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The term “game changer” has been thrown around quite a bit with regard to EPA’s intention to list PFOS and PFOA as “hazardous substances” under CERCLA.  The reason it is a game changer is that it will greatly simplify the evidence needed to support cleanup claims at any site where PFOS or PFOS contamination exists.  Furthermore, as detailed on EPA’s webpage, CERCLA liability is:

  • Retroactive – Parties may be held liable for acts that happened before Superfund’s enactment in 1980.
  • Joint and Several – Any one potentially responsible party (PRP) may be held liable for the entire cleanup of the site (when the harm caused by multiple parties cannot be separated).
  • Strict – A PRP cannot simply say that it was not negligent or that it was operating according to industry standards. If a PRP sent some amount of the hazardous waste found at the site, that party is liable.

Furthermore, CERCLA liability extends to all “potentially responsible parties” (PRPs).  Under CERCLA, PRPs are broadly defined as the following groups:

  • Any current owners of property where hazardous substances were released regardless of whether they released those substances
  • Any past owners or operators of a facility that released hazardous substances
  • Generators of hazardous substances
  • Any transporter of hazardous substances
  • Any person who arranged for the disposal of hazardous substances

Whereas most of the PFAS suits seeking cleanup that are being filed are being brought against manufacturers of PFOS and PFOA, CERCLA  makes: 1) establishing liability much easier for Plaintiffs; and 2) casts a much wider net of potential liability.  In addition, CERCLA allows one liable party to seek contribution from other PRPs, which will likely means many more defendants being named than have currently been targeted in suits seeking cleanup of PFOS and PFOA contamination.

Finally, PFOS/PFOA contamination is very widespread, including at most airports, many military bases, manufacturing sites and any landfills that accepted consumer products.  Therefore, the potential number of sites that could be pulled into CERCLA or possibly CERCLA cleanups that could be reopened to address PFOS/PFOA contamination are numerous.

For these reasons, listing PFOS and PFOA as “hazardous substances” will clearly be a game changer.

What action is EPA taking?

On September 6th, EPA published its proposed rule to designate PFOS and PFOA (as well as related salts and structural isomers) as “hazardous substances” under CERCLA.  As discussed below, EPA is basing its designation on a finding that the compounds pose a “substantial danger to public health or welfare or the environment” pursuant to its authority under CERCLA  Section 102.  This is the first time EPA has ever directly listed a compound as a hazardous substance using its authority under CERCLA Section 102.

What is the regulatory impact of EPA’s designation?

The designation has three primary regulatory impacts:

  1. Reportable Quantity (CERCLA 103(a)) EPA is proposing to establish a reportable quantity (RQ) of 1 lbs in 24 hours.  The RQ designation requires any entity that releases PFOA or PFOS above the RQ threshold to report the spill to EPA and local emergency response officials.  Under CERCLA, 1 lbs is the default RQ.  EPA suggest it intends to issue a future rulemaking on the RQ which would presumably lower the RQ threshold.
  2. Federal Property Transfers (CERCLA 120(h))– Any time the federal government transfers property with PFOS and/or PFOA contamination it must notify the transferee of the contamination.  Either the contamination must be addressed prior to the transfer or the federal government must continue to remediation post transfer.
  3. Hazardous Materials designation under the Hazardous Materials Transportation Act (CERCLA 306(a))–  As designated as a hazardous materials certain requirements related to transportation of such chemicals.  These include recordkeeping, placards on trucks as well as other requirements.
  4. Government Cleanups– U.S. EPA can require cleanup of sites with PFOA and PFOS contamination and seek recovery from potentially responsible parties (PRPs).
  5. Private Party Cleanups– Private parties that conduct cleanup consistent with the Nation Contingency Plan (NCP) can recover cleanup costs from potentially responsible parties (PRPs).

What parties are affected by the proposed rulemaking?

The rulemaking list various manufacturers or businesses that may be impacted by the rule.  The categories include:

  •  PFOA and/or PFOS manufacturers (including importers and importers of articles)
  • PFOA and/or PFOS processors
  • Manufacturers of products containing PFOA and/or PFOS
  • Downstream product manufacturers and users of PFOA and/or PFOS products
  • Waste management and wastewater treatment facilities

It is important to note that the list of parties potentially affected by the rule is purely for information purposes.  Any party that is a “potentially responsible party” or PRP under CERCLA, releases PFOS/PFOA above RQs or transports PFOS/PFOA will be covered by CERCLA.

What is the legal basis for designation of PFOS/PFOA?

There are two different ways a chemical or compound can be designated as a “hazardous substance” under CERLCA.  There is automatic designation under CERLCA 101(14) if a compound is listed under the following environmental regulations:

  • Clean Water Act section 311(b)(2)(A) hazardous substances;
  • Resource Conservation and Recovery Act section 3001 hazardous wastes;
  • Clean Water Act section 307(a) toxic pollutants;
  • Clean Air Act section 112 hazardous air pollutants; and
  • Toxic Substances Control Act section 7 imminently hazardous chemical.

Alternatively, EPA can designate a chemical or compound as a “hazardous substance” using its authority under CERCLA Section102 under the following criteria:

(1) “such elements, compounds, mixtures, solutions, and substances”

(2) “which, when released into the environment”

(3) “may present substantial danger”

(4) “to the public health or welfare or the environment.”

EPA has not designated compounds previously using its CERCLA Section102 authority.  Therefore, outside of the major ramifications of listing PFOS/PFOA as hazardous substances, this action is also significant because it will be the first time EPA presents its interpretation of its legal authority under CERCLA Section 102 which can have significant consequences for listing of future compounds.

What was the basis EPA used to support its conclusion PFOS/PFOA “may present substantial danger to public health or welfare or the environment?”

