What to Do in the Event of an Environmental Criminal Search Warrant

Nothing can be more stressful than having your business be the subject of a criminal investigation.  The investigation itself can have serious ramifications for employees, result in lost business as well as interrupt typical business operations.  With so much on the line, your business and your freedom, it is wise to contact legal counsel as soon as you have any indication a criminal investigation may be underway.

How does an environmental criminal investigation get initiated?

  • Disgruntled former employees call investigators
  • A current employee contacts authorities with information
  • A witness or citizen contacts investigators and makes a complaint
  • Sampling performed detects a significant problem
  • Regulators notice inconsistencies in record keeping
  • A significant event- a major spill, improper disposal of drums or dumping

The first time you may learn your company is the subject of a criminal investigation is when agents show up at your business with a criminal search warrant.

How you respond to a warrant or subpoena can have serious ramifications.  Here are some key tips to keep in mind:

  1. Contact Legal Counsel Immediately- While legal counsel will not interfere with the execution of a warrant, they can ensure agents adhere to the scope of the warrant.  They may also be able to observe the agents and see what pictures or documents they take during execution of the warrant..  Even if you believe you have nothing to be concerned about, owners and/or senior executives should not be interacting with agents. Attorneys can make sure during execution of the warrant the company demonstrates the proper level of cooperation without exposing their client to unnecessary risk.
  2. Information Regarding the Agents and Purpose of Investigation- Business cards should be requested from the lead agent and/or all agents conducting the search.  The attorney should open up a line of communication with the agents regarding the scope of the criminal investigation.
  3. Scope of the Warrant- Read the warrant or subpoena carefully.  Determine which portions of the facility and documents are covered.  Does the warrant allow for the seizure of computers or other equipment?  It is important that investigators are limited to the scope to the warrant.
  4. Do Not Interfere with the Warrant- Trying to prevent agents from taking items covered by the warrant or preventing access to records can result in obstruction of justice charges. 
  5. Inventory of Seized Items- Request a copy of the inventory of seized times so you know what was taken during execution of the warrant. 

How do you respond if the agents seek to interview employees during execution of the warrant?

This can be a complicated issue and should be left to your legal counsel.  The owner of the company or senior executives should not and cannot instruct employees to not talk with investigators.  Such directives from senior management could be deemed as improper, or even illegal by the agents.  Employees can be informed they have the right to speak or not to speak and can also request that individual legal counsel be present before being questioned.

Who exactly an attorney may represent in a criminal matter is much more complicated than a civil case.  Generally, in an environmental criminal investigation, an attorney cannot ethically represent the company, owners, senior executives and all the employees of the company.  At best, one attorney can represent the company and senior executives and a separate attorney/firm would be retained to represent all non-target employees who desire the assistance of counsel. ("Target"- means an employee identified by investigators as possibly guilty of a crime)  Depending upon the circumstances, each owner and or senior executive may even need separate counsel.  This separation is important to avoid any conflicts that may arise between those that may have criminal culpability, and those that do not.

U.S. EPA's July Environmental Crimes Bulletin- Failure to Notify, Falsification and Waters of the U.S.

Here are the highlights from U.S. EPA's July Environmental Crimes Case Bulletin:  

Failure to Notify Regarding Asbestos

A Company had sampling performed to determine if the walls and ceiling of a riverboat they were going to demolish contained asbestos.  The samples indicated they did contain asbestos.  According to U.S. EPA, the company hired a demolition contractor and told the contractors that the walls and ceiling "may" contain asbestos.  The contractor proceeded to perform the demolition work without instructing its workers to take proper precautions.  A key reason why U.S. EPA elected to pursue a criminal case versus civil enforcement was likely the potential exposure of workers to asbestos.

Waters of the United States

An area of environmental law with continued uncertainty is which streams and wetlands are considered "Waters of the United States" and, therefore, fall under the jurisdiction of the Clean Water Act.  The U.S. EPA's "Waters of the U.S." Rule has been stayed by the 6th Circuit.  The test for determining which waters/wetlands are federally protected continues to be the "Significant Nexus" Test as established by Justice Kennedy in Rapanos.

The "Significant Nexus" test is rather vague.  Under the test, a waterway or wetland 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

A key issue at the trial of Joseph David Anderson was whether the ponds Mr. Anderson created resulted in dredged material and sediment which impacted "Waters of the U.S."  The Army Corps of Engineers and EPA provided the scientific evidence to support a finding the impacted waters had a "significant nexus" to downstream waters and were, therefore, federally protected.  Testimony included fishery biologists from U.S. Fish & Wildlife that the headwater streams impacted provided critical support of trout in downstream rivers.  

