to not file a compliance plan.  

Art Harrington, attorney from Godfrey & Kahn, discussed the uncertainty the rule is causing in his State of Wisconsin.  The implementation time lines and requirements, especially with the cloud of litigation, is causing tremendous uncertainty in the regulated community.  

Monica Trauzzi, reporter for E&ETV/E&E Publishing, commented that in her discussions with Governors and State agency air directors, the states are having conversations around development of compliance plans.   Conversations are occurring even in states strongly opposed to the plan because the utility industry has been putting pressure on states due to the uncertainty associated with failing to comply with the plan.

 

Sixth Circuit Issues Stay of the Clean Water Rule

Today, the Sixth Circuit issued a stay of the Clean Water Rule in response to a challenge filed by eighteen states, including Ohio.  The issuance of a stay represents a major set back to EPA in  effort to better define the limits of federal jurisdiction under the Clean Water Act (CWA).  Unlike the stay issued by the North Dakota District Court, this stay applies to implementation of the rule nationwide.

The CWA limits jurisdiction to "navigable waters" which is defined as "waters of the United States, including the territorial seas." 33 U.S.C. Section 1361(7)  Interpretation of the vague term- "waters of the United States"- has been left largely to guidance and the Courts. The most significant decisions were issued by the Supreme Court in Rapanos and SWANCC. Justice Kennedy, plurality decision in Rapanos held that CWA jurisdiction extended to both navigable waters and any non-navigable water that had a "significant nexus" to a navigable waterway.

EPA issued the Clean Water Rule in attempt to better define how the significant nexus test should be applied as well as establish which waterways were exempt from coverage.  The rule was harshly criticized as an overreach by EPA. Soon after its release, the rule was challenged by a number of states and business groups.  

States sought a stay of the effectiveness of the rule while the Court considers their challenge.  The issuance of a stay prevents EPA from using the the Clean Water Rule to define federal jurisdiction over wetlands or streams.  In order to be granted a stay, the states challenging the rule had to demonstrate they were likely to win on their challenge to the legality of the rule.  In addressing this issue the Court said the following:

Meanwhile, we conclude that petitioners have demonstrated a substantial possibility of success on the merits of their claims. Petitioners first claim that the Rule’s treatment of tributaries, “adjacent waters,” and waters having a “significant nexus” to navigable waters is at odds with the Supreme Court’s ruling in Rapanos, where the Court vacated the Sixth Circuit’s upholding of wetlands regulation by the Army Corps of Engineers. Even assuming, for present purposes, as the parties do, that Justice Kennedy’s opinion in Rapanos represents the best instruction on the permissible parameters of “waters of the United States” as used in the Clean Water Act,3 it is far from clear that the new Rule’s distance limitations are harmonious with the instruction.

Now that the stay has been issued, the Army Corps of Engineers (ACOE) will have to revert back to the prior methods for issuing Jurisdictional Determinations (JDs) which were largely based on internal guidance.  

In practical experience, the ACOE has been aggressive in asserting jurisdiction over wetland and streams even before the Clean Water Rule.  However, the rule would have provided them more legal support for their determinations when they are challenged.

With the Court's grant of a stay, it seems pretty likely the rule will be overturned and EPA will have to go back to the drawing board.

Uncertainty in Valuing Contaminated Property Complicates Brownfield Redevelopment

A key issue in brownfield redevelopment relates to proper valuation of property that is contaminated.   As discussed below, Ohio does recognize that contamination is a relevant factor that should be considered in determining a properties value.  However, other than recognizing it is a relevant factor, Ohio has failed to develop a consistent and reasonable approach to reducing the value of property due to the presence of contamination.

The failure to have a clear cut approach makes brownfield redevelopment more difficult.  Inflated property values lead to higher property tax bills.  This can act as a major disincentive to purchasing brownfield property and can complicate redevelopment.

Ohio has attempted to partially address the tax issues associated with brownfield redevelopment by providing a tax incentive to those who properly cleanup such properties.  Ohio provides a 10 year property tax abatement for properties that are cleaned up in accordance with Ohio EPA's Voluntary Action Program (VAP). See, Ohio Revised Code 5709.87  

In prior posts, I discussed the practical timing issues that can arise in attempting to take advantage of this tax exemption.  However, perhaps the biggest difficulty with this law is that it assumes current tax valuations (which are to be frozen for 10 years) properly account for the presence of contamination.  

I have represented clients who have challenged current valuations as well as discussed this issue with others attorneys.  Those that represent property owners agree that Ohio's current process for properly accounting for contamination is uncertain and doesn't take into account the practical realities of contaminated property. 