EPA categorizes concerns related to PFOS/PFOA into the following categories and provides an overview of scientific evidence related to each category:

  • Chemical/Physical Characteristics– EPA cites to studies showing the chemicals are persistent and bioaccumulate.  The water solubility allows the chemicals to migrate readily from soil to groundwater.
  • Toxicity and Toxic kinetics– EPA cites to its revised Health Advisory Level and its review of over 400 peer –reviewed studies regarding the toxicity of the compounds.  EPA provides an overview of the conclusions from these studies in the draft proposed rulemaking.
  • Environmental Prevalence– EPA discusses how widespread the contamination can be found.  EPA discussing AFFF as a major source of contamination in soil and groundwater where AFFF was released.

Did EPA consider the costs associated with designating PFOA/PFOS as “hazardous substances?”

No. EPA determined that it does not need to consider costs when designating a hazardous substance using its CERCLA Section102 authority.  Given the fact that this is the first designation of a chemical/compound under CERLCA Section 102(a), EPA’s interpretation that it should not consider costs when designating a compound as a “hazardous substance” under Section 102(a), will likely be an area that will be challenged by industry.  There have been multiple cases that have gone up to the U.S. Supreme Court regarding the Clean Air Act and other environmental statutes as to whether EPA is required to consider costs when promulgating a rule. In some cases the Court ruled EPA cannot consider costs and in some cases the Court rule cost is a relevant consideration.  It appears likely that EPA’s rejection of cost considerations through this designation will be challenged.

While EPA states it does not have any obligation to consider costs in designating PFOS/PFOA as “hazardous substances,” EPA states in its proposed rule that direct costs would be related to the RQ reporting requirement and would be minimal (estimated at $370,000 annually from reporting of releases).  However, EPA states indirect costs associated with required cleanup is difficult to quantify.

What is Industry’s view of the proposed action to list PFOS/PFOA as “hazardous substances?”

When the proposed rule was under OMB review, the U.S. Chamber of Commerce sent a letter with a supporting study on the cleanup costs that will be imposed on industry stating costs should be considered.  The Chamber commented:

  • Private party compliance costs for this rulemaking are estimated to be between $11 billion and $22 billion.
  • Corresponding annualized private party PFOS/ PFOA cleanup costs at non-federal sites are estimated to be between $700 million to $800 million

Why was a Regulatory Impact Analysis Required by OMB?

The U.S. Chambers’ cost estimates greatly exceed the $100 million threshold requiring EPA to prepare a full regulatory impact analysis (RIA) consistent with EO 12866 and the fulfillment of additional statutory requirements under the Congressional Review Act and Unfunded Mandates Reform Act.  EPA is preparing a RIA analysis that will likely draw heavy scrutiny from industry.  EPA’s forthcoming RIA will be called the Economic Assessment of the Potential Costs and Other Impacts of the Proposed Rulemaking to Designate PFOA and PFOS as Hazardous Substances.   .

What are the next steps in the EPA process?

There is a 60 day public comment period which commenced on September 6th when the proposed rule was published in the Federal Register.  Parties will have until November 7, 2022 to comment on the proposed rulemaking.  It is anticipated EPA will receive a very large volume of comments on the proposed rule.  EPA says it is targeting finalizing the rule in the Summer of 2023.

In July 2021, Ohio’s 2022-2023 budget allocated $500 million in new brownfield funding under various development programs: $350 million for the investigation, cleanup, and revitalization of brownfield sites and another $150 million for the demolition of vacant or abandoned commercial or residential buildings.

The Ohio Department of Development (ODOD) will administer the funding and is charged with adopting rules governing eligibility. ODOD released the program guidelines for both the Brownfield Program and Demolition Program on December 7.

Brownfield Remediation Fund

With regard to the $350 million allocated for brownfield redevelopment, the budget bill together with the guidelines establish the following structure for the program:

Allocation of Funds between Counties and ODOD

  • $1 million in funding is reserved for one year for each of Ohio’s 88 counties.
  • The remaining $262 million in funding is to be provided to eligible projects on a “first-come, first-served basis.”

Eligible Entities and Properties

 A county, township, municipal corporation, port authority, conservancy district, or park district (i.e. “unit of government”) can apply. Both nonprofit and for profit organizations can apply but must have an entered into an agreement with a unit of local government to complete the project.

To be eligible, a property must be considered a brownfield (i.e., known or potential releases of hazardous substances). Asbestos abatement projects also are eligible. Any entity that caused or contributed to the contamination is not eligible to seek funding but could transfer ownership to a eligible entity.

 Max Grant Awards

Applicants can seek Phase II assessment grants up to $300,000 and up to $10 million in grant funding for cleanup/remediation. The total amount of grant funding awarded a project is at the ODOD’s discretion; therefore, it will be critical for project applications to make a strong case for the level of funding sought in the application.

Cleanup/remediation costs that are eligible for reimbursement are:

  • Any action to contain, remove, or dispose of hazardous substances (can include installation of engineering controls, excavation of contamination, or groundwater treatment costs);
  • Up to 10% of the total request can be used for property acquisition costs; and
  • Up to 10% can be used for administrative costs, including: submitting reimbursement requests, reporting obligations, professional fees associated with obtaining a VAP No Further Action Letter or Covenant-Not-to-Sue, and Ohio EPA VAP fees.

Ineligible costs include:

  • Costs to prepare the grant application;
  • All legal costs; and
  • Costs incurred prior to the date of grant award (i.e., costs already spent to investigate or remediate a brownfield are not reimbursable).

Match Requirement

There is no match requirement when applying for grants to a county for its dedicated $1 million in funding, but all applications for funding from general funds awarded by ODOD require a 25% match. However, costs incurred in the two years prior to the grant award are eligible for use as matching funds.

Three Rounds of Funding Anticipated

  • Round 1: Opens December 7, 2021and closes January 31, 2022;
  • Round 2: Opens March 1, 2022 and closes April 30, 2022; and
  • Round 3: Opens July 1, 2022 and closes September 30, 2022.