Despite the vague legal standard at issue, it is interesting that the Government successfully applied the "Significant Nexus" test during a criminal trial.  

Falsified Records

A common criminal charge in environmental white collar cases is falsification of records required to be kept under environmental permits or regulations.  The latest criminal bulletin includes a case of a German shipping company and its employees that did not record transfers of oily waste-water on the M/V Cornelia, a German-owned commercial vessel.  EPA charged the company with falsified record keeping stating the omissions were a attempt to conceal discharges of oily-waste water overboard.

The case is a reminder that it is not just the act of entering false data that can lead to a charge of falsification.  It can also be the omission of important information.  

Five Things to Expect from State EPA Regulators After the Flint and Sebring Water Crises

On July 29th, the Michigan Attorney General Bill Schuette charged six more public officials in connection with their roles in the Flint Water Crisis.  One of the six charged included a senior management official at the Michigan Department of Environmental Quality (MDEQ)- the former Chief of the Office of Drinking Water and Municipal Assistance. The latest charges are in addition to the two MDEQ officials charged in April.  

Attorney General Schuette stated:

"Many things when tragically wrong in Flint.  Some people failed to act, others minimized harm done and arrogantly chose to ignore data.  Some intentionally altered figures and covered up significant health risks."  (emphasis added)

Ohio experienced its own issues with drinking water in Sebring Ohio.  In January, Ohio EPA fired two employees for failing to timely provide information to the District Office deemed critical to providing timely information regarding the condition of water in Sebring.  Here is what Ohio EPA's Press Release said about the reason for terminating the employees: 

"Ohio EPA Central Office employee responsible for sending laboratory results from the Central Office failed to ensure that data was provided to the field office to help them conduct their review...The employee’s supervisor is also being terminated for not properly managing an employee who had an existing record of performance issues and not providing appropriate corrective counseling or progressive discipline despite being instructed to do so."

Ohio EPA also announced that it established a new process to provide staff with a direct and expedited communication route to senior Ohio EPA officials of situations that have possible “significant environmental and public health consequences.”

It is rare for State environmental protection agencies to fire employees for not performing their job.  It is even more rare for criminal charges to be brought against State EPA employees relating to performance of their job functions.  The firings and criminal charges have garnered national attention.  The crises have, no doubt, had an effect on the cultural and work environments of State EPA.s

Here are five things businesses can expect:

  1.  More Aggressive Deadlines-  One of the themes from Flint and Sebring was whether officials acted on information on a timely basis.  Also, whether officials raised public health issues up the chain quickly.  As a result, it is likely regulators will be demanding more aggressive deadlines for businesses to address non-compliance and/or investigate issues.
  2. Demand for Action-  Regulators will have less tolerance for debating over appropriate responses to ongoing violations and/or investigating issues.  If businesses don't respond in a timely fashion (in the Agency's viewpoint) or refuse to take the steps the Agency believes are appropriate, regulators will takes action.  This could be performing sampling using Agency resources (not waiting for businesses to sample).  This could be referring matters up the chain more quickly for enforcement.  
  3. Less Deference to Outside Technical Consultants-  Regulators will be less willing to defer to the private sector to decide how to appropriately respond.  Historically, it was common place for private consultants and agency representatives to debate technical issues.  With the pressure on agency employees to perform their duties quickly this will likely translate to less deference to private consultants.
  4. More Involvement of Management in Decision Making-  Another theme from both Flint and Sebring was whether agency employees made management aware of issues in a timely fashion.  For example, Ohio EPA announced a new protocol for making senior management aware of "public health" issues quickly.  What constitutes a public health issue or  potential issue is vague.  Lower level employees will be more inclined to raise issues up chain of command to management.  In some cases, even directing businesses to address correspondence directly to senior management when that same correspondence would have gone to staff just a year ago.
  5. Changing Work Environments-  Even though environmental regulators perform a critical function, the stereotype is that government workers have less stress and more reasonable work hours then their counterparts in the private sector. With the added pressure and spotlight these recent news events have brought, there will be changes in the work environment within State EPAs.  These "cultural" changes will also be felt by businesses, consultants and individuals that interact with regulators. 

Like Ohio, TCE Gets Attention in Massachusetts

Ohio is not the only state that is reviewing all sites that have trichloroethylene (TCE) contamination. Massachusetts Department of Environmental Protection (MassDEP) recently announced that is was going to review 1,000 closed sites with TCE contamination.  MassDEP will evaluate the sites "based on the current understanding of health risks, even if the site was previously closed properly under earlier standards."  

Unlike Ohio, MassDEP issued a public statement in April 2016 that it discussing its review of TCE Sites. Ohio EPA has not made a public announcement similar to Mass DEP.  Rather, Ohio EPA has discussed its review in meetings with environmental consultants and through issuance of letters and requests for information to sites with TCE contamination.

