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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 Program.  Many 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.

On June 16, 2020, Ohio Governor Mike DeWine signed House Bill 168, which provides greater flexibility to manage environmental issues on commercial/industrial property. The bill will take effect on September 14, 2020 (90 days after the governor’s signature).

What issue does H.B. 168 address?

The cost to clean up historical contamination at commercial/industrial properties has long been an impediment to reuse and redevelopment. This has been particularly true in Ohio where it is estimated there are approximately 10,000 properties with pre-existing environmental contamination.

In Ohio, the primary tool to address environmental contamination at commercial/industrial properties has been the Ohio Voluntary Action Program (VAP). While the VAP has been successful, in particular with regard to cleanup of industrial sites with heavy contamination, the VAP does not fit well with smaller or less-contaminated commercial/industrial properties. VAP issues and concerns include:

  • Slow Process: Many real estate deals need to be completed in a few months or less. It can take from 90 to 180 days just to complete the VAP investigation (i.e., VAP Phase II) of the property. A full cleanup can take one, two, three, or even more years to complete.
  • Costs:It can cost from $100,000 to $200,000 for a VAP Phase II investigation. Full cleanup can range from hundreds of thousands to millions of dollars. These costs act as a strong deterrent to entering the VAP program.
  • Complexity: With approximately 82 guidance documents in addition to 197 pages of rules, the VAP program is highly complex.

Due to these issues and concerns, since 1997 the VAP has been used to address about 650 sites – only a small portion of the estimated 10,000 sites in Ohio.

Gap in Ohio Law Left Developers and Businesses with Limited Options

In 2002, the United States Congress, through passage of the federal Brownfields Act, created the “Bona Fide Purchaser Defense” (BFPD) as an amendment to CERCLA (a/k/a “Superfund”) to encourage redevelopment of environmental contaminated property. Under the BFPD, a prospective buyer of property can establish a defense to environmental liability under CERCLA if the buyer performs environmental due diligence prior to purchase in accordance with U.S. EPA standards. The prospective buyer must not have any legal responsibility for the pre-existing contamination.

Following enactment of the BFPD, U.S. EPA adopted the “All Appropriate Inquiries” rule, which establishes the mandatory level of environmental due diligence a buyer must perform to qualify for the liability defense. If the due diligence (i.e., Phase I and Phase II assessments) identifies an ongoing release or risk to human health or the environment, the buyer must take “reasonable steps” to address those issues.

A key aspect of the BFPD is that “reasonable steps” does not mean full cleanup of the property. Rather, the goal is to make the property safe for reuse. In this manner, the BFPD offers a much more cost-effective means to putting brownfields back into productive use than do traditional full-blown cleanup programs such as the Ohio VAP.

Another benefit of the BFPD is that it does not require a formal application to EPA/Ohio EPA or regulatory signoff; therefore, the process can be completed much more quickly.

H.B. 168 Fills Gap in Ohio Law

While the BFPD exists to protect a buyer from liability under CERLCA – a federal law – for the past 18 years, it did not extend protection from liability under Ohio law. Prior to passage of H.B. 168, if a buyer performed “All Appropriate Inquiries” on an Ohio property, the buyer would receive no legal liability protection under Ohio law.

H.B. 168 fills this gap. It extends protection from liability under Ohio law for pre-existing “hazardous substances” contamination on property to buyers who take all the necessary steps to qualify for BFPD. By strengthening protections under the BFPD, buyers will have a greater incentive to reutilize commercial/industrial property in Ohio with preexisting contamination.

Prior to passage, the Ohio Senate amended the bill so that the state liability protections are retroactive to January 11, 2002, consistent with the 2002 federal Brownfields Act; therefore, prior due diligence that met federal requirements now qualify for the defense under Ohio law.

What Steps are needed to complete the BFPD?

Typically, five steps need to be taken in order to complete the BFPD process:

  • Step 1: Obtain an ASTM Phase I Environmental Assessment at least one year before taking ownership (after 180 days the Phase I assessment must be updated);
  • Step 2: If the Phase I assessment is “clean” (i.e., it identifies no issues), no additional due diligence is necessary. If the Phase I assessment identifies potential releases of contamination (i.e., “Recognized Environmental Conditions” or “RECs”), then, typically, a sampling the property should be performed (i.e., a Phase II environmental assessment);
  • Step 3: Perform Phase II either before or after closing on the property. The scope of sampling should be tailored to the issues identified in the Phase I;
  • Step 4: Based on the results of the sampling, a qualified environmental consultant will recommend “reasonable steps” to address any ongoing releases or exposures to human health/environment. Reasonable steps can include: limited soil excavation, maintaining parking lots or other barriers over soil contamination, steps to mitigate vapor intrusion into buildings, and other remedial measures. The reasonable steps should be incorporated into a “Continuing Obligations” plan to manage the environmental conditions at the site; and
  • Step 5: Implement the Continuing Obligations plan.