Applications may be submitted during each open round. ODOD will review the applications and identify any deficiencies that must be corrected. Applicants will have 14 days to correct the deficiencies or risk rejection of their applications for that round of funding.

ODOD will award funding on a “first-come, first-served” basis as dictated by Ohio Revised Code 122.6511(C)(3). Awards will be made until the funding runs out.

Applications

Detailed information must be included for a complete application, including but not limited to the following:

  • Project description, including redevelopment plan;
  • Current condition of the property;
  • Number of anticipated new jobs and jobs retained;
  • Total project costs, including the cost to complete a cleanup of the property under the Ohio Voluntary Program, asbestos abatement costs, demolition costs, and infrastructure;
  • Supporting resolution or ordinance for the local government that is the project sponsor;
  • Access or purchase agreement;
  • Phase I/Phase II assessment reports;
  • Match documentation; and
  • Remediation plans.

Building Demolition and Site Revitalization Fund

The budget allocates $150 million for the demolition of commercial and residential buildings that are not brownfields:

  • $500,000 in funding is allocated to each of Ohio’s 88 counties.
  • The remaining $106 million in funding is to be provided on a first-come, first-served basis.
  • Up to 75% of the project cost will be funded (i.e., a 25% minimum match requirement for funds that are not directly allocated to the Ohio counties).
  • County land reutilization corporations (i.e., county land banks) will administer the program, and all funding will go through those entities.
  • Each county must designate a “Lead Entity” to administer the program.

Eligible costs include the following categories:

  1. General Administrative Costs: General oversight of the program, bid preparation, historic reviews and assessments, etc.;
  2. Eligible Pre-Demolition Costs: 10% of the award can be used for acquisition costs and environmental assessments (Phase I assessments and asbestos surveys), etc.;
  3. Eligible Demolition Costs: Removal and disposal of asbestos, demolition of buildings, removal of underground storage tanks, regulatory permit, and inspection fees, etc.; and
  4. Post Demolition Costs: Site restoration (grading and seeding), repair of sidewalks, curbs or catch basins, and landscaping and fencing (capped at $5,000).

Important Considerations

The Brownfield Program guidelines establish a maximum award of $10 million at the discretion of ODOD – a cap three times higher than any previous Ohio brownfield grant cap. Such a high cap will make possible very large brownfield redevelopment projects and increase the likelihood that the available funds will be used up quickly.

ODOD anticipates only three rounds of funding in 2022 to spend all $350 million in grant funds. ODOD also makes it clear that funding will be awarded on a “first come, first served” basis as required by the budget bill. The high grant cap together with the structure of the grant rounds is likely to set off a rush to submit project applications very quickly.

Projects without Phase II assessments can seek up to $300,000 in assessment money; however, it may be difficult for sites with no assessment performed to complete that work before the third round of funding. Sites that have already been assessed or are willing to pay for their own Phase II assessments will have a significant advantage in obtaining cleanup/remediation funding.

All sites must be cleaned up under Ohio EPA Voluntary Action Program (VAP) if the site is eligible. Alternative strategies to address environmental liabilities, such as Ohio’s Bona Fide Purchaser Defense, will not be eligible for funding based on the guidelines.

It is important to note that the application requires a significant amount of information – including site access or a purchase agreement, a full cost breakdown of the project, and a redevelopment plan – and that ODOD will simply reject incomplete applications from consideration for funding. In order to successfully position a project for funding, potential applicants will need to move quickly to gather the necessary information.

This week the Biden Administration released their PFAS Strategic Roadmap which sets forth ambitious action on regulation of Per- and Polyfluoroalkyl Substances (PFAS) pollution, including targeted action with deadlines for eight different federal agencies.  The EPA’s stated goal is to focus on PFAS both upstream and downstream.

Upstream EPA intends to look at evaluating toxicity of various PFAS compounds in a more efficient and accelerated manner.  EPA will target the “modest” number of industries that actually produce PFAS containing products and/or discharge PFAS into the environment reduce PFAS releases into the environment.  EPA states that key industries with significant documented discharges include PFAS production and processing, metal finishing, airports, pulp and paper, landfills, and textile and carpet manufacturing.

Downstream EPA intends to establish both drinking water standards and designate PFOA and PFOS as “hazardous substances” under CERLCA.  By taking these actions, EPA will have federal regulatory authority to pursue cleanup of PFAS related pollution.  Also, EPA intends to study more effective ways of addressing PFAS related pollution in the environment.

Below is a quick summary of some of the key components of the PFAS Strategic Roadmap.

Evaluate Toxicity of PFAS Compounds

  • There are hundreds of PFAS compounds and most have limited to no toxicity data
  • EPA will develop a National PFAS Testing Strategy
  • To the extent practicable, EPA will group PFAS compounds to more efficiently evaluate their toxicity
  • EPA is looking to identify data gaps regarding human health and ecological effects
  • To address gaps found, EPA will issue orders under Toxic Substances Control Act (TSCA) Section 4 authorities to require PFAS manufacturers to conduct and fund studies evaluating toxicity of PFAS compounds
  • EPA states the initial round of Section 4 Order are anticipated by December 2021

Reporting of PFAS Release and Uses

  • EPA wants to collect more information regarding use and release of PFAS compounds even when such uses or release are relatively small in quantity
  • The Toxics Release Inventory (TRI) requires companies to report releases of certain chemicals
  • The 2020 National Defense Authorization Act added reporting requirements of PFAS releases for certain industries
  • EPA believed certain exemptions from reporting limited the amount of information the Agency received under TRI reporting
  • EPA intends to propose a rulemaking in 2022 to categorize the PFAS on the TRI list as “Chemicals
    of Special Concern” and to remove the de minimis eligibility from supplier notification requirements for all “Chemicals of Special Concern.” (i.e. even industries with relatively small releases of PFAS will be required to report)
  • EPA proposed a rule in June of 2021 under its TSCA Section 8(a)(7) authority to collect information on any PFAS manufactured since 2011, including information on uses, production volumes, disposal, exposures, and hazards.  EPA intends to finalize the rule by January 2023.

