Ohio Environmental Law Blog : Ohio Environmental Lawyer & Attorney : Joseph Koncelik : Frantz Ward Law Firm : Environmental Regulation, Land Use, Compliance : Cleveland, Ohio

I was giving a speech to a trade association last night regarding Cap and Trade legislation in Congress.  The sentiment of most participants in this manufacturing group was that they had dodged a major bullet because passage of a bill looks very unlikely.  While that is true, I told the audience don't lose sight of the fact regulations are coming even without a bill in Congress.  This took many of the members by surprise. 

Here is how the battle over climate change regulation is currently unfolding...

While the Senate continues to try and reach a compromise over Cap and Trade legislation that could garner 60 votes, most observers are now saying passage is very unlikely.   A range of reasons are cited for the diminishing chances for a Senate bill:

• Loss of the "super" majority with the Massachusetts Senate race- although 60 Democrats were not going to vote for this bill, it is one less vote.  This from Reuters:

• From a purely numerical perspective, the Massachusetts election makes only a marginal difference. With the real division running through the centre of the Democratic Party, rather than between the parties, cap-and-trade was never going to pass on a 60-40 party-line vote. It was always going to need at least some Republican votes. So the loss of one Democrat makes only a small difference.

• Hard fought legislative battles over health care reform diminishes any potential compromise between Republicans and Democrats
• Failure in Copenhagen to reach a global consensus on climate action
• Health care, financial reform and jobs being much higher legislative priorities
• "Climategate"- the uncovering of unflattering e-mails by climatologists

Pick any combination of the items above and a strong case can be made that cap and trade will not emerge in 2010 or in the near future.   A recent New York Times Article  does a great job describing how the battle has shifted from Congress to the halls of U.S. EPA.

EPA in March is expected to roll out the first-ever federal standards affecting greenhouse gas emissions from automobile tailpipes. This follows the agency's move in December declaring greenhouse gases a danger to public health. The tailpipe standards would automatically trigger requirements that stationary sources -- such as power plants -- install "best available control technology," or BACT, according to EPA. The agency has proposed a separate rule to shield smaller facilities from those requirements, the "tailoring rule," which is also expected to be in place by March.

As set forth above, the dominoes are falling leading to full blown regulation of greenhouse gases using EPA's existing authority under the Clean Air Act.  The regulations have progressed as follows:

1. Mandatory Greenhouse Gas Reporting Rule- EPA has already finalized mandatory reporting for large source (25,000 metric tons).  Sources must start tracking emissions this year.
2. Endagerment Finding-  EPA finalized its finding that greenhouse gas emissions from vehicles endanger human health and the environment.  This was a pre-requisite to issuance of its Light Duty Vehicle greenhouse gas standards.
3. Light Duty Vehicle GHG Standards-  EPA has stated in prior rule packages that it expects to finalize this rule this March.  This will be the first rule establishing actual emission limits for greenhouse gases.  Once mandatory emission limits are established for vehicles, the Clean Air Act automatically requires certain provisions will apply to all other sources.   New Source Review (NSR) will be triggered by emissions of greenhouse gases.
4. GHG Tailoring Rule-  This is EPA's effort to change the triggers for NSR to fit GHG emissions.  Without this rule very small sources would trigger federal air permitting requirements.

As EPA marches toward full blown regulation, attention shifts back to the Senate where a major battle over an amendment to block EPA's efforts is about to take place.  This from Environmental Leader:

U.S. Sen. Lisa Murkowski (R-Alaska) is expected to introduce an amendment that would prevent the Environmental Protection Agency (EPA) from regulating greenhouse gas emissions (GHG) under the Clean Air Act, reports the Los Angeles Times.

Murkowski will either try to block the EPA by seeking an amendment to an unrelated debt bill due to go to vote on Jan. 20 or she will seek a resolution of disapproval, which would not be subject to filibuster and only need 51 votes to pass, reports the Guardian. She has the support of 34 Republicans and is reaching out to Democrats, according to the article.

Its going to be very difficult to find another seventeen votes to support the measure in the Senate.  Therefore, businesses must be prepared for the major EPA's greenhouse regulations in March.  Its a good time to be assessing your businesses exposure and risks using the proposed thresholds.   
 