Depending on the complexity of the issues identified in sampling, the entire BFPD process typically can be completed in as little as 30 to 90 days.

H.B. 168 provides developers and businesses a more efficient and cost-effective way of addressing pre-existing contamination on property. It is important to note that every property with environmental contamination is different, and each presents its own legal liability considerations. You should consultant with an environmental attorney to choose the right strategy to address potential liability.

What action was taken to define the scope of federal jurisdiction?

On January 23, 2020, the Trump Administration released the final version of the Navigable Waters Protection Rule (NWPR), which defines which waters and wetlands are protected under the Clean Water Act. The NWPR replaces the Obama Administration’s “Waters of the United States” (WOTUS) rule. By finalizing the NWPR, the Trump Administration has completed the regulatory process launched two years ago.

The NWPR goes into effect 60 days after publication in the Federal Register, which occurred on April 21, 2020; therefore, the rule will become effective on June 22, 2020.

What is the significance of the action?

After more than four decades, the extent of federal jurisdiction under the Clean Water Act remains a contentious issue. The Clean Water Act prohibits the discharge of pollutants into “navigable waters” without a permit authorizing the discharge. The Clean Water Act defines “navigable waters” to be “waters of the United States,” a phrase which the Act does not define.

Following the 2006 decision by the U.S. Supreme Court in Rapanos v. United States, Justice Kennedy’s “significant nexus” test was used to determine which waters were jurisdictional (i.e., federally protected). Under the “significant nexus” test, any waters that, if impacted, could have a chemical or biological impact on navigable waters were deemed federally protected under the Clean Water Act. The process for determining whether streams or wetlands were protected involved a case-by-case evaluation by the Army Corps of Engineers.

The NWPR is intended to provide greater regulatory certainty than the “significant nexus” test by defining which waters and wetlands in the country are protected under the Clean Water Act. The Trump Administration’s NWPR takes a narrower view of the waters subject to federal jurisdiction than previous EPA interpretations.

For federally protected waters, businesses must obtain permits prior to discharging wastewater into such waters. In addition, before any development that impacts federally protected waters can occur, any person placing fill into either federally protected streams or wetlands must obtain a 404 permit from the Army Corps of Engineers along with a 401 water quality certification from the state or U.S. EPA.

What waters are federally protected under the NWPR?

The NWPR covers four categories of waters:

  1. The territorial seas and traditional navigable waters (i.e., waters currently used, waters used in the past, or waters that may be susceptible to use in interstate or foreign commerce);
  2. Perennial and intermittent tributaries that contribute surface water flow to navigable waters;
  3. Certain lakes, ponds, and impoundments that contribute surface flow to jurisdictional waters; and
  4. Wetlands adjacent to other jurisdictional waters. “Adjacent wetlands” is defined to mean any wetland that is connected to a jurisdictional water by (a) physically abutting the jurisdictional water, (b) inundation by flooding in a typical year from a jurisdictional water, or (c) physical separation from a jurisdictional water by a natural or artificial barrier.

Which waters are now excluded from federal protection?

The rule specifically excludes certain types of waters from regulation under the Clean Water Act, including the following:

  • Groundwater (although the very recent ruling by the U.S. Supreme Court in County of Maui v. Hawaii Wildlife Fund complicates this analysis);
  • ephemeral streams (streams that contain only water when it rains);
  • diffuse storm water runoff;
  • categories of road and farm ditches (ditches that are constructed to relocate a tributary can be jurisdictional);
  • prior converted cropland (drained or otherwise manipulated for agriculture prior to December 23, 1985);
  • manmade features for irrigation;
  • mining, construction, or other activities located upland of jurisdictional waters; and
  • wastewater treatment systems.

(85 Fed. Reg. 22,250, 22,251-22,252 (April 21, 2020).

Does Ohio law protect wetlands and waters that are not federally protected?

Yes. Ohio law also protects categories of waters that are not protected under the NWPR. Ohio Revised Code Section 6111.01(H) defines “Waters of the State” and includes:

  • “all streams, lakes, ponds, marshes, watercourses, waterways, wells, springs…” (Ohio EPA takes the position that “all streams” includes ephemeral streams that receive water only when it rains);
  • irrigation systems and drainage systems; and
  • underground waters (i.e., groundwater)

Based on this definition of “waters of the state,” more waterways – including wetlands, groundwater and ephemeral streams – are protected under state law even if they are not federally protected.