TCE was widely used as a degreaser for industrial metal parts and as an extraction solvent for organic oils. As a result of its use, TCE contamination related to use of solvents is very common at manufacturing sites.  

A discussed in the MassDEP announcement, the heightened scrutiny of sites with TCE contamination was based, in part, on a 2011 review to the U.S. EPA toxicity information.  The review included assessment of the potential for fetal developmental effects following even short-term exposure to TCE contamination.  As a result, the standards related to TCE have become significantly more stringent.

MassDEP provided a comparison of the levels of concern from 2011 to 2016 which shows the TCE standards:

Changes in TCE Risk-Based Levels in Massachusetts
Pathway 2011 Level of Concern 2016 Level of Concern
Indoor Air (Residential) 85 ug/m3 6 ug/m3
Groundwater (near residences)

300 ug/l pre-2006

50 ug/l post-2006

5 ug/l
Health Effect of Concern Long-term cancer risk Short-term development effect

 The primary pathway of concern in both Massachusetts and Ohio is vapor intrusion (volatilization of contaminants into the indoor air of a building).  Ohio's current indoor air standards are relatively comparable to MassDEP.

Ohio TCE Indoor Air Standards
Pathway Standard
Residential 2.1 ug/m3
Commercial Industrial 8.8 ug/m3

Continued developments with regard to TCE are surely forthcoming.  As the new significantly more stringent standards get implemented property owners and site developers that have TCE contamination will need to proceed cautiously.  This includes sites that previously completed investigations or cleanup activities.

PRESIDENT SIGNS LANDMARK CHEMICAL BILL INTO LAW

Guest Post from Arun Kottha and Christopher Caryl at Tucker Ellis.

On June 22, President Obama signed into law the Frank R. Lautenberg Chemical Safety for the 21st Century Act, which amends the Toxic Substance Control Act (TSCA), the nation’s primary chemical management legislation. TSCA was originally enacted in 1976 and is administered by the United States Environmental Protection Agency (EPA). One of the main objectives of the TSCA was to assess and regulate new commercial chemicals before they enter the market. When TSCA was originally enacted, all then-existing chemicals were considered safe for use and were “grandfathered” in. Under the 1976 law, tens of thousands of chemicals already in existence in 1976 were considered in compliance without any requirement for the EPA to review them for safety.

The 2016 amendment makes several significant changes to the existing law, including risk assessment and management of all chemicals in commerce (not just new ones), additional tools to prevent new chemicals from entering the market, changes to claims of proprietary information, and guaranteed funding of the new program. These amendments require the EPA to assess numerous chemicals previously deemed “safe” and signal a shift toward heavier regulation of the chemical industry.

RISK ASSESSMENT

The EPA is required to evaluate the safety of existing chemicals in interstate commerce and to start with those most likely to cause health risks. So-called “high-priority” chemicals must be assessed by the EPA starting with 10 assessments to be under way within 180 days, and 20 at any given time to be under way within a few years. Low-priority chemicals need not be tested but can be moved into high-priority with the development of additional hazard information. The initial assessment is a new risk-based safety standard that considers if the chemical poses an “unreasonable risk,” especially to susceptible or highly exposed populations (like children, the elderly, and industry workers), irrespective of cost. If there is an “unreasonable risk” identified, cost may be then considered in the mitigation of the health risks, along with bans, phase outs, or other actions.

INCREASED SCRUTINY OF NEW CHEMICALS

New chemicals may also have a tougher time getting to market. Under the 1976 law, companies would notify the EPA of their intention to manufacture a new chemical or a significant new use for the chemical by using a Pre-Manufacturing Notice (PMN). The 1976 act did not require any toxicity testing before submitting a PMN and did not require safety information to be included with the documentation. Under the 1976 law, in order to regulate new chemicals, the EPA needed to make a determination that the chemical might present “an unreasonable risk to human health or the environment...” If it could not satisfy this requirement within a narrow window of 90 days, the chemical was allowed to be legally marketed and sold. Now, the EPA must make an affirmative finding on the safety of a new chemical or significant new use of an existing chemical before it is allowed into the marketplace. While this may be a win for health and safety advocates, it may cause a significant backlog and therefore impede business and innovative progress.

PROPRIETARY INFORMATION AND FUNDING

The amendment also limits claims of confidentiality by chemical manufacturers with a rebuttable presumption that “the public interest in the disclosure of the information outweighs the public or proprietary interest” of the manufacturer. And finally, the EPA will be able to collect up to $25 million per year in user fees from chemical manufacturers and processors, supplemented by congressional budgeting to pay for these expanded regulatory activities. 

