Cuyahoga County May End Brownfield Program

After more than ten years of building a brownfield redevelopment program, Cuyahoga County Officials are currently contemplating bringing the program to a close.  Over the last few years significant staff cuts have reduced the amount of resources dedicated to the program.  Now it appears that in 2017 the various incentives available to attract redevelopment to brownfields may no longer be available.  Or, there will be no staff dedicated to run the program.

Hopefully, County Officials will understand the critical need the brownfield programs provide to overcome the major impediments to reuse of old industrial and commercial buildings in the region.  Even with the recent economic development boom in Cleveland there remain hundreds of underutilized or vacant brownfield properties.

One of the most critical needs the County program fills is grant funds to pay for Phase I and limited Phase II environmental assessments through the County's Brownfield Community Assessment Initiative. Under the program, the County would provide up to $5,000 in grant funds for Phase I assessments and up to $35,000 for Phase II assessments.  These incentives help overcome the first major hurdle to brownfield redevelopment- having no information about the condition of the property.  Many developers and businesses aren't willing to front these assessment costs as part of early evaluation of a property.  

The County also provided forgivable loans to help offset environmental cleanup costs.  Under its Redevelopment Ready Program, the County can provide loan funds up to $1 million with 40% of the total loan forgivable if certain criteria are met.  This type of loan was a critical tool in the Miceli Dairy expansion project which was one of the significant brownfield redevelopment projects in Northeast Ohio.  Without County incentives, both assessment grants and a forgivable loan, the project never would have occurred.  The expansion kept and expanded jobs in a critical area in Cleveland.  

The County had offered a wide array of programs and incentives to help renovate vacant buildings and spur brownfield redevelopment.  It took nearly ten years to build up the expertise and incentives which made it a very successful program.  For a full list of the County Brownfield Programs click here.

We can only hope that the new Administration realizes what a critical function a brownfield program plays in an area with a long industrial past and limited space for redevelopment.

Ohio EPA Proposed Voluntary Action Program (VAP) Rule Changes

Ohio EPA is moving forward with substantial changes to the rules for the Voluntary Action Program (VAP) which governs the procedures and standards for voluntary cleanup of industrial sites and brownfields.  The Agency provided an overview of the changes and its response to public comments last week at the Ohio Brownfields Conference in Columbus.

The Agency describes the changes as mostly providing greater clarity or trying to streamline the processes.  However, many of the changes are significant.  Some of the more significant changes are discussed in this post.

Note:  A detailed overview by Ohio EPA of the proposed rule changes can be accessed here.

Process Changes- Faster Turnaround but Greater Risk of Surprises

Under the current VAP process, when the volunteer is ready to seek concurrence that the property meets VAP standards, they request their consultant submit a No Further Action Letter (NFA).  Under current process, the consultant must submit the NFA along with all of the supporting documentation.  This includes the Phase I property assessment, Phase II property assessment as well as any risk assessment work.  The supporting documentation can be hundreds, if not thousands of pages.

Under the proposed change, a volunteer would submit just the NFA letter (the executive summary of the Phase I and Phase II, operation & maintenance documentation and draft environmental covenant). After the covenant-not-sue (CNS) is issued, the Volunteer would be required to file the supporting documentation.  

While the supporting documentation must be submitted, the Agency would not review it immediately.  Rather, the documentation would be maintained in Ohio EPA's public files.  

Through this process change, the Agency is trying to speed up their review process by reducing the amount of paperwork that must be reviewed prior to issuance of a CNS.   Less review means faster turnaround.  This is good news for developers whose projects or transactions were slowed waiting for the CNS to be issued.  

However, as with everything, there are trade offs.  Ohio EPA is also going to revise its audit protocols.  A VAP audit is similar to a tax audit.  Under a VAP audit, the project is thoroughly reviewed by Ohio EPA, including the NFA and all supporting documentation.  The probability of an audit is highest after the first year the CNS is issued, but can occur anytime.  Under the process change, Ohio EPA proposes to increases the frequency of its audits.

If through the audit, Ohio EPA identifies issues with the investigation or cleanup, a notice is sent to the volunteer.  If those issues are not addressed, the volunteer could lose their CNS.

One outcome of this process change may be more surprises for property owners after they thought a project was finished.  For example, two years after the CNS is issued, Ohio EPA could audit the project, find deficiencies and require more investigation and/or cleanup.  This may come as a major surprise to a new owner who bought the property after the CNS was issued.

Revised Generic Cleanup Standards

The VAP rule change also proposes a major overhaul to the methodology for calculating VAP generic cleanup standards.  Ohio EPA is moving toward use of U.S. EPA Regional Screening Levels.  

In some cases the standards get more stringent and in other cases more lax.  At the Brownfield Conference, Ohio EPA stated the only dramatic change is to the cleanup value for trichloroethylene (TCE).  At the conference, the Ohio EPA stated it notified all sites it was aware were currently performing a VAP cleanup where TCE was a constituent of concern of the proposed change.

In order to have the current generic cleanup standards apply to your VAP cleanup, then the volunteer must submit a NFA to the Agency before the rules are finalized.

Urban Setting Designations- Expanded Use 

Urban Setting Designations (USDs) are an important tool under the VAP.  Cleanup of contaminated groundwater can often be the most costly portion of the cleanup.  Ohio EPA recognized that there may be little benefit to requiring cleanup of contaminated groundwater in urban areas where the population was served by public drinking water systems.  

Requiring cleanup of groundwater in those situations may result in avoidance of brownfield properties.  With a USD designation, a volunteer can avoid a costly cleanup of contaminated groundwater.

Under the proposed VAP rule changes, Ohio EPA is proposing to expand the eligibility of areas for USDs.  For example, a village that meets certain geographic requirements can request a USD.