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Today, U.S. EPA announced it has officially thrown out the .075 ppm ozone standard proposed in 2008 by the Bush Administration.  The Bush proposal would have reduced the standard from .08 ppm to .075 ppm.  Now the EPA is proposing to set a new revised ozone standard somewhere between .06 ppm to .07 ppm.  This from the Washington Post regarding the proposed new ozone standard:

Ozone standards have been the center of a political and legal battle since the spring of 2008, when the EPA set a looser limit than what its own scientific advisers had suggested and President Bush himself intervened to scale back the agency's proposal at the last minute. The new proposal mirrors what EPA's Clean Air Scientific Advisory Committee unanimously recommended in 2007.

What are the implications for Ohio?  To say they are significant would be a gross understatement.  The following chart from Ohio EPA demonstrates that significant progress has been made in reducing ozone levels in the State.

 However, it becomes more and more difficult to achieve standards as they become more stringent.  Many businesses have already been squeezed hard to reduce their emissions.  The cost to achieve additional reductions will be greater. 

Ohio has been able to redesignate much of the state into attainment with the old .08 ppm standard.  Even Cleveland, the highest ozone levels in the State, was able to achieve the standard barely in time and was redesignated. 

As discussed above, the Bush Administration had previously proposed lowering that standard to .075 ppm. Based upon recent ozone data for major cities, this standard was going to be difficult to achieve.  The chart below show Cleveland monitors just came barely below the .084 ppm standard required to demonstrate compliance.  (EPA allow up to .084 ppm to meet the old standard.  Also note, the chart is in parts per billion).  Cincinnati and Columbus also barely achieved the old standard.

Achieving the .075 ppm standard would be very difficult based upon this data.  However, now comes the news today that EPA has elected to throw out the .075 ppm standard established by the Bush Administration as inconsistent with the scientific recommendations provided to EPA.   This from EPA's press release:

In September 2009 Administrator Jackson announced that EPA would reconsider the existing ozone standards, set at 0.075 ppm in March 2008. As part of its reconsideration, EPA conducted a review of the science that guided the 2008 decision, including more than 1,700 scientific studies and public comments from the 2008 rulemaking process. EPA also reviewed the findings of the independent Clean Air Scientific Advisory Committee, which recommended standards in the ranges proposed today.

Today's announcement indicates the standard will be set some where between .06 to .07 ppm.  What are the implications of the high end of that spectrum, .07 ppm standard, on Ohio? 

• Under the .075 ppm standard 23 out of Ohio EPA's 49 air monitors show non-attainment
• Under the .07 ppm standard 49 out of 49 monitors show non-attainment

Designations could happen this fall, which means virtually every county that touches any major metropolitan area (Toledo, Columbus, Cleveland, Akron, Canton and Youngstown) will be designated non-attainment.  EPA estimates 32 Ohio counties would be out of compliance with the .07 ppm standard.  Non-attainment designations brings with it restrictions on new or expanding businesses.  It also brings with it more stringent air pollution control requirements. 

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The Board of the Northeast Ohio Regional Sewer District (NEORSD) could vote as soon as the end of this week on whether to create a stormwater utility within its service territory.  Through the imposition of a fee on homeowner's and businesses the District would hope to tackle some of the region's major stormwater issues. 

In my post on Monday I discussed some of the local battles that have emerged over whether the District has the legal authority to move forward with its proposal.  In today's post, I discuss some of the other issues and opportunities that may have gone unnoticed due to the contentious debate that is occurring.

Pro's and Con's of Regional Solution to Stormwater

At its core, the idea of treating stormwater as a regional issue makes sense.  Water does not know any boundaries.  Prioritizing the largest stormwater issues within the area also makes sense.  Some projects would be just too costly to do without aggregating resources.

However, this has to be balanced with making sure certain areas don't receive the lion share of  revenue collected by the Utility.  This is the concern of Summit County who fears revenue will be almost entirely be used to fund projects in Cuyahoga County.

The proposed regulations, especially upon revision, attempt to address this issue by establishing Watershed Advisory Committees.  These Committees would be made up of key local stakeholders in each watershed.  They would provide input into project selection and identification of stormwater issues.

However, even with recent language changes in response to comments, the Committee's are purely advisory.  The District retains the ability to ultimately make all decisions regarding use of the funds it collects.  There must be ways to balance the structure and use of the Committees to provide additional local control over resources.

Impact on Local Stormwater Ordinances Governing Storm Water

In Chapter 6 of the proposed regulations, NEORSD has the authority to establish its own standards for stormwater management.  Those standards must be consistent with Ohio EPA requirements for municipal stormwater systems. However, the District has the authority to impose more stringent requirements than Ohio EPA.  This may set up an interesting battle over ordinances passed by local municipalities within the District's jurisdiction.