EFFECT

The EPA may renew its previously unsuccessful effort to completely ban the use of asbestos. EPA Administrator Gina McCarthy states in her blog, “The dangers of inaction were never more stark than in the case of asbestos, a chemical known to cause cancer through decades of research.” McCarthy goes on to write that “[d]uring the first Bush Administration, EPA tried to ban asbestos under TSCA, but the rule was overturned in court. In the law’s 40-year history, only a handful of the tens of thousands of chemicals on the market when the law passed have ever been reviewed for health impacts, and only 5 have ever been banned.”

This amendment may cause turmoil in the chemical industry with the assessment, for the first time, of decades-old chemicals that previously were deemed “safe.” In the next six months, we will know which high priority chemicals are selected for the initial risk assessment. The bill can be found here.
 

Ohio EPA Takes Hard Look at Vapor Intrusion Risks

Vapor intrusion is the process where contamination in soil and groundwater volatilizes and enters indoor air in buildings.  Understanding and evaluating the risks to occupants of buildings with vapor intrusion issues has received dramatic new focus nationally in recent years.

In Ohio, scrutiny of vapor intrusion issues is at an all time high.  This post details some of the recent significant initiatives and actions taken by Ohio EPA to address vapor intrusion.

Ohio EPA Revokes 2010 Vapor Intrusion Guidance

On May 27, 2016, Ohio EPA announced that it was revoking prior guidance in place since 2010 on analyzing the risks associated with vapor intrusion.  Ohio EPA revoked two entire chapters of its 2010 vapor intrusion guidance document.  It also indicated that environmental consultants should utilize U.S. EPA’s guidance document titled, “Technical Guide for Assessing and Mitigating the Vapor Intrusion Pathway from Subsurface Vapor Sources to Indoor Air (June 2015)” and U.S. EPA’s Vapor Intrusion Screening Level (VISL) calculator.

The VISL calculator is a new tool utilized by U.S. EPA to quickly determine whether a site presents a potentially unacceptable health risks due to vapor intrusion.  Using the VISL, soil gas, soil and groundwater sample results are plugged into the calculator to determine if risk presented by the detected contaminant levels exceed screening levels.  If screening levels are exceeded, the Agency can require either more investigation or cleanup.

The VISL replaces prior modeling techniques that have been utilized for years to evaluate contaminated properties.  Ohio EPA's 2010 Vapor Intrusion Guidance document relied heavily on the Johnson & Ettinger (J&E) model to analyze risk.  J&E was used to evaluate vapor intrusion at hundreds of site in Ohio.

Some consultants tell me that the VISL is approximately 50 times more conservative than the J&E model.  As a result, site contamination issues previously thought to present no issues under J&E are now viewed as significant problems under VISL.

Ohio EPA's revocation of portions of its 2010 vapor intrusion guidance includes the chapters regarding the J&E model.  Ohio EPA's announcement included a statement that all sites currently being evaluated will no longer consider J&E data valid and will require use of the VISL.

Ohio EPA Reviews TCE Site Inventory

Ohio EPA has also decided to heavily scrutinize any site with trichloroethylene (TCE) contamination (typically associated with a solvent used to clean metal parts).  A new study determined that the risk presented by exposure to TCE contamination to woman of child bearing years and pregnant women are greater than previously thought.  Those risks are also thought to be acute risks (i.e. short term) versus the long term risk based upon 30 years of exposure used to develop many cleanup standards.  

Beginning in the later part of 2015 and continuing through today, Ohio EPA has been internally evaluating any site where it has data showing TCE contamination.  Those sites are being analyzed using the new TCE cleanup standards and the VISL calculator.  Due to the fact both the cleanup standard and VISL are more conservative, sites are much more likely to be deemed to present potential health issues.  

Ohio EPA has sent letters to owners of sites with TCE contamination requesting additional investigation or cleanup.  In some cases, Ohio EPA has demanded additional testing and if the property owner refused, Ohio EPA performed its own sampling.

In February 2012, at an Ohio EPA brownfield training course, environmental consultants were told of Ohio EPA's position regarding vapor intrusion and TCE.  Here are some of the key points discussed:

  • Ohio EPA will not "sit on data" if it believes an issue exists it will move quickly to seek or take additional action;
  • In terms of sampling techniques to evaluate vapor intrusion, Ohio EPA wants to see sub-slab paired with indoor air samples to analyze the risk;
  • In analyzing vapor intrusion, Ohio EPA will want multiple sample locations and multiple sampling events (to address seasonal variation in contaminant levels);
  • If off-property vapor intrusion needs to be analyzed, the Agency's expectation is the owner/developer will do it.  In not, the Agency will collect the data it needs;
  • Agency is not going to have long technical debates whether a health issue may exist.  If the Agency thinks there may be an issue it wants to act quickly;
  • On Voluntary Action Program (VAP) cleanups, if a consultant is aware of data that indicates a potential health issue, the Agency expects the consultant to come forward with the information even if the property owner or developer doesn't want the information released to the Agency;
  • Due to TCE's short term risks to sensitive populations, the Agency expects quick action and evaluation of data at sites where TCE is at issue.