Off-Property Cleanup Requirements

An area of uncertainty under the VAP program had been what cleanup requirements apply to contamination that may have already left the volunteer's property.  Under the proposed rule, Ohio EPA states it is clarifying the obligations to address off-property releases.

Ohio EPA states a volunteer is required, even under current VAP rules, to cleanup off-property releases of contamination that exceed VAP standards.  Under the proposed rule change, this requirement is being made explicit.  This may be viewed by some as a major program change.

The proposal does include new provisions to provide some flexibility in addressing off-property releases.  A volunteer can attempt to make a demonstration to Ohio EPA that it "used best efforts" to address the release, but something made it impossible or impractical.  Examples:

If a neighboring property owner uses a drinking water well and refuses access to his property to address the contamination, this may be grounds for an exemption from Ohio EPA.

 

 

A release from the property contaminates sediment in adjacent river that exceeds applicable standards.  The volunteer would need to address the sediment unless it can demonstrate it is contaminated from multiple sources.

 

 

However, it is important to note, if an exemption to address a off-property pathway is granted, the CNS (legal release) will not extend to that pathway (i.e. the volunteer could be required to clean it up in the future if circumstances change).

When a Property Must Meet VAP Standards

The proposed rule changes intend to clarify that a volunteer only has to construct the remedy prior to issuance of the CNS, so long as he/she demonstrates the property will meet VAP standards within five years (or some other time agreed to by Ohio EPA).  This allows flexibility where remedy involves ongoing treatment. 

Post CNS Changes to Remedy

The proposal also establishes a process for modification of a remedy post-CNS.  

  • For example, if institutional controls (ex: fence or protective barrier) is used to demonstrate the property meets standards, the Volunteer can remove those controls without the property losing its CNS status during implementation of the new remedy.

Sufficient Evidence- VAP Eligibility Post-Enforcement

A volunteer is eligible for the VAP until it receives notice of enforcement from Ohio EPA.  If a volunteer had initiated a VAP cleanup prior to receiving notice of enforcement, the volunteer can continue if it makes a so-called "sufficient evidence demonstration."  

The proposed rule changes clarify what must be demonstrated and how quickly the cleanup must be completed in order to avoid enforcement.  Under the rules, the volunteer must demonstrate initially that they

  • Completed a Phase I assessment;
  • Retained a VAP certified professional;
  • Developed a schedule of activities for completing the VAP

If the volunteer is deemed to have satisfied sufficient evidence, it must adhere to the schedule and complete the VAP cleanup within three years under the proposed changes.

Schedule

Ohio EPA indicated the final rules would be filed with JCARR on April 15th.  JCARR jurisdiction would end on June 16th, with the final effective date being no sooner than July 1st.  

However, this assumes that significant objections are not raised during the JCARR process.  If such objections are made, the Agency could be forced to pull the rules resulting in delays. 

The Benefits of Clear Environmental Provisions in Sale or Lease Agreements for Industrial Property

The contractual language appearing in purchase or lease agreements for industrial property is critical.  I have seen a number of contracts that were fraught with vague terms or even silent on liability allocation.  Those contracts now define the company's liability exposure.   Protections the company thought they may have are either non-existent or in question.  

That is why it is so important to pay very careful attention to the environmental provisions in the contract for sale or lease of property.  Particularly important are the representations, indemnity and release provisions.  On an industrial property with a legacy of environmental issues, these provisions can often be the most difficult to negotiate because they shape liability risks for years to come. 

A recent federal court ruling provides further proof of the importance of paying careful attention to contract provisions allocating environmental liability.   The Court in United States v. ARG Corporation, Case No. 10-3111 (N.D. Ind. 2011) dismissed a complaint filed by the seller which sought to recover $841,000 in response costs incurred by U.S. EPA in performing clean up activities at the former industrial site.  In dismissing the complaint, the Court found that the purchase contract contained a clear allocation of environmental liability.  In essence, the purchaser avoided nearly $1 million in clean up costs based on the contractual provisions it negotiated prior to purchase.

The contract language at issue stated as follows:

The Seller shall remain solely financially responsible for the Remediation Activities arising from the Seller’s ownership, use or operation of the property prior to the Closing Date, provided however, that the Purchaser covenants not to execute against the Seller’s assets to satisfy the Seller’s financial responsibilities for remediation of pre-closing environmental damage except for the proceeds of recoveries under the general liability policies issued to the seller prior to closing.

The Purchaser shall be solely financially responsible for the Remediation Activities arising from the Purchaser’s ownership, use or operation of the property after the Closing Date.

"Remediation Activities" shall mean investigation and remediation activities, including but not limited to installing, operating, and maintaining all monitoring wells; collecting soil and/or groundwater samples; measuring groundwater levels in measuring wells; soil removal; groundwater treatment; and performing other related assessment activities, necessary to investigate and remediate environmental damage caused by the release of hazardous substances in accordance with any environmental laws.

The Court held that

"this language unambiguously states that ARG is solely responsible for remediating hazardous substances on the property arising from ARG’s ownership, use, or operation prior to the closing...South Bend is solely responsible for remediating hazardous substances on the property arising from South Bend's ownership, use, or operation after the closing date.

The Court also held that if South Bend believes ARG is responsible for cleaning up pre-closing hazardous substances, it will only seek recovery from ARG's insurance policies.  The court found the contract did not indicate South Bend would indemnify ARG if ARG was forced to pay the Government for remediating hazardous substances.

This case is a good example of the benefits of clear contractual language when allocating environmental liabilities.  Due to the high costs involved with clean up, there is a strong incentive for the party on the losing end to put forth creative interpretations of the language in an attempt to pass on or mitigate their liability.   Clear and unambiguous terms can be your best defense in such an instance.