Ohio Rejects the "Cost to Cure" Approach

Perhaps the most straight forward methodology for valuing contaminated property is the "cost to cure" approach.  Using this approach, the property is valued assuming it is clean.  This valuation is then reduced by the cost or projected cost to cleanup the property.  

The "cost to cure" approach has been recognized by other states.  The benefit of this approach is that it minimizes subjectivity.  The property is first appraised in the local market as if it were clean. Then expert testimony is presented regarding the total cost to cleanup the property to regulatory standards.  This cost is deducted from the value.  

When cleanup costs exceed the value of the property, the value for tax purposes is set at zero.  This recognizes market reality.  Most property that costs more to cleanup than its worth will simply sit idle until either property values rise or brownfield incentives, such as grant funding, can be used to offset costs.

Multiple Ohio cases have held that introduction of evidence regarding the cost of cleanup and a request to reduce the value by that cost is inappropriate. See,  Chem-Masters Corp. v. Geauga Cty. Bd. of Revision (Dec. 21, 1990) BTA Case No. 88-J-994, unreported; Society National Bank v. Carroll County Board of Revision, BTA Case No. 94-M-454 (April 19, 1996); Hufford v. Montgomery County Board of Revision, BTA Case No. 95-M-855 (May 2, 1997); McDonald Local School District Board of Education v. Trumbull County Board of Revision, Case No. 94-A-757 (1996).

Ohio Accepts Evidence on Impact of Contamination

Many of the cases referenced above also discuss the need for introduction of an appraisal which considers the impact of the contamination on the value of the property. For example, in Company at 34 v. Lake Cty. Bd of Revision (Mar. 25, 1994), 92-T-763, the BTA held that evidence must be submitted on the “diminutive effect the contamination has upon the value of the property.” Testimony from a consultant or someone familiar with the property will more than likely not be sufficient.

There have been a couple cases in which an appraisal was submitted that argued for a reduction in the value by deducting cleanup costs. In Alder v. Licking Cty. Bd. of Revision (Apr. 22, 1994), BTA Case No. 92-R-976, the BTA did not find an appraiser’s testimony and report credible because the appraiser did not have “personal knowledge surrounding the contamination…and had never appraised a parcel of contaminated real estate.”

Most Recent Ohio BTA- Battle of Appraisers

In May of 2015, the Board of Tax Appeals (BTA) heard another case that involved a dispute over the proper methodology to value contaminated property. See, FIP Realty Co. LTD v Franklin County Board of Revision (Case Nos. 2014-1120, 2014-1121). The case involved a 68.5 acre industrial property in the Columbus area.    The County assessed the property at $5,981,600.  Both the property owner and School Board presented testimony from expert appraisers to support their positions regarding valuation of the property.

The property owner appraiser, using an income approach, opined the property "clean" would be worth $2,785,000 at market rates.  As an alternative, the appraiser uses a sales comparison approach to arrive at a valuation, assuming the property to be clean, of $2,750,000.  The appraiser then reduced both methods of arriving a clean values based upon the amount to cleanup up the property ($2,215,000) using a discounted cash flow analysis.  The owner's expert arrived at an "as is" value of $570,000 under the income approach and $895,000 under the sales comparison approach.  

The owner's expert asserted that his methodology did not amount to a dollar-for-dollar reduction based upon cleanup costs because those costs were discounted based on the time value of money. The appraiser's testimony was supported by additional testimony from the environmental consultant responsible for the cleanup.

The School Board appraiser also used both the income approach and sales comparable approach to value the property. Under the income approach, the appraiser used a higher capitalization rate to account for environmental contamination (i.e. discounted the value of the property).  Under the sales comparable approach, the School Board's appraiser selected the lower range of comparable sales to account for environmental contamination.

The BTA rejected the property owners approach as still amounting to a "cost to cure" method.  The BTA accepted the School Board's appraisers methodology finding he had properly accounted for contamination.

However, the issue with the methodology endorsed by the BTA is that it is still not based in reality. The School Board's appraiser only chose the lower range of comparable sales from "clean" properties. With regard to the income approach, he chose a higher capitalization rate to provide  discount to account for contamination.  However, that capitalization rate was not based on real world examples of contaminated property.

The most recent BTA decision endorses a very subjective approach to valuing contaminated property.  The method did not compare sales of other brownfield properties or provide a clear methodology for discounting values based upon the presence of contamination.  Without such a clear methodology, property owners will be forced to speculate regarding the discounted value of their properties.  