At the Spring 2016 Ohio Brownfield Conference many of these points were reiterated by Agency representatives.  In particular, participants were told the Agency will act quickly and aggressively when it believes contamination has the potential to present a public health issue.  

Ramifications to Property Owners and Developers

The changes relative to analysis of vapor intrusion in general as well as the specific initiative on sites with TCE, has major ramifications for property owners and developers.  Here are some the issues or considerations for owners/developers:

  • Consultants are under increasing pressure to disclose any data to Ohio EPA that suggests a public health issue may exist;
  • Expectation is that properties with potential vapor intrusion issues on or off site will be evaluated very quickly;
  • The standards and models use to analyze vapor intrusion risk have become significantly more conservative.  Sites are much more likely to be deemed to present potential issues than even a year ago; 
  • All ASTM compliant Phase I reports are supposed to evaluate the potential for vapor intrusion.  In light of the increased focus on vapor intrusion, it is critically important to conduct high quality due diligence prior to acquisition that includes a robust evaluation of the potential for vapor intrusion; 
  • Liability risks have increased dramatically in recent years for owners and/or developers of property that may have vapor intrusion issues; and
  • Due to increased stringency of modeling and cleanup standards, what will the Agency do regarding sites that were previously deemed sufficiently cleaned up under outdated guidance and cleanup standards?

 

Supreme Court Decides Army Corps JD's Can be Appealed

In a very significant case for property owners and developers, the U.S. Supreme Court issued its decision today that Army Corps Jurisdictional Determinations (JDs) are final agency actions which can be challenged in Court.  In U.S. Army Corps of Engineers v. Hawkes, the Court determined that JDs meet the test for final agency actions:

  1. A JD marks the consummation of the Agency's decision making process; and 
  2. JDs determine rights or obligations from which legal consequences flow

Federal Jurisdiction under the Clean Water Act

It has been well documented on this blog that whether a stream or wetland falls under the jurisdiction of the Clean Water Act (i.e. federally regulated) has been a complex issue.  There have been numerous challenges to the Army's Corps of Engineer's (ACOE) jurisdiction under the Clean Water Act.  

In a prior decision, the Supreme Court in Rapanos created the "Significant Nexus Test" as the means to determine jurisdiction.  The test involves balancing various factors as to how closely related small water bodies are to larger water bodies. Under the test, a waterway or wetland 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.

The Army Corps has been aggressive in asserting jurisdiction under the Significant Nexus Test.  The Clean Water Rule, currently under appeal before the Sixth Circuit, was the EPA's attempt to define jurisdiction in conformance with prior Supreme Court guidance.  The Rule has been challenged as going well beyond the Supreme Court's guidelines for federal jurisdiction under the Clean Water Act.

Jurisdictional Determinations (JDs)

A Jurisdictional Determination (JD) is issued by the ACOE as its determination whether particular property contains federally protected wetlands or streams.  The JD is the ACOE application of the Significant Nexus Test to the property.  Due to the ACOE aggressiveness in asserting jurisdiction, many property owners and developers have wanted to challenge JDs. 

However, a complicating issue for property owners and developers is that the ACOE had maintained that JDs were not final appealable actions that could be challenged in Court.  This left the property owners and developers with a "Hobson choice:"

  • Administratively appeal the JD which means the ACOE makes the decision as to whether the JD is valid;
  • Assert the ACOE is without jurisdiction, proceed with the development and risk enforcement with criminal sanctions or civil penalties; or
  • Comply by submitting a costly permit application (404 permit)

None of these choices were deemed attractive.  With the Court's decision in Hawkes, Courts can now hear challenges to JDs.  

Due to the subjective nature of the Significant Nexus Test, property owners and developers should be entitled challenge ACOE determinations in court.  Today's decision will likely result in a flood of challenges to JDs in federal courts.

 

What Ohio Can Learn from the New Kansas Brownfield Law

In my four part blog post series- Rethinking Brownfield Redevelopment in Ohio- the final post advocated for a new Ohio liability protection law for buyers of contaminated property.  The new law would provide brownfield redevelopers liability protection faster and at a lower cost than the current Ohio Voluntary Action Program (VAP).