What is the process under Ohio law for obtaining a permit to impact “isolated wetlands”?

Ohio was one of the few states that passed separate legislation protecting so-called “isolated wetlands.” Ohio Revised Code Section 6111.02(F) defines “isolated wetlands” as “a wetland that is not subject to regulation under the Federal Water Pollution Control Act” (i.e., the Clean Water Act). Therefore, any wetland in the State of Ohio that is not protected under the Clean Water Act is protected under Ohio law.

Ohio Revised Code Sections 6111.021 through 6111.028 set forth the process for obtaining isolated wetland permits. Depending on the size of the proposed impacts and the quality of the wetlands to be impacted, Ohio’s Isolated Wetland Permitting program has different levels of review: Level 1, Level 2, and Level 3. The higher the level, the more complicated the process and the greater justification is needed for the impacts.

Ohio EPA announces new procedures for permitting impacts to so called “isolated streams.”

On May 7th, Ohio EPA held a webinar with industry and environmental groups to discuss the interplay between the NWPR and existing Ohio law. The focus of the webinar was the procedures Ohio EPA will utilize to permit impacts to “isolated streams,” which are principally ephemeral streams.

Ohio EPA stated that there are 36,000 miles of ephemeral streams in Ohio. Because ephemeral streams are considered a “water of the state,” a permit would be needed before temporarily or permanently impacting an ephemeral stream. Ohio EPA currently does not know whether the Army Corps of Engineers or Ohio EPA would decide if a stream is federally protected or an isolated stream.

Unlike isolated wetlands, Ohio EPA does not have a separate permit allowing impacts to ephemeral streams. On May 7, Ohio EPA announced it is considering using existing permitting authority to allow impacts to ephemeral streams beginning June 22 when the NWPR goes into effect, including:

  • NPDES Storm Water Construction Permit;
  • 401 Water Quality Certification if the project has separate impacts to federally protected waters; and
  • Isolated Wetlands Permit if the project will impact an isolated wetland (Ohio EPA announced that an Isolated Wetland General Permit will be released for public comment on May 8 and finalized by June 22)

Certain water features will not require a permit for impacts, including: agricultural drainage ways, roadside ditches, and grass swales. Ohio EPA did not answer how it will provide authorization for impacts to isolated streams if one of the above-listed existing permits is not utilized.

What will happen now that the long-awaited NWPR has been finalized?

On May 1st, 17 states sued EPA over the legality of the NWPR, asserting the rule excludes certain waters from federal protection that should be protected under the Clean Water Act. Previously, multiple environmental groups, including the Natural Resources Defense Council, the Conservation Law Foundation, and Defenders of Wildlife filed a separate challenge to the legality of the rule.

Similar to challenges to the WOTUS rule, court(s) may issue a stay of the effectiveness of the NWPR until the legal challenges are resolved; however, without a stay, the NWPR will become effective on June 22.

What do you need to know for projects or discharges to Ohio waters or wetlands?

With the finalization of the NWPR, fewer waterways and wetlands will fall under federal jurisdiction; however, developers, landowners, and companies should evaluate any activities that may impact non-federally protected waters and wetlands and determine if such activities require an isolated wetland permit or separate permit authorization for impacts to ephemeral streams. Due to the complexities of using one of the existing permits suggested by Ohio EPA, a careful analysis should be performed before selecting a permitting strategy, especially for any impacts to ephemeral streams in Ohio.

 

 

On April 23rd, the U.S. Supreme Court issued a major ruling interpreting the breadth and scope of the Clean Water Act in County of Maui v. Hawaii Wildlife Fund.   The central issue was whether the Clean Water Act requires a permit when pollutants originate from a point source but are conveyed to navigable waters by a non-point source (in this case groundwater).  The Court ruled that a permit is required when such a discharge is the “functional equivalent of a direct discharge.”

Why is this decision noteworthy?

A source of ongoing debate over the scope of the Clean Water Act has been to what extent does the statute regulate discharges when they come into contact with groundwater?  The case at hand involved a wastewater treatment plant that discharges polluted water into the ground where it mixes with groundwater, which in turn, flows into a river or the ocean.  Does the wastewater treatment plant need a Clean Water Act permit?

Industry and the Trump Administration advocated for a narrow reading that “all releases of pollutant to groundwater” are excluded from the Clean Water Act (CWA) permitting program.  This would have resulted in a bright line test that a CWA permit is not required unless the point source directly discharges to a river, lake or the ocean.