The best example of where a potential battle may take place is riparian set back requirements.  Riparian setbacks establish "no build" zones adjacent to streams and wetlands in order to maintain their natural ability to control stormwater and filter run-off. 

Right now riparian setbacks are one option a municipality can choose to implement in meeting Ohio EPA's requirements for municipal stormwater systems.  This option has proved controversial.  Contentious debate has take place, including over the following issues:

• Size of the Setbacks-  Standards range from 25 feet to 300 feet. This is a very wide range and Ohio EPA has not formally endorsed a specific distance. 
• Takings- Issues have raised by property owners that the government imposing no-build areas on their property amounts to a "takings" under the Constitution which would entitle them to compensation
• Variances- What is the process for granting a variance from the set back requirements?  Communities have utilized very different processes in determining whether to grant a variance

Right now municipalities have had the flexibility to determine these and other issues associated with riparian set back on their own.  They can craft their ordinances to deal with local concerns of their constituents. While this has led to variations in standards, some would argue variation may be suitable based upon local conditions.

What if the Sewer District decides riparian set backs are mandatory and imposes certain standards on all communities related to the setbacks?  For example, what if they impose a mandatory 50 to 100 foot setback from all streams and wetlands?  This may lead to significant debate and outcry.

Cost of the Program- Opportunities to Offset CSO Compliance Costs Should Be Explored

One of the other major concerns with the proposal is the imposition of a new fee (tax) during these tough economic times.  Certainly it is a legitimate concern to worry about imposing new costs on businesses after the worst recession in decades. 

However, it is possible the stormwater utility could save money.  The Sewer District is still in a battle with U.S. EPA over its combined sewer overflows (CSOs).  The ultimate fix to those problems runs into the billions of dollars over the next few decades.  This translates into ever escalating sewer rates to pay for those improvements.

It is possible to offset some of the costs through the stormwater utility?  There are opportunities, such as the use of "green infrastructure" to reduce infiltration of stormwater into the Sewer District's system.  Reducing infiltration diminishes the need for costly "grey" infrastructure to hold stormwater to prevent overflows.

The Cincinnati Metropolitan Sewer District faced years of litigation with U.S. EPA over its CSOs.  Ultimately a very costly judicial order was agreed to satisfy the federal agency.  However, built into that Order were unprecedented flexibility to explore the use of  "green infrastructure" instead of constructing deep tunnels to hold stormwater.  Here is an excerpt from a report recently submitted to U.S. EPA regarding viability of green infrastructure to solve CSO issues (Note: while it says for settlement purpose this document is available on the web):

All of the parties clearly desire significant improvement to water quality currently impacted by MSD's CSOs and SSOs. If cost were no object, this could be done by conventional, so-called "grey" methods, such as massive deep storage tunnels. However, as discussed openly among the parties, MSD's service area faces huge economic problems due to its increased urbanization, population and industry losses, and related matters. MSD maintains that the sewer rate increases required through construction of massive "grey" solutions would be economically and socially devastating. This problem has the potential to create a stalemate or gridlock in finalizing the WWIP. It also presents a lose-lose situation where neither side obtains what it wants or needs. As recognized by USEPA, green infrastructure has the potential to provide water quality improvements at a fraction of the cost of "grey" infrastructure projects.--  Cincinnati MSD "Green Infrastructure" Program

Sounds very similar to the issues facing our Region.  Perhaps there is a real opportunity to see if the stormwater utility could be used as a means to reduce the District's compliance costs to solve its CSO problems. 

Has the District even studied or discussed whether a "green infrastructure" program implemented by the proposed utility could be a cost saver versus another tax imposed on businesses and residents?

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The Northeast Ohio Regional Sewer District (NEORSD) is pushing forward with a proposed storm water utility that would extend through out its service area.  The Board is expected to vote on the proposal January 7th.

Under the proposal the District would assess the average homeowner $4.75 per month or around $57 per year.  The fees would be aggregated to run a regional storm water program administered by the Sewer District to perform the following activities:

• Create master storm water plans
• Inspect and maintain storm water control infrastructure
• Build storm water control projects
• Support green infrastructure
• Restore streams
• Assist municipalities in complying with Phase II storm water requirements

(click here for NEORSD's power point on the proposed storm water utility)

Recent newspaper articles have discussed battle over the District's legal authority to implement the plan.  The Plain Dealer has had a series of articles discussing the storm water utility proposal in depth as well as an editorial in support. As reported in the Hudson-Hub Times, Summit County has already filed a lawsuit challenging the proposal.