Regulation of PFOA and PFOS in Drinking Water on an Accelerated Schedule

  • In March 2021, EPA published  a final determination to regulate Perfluorooctanoic acid (PFOA) and Perfluorooctane sulfonic acid (PFOS) in drinking water.
  • EPA expects to issue a proposed regulation in Fall 2022 to establish a drinking water standard for PFOA and PFOS (before the Agency’s statutory deadline of March 2023).
  • The Agency anticipates issuing a final regulation in Fall 2023.
  • Because the process to establish drinking water standards is lengthy, in the interim, EPA will establish non-binding health advisories for other PFAS compounds, such as the classification of PFAS compounds known as GenX.

Control PFAS Discharges in Wastewater and Stormwater

  • EPA is evaluating establishment of technology based treatment (i.e. Effluent Limit Guidelines) requirements for industries that are known to discharge PFAS such as metal finishing,
    electroplating electrical and electronic components, textile mills, and landfills.
  • EPA will require monitoring under NPDES permits of PFAS in stormwater, including implementation of best management practices (BMPs) to reduce PFAS discharges in stormwater
  • State and local authorities that implement pretreatment programs will be required to include source control and best management practices to reduce discharges of PFAS to downstream wastewater treatment plants

Designate PFOA and PFOS as “Hazardous Substances” under CERCLA

  • EPA is developing a Notice of Proposed Rulemaking to designate PFOA and PFOS as Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) “hazardous substances” for Spring 2022.
  • Such designations would require facilities across the country to report on PFOA and PFOS releases that meet or exceed the reportable quantity assigned to these substances.
  • Designation of “hazardous substances” will provide clear federal regulatory authority for cleanup of PFOA and PFOS contamination

Targeted Enforcement of “Imminent and Substantial Endangerment”

  • EPA is using current authority to gather information related to sites with high levels of PFAS contamination.
  • EPA is utilizing inspections, information requests,  and data collection to evaluate current risks posed by PFAS at specific sites
  • EPA states it will use existing regulatory authority to take enforcement when it concludes a site presents a “potential imminent and substantial endangerment situation”

Evaluate whether PFAS Compounds should be Designated “Hazardous Air Pollutants” under the Clean Air Act

  • The Clean Air Act requires EPA to regulate emissions of hazardous air pollutants (HAPs), which are
    pollutants that are known or suspected to cause cancer or other serious health effects.
  • There are currently 187 HAPs
  • EPA will evaluate whether to designated PFAS compounds as HAPs under the Clean Air Act
  • A HAP designation will trigger strict control over PFAS air emissions
  • EPA is targeting the Fall of 2022 to determine whether PFAS compounds should be designated as HAPs

Evaluate Technologies for Destruction and Removal of PFAS

  • Evaluate and develop technologies for removal or treatment of drinking water and wastewater
  • Evaluate technologies for contaminated site remediation, including groundwater treatment technologies
  • Research and evaluate air emission controls to reduce emissions of PFAS compounds
  • Evaluate and research technologies for the destruction and disposal of PFAS-containing
    materials and waste streams, including ensuring destruction technologies do not contribute to the release of PFAS contamination

An Arizona federal court has vacated the Trump Administration’s Navigable Waters Protection Rule (NWPR).   In the case of Pasqua Yaqui Tribe v. EPA, No. CV-20-00266 , the Court ruled that the Trump Administration’s regulatory effort to define the scope of the Clean Water Act (i.e. which rivers, streams and lakes are federally regulated) had “fundamental, substantive flaws”  and, therefore, vacated the NWPR.

The Court’s ruling dealt a major blow to one of the Trump Administration’s signature efforts to reduce federal regulation.  The Court’s action undid a regulatory effort that took nearly four years, from the signature of an Executive Order by President Trump, revocation of the Obama Waters of the United States (WOTUS) Rule and promulgation of the NWPR.  After the ruling, the EPA and Army Corps quickly announced that they would no longer be implementing the NWPR nationwide.

The Clean Water Act  regulates discharges of pollutants from point sources to “navigable water,” with “navigable waters” defined as “water of the United States, including the territorial seas.” 33 U.S.C. Sections 1311(a), 1367(7) and 1362(12).  The Clean Water Act does not further define the phrase “waters of the United States.”  Since the 2006 U.S. Supreme Court’s ruling in Rapanos, EPA has struggled to develop a rule to further define which rivers, streams and lakes are regulated by the federal government under the Clean Water Act.

After the Court’s action, the Army Corps of Engineers and U.S. EPA will rely upon the regulatory definition of “waters of the United States” that was in place prior to 2015.  Including the written guidance document prepared by the Army Corps of Engineers and U.S. EPA following the Rapanos ruling.  Many complained about the written guidance stating it was vague and applied inconsistently by the various Army Corps District Offices.

What happens next?

The District Court’s decision will likely be appealed.  The appeal time period runs through the end of October 2021.  Meanwhile, the Biden Administration had already announced it planning to proceed with yet another rulemaking to define the extent of federal jurisdiction over “waters of the United States.”  Any such rulemaking is certainly going to be challenged as well.

The multi-decade fight of the reach of the Clean Water Act stands as perhaps the best example of the impact of having gridlock in Congress and relying on the Executive Branch to determine critical environmental issues.  After four different U.S. Supreme Court decisions, nearly four decades of litigation, two failed regulatory rulemaking efforts, the reach of the Clean Water Act is still left unresolved.  It is like deja vu all over again…

In 2019, the U.S. Supreme Court’s decision in County of Maui V. Hawaii Wildlife Fund addressed when a permit is required under the Clean Water Act for discharges to groundwater.  Prior to Maui, it was a long standing debate as to when the Clean Water Act (CWA) in order to discharge to groundwater.  Traditionally, impacts to groundwater itself was outside the regulatory scope of the Clean Water Act.  The Court ruled, that in certain circumstances, a CWA permit was needed for discharges to groundwater.  Specifically, the Court ruled, a permit is needed when such discharges equate to the “functional equivalent” of a discharge to federally protected surface water (larger rivers, lakes or the ocean).