I suggested looking to Michigan's Baseline Environmental Assessment (BEA) law for guidance on how to set up such a program.  Well Kansas has recently passed a new law that provides a second example.  

On May 9, 2016, the Contaminated Property Redevelopment Act (S.B. 227) was signed into law by Kansas Governor Sam Brownback.  Similar to the Michigan BEA, the new law provides buyers of contaminated property liability protection under certain conditions. Those conditions include:

  • The Buyer cannot have caused or contributed to the pre-existing contamination on the property;
  • The Buyer cannot exacerbate pre-existing contamination on the property either through redevelopment or other activities;
  • Buyer must request liability protection from the Kansas Department of Health ("Kansas DHE") and Environment by applying for a Certificate of Environmental Liability Release ("CELR");
  • The Application for a CELR must include a Phase I or Phase I/Phase II assessment report or other reports requested by Kansas DHE that demonstrate the property was adequately assessed; and
  • The Buyer must provide notice to future purchasers of the existence of the CELR and notify Kansas DHE upon transfer of the property.

What is interesting is that the new law does not affirmatively require the Kansas DHE to make a finding that buyer has taken appropriate steps to address immediate environmental threats or public health risks similar to the "reasonable steps" requirement under U.S. EPA's Bona Fide Purchaser Defense.

A fee is charged by the Kansas DHE to review CELR applications.  Those fees are placed into the Contaminated Property Redevelopment Fund to assist municipalities with brownfield redevelopment.

Kansas provides another example of an enhanced Bona Fide Purchaser Defense at the State level that will likely accelerate brownfield redevelopment. 
 

Rethinking Brownfield Redevelopment in Ohio: Part 4 of 4

This is the final post discussing the current state of brownfield redevelopment in Ohio.  It provides suggested changes to the regulations and incentives in Ohio to accelerate brownfield redevelopment. The prior posts in this series discussed the following:

  1. The Issues Presented by Brownfields- In particular the impact to Urban Centers
  2. The Current State of Brownfield Redevelopment in Ohio-  Including the issues of urban sprawl and the number of brownfield sites in Ohio.
  3. Progress made in Addressing Brownfields in the Twenty Years Since Ohio's Voluntary Action Program was Adopted

As discussed in these prior posts, Ohio needs to accelerate brownfield redevelopment in Ohio.  So how does that occur?  

  • Need to be Faster- The ability to address the environmental, public health and liability risks presented by brownfield properties needs to occur much faster.  A cleanup under Ohio's Voluntary Action Program (VAP) can take anywhere from 1, 2, 3 or even more years to complete.  
  • Need Lower Costs to Redevelop Brownfields-  According to the Cleveland Department of Economic Development the per acre are significant.  These costs push businesses to consider greenfield sites
    • On average it can cost $13,000 per acre to perform sampling to determine how contaminated a brownfield site may be
    • It can cost on average $66,000 per acre to remediate a brownfield site
    • Brownfield redevelopment projects currently require a minimum of 32 -35% in public subsidies 
  • Effectively Address Liability-  VAP can be effective but takes too long and costs too much. The Bona Fide Purchaser Defense under CERCLA provides no regulatory sign-off that due diligence and cleanup were adequate.
  • Broad Based Incentives-  Current incentive programs require creation of jobs or specific types of redevelopment such as manufacturing.  More value needs to be placed on simply returning idle property to productive use.
  • Cleanup Grants should Target Public Health or Catalyst Projects-  Some portion of brownfield funding should be used to address highly contaminated sites that present public health risks to local communities or catalyst projects that may attract more development.

Rethinking Ohio's Incentive Programs

The first major hurdle to a brownfield redevelopment project is the unknown cost of cleanup.  Therefore, a large portion of incentives need to fund assessment activities.  

Ohio should drop the complicated VAP automatic tax abatement.  There are too many implementation issues (discussed in the prior posts) and the abatement does not cover new structures.  In its place, Ohio should adopt a brownfield based tax credit program that allows developers to take assessment and cleanup costs as a tax credit.  Such a credit would start to even the playing field between brownfield and greenfield sites.

Rethinking Ohio's Tools to Address Environmental Liability

The VAP should remain in place with an effort to reduce the current complexity of Ohio's primary brownfield cleanup program.  The VAP is a very good program for full assessment and cleanup of a property.  However, full assessment and cleanup isn't always necessary to put property back into productive use.  

U.S. EPA's Bona Fide Purchaser Defense under CERCLA does not require a complete Phase II assessment or full remediation.  Under the program, a buyer must take "reasonable steps" to address any threats to public health or the environment.  Reasonable steps is far less than full remediation of soil and ground water.  It typically means preventing ongoing release and eliminating complete pathways for human health exposures.  Such flexibility dramatically lowers to the cost of redevelopment.