A complaint for declaratory judgment and permanent injunction was filed by Summit County Dec. 30 in the Summit County Court of Common Pleas. Other plaintiffs include Northfield Center and Sagamore Hills townships, the cities of Macedonia, Hudson and Bath, and the villages of Boston Heights and Richfield.

The complaint states, among other allegations, that NEORSD has no authority to impose “stormwater fees, taxes or assessments on Summit County residents” and states the county engineer’s office is better suited to manage stormwater issues in the county.

Communities within Cuyahoga County have also expressed concern.  As reported in theSun-Star Courier, Broadview Heights and Strongsville also have issues with the proposal.

The fee doesn’t sit well with Broadview Heights Mayor Sam Alai either. With the city already having fees in place, residents may be seeing a double charge if the district has their way.

“My opinion is that Broadview Heights has its own sewer fee,” Alai said. “I can’t see us billing our residents twice for the same service.”

Concern has focused mostly on the following issues associated with proposal:

• Wisdom of imposing a new tax during these tough economic times
• Legal authority to create the utility
• Summit County is concerned fees will be assessed in their County for projects in Cuyahoga County
• Local governments are concerned with infringement upon their authority

These are all serious issues worthy of debate which have already resulted in litigation.   In fact, this list of issues may be so serious that many are not paying close attention to other, more practical, issues associated with the proposal.   

NEORSD just concluded its public comment period and has revised its proposed regulations that would govern the utility.  It is a valuable exercise to review the proposed regulations to get a better understanding of how the District will administer the program. (Click here to see revised regulations)  In future posts I will be discussing some of the issues that perhaps have been overlooked as a result of the debate over legal authority.  These include:

• Impact on local ordinances governing storm water
• Proposed use of Watershed Advisory Committees to solicit input on projects and planning
• Advantages and disadvantages to a regional program to address storm water
• Green infrastructures relationship to combined sewer overflows

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A few weeks back I was contacted by the Cleveland Council on World Affairs (CCWA) to meet with a small delegation of representatives from Serbia who were interested in learning about environmental regulations, specifically those that relate to solid waste and/or recycling. While I was to be interviewed by the delegation members, I think I learned much more even though I wasn't asking the questions.  Here is a bit of background on the CCWA from their e-mail invitation:

The Cleveland Council on World Affairs (CCWA) hosts international leaders from all over the world year-round. Each year the CCWA hosts over 400 foreign nationals to meet and confer with their professional counterparts and to experience America firsthand. The visitors, who are selected by American Foreign Service Officers and U.S. Embassies overseas, are current or potential leaders in government, politics, the media, education, the arts, business and other fields. This program is sponsored and funded by the United States Agency for International Development (USAID)

Members of the delegation worked in the following areas:

• Journalist reporting on environmental issues
• Manager of an electronic waste recycler
• Member of a trade association for chemical manufacturers
• Manager for a public utility company
• Members of Environmental Groups
• Local Government
• Green business consultant
• Small business owner with recycling operation

What jumps out at me from the list above is that you have the same cross-section of organizations and individuals involved in environmental policy in the U.S.  Each individual is interested in representing their own constituents, business or advancing their own environmental principles. 

During the exchange I was asked to describe various regulatory challenges faced by businesses.  I was also asked, generally, about general attitudes of citizens toward protecting the environment or environmental issues.  Here are a few interesting observations or conclusions I made from the meeting:

1. Management of Electronic Waste-  The delegation was interested to learn that there were no mandates requiring individuals or businesses to recycle electronic waste in Ohio.  I was pressed on this point several times by members of the delegation.  They thought it was interesting that any citizen could carry his old TV out to the corner to be thrown away in a landfill.   Here is Ohio EPA guidance encouraging recycling of electronic waste. 
2. Used Tires-  While I think elimination of used tire piles is one of the biggest environmental success stories in the State of Ohio, the delegation provided a different perspective.  The laughed and smirked when told that an individual was allowed to accumulate 23 million tires on their property (Kirby Tire Pile).  For a country known for its sophisticated (if not overly complex) environmental regulations, it is somewhat odd this slipped through the cracks.  As a result, Ohio was forced to enact a new tax on tires and it took nine years to clean up the Kirby Tire Pile.
3. Renewable Portfolio Standards-  I was asked to provide some pretty detailed information regarding Ohio's Advanced Energy Portfolio Standard, including use of alternative compliance payments and renewable energy credits (RECs).  I was told that Serbia was working toward a RPS standard.  I thought it was interesting that a small European country was developing a very sophisticated energy program.
4. Jobs and the Environment-  I was asked to comment on general attitude of the public on environmental issues.  Some were interested in understanding how those attitude vary depending on what state you called home.  Overall, there seemed to be general understanding among the delegation of the interplay between the economy and environmental regulation which challenged my perception those debates were less heated in Europe than in the U.S.  Just like in the U.S., I got the feeling there was a wide range of opinions within the room.  Those opinions can change with time as well.  As noted in CNN recent poll on attitudes of Americans towards the root cause of global warming.