The Court’s ruling opened the door that NPDES CWA Permits may be needed for such things as:

  • Wastewater treatment systems with drain fields or that directly discharge to the subsurface;
  • Impoundments that may not be lined and leaching to groundwater;
  • Stormwater management practices that resulted in discharges to groundwater;
  • Leaks from storage tanks or subsurface piping that results in pollutants reaching groundwater;
  • Or other equipment, systems or practices that resulted in the discharge of pollutants to groundwater.

The Court established a somewhat vague standard for determining when a discharge was functionally equivalent to a direct discharge to surface water.  The “Functional Equivalent Test” established by the Court included the following factors to be considered on a case-by-case basis:

  1. How long do pollutants discharged to groundwater take to reach surface water;
  2. How long of a distanced do those pollutants discharged need to travel to reach surface water;
  3. The nature of the material through which the pollutants travel to reach surface water;
  4. The extent to which pollutants are diluted or change chemically as it travels and reach surface water;
  5. The amount of pollutants that reach surface water compared to the amount that was discharged from the point source of pollution;
  6. The manner by or area in which the pollutant enters surface water; and
  7. The degree to which the pollution, once it reaches surface water, has maintained its specific identity.

The Court noted that time and distance traveled would likely be the most important factors in the case-by-case analysis under the Functional Equivalent Test.

As with similar case-by-case tests for making regulatory determinations, implementation can be fraught with inconsistencies and variations in how the factors are evaluated region to region or even regulatory office to regulatory office.  This is why the Court indicated in its decision that EPA could provide administrative guidance to help ensure consistent application of the Functional Equivalent Test.

On January 14, 2021, the Trump Administration’s EPA finalized guidance called Applying the Supreme Court’s County of Maui v. Hawaii Wildlife Fund Decision in the Clean Water Act Section 402 National Pollutant Discharge Elimination Permit ProgramMany commentators viewed the guidance as an attempt to narrowly apply the Functional Equivalent Test in order to limit federal regulatory jurisdiction.  Perhaps the guidance document’s most controversial component was that, in applying the Functional Equivalent Test, EPA should consider the design and performance of the system discharging the pollutants.  For example, the more the design and performance of the system increased the distance pollutants needed to travel or the amount of time it took for pollutants to reach surface water, the less likely a permit would be required.  It was almost as if the intent of the system’s design would be evaluated under the guidance.  If the system wasn’t intended to have a discharge of pollutants to groundwater that reached surface water, then a permit would not be required.  

On September 15, 2021, the Biden administration announced it was rescinding the Trump administration’s guidance.   In rescinding the guidance, EPA stated that the Trump era guidance “added a new factor” to the Functional Equivalent Test which was inconsistent with the Court’s ruling (i.e. considering the design and performance of the system from which the pollutant was released).  By rescinding the guidance, the Biden Administration clearly intends to require CWA permits in more cases.  However, it is unclear whether the Biden Administration intends to develop its own guidance document to try an ensure consistent application of the case-by-case analysis.  In the meantime, the Functional Equivalent Test is likely to be prone to more inconsistent application.  Such regulatory uncertainty also typically leads to more litigation.  

Since the sunset of the Clean Ohio Program in 2013, there has been a strong push for dedicated funding to address brownfield sites in Ohio.  The Ohio 2022-2023 budget just signed by Governor DeWine comes through in a very big way by allocating $500 million in new funding under various programs.  The budget allocates $350 million for investigation, cleanup and revitalization of brownfield sites and another $150 million for demolition of vacant or abandoned commercial or residential buildings.

The funding will be administered by the Ohio Department of Development (ODOD) which must adopt rules for allocation of brownfield funding and the demolition program.  The rules determine project eligibility and administration of the program.  The program must be operational with 90 days of passage of the budget (i.e. early October 2021).

Brownfield Remediation Fund

With regard to the $350 million allocated for brownfield redevelopment, the budget bill provides no real direction to ODOD on eligibility requirements for brownfield revitalization other than the following:

  • $1 million in funding is reserved for 1 year for each of Ohio’s 88 counties;
  • The remaining $262 million in funding is to be provided to eligible projects on a “first come first serve basis”; and
  • Up to 75% of the project cost will be funded (i.e. a 25% minimum match requirement).

Building Demolition and Site Revitalization Fund

The bill allocates $150 million for demolition of commercial and residential buildings and “revitalization of surrounding properties on sites that are not brownfields.”  Interesting that the budget language includes funding for revitalization of surrounding properties.  Similar to the Brownfield Fund, the budget bill provides very little direction to ODOD on administration of the program other than the following:

  • Funding is to be directed to non-brownfield sites.  “Brownfields” are defined as industrial and/or commercial where expansion or redevelopment is complicated by known or potential releases of hazardous substances or petroleum.  This suggests that funding under this program is only meant for abandoned buildings that do not have contamination;
  • $500,000 in funding is allocated to each of Ohio’s 88 counties;
  • The remaining $106 million in funding is to be provided on a first come, first served basis; and
  • Up to 75% of the project cost will be funding (i.e. a 25% minimum match requirement)

Significance of the Funding

The Clean Ohio program was held out as the “gold standard” brownfield grant program in the country.  It allocated approximately $800 million in funding over the 13 years the program operated, but only about 50% of the $800 million was dedicated to brownfield funding.  Therefore, the 2022-2023 budget allocates close to the full Clean Ohio amount to brownfield funding and that excludes the $150 million dedicated to the Building Demolition and Site Revitalization Fund.