The major issue with the BPFD is that it is a legal defense with no regulatory review or sign-off.  Some purchasers are comfortable with no oversight.  However, many would prefer the comfort of knowing their assessment and cleanup strategies received regulatory sign-off.

Ohio should adopt a State version of the BFPD that includes some level of regulatory oversight.  A similar program was adopted in Michigan- Baseline Environmental Assessments (BEAs).  While Michigan's program could be improved, it has greatly accelerated brownfield redevelopment. 

According to figures provided by Joe Berlin, BLDI Environmental Engineering, here is a comparison between the Michigan BEA and Ohio VAP Programs:

  • Michigan BEA
    • 1995-2015 there has been 20,634 BEAs completed
    • Average of 1,032 per year
  • Ohio VAP Covenant-Not-to-Sue (CNS)
    • 1995-2015 there has been 527 CNS issued
    • Average of 26 per year

The proof is in the numbers.  Maybe its time Ohio look to its neighbor up north for new ideas to accelerate brownfield redevelopment.

Rethinking Brownfield Redevelopment in Ohio- Part 3 of 4

This is the third post in a series of four assessing the current state of brownfield redevelopment in the State of Ohio.  This third post will evaluate the progress Ohio has made in the last twenty years with regard to addressing brownfields.

Current Options for Addressing Environmental Liability 

As discussed extensively in the prior posts in this series, environmental liability concerns are a major disincentive for brownfield redevelopment versus greenfield development.  Many different federal and state environmental statutes can impose liability on owners of property: RCRA (hazardous waste and petroleum contamination); TSCA (PCBs), Clean Water Act (runoff, sediment, wetlands), and other federal or state statutes.

However, the law that imposes the most far reaching liability for environmental contamination is CERCLA (Superfund) which imposes joint and several liability on buyers of contaminated property. Under CERCLA, a new owner of property can have liability for preexisting contamination regardless of whether they performed activities that created the contamination.  

CERCLA's broad liability provisions act as a major deterrent to brownfield redevelopment. Ohio utilizes two principal mechanisms to address the risk associated with CERCLA legal liability:

  1. Voluntary Action Program (VAP)-  Adopted in 1996 to provide greater flexibility in cleaning up brownfield properties.  The VAP has been very successful.  No question the program provided greater and more cost effective cleanup options for brownfield properties. As detailed below, the VAP has been utilized to cleanup hundreds of brownfield properties. VAP cleanup standards are regularly referenced during due diligence as a means of evaluating environmental liability.  In fact, some developers or owners perform limited cleanups using VAP standards without seeking Ohio EPA's concurrence the cleanup was sufficient.   
  2. Bona Fide Purchaser Defense (BFPD) (i.e. "All Appropriate Inquiries" under CERCLA)-   In 2002, Congress created the Bona Fide Purchaser Defense to encourage brownfield redevelopment.  EPA adopted the "All Appropriate Inquiry" rule which established a mandatory level of environmental due diligence a buyer must perform to qualify for the liability defense.  If due diligence identifies ongoing releases or risks to human health, the buyer must take "reasonable" steps to address those issues.  However, a buyer does not need to perform a full cleanup of the property to qualify for the defense.

Issues with VAP 

Twenty years ago the VAP was considered groundbreaking.  The program allowed privatized cleanups where the company/developer's consultant completed the cleanup and submitted a No Further Action (NFA) after the cleanup was completed.  Ohio EPA reviews the NFA and, if the property meets VAP standards, the Agency will issue a legal release (i.e. Covenant-Not-to-Sue or CNS).

While the VAP provides a lower cost alternative to perform a full investigation and cleanup, the program has been underutilized.  Here are some of the reasons why:

  • Slow Process- Many real estate deals need to be completed in a few months or even shorter.  It can take 90 to 180 days just to complete the VAP investigation of the property (i.e. Phase II assessment).  A full cleanup can take one, two, three or even more years to complete.
  • Costs-  Twenty years ago the program was championed as a lower cost alternative to traditional CERCLA cleanups.  However, the cost to take property through the VAP can still be very high.  It can cost $100,000 to $200,000 for a VAP Phase II alone.  Full cleanup can cost hundreds of thousands to millions of dollars.  These costs act as a strong deterrent to entering the VAP program.
  • Complexity-  The VAP program is highly complex.  There are around ninety guidance documents alone in addition to nearly one hundred pages of rules.  