Overall, some of my own perceptions or paradigms regarding environmental regulation were challenged.  It usually takes someone or a group of people from the outside to get you to re-examine your own perceptions.  I found it very enlightening even though I didn't get to ask a single question. 

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Today, a day that will likely live in environmental law infamy....the EPA Administrator Lisa Jackson finalized the "endangerment finding" in response to the U.S. Supreme Court's ruling in EPA v. Massachusetts which was issued way back in April 2, 2007.  While the Supreme Court found that greenhouse gases were air pollutants covered by the Clean Air Act, it did not say the Act mandated regulation.  Rather, the Court said EPA was required to make additional findings regarding the danger presented by greenhouse gases before regulations would kick in. 

The magic language for emission standards from motor vehicles appears in Section 202(a) of the Clean Air Act.  Under Section 202(a), EPA is required to determine whether or not emissions of greenhouse gases from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare (so called "endangerment finding").   If EPA makes a positive finding- meaning emissions endanger public health and welfare- it then promulgate greenhouse gas emission standards for motor vehicles.  Today, the Administrator made an positive determination.

Today's major announcement is the necessary precursor to mandatory emission standards for vehicles.  More importantly, it sets in motion regulation of greenhouse gases from all sources, not just motor vehicles.   Here are the steps that lead to that result:

1. Positive "endangerment finding"
2. Finalize regulations setting emission standards from motor vehicles- March 2010?
3. Greenhouse gases (GHGs) become a "regulated pollutant" under the Clean Air Act- once a "regulated pollutant" other regulations in the Clean Air Act are automatically triggered.
4. Most notably, on the same day vehicle standards are finalized, New Source Review (NSR) standards would include review of emissions of GHGs from new or expanding sources.  No new regulatory action is required for NSR to apply to GHGs, it will automatically happen.

EPA realizes the process that has been set in motion for much broader regulations which is why it proposed the Greenhouse Gas Tailoring Rule in the Fall. (see prior post, EPA Risky Climate Change Regulatory Approach) The Tailoring Rule attempts to temporarily reduce the scope of the NSR program to only larger emission sources of GHGs. 

Now that a positive endangerment finding has been finalized, broad GHG regulation is absolutely inevitable.  Short of Congressional action, the existing Clean Air Act will be used to regulate GHG emissions.  An outcome, even the EPA itself has said it does not prefer.  Note the press release from EPA:

President Obama and Administrator Jackson have publicly stated that they support a legislative solution to the problem of climate change and Congress’ efforts to pass comprehensive climate legislation. However, climate change is threatening public health and welfare, and it is critical that EPA fulfill its obligation to respond to the 2007 U.S. Supreme Court ruling that determined that greenhouse gases fit within the Clean Air Act definition of air pollutants. 
 

Congressional refusal to act swiftly on climate change legislation is putting us dangerously close to a chaotic regulatory scheme under existing Clean Air Act authority.  In fact, as noted above, Congress has to act to take us off the path.  Refusing to act, in order to blame President Obama is too large a price to pay to score a few political points. 

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I was interviewed for a story on the local NPR station in Cleveland about a Northeast Ohio company that nearly went bankrupt because of confusion over Ohio's brownfield tax abatement law.  The title of the story was "How a Poorly Worded Tax Rule Nearly Bankrupted Ohio's Oldest Company." Listen to the whole story by clicking here.

After reviewing the issue in preparation for the interview, it became readily apparent this was a law in serious need of a re-write.  A company's future shouldn't hinge on a vague tax exemption law.  I also learned that it was probably time to revisit some of the policy decisions made when writing the brownfield tax exemption law.

Background: Taylor Companies was debating whether to move out of Ohio.  It decided to remain in Ohio, in part, due to incentives it would receive for building on a brownfield site.  The principle incentive being a 10 year tax exemption for the increase in value of the property post-clean up.  Here are some excerpts from the story on NPR: 

The abatement was 87% less than what he expected. See, Taylor’s lawyers interpreted the state statute to mean that the tax exemption would cover the increase in value from before they did any clean-up to the new value after the company built and moved into its nice new building on what had been a brownfield. But Shelley Wilson of the Ohio Department of Taxation says they were wrong...