Pennsylvania Supreme Court Decision on Valuation of Contaminated Property

On September 29, 2015, the Pennsylvania Supreme Court ruled that the presence of contamination is a relevant factor in determining the value of property. See, Harley Davidson v. Springettsbury Township, et al. Case No. 82 MAP 2014.  The Court also endorsed the concept of of reducing contaminated property due to the stigma caused by the presence of contamination.  Due to the unique circumstances of the case in which a pre-existing settlement covered full cleanup costs, the Court refused to decide whether the "cost to cure" approach was appropriate in Pennsylvania. 

Harley-Davidson owns a 229-acre parcel of industrial property where it operates a motorcycle manufacturing plant.  The property was previously used by the U.S. Navy for weapon manufacturing.  Approximately half of the property is contaminated and half is clean form prior use.  Under as settlement agreement, Harley-Davidson has been cleaning up the property.  The parties have agreed to split future cleanup costs.

Similar to the Ohio case, the competing experts arrived at two different valuations of the property based upon the contamination issues.  The taxing authority expert said the property should be valued as essentially two pieces- the manufacturing half and the vacant half.  Harley-Davidson's expert argued the whole property should be valued as industrial.

The "cost to cure" approach was rejected due to the existing of the settlement agreement under which all future remediation costs were the responsibility of the settling parties.

The Court held:

  • Relevant Factors- “[a]ll relevant factors having a bearing on the value of a property, including environmental contamination, must be considered in a fair market value determination, [and that] the potential impact of a settlement agreement regarding environmental remediation and ongoing limitations and maintenance as a by-product thereof, through a buyer-seller agreement, are relevant factors that must be taken into account.”
  • Stigma- “environmental stigma, although an inherently imprecise concept, may be relevant to determining fair market value of real estate for tax purposes.” The court opined that a 5% stigma discount to the value was potentially appropriate even though the expert provided little support for the 5% figure other than it was based upon his professional experience. 

It would have been helpful to have seen the Court weigh in on the "cost to cure" approach. Overall, the decision is similar to the recent Ohio BTA opinion in that does not provide a clear methodology for valuing contaminated property.  

After Lengthy Delay EPA Sets Ozone Standard at 70 ppb

As predicted last year in a prior blog post, EPA announced today that it would revise the current ozone standard of 75 ppb downward to 70 ppb. EPA had been contemplating a revised standard between 70 ppb and as low as 60 ppb.  

Under the Clean Air Act, EPA is required to review the ozone standard every five years.  The current 75 ppb standard was established in 2008.  The EPA was required to review the 2008 ozone standard by March 12, 2013.

President Obama had sharply criticized the 75 ppb standard established by President Bush as not following science.  After six years, the Obama Administration finally revised the standard.  In April 2014, after multiple delays by EPA, the U.S. District Court of the Northern District of California ordered the EPA to issue a final ozone standard by October 1, 2015.   

As previously discussed in a prior post (EPA's Decision to Deny Ozone Petition Based on Reality), the delays in establishing the ozone standard have been very beneficial to the states and industry. There are significant federal regulations that mandate cuts in emissions that are being phased in over time.  These federal regulations are much more effective in reducing ozone levels than local controls that can be imposed by the states.  The delays have allowed more time for the federal regulations to take effect.

As noted in an article on POWER, the 70 ppb will likely be relief to many in the power sector who thought the standard could be lower.   As quoted in the Wall Street Journal, the American Lung Association was somewhat critical of the final standard:

“The level chosen, of 70 parts per billion, simply does not reflect what the science shows is necessary to truly protect public health,” said Harold Wimmer, president and CEO of the American Lung Association, one of the public-health groups that sued the EPA to issue the standard by Oct. 1. “Nonetheless, the standard announced today offers significantly greater protection than the previous, outdated standard.”

Ozone Standard in Ohio

Back in March of this year, Ohio EPA provided comments on U.S. EPA proposed ozone standard and asserted there was no scientific basis to lower the standard below 75 ppb.  

"Ohio EPA is unaware of any new study or scientific evidence that compels a change to the existing standard.  When setting the 2008 standard, U.S. EPA had before it a largely similar set of studies as are before U.S. EPA now.  In 2008, U.S. EPA considered all available information, examining the potential for setting the standard as low as .060 ppm, but nevertheless chose .075 ppm.  Just as in 2008, Ohio EPA does not see a clear-cut basis for arriving at the conclusion of setting a significantly lower standard."

Based on air quality data from 2012 through 2014, two of the three areas in Ohio designated as nonattaintment are now achieving the 75 ppb standard.  The last area that remains in nonattainment is entitled to a one year extension.

As Ohio has nearly achieved compliance with the 2008 standard, it will now need to submit new plans to reduce ozone levels further.