Issues with BFPD

The Bona Fide Purchaser Defense (BFPD) has been in place for a little over a decade.  The advantages of the BFPD is that is much faster and cheaper than the VAP.  In many transactions, the Phase I assessment by itself is enough to establish the BFPD if no problems are identified (i.e. a "Clean" Phase I). Even if Phase II sampling is needed, sampling can be completed in 30-60 days at a much lower cost than a full VAP Phase II.  However, the BFPD has its own set of issues: 

  • No Sign Off by Regulators-  Some like that sampling and cleanup plans do not need to be reviewed by regulators to qualify for the defense.  However, without review there is no assurance to the buyer that they qualify for the defense.  In fact, a property owner cannot even voluntarily submit sampling and cleanup plans for concurrence.  As a result, property owners only find out if the sampling or cleanup was sufficient if it stands up in court.
  • No Public Disclosure-  Mandatory disclosure laws act as a strong deterrent to completing transactions involving contaminated properties.  However, providing incentives to voluntarily disclose the results of due diligence can create more public information regarding the condition of properties. 

Current Ohio Brownfield Incentives

Paying for sampling and cleanup of brownfield properties is expensive.  As discussed in prior posts, these costs push companies to consider greenfields over brownfields.  To offset these costs and attract companies and developer to brownfield properties, Ohio has a variety of incentives available. Those programs include:

Brownfield Grants and Loans Tax Incentives

Former Clean Ohio Program

  • No Longer Active
  • Up to $300,000 Phase II grant
  • Up to $3 million cleanup grants
Ohio Historic Preservation Tax Credit

JobsOhio Revitalization Program

  • Up to $200,000 Phase II grant
  • Up to $1 million 
New Market Tax Credit
County and Municipal Grant & Loan Programs VAP Automatic Tax Credit (R.C. 5709.87)

 Issues with Grant/Loans/Tax Incentives

  • JobsOhio Revitalization Program targets a limited number of projects.  Certain brownfield redevelopment projects cannot even qualify for funding, such as retail or residential.  This narrows the range of possible projects on brownfield sites that can offset investigation and cleanup costs
  • Insufficient Funding-  Cleanup grant funding at both the state and local level is capped at around $1 million.  While this amount of grant funding may be adequate for a number of projects, more contaminated properties will not attract sufficient funding to offset cleanup costs.
  • VAP Automatic Tax Abatement-  While this is the primary brownfield tax incentive, issues with its scope and implementation are well documented in prior blog posts.  One of the biggest issues is that it doesn't cover new structures.  It also assumes property valuations already account for contamination.

Ohio's Scorecard on Brownfield Redevelopment

Let's review the number of VAP projects completed and incentives utilized to leverage brownfield redevelopment.

VAP Cleanups Completed 1995-2015

659 NFA's submitted to Ohio EPA 

132 withdrawn, denied, revoked or pending

527 VAP Covenants-Not-to-Sue have been issued

 

Clean Ohio (2001-2012)

Clean Ohio was the primary brownfield grant program in Ohio for over a decade.  More data is available to evaluate the success of the program.  According to Greater Ohio, approximately 160 Clean Ohio Revitalization Projects were completed.  In reviewing VAP projects completed by year, clearly Clean Ohio accelerated brownfield redevelopment in Ohio.

1995-2001 (Pre-Clean Ohio) approximately 17 VAP covenants were issued per year

2001-2015 (During Clean Ohio) approximately 35 VAP covenants were issues per year

Based upon a study performed by Greater Ohio, an average grant incentive per Clean Ohio project was $1.97 million.  It is worth noting that this study showed each Clean Ohio dollar spent generated $4.67 in new economic activity.

Scorecard on Brownfield Redevelopment in Ohio
Total Sites to Address under the VAP Years to Address under VAP Total Cost in Incentives
527 covenants in 20 years since VAP implemented Assuming full restoration of Clean Ohio funding Assuming Clean Ohio available
estimated 10,000 brownfield sites* 35 VAP projects per year $1.97 million on average per project
9,437 brownfield sites left to be addressed 270 Years to address all brownfields under the VAP $18.5 billion in incentives to address all brownfields under the VAP

There are a number of assumptions built in to the scorecard that anyone could challenge. Including:

  • There is no reliable inventory of brownfield sites in Ohio.  The number 10,000 was taken from a U.S. EPA estimate discussed in a prior post.
  • Not all brownfield sites are addressed by the VAP.  However, when it was adopted most thought the vast majority of brownfield cleanups would go through the program.
  • Clean Ohio no longer exists and a brownfield program of that size and scope is not currently contemplated.

While the assumptions underlying the scorecard are fair game, it still demonstrates how long and how much it would cost to address a significant number of brownfield properties under the VAP. The scorecard also suggests there may be better strategies available to accelerate brownfield redevelopment in Ohio.  

The final post in the series will include a discussion of new strategies to try an accelerate brownfield redevelopment in Ohio.