Instead of comparing the value of the land from its polluted days to its clean state…which seems most logical, tax officials compare the value of the land from one year before the tax abatement to its value after the improvements were made. The problem is that cleaning up the land and constructing a building may take longer than that narrow one-year time-frame. In Taylor’s case, he had already made most of the improvements by the time the tax commissioner made his assessment of the change in the land’s value. Shelley Wilson of the office of taxation concedes Taylor’s reading of the statute was probably the intent of the law.

Basically, the Ohio Department of Taxation responded to the controversy by saying- it may be the intent of the law to compare value pre-clean up to post-clean up, but that is not how the Ohio Legislature wrote the law.

At issue is the statutory provision set forth in R.C. 5709.87 "Exempting increase in assessed value of realty cleaned of contamination."  The key language is as follows:

(C)(1)(a) Upon receipt by the tax commissioner of a certification for property under division (B) of this section, the commissioner shall issue an order granting an exemption from real property taxation of the increase in the assessed value of land constituting property that is described in the certification, and of the increase in the assessed value of improvements, buildings, fixtures, and structures situated on that land at the time the order is issued as indicated on the current tax lists.

The Ohio Department of Taxation looked at the bolded language and determined the valuation comes from when the tax exemption order was issued, rather than looking back at the value of prior to when clean up commenced.  Triggering the exemption based on when an order is issued by Taxation really puts the squeeze on businesses redeveloping brownfield properties. Unless they time everything perfectly, they can lose out on potentially millions in tax abatement. (see example below)

The Department states this interpretation is supported by a decision issued by the Ohio Supreme Court- Columbus City School District v. Wilkens.   Here is how Ohio EPA describes the process in its guidance document dealing with the brownfield tax exemption:

For example, if the covenant not to sue is issued by Ohio EPA in September, 2007, and the Tax Commissioner issues the tax exemption order in October, 2007, the property tax exemption granted will be for the increase in value of the land and buildings on the property from the value of the property as of January 1, 2006, the tax lien date for tax year 2006. Since real property taxes are collected a year in arrears (i.e., the 2006 taxes are based on a value as of January 1, 2006, but collected in 2007), the 2006 tax list would be the most current list available for the Tax Commissioner’s October 2007 exemption order. The tax exemption would begin for tax year 2007 which would affect taxes collected in 2008.

Even if businesses line up things in the right way, they are still dependent on two government agencies- Ohio EPA and the Ohio Department of Taxation- acting on a timely basis.  One Cincinnati company lost out on a potential tax exemption on a $4 million dollar increase in the value of its property simply because paperwork was not issued by the government agencies in a timely fashion.  See, Hamilton Brownfields Redevelopment LLC v. Zaino, Tax Commissioner of Ohio.  In that case the Board of Tax Appeals states: 

"The General Assembly has mandated the exemption period begin in the year in which the order is issued.  The statute provides no latitude to consider or later the commencement of the exemption."

It is time to fix the language in the tax exemption statute.  The entire purpose of the tax abatement law is to provide an incentive to clean up brownfield sites.  If we want to encourage redevelopment of brownfields versus building on greenfield sites, incentives must be significant and effective to overcome the increased costs of building on brownfield sites. 

The best fix would be to simply take the tax valuation of the property that was issued immediately before the clean up was commenced (at date identified in the papers filed with Ohio EPA) and compare it to the valuation after clean up is completed. 

New Construction- In or out?

The commencement of the tax exemption is not the only flaw in this law.  There is also confusion regarding the extent of the tax exemption as it applies to new construction.  As noted in Ohio EPA's guidance document:

The Department of Taxation interprets the exemption granted under ORC 5709.87 as limited to the increase in value of the land and the existing buildings on the NFA property, and not of new structures constructed at the NFA property.

Taxation has made it even a bit more complicated than simply limiting it to existing buildings at the property.  Taxation has gone on to limit improvements to existing buildings that were not features of the building prior to the clean up.  For example,

• If you replace an old swimming pool with a new swimming pool, the increased value attributable to the new pool is exempt.
• However, if the building never had a swimming pool, it would be considered a new improvement and not exempt.

(See, Seven Seventeen HB Philadelphia v. Franklin County Board of Revision)

Unfortunately, Ohio is blessed with thousands of brownfield sites.  If we are going direct development towards these sites, we need strong incentives.  Costs of cleaning up a brownfield can run into the millions of dollars. 

Is it really good policy to restrict the tax exemption in such a fashion?