First Come First Serve

Clean Ohio typically operated by allocating $30 to $50 million on an annual basis for brownfield redevelopment.  Annual funding was typically awarded in two rounds per year.  The Clean Ohio Council had detailed scoring to determine which projects were to receive funding.  Project funding rounds were typically very competitive.  It was not uncommon during funding rounds to have several project fall “below the line” (i.e. not get funded).

The budget bill clearly states that ODOD is to award projects on a “first-come, first served” basis.  Does this mean that any brownfield redevelopment project that meets minimum eligibility requirements will be funded?  Also, does this mean that funding will be awarded on a rolling basis until the money runs out?

In talking with the brownfield community, cities and counties as well as developers are already trying to identify potential projects.  While $500 million in funding for brownfield redevelopment and demolition projects is a significant amount of money, the “first come, first served” basis for funding suggests a sprint to grab funding while it lasts.

Even though the details on eligibility are still forthcoming, it would be wise to start identifying potential projects and vet them to have the best chance of getting funded.

ASTM International publishes the accepted standard for performance of Phase I environmental assessments to evaluate a property’s environmental condition and assess potential liability for any contamination.   U.S. EPA’s “All Appropriate Inquiries” Rule (AAI) recognizes the current ASTM Phase I standard,  ASTM 1527-13, is consistent with the requirements of AAI and can be used to satisfy the statutory requirements for conducting AAI.  This includes establishment of the Bona Fide Purchaser Defense (BFPD) to CERCLA liability.

The ASTM Phase I standards have been revised six times since 1993, most recently in 2013. ASTM standards are supposed to be reviewed every eight years.  The current standard is to sunset in 2021.  A new standard is expected by the end of 2021.

Revisions to ASTM Phase I standards are noteworthy because they determine the scope of review necessary for due diligence prior to acquisition of commercial and industrial property.  Almost no one purchases commercial and industrial properties without performing a Phase I prior to acquisition.  Most lenders also require a Phase I to finance acquisition of commercial or industrial property.

ASTM is currently reviewing the standards once again.  Here are some of the noteworthy issues being discussed in the current review:

Site Visits and Interviews

Whether to require site visits and interviews to be conducted, at a minimum, by someone under the guidance of an “Environmental Professional” or EP (a person who meets certain qualifications as defined under the ASTM standards).   As discussed in a recent LightBox blog post, some are pushing for the Environmental Professional to perform the site visit or interview because they believe only someone with the proper training and qualification can perform these tasks.

Historical Research

Greater focus on historical research to identify the subject property’s prior uses which could have resulted in contamination. Under the current standard (ASTM 1527-13) a Phase I assessment should review the following sources of information:  aerial photographs, fire insurance maps, city directories, and topographic maps.  It is possible the new standards will encourage researching additional sources of historical information regarding property usage.  There is also push to require historical research for adjacent properties.  The current standard requires review of historical usage only for the subject property.

Data Gaps

Under the current ASTM Phase I standard, the EP is required to identify “data gaps” or information that is required to be reviewed as part of the Phase I but was unavailable.  Under the current standards an EP is only required to identify data gaps.  One change being considered is to require the EP to explain how a data gap may impact the ability of the EP to evaluate whether the subject property may be impacted by release(s) of hazardous substances.

Treatment of PFAS Compounds

The most important issue being addressed under the revised standards is how to treat per- and poly-fluoroalkyl substances (PFAS) or so called “forever chemicals.”  PFAS compounds are currently not regulated as “hazardous substances” under CERCLA and, therefore, would be considered out-of-scope under the current standards.  However, federal regulation of PFAS compounds is progressing and many states have already adopted drinking water standards for PFAS compounds.  Several options appear to be debated by the Task Group for how to treat PFAS compounds under the new Phase I standard:

    •  As discussed in the LightBox blog post, one possible option is to add language to clarify that because PFAS are not designated as “hazardous substances” under CERCLA and, therefore, PFAS compounds are not within the scope of the standard;
    • Another option discussed is whether evaluation of PFAS could be considered “in scope” (i.e. should be reviewed as part of the Phase I) if the subject property is in a state that regulates PFAS; and
    • Another option is to create a separate section, still considered non-scope, but the EP has the option of identifying possible chemicals of concerns, including PFAS compounds.

Due the ever increasing regulatory focus on PFAS, including numerous states establishing drinking water standards, prospective purchasers clearly face a liability risk associated with acquiring property with PFAS contamination.  Any Client interested in understanding the liability risk associated with purchasing a particular property should care whether there are indications PFAS contamination may be present.  Regardless of how the revised ASTM Phase I standard addresses PFAS compounds, this will be the most significant issue addressed under the revised standard.

Remember four years ago when newly elected President Trump promised to dramatically reduce Obama-era environmental regulations?  President Trump vowed to eliminate two existing regulations for every newly adopted regulation.  The Trump Administration argued that Obama era regulations added $1 trillion in additional costs on businesses.

However, what President Trump and many in the business community quickly learned is that it is much more difficult to undo regulations once they are on the books.  Perhaps the best example is the Waters of the United States (WOTUS) Regulation adopted by Obama Administration defining federal jurisdiction over wetlands and streams.  While President Trump immediately signed an executive order stating the Administration’s intention to rescind WOTUS, it took 3 1/2 years to revoke WOTUS and replace it with the Navigable Waters Protection Rule.

Now that the pendulum has swung back in favor of more regulation to protect the environment, the Biden Administration is likely to learn the same lessons.  While the Biden Administration may strongly dislike many of the regulations adopted by the Trump Administration, the Biden Administration will feel the same constraints on its ability to quickly unwind regulations.

APA- Process to Remove/Replace Existing Regulations

Older regulations must be revoked using the Administrative Procedure Act (APA), 5 U.S.C. Section 553,  which requires the following:

  • Proposed rule to revoke the adopted regulation:
  • A public comment period;
  • Final rule revoking the regulation;
  • Proposed rule adopting the new regulation (if there is to be a replacement);
  • A public comment period; and
  • Final rule adopting the new regulation

This the process the Trump Administration followed to unwind WOTUS and replace it with the Navigable Waters Protection Rule that took 3 1/2 yeas to complete.  Now, the legality of Navigable Waters Protection Rule is being challenged in a number of federal courts.

Congressional Review Act

Regulations adopted in the final months of the Administration are more vulnerable.  Perhaps the most powerful tool to unwind such regulations is the Congressional Review Act (CRA- 5 U.S.C. Section 801-808).  The CRA requires federal agencies to submit rules to Congress for review.  Under the CRA, Congress has the ability to revoke rules through a special joint resolution during the 60 day period following the rules submission to Congress.

While the CRA could be used to revoke rules enacted at the end of the Trump Administration, the process to adopt a special joint resolution is required for each rule to be rescinded.  Therefore, the process is time consuming.  The Republican controlled Congress in the first year of the Trump Presidency, used the CRA to revoke sixteen (16) Obama regulations.

Any Trump-era rules finalized after August 21, 2020 could be revoked using the CRA process.  With Democrat control of both the House and Senate, it is likely the CRA will be used to revoke some Trump-era environmental rules. The two most likely Trump-era environmental regulations that may be targeted by the CRA are the following:

  • Clean Air Act Cost-Benefit Analysis-  This controversial rule established procedural requirements, termed a benefit-cost analyses (BCA), governing the preparation, development, presentation, and consideration of the benefits and costs of new Clean Air Act regulations.  One purpose of the rule was to eliminate consideration of co-benefits associated with a new regulation.  New emission standards for a specific pollutant require new air pollution controls (targeted pollutants).  The new air pollution controls would also result in reductions in pollutants the regulation did not specifically target (non-targeted pollutants). Historically, EPA would consider benefits from reductions in both targeted and non-targeted pollutants.   The BCA was meant to prevent consideration of such co-benefits.  Removing consideration of co-benefits will make stricter regulations harder to justify.
  • Restriction on Relying on Scientific Studies with Non-Public Data-  This highly controversial rule prohibits the EPA from considering results from studies if the underlying data cannot be made publicly available.  Many health studies rely on confidential health data.  This Trump Administration rule prohibits EPA from relying on any study that relies on non-public data to justify new regulation.  Prior to the Trump Administration, EPA would rely on health studies with confidential health data to justify new federal air pollution standards or restrictions on emissions.  This regulation was also designed to make it more difficult to justify stricter regulations and pollutant standards.

The clock is already ticking on the ability to use the CRA.  We will see shortly how the Democrat controlled Congress elects to strategically use the CRA to unwind Trump-era regulations, including the two highly controversial regulations discussed above.

After taking three years to wind its way through the Ohio General Assembly, Senate Bill 39 may pass out of the Legislature by the end of the year.  The Bill would create a “Transformational Mixed-Use Development” (TMUD) tax credit.  The TMUD tax credit provides a 10% tax credit for documented development costs.  If the project is certified as eligible, the property owner can sell or transfer the rights to the tax credits to insurances companies.  The insurance companies can use the credit to offset premium taxes paid by the insurance company to the State of Ohio if the companies invest in major, mixed-use developments.  The tax credit will help developers raise upfront money to help fund their project.

The bill was most recently amended by the Ohio House of Representatives’ Workforce & Economic Development Committee.  Under the amended legislation, only certain types of projects would quality:

  • Transformational- Will have a transformational economic impact on the development site and the surrounding area.
  • Mixed use Project- Integrates some combination of residential, retail, offices, recreational and/or structured parking;
  • Cost of the Project- If located in a major city (population greater than 100,000) then the project costs must exceed $50 million dollars;
  • Size of Major City Projects- If the project is located in a major city, then the project must include one new or previously vacant building that is fifteen or more stories in height or has a floor area of at least 350,000 square feet, or after completion will be the site of employment accounting for at least $4 million in annual payroll, or including two or more buildings that are connected to one another, are located on the same parcel or on contiguous parcels, and that collectively have a floor at least 350,000 square feet;
  • Size of Non-Major City Projects– If the project includes one new or previously vacant building that is two or more stories in height or has a floor area of at least 75,000 square feet or two or more new buildings that are located on the same parcel or on contiguous parcels that collectively have a floor arear of at least 75,000 square feet;
  • Tax Benefits Outweigh the Cost of Tax Credits- Developer must demonstrate that the state and local taxes that will be gained (versus no development) from when the project is certified to five years after completion of the project (called the “completion period”) will be greater than 10% of the development costs (amount of the tax credit).

The TUMDs end after June 30, 2023.  The TMUD tax credits are capped at $100 million per fiscal year from 2020 through 2032.  Each project is capped at no more than $40 million of estimated tax credits.

Up to $80 million of the credits can be located in or near a major City. The remaining $20 million in tax credits are reserved for project outside of Ohio’s major cities.

If the State receives applications for more than $80 million in tax credits for projects located in or near major cities, then the major city projects will be ranked in order.  If applications exceed $20 million for projects which are not in a major city, then the State will rank the non-major city projects against one another.  In ranking the projects under each category (major city and non-major city) the State will use the following criteria:

  1. The increase in tax collections during the completion period as a percentage of the total of tax credits that would be allocated to the project;
  2. The impact of the project in terms of architecture, accessibility to pedestrians, retail entertainment and dining sales, job creation, property values, and connectivity;
  3. How quickly the project will be completed.

After approval the project, within twelve (12) months the developer must provide the State with an updated schedule for the completion of the project and demonstrate construction on the project has begun.  If the developer fails to make the proper demonstration within twelve months, the TMUD tax credit will be rescinded.