We also need the law to be clear on its face.  Lets hope the last part of the NPR story is correct and the Ohio Legislature takes up fixing the brownfield tax exemption law soon. 

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On November 23, 2009, the U.S. Environmental Protection Agency (EPA) finalized new rules intended to control stormwater pollution from construction sites.  The rule takes effect on February 2010 and will be phased in over four years. 

The most significant new requirement is the imposition of numeric discharge limits from larger construction sites.  In the past, U.S. EPA required construction site owners/operators to implement best management practices (BMPs) to control stormwater runoff without monitoring or discharge limits.  Once the new standards are phased in, owners/operators will be required to sample stormwater discharges and comply with a numeric standard for the pollutant turbidity in discharges according to the following schedule:

• In 18 months (August 2011), construction sites 20 acres or larger will be required to monitor and meet numeric discharge limits
• In four years, construction sites 10 acres or larger will be required to monitor and meet numeric discharge limits

From the EPA press release:

Owners and operators of sites that impact 10 or more acres of land at one time will be required to monitor discharges and ensure they comply with specific limits on discharges to minimize the impact on nearby water bodies. This is the first time that EPA has imposed national monitoring requirements and enforceable numeric limitations on construction site stormwater discharges.

There are also impacts to smaller construction sites ranging from 1 acre to 10 acres in size.  The rule will impose a series of mandatory Best Management Practices (BMPs) relating to: Erosion and Sediment Controls; Soil Stabilization BMPs; Dewatering BMPs; Pollution Prevention Measures; and Prohibited Discharges.  Previously, owners/operators were allowed to pick and choose their BMPs as long as they met specified engineering requirements.

Stringency of the Numeric Limits

Dirt particles in storm water discharges typically cannot be effectively removed by conventional BMPs (such as sediment basins). In November 2008, U.S. EPA had proposed a numeric limit of 13 nephelometric turbidity units (NTU). To meet the proposed numeric turbidity limit, sites may have been forced to actively treat stormwater.  Active treatment could have included use of chemical treatment and filtration of their storm water discharges.

However, U.S. EPA backed off the stringent 13 NTU proposed limit.  The final rule has a far more relaxed standard of 280 NTU.  EPA decided to increase the limits based upon a flood of comments suggesting the 13 NTU limit would represent less than background levels at some sites and would be nearly impossible to meet.

Even with the high numeric standard, Industry is concerned with the implications of the new rules.  The construction industry is simply not accustomed to being required to take samples and meet specific permit limits.  As detailed on the Associated General Contractors of America, the following could be implications for contractors at larger construction sites:

On all jobsites where the numeric limit applies, the rule requires contractors to collect numerous stormwater runoff samples from all discharge points during every rain event and calculate the NTU level(s). (This may entail taking "grab" samples by hand and performing measurements with a field turbidimeter; however the rule doesn't specify any sort of monitoring protocol or methods - instead EPA is leaving it up to that states to spell that out in their permits.) If the average NTU level of the samples taken over the course of a day exceeds the "daily maximum limit" of 280 NTU on any given calendar day, then the site is in violation of the federal limitation requirement. EPA is also leaving it up to the states to specify applicable requirements for contractors to report on the samples they take of their construction site discharges...

AGC is deeply concerned about the potential impact this rule will have on the construction industry and will provide more information in the near term as we continue to analyze EPA's C&D ELG rulemaking

No doubt the final rule represents a significant increase in the stringency of regulations applicable to the construction industry. 

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Whether you are redeveloping a former manufacturing site or you operate a business on a contaminated site, the liability risks associated with releases of hazardous substances are significant.  With the unknowns and surprises associated with environmental clean up the future of your business could be at risk without proper protections. There are a range of insurance products that can be essential to businesses looking to minimize such risks.  

Insurance products can provide coverage against neighbors claims that contamination has migrated onto their property.  Products can provide protection against cost overruns on clean up projects.  They can also protect service providers against liability for negligence or mistakes in providing services on clean up projects.

This post provides a basic overview of various environmental insurance products.  In purchasing such products close attention should be paid to the specific terms of the policy offered.  In other words, know and understand the limits of your coverage so there are no surprises should an issue arise in the future.

Pollution Liability Policies

These are the most widely used brownfield insurance products.  They provide a range of protections typically triggered after you have successfully cleaned up a property (signified by regulatory agency signoff on you clean up).  The potential protections in such policies include:

• Third party bodily injury and property damage tor liability claims that arise post clean up as a result of remaining contamination
  • Potential tort claims brought by neighboring property owners who claim could damages based upon bodily injury, property damage, diminution in property value or business interruption based upon pollution from your property migrating off-site
  • Tort claims for on-site property or bodily injury  caused by pollution remaining at the site
  • Pollution released during transport of clean up related soils and materials
• Costs of additional clean up and other related expenses in the event there is a finding of new contamination or a regulator later decides they want more clean up
  • additional clean up of known contamination which regulators had believed did not require remediation
  • clean up of previously unknown contamination
• Legal defense costs associated with the first two types of coverage

When seeking pollution liability insurance careful review of the proposed policy terms is essential.  What items are excluded from coverage?  What risks are so remote they could be excluded and bring down the cost of the policy? Typically, there is a "base policy" that provides some level of standard coverage.  The base coverage is then modified through addition or exclusion of specific coverages (referred to as "endorsements"). 

Different insurance products will offer varying standard terms, those that must be added (special endorsements) and those that are simply not offered.  Some possible special endorsements or  exclusions may include:

• lead-based paint in buildings
• asbestos in soil or buildings
• mold in buildings
• low level radioactive materials
• natural radioactive materials (ex: radon)
• unknown underground storage tanks

It is important to understand the limits of a policy to make sure you are receiving coverage for the most important and largest risks attributable to your site.

Coverage can typically range from anywhere from $1 million to $50 million in protection.  Common policy limits can range between $5 million to $10 million in coverage.  Deductibles can be as low as $10,000 or as high as $1 million or more depending on the coverage sought.

Cost Cap Policies

Cost cap insurance is purchased to protect against the event that the clean up of the site becomes far more costly that initial estimates.   Cost cap insurance is typically expensive and for that reason its less common.  Typical types of events that can be covered include:

• Clean up involved either higher volume or higher concentrations of known pollutants that was anticipated when developing the clean up plan
• Newly found pollutants that were not known during development of the clean up plan
• Additional investigation required as a result of newly found contamination
• Increase costs due to changes in regulatory requirements or standards
• Failure of the proposed remedy for the site

There are even less standard terms in cost cap policies that pollution liability policies.  Business must carefully review the terms to understand their limits of coverage. 

For example, often the clean up plan can be incorporated into the policy.  Coverage may be limited to only those activities set forth in the plan.  If some other activity is required that was not discussed in the clean up plan, there may be no coverage  for increases costs associated with that activity.

As noted, the premiums for cost cap insurance can be expensive.  One study of brownfield insurance products found that premiums ranged anywhere from 10% to 25% of the estimated cost of clean up or the limit of coverage. 

Other Brownfield Insurance Products

1. Pre-funded Programs- these products involve prefunding expenses at a clean up site.  Depending on the type of policy, the insured pays the premium and expected clean up costs upfront.  If clean up is less than anticipated, depending on terms, the insured may get a portion of the prefunded expenses back.  If costs are higher than anticipated, the insurer will pay the cost overruns pursuant to the terms of the policy. 
2. Secured Lender Policies- These policies protect against loses due to pollution on a property that is subject to secure a loan.  The coverage that could be provided includes: a) reimbursement of principal left on the loan due to borrower's default; and b) third party tort claims for bodily injury or property damage after foreclosure on the property.  The purpose of this coverage is to give your lender comfort by minimizing their risk in financing your project.
3. Contractor's Pollution Liability- policies issued to general contractors and others who handle remediation, transportation of hazardous substances, or other aspects of the clean up.  The product will protect against property damage, bodily injury and environmental clean up claims that could arise from working on a clean up sites. 
4. Professional Liability Insurance- purchased to protect against mistakes or negligence of engineers, consultants, labs or other professionals providing services or advice on clean up sites.

Ohio Voluntary Action Program- Insurance Discount

Ohio EPA's Voluntary Action Program (VAP) is the state clean up program addressing brownfield and other voluntary clean ups.  VAP has developed a new component of their program that provides discounts on environmental insurance products.   The Environmental Insurance Program (EIP) began on July 20, 2009 and allows VAP volunteers (and others with an interest in the brownfield property) the ability to obtain Pollution Liability Insurance at a 10% discount off the standard premium rate. 

More Information on Brownfield Insurance Products

BrownfieldsInsurance.org is a site that was developed with funding from the US Environmental Protection Agency (EPA) to assist those seeking information and assistance with insurance products that mitigate environmental liabilities associated with brownfield properties. The site contains papers and studies discussing various environmental insurance products.  It also has information regarding professional services.  It is a good basic resource to educate yourself on environmental insurance products. 

(photo: everystockphoto.com-patriarca12) 

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