Passage of the TMUD tax credit before the end of 2020 is critical for Ohio

Prior to the global pandemic, one of the most significant development trends was the “back-to-the city” movement by young people.   Not just large cities saw a huge increase in the popularity of urban living. Smaller cities like Cleveland and Columbus were experiencing it as well.  Cleveland saw transformation of historical office space into apartments and condominiums.  The desire by young people to live downtown also created a gravitational pull attracting businesses to move back into the city.

Then COVID-19 occurred forcing many businesses to have employees work from home.  Much has been written about how the pandemic may have the unforeseen effect of eliminating biases employers historically held toward having its employees work from home.  In fact, working from home has been hailed by some commentators as the trend of the future.

With today’s technology, businesses have seen that in many cases workers can be just as productive working at home.  One estimate said that 40% of US workers (largely from the higher educated quartile) can do their jobs from home.  In light of the recent trends, many businesses are evaluating current leases for expensive downtown office space and considering reductions or elimination of space.

Even if some of these forecasts regarding the work from home movement overshoot the mark, there is likely to be a near term chilling effect on urban development in Ohio.  In addition, Ohio’s economy will likely take time to recover from the serious blow COVID dealt.  Ohio’s major cities are already facing significant budget shortfalls from the economic downturn brought on by the pandemic.

In 2021, Ohio will be looking to jump start its economy and breathe new life back into its cities. Spurring interest in urban development through new major incentives, such as the TMUD tax credit, is exactly what Ohio needs to do in order to invest in its cities, combat urban sprawl and restart its economy.

The Trump Administration’s Navigable Waters Protection Rule (NWPR) went into effect on June 21, 2020.  The NWPR greatly reduces federal jurisdiction over both streams and wetlands.  Most significantly has been the impact to ephemeral streams (i.e. streams that have water only when it rains or there is snow fall).

However, even intermittent streams have less protection.  Under the NWPR intermittent streams must flow “continuously during certain times of the year…”  Therefore, not all intermittent streams are protected under the Clean Water Act.

EPA estimates that 58% (some 207,476 miles) of streams are ephemeral or intermittent (headwater) streams that contribute flow to surface water used for drinking water.   A large portion of these streams are no longer protected under the Clean Water Act.

Those supporting the NWPR point to the clarity the rule provides after decades of controversy involving the extent of federal jurisdiction under the Clean Water Act.  Supporters also note that the NWPR strikes the right balance of cooperative federalism allowing the states to regulate “traditional state waters” such as headwater streams.

In the months after NWPR was finalized responses in the various states has been mixed.  Some states had laws that already protect so called “isolated” streams (i.e. streams that are not federally regulated).  However, many states didn’t have permitting programs in place that could accommodate the massive influx of permits needed for projects impacting isolated streams.

Other states still don’t have laws that protect so called isolated streams.  In these sates, isolated streams have no legal protection.

Thirty-Six (36) States Place Restrictions on Protecting Isolated Waters

How many states do not protecting isolated streams under their state laws?  This is not entirely clear.

A study performed by the Environmental Law Institute back in 2013 found that roughly 36 states have state law imposed restrictions on being more stringent than the Clean Water Act.  The restrictions could include: prohibiting a state from being any more stringent than federal law; property right limitations; or a combination of both.  Thirteen (13) states have absolute prohibitions against being any more stringent than federal law.  Such laws, unless repealed, would prohibit a state agency from enacting rules or taking administrative actions to protect so called isolated streams.

In 2013, ELI found the following states do not regulate waters more broadly than the Clean Water Act and have state law limitations on doing so: AZ, AR, CO, DE, ID, IA, KS, KY, LA, MS, MO, MT, NV, ND, OK, SD, TX, UT, WY (a total of nineteen states).  It is worth noting that it is possible that there have been changes to state law in these state since 2013.

Ohio

Ohio EPA estimates that there are approximately 36,000 miles of ephemeral streams throughout Ohio. Existing Ohio law protects isolated streams.  However, Ohio EPA did not have a permitting mechanism for isolated streams.

After the NWPR was published, Ohio scrambled to put in place such a permitting mechanism.  On June 25, 2020, Ohio EPA issued the Ohio General Permit for Filling Isolated Wetlands and Streams.  Under the permit, Ohio EPA did not limit the linear feet of stream that could be impacted under the general permit, but the Director of Ohio EPA reserves the right to deny coverage for any proposed impact to ephemeral streams that would result in significant water quality impacts.  How Ohio would address projects needing individual permits due to the size of impacts is still unclear.

Washington State

Washington law protects isolated streams.  However, Washington did not have the permitting infrastructure in place to handle the large increase in permitting requests for projects impacting isolated waters.

Historically, Washington would use administrative orders as a “permit” to allow for impacts to isolated waters.  In 2019, of approximately 170 projects impacting waters only five (5) required administrative orders to allow for impacts to isolated waters.  With enactment of NWPR, Washington has said it is concerned it will be overrun with applications to allow impacts to isolated waters.

Colorado

In Colorado, the state legislature was working on a law to regulate isolated waters when the NWPR went into effect.  In Colorado, isolated waters were protected, but there was no permitting mechanism to allow for impacts to isolated waters creating, what the state referred to as, a “permitting gap.”

The State sought and obtained an injunction in federal court to block implementation of the NWPR Without an injunction, major projects in the state would be prohibited from moving forward with no state permitting program available to allow for impacts to isolated streams.  The federal district court in Colorado v. U.S. EPA et. al. (Civil Action No. 20-cv-1461-WJM-NRN) blocked implementation of NWPR in the State.

Most notably, the Court held Colorado was likely to win its challenge of the legality of the NWPR on the grounds that the NWPR is inconsistent with the Supreme Court decision in Rapanos v. United States.  The Court notes that the NWPR consciously adopts the Scalia plurality holding defining the extent of federal jurisdiction under the Clean Water Act.  The Court observes that five justices rejected Scalia’s interpretation of the extent of federal jurisdiction and, therefore, the Court is likely to find the NWPR unlawful.