Environmental groups argued that the 9th Circuit Court of Appeals got it right when it said a CWA permit is needed anytime a pollutant is “fairly traceable” to a point source discharge regardless of the time and distance the pollutant traveled before entering a navigable waterway.  Under the “fairly traceable” test, a CWA permit would be needed anytime a pollutant that enters a river, lake, or ocean could be traced back to a point source.

The Court found a middle ground with its “functional equivalent of a direct discharge” test.  The Court indicated that factors, which are discussed in more detail below, can used to determine whether a specific discharge triggers the need for a CWA permit.

In arguments before the Court, industry and the Trump Administration argued that anything other than the bight line test could lead to the requirement of CWA permits being required for 650,000 wells similar to Maui’s or the over 20 million+ septic systems used by homeowners.  As described in a Bloomberg article about the ruling, the reaction from some industry is that the ruling would be “devastating to industry.”

No doubt the ruling means more CWA permits will be required which means greater regulation of discharges to groundwater.  As discussed below, exactly how far the Court’s ruling extends will likely not be decided for years.

What are the factors that would determine whether a CWA Permit is needed for an indirect discharge?

The Court laid out several factors that lower courts can use to evaluate whether a specific discharge would trigger the need for a permit when there is an indirect discharge to a river, lake or ocean:

  1. Transit time
  2. Distance traveled
  3. Nature of material through which the pollutant travels
  4. Extent pollutant is diluted or chemically changed as it travels
  5. Amount of pollutants entering navigable waters (i.e. certain streams, rivers, lakes and oceans) relative to the amount of pollutants that leaves the point source
  6. The manner by or area in which pollutants enters navigable waters
  7. Degree to which the pollution (at that point) has maintained its specific identity

The Court indicated that the most important factors would be the time it takes for a pollutant to reach navigable waters and the distance traveled, but it provided very little clear guidance regarding the time and distance factors.

In its opinion the Court suggested that a distance of 50 miles from the point source before it reaches navigable waters may be too far to trigger a permit.  The Court also suggested that if pollution from a point source took 60 years to reach navigable waters, that would be too long.

Dissenting Justices Thomas, Gorsuch, and Alito criticized the majority for providing only vague guidance rather than a bright line test.  Questions remain as to how the factors will be applied.  For example, is 10 years, five years, one month, or one week too long to reach a navigable water?  Or, with regard to distance, what if the pollution has to travel five miles, one mile, or 300 yards?  Clarity on those questions won’t happen until there are additional lower court rulings regarding the “functional equivalent test.”

Why will this ruling will likely result in a lack of regulatory certainty and years of litigation?

In 2006, the Supreme Court issued Rapanos v. U.S. which is another landmark Clean Water Act decision.  In the Rapanos decision, Justice Kennedy established the “significant nexus test” to determine which streams and wetlands are regulated under the Clean Water Act.  Similar to the “functional equivalent” test, the “significant nexus test” was not a bright line test.  The “significant nexus test” significantly extended jurisdiction to streams and wetlands that were not adjacent to navigable waters if impacts to those streams or wetlands “affect the chemical, physical, and biological integrity of other covered waters understood as navigable.”

What ensued in the aftermath of Rapanos was years of litigation and two attempts by U.S. EPA to provide clarity through rulemaking to the “significant nexus test.”  Fourteen years later, the Trump Administration has enacted the latest rulemaking referred to as the “Navigable Waters Protection” rule. The Trump Administration rule will be challenged immediately as being inconsistent with the Clean Water Act and the Rapanos decision.

Similar to the aftermath of Rapanos, it is easy to see there will be years of litigation in the courts and efforts by U.S. EPA to define the “functional equivalent” test.

Why the ruling may not be good news for the Trump Administration’s environmental deregulatory agenda?

The Trump Administration has adopted a number of rules designed to reduce environmental regulation on industry.  Some of those recent rulemaking efforts were designed specifically to unwind Obama Administration environmental rules.

The Navigable Water Protection rule is one such example.  After signing Executive Orders early in the Administration, in 2020, the Trump Administration finalized the Navigable Water Protection rule which was designed to narrow federal jurisdiction over wetlands and streams.

A New York Times Article suggested that, as of end of 2019, there were 95 rules that the Trump Administration has targeted to reduce regulation of industry.  One may certainly find flaws with this analysis, but the Administration has been upfront that it believes there are too many environmental regulations on businesses.

In the County of Maui case, the Court noted that the Trump Administration had issued interpretative statement in 2019 that “all releases of pollutants to groundwater” are excluded from the permitting program.  Even though the Court noted that EPA guidance is entitled to deference, the Court ruled that EPA’s interpretative guidance results in a “loophole that defeats the statute’s basic purpose.”

Most noteworthy, two conservative Justices- Chief Justice Roberts and Justice Kavanaugh- sided with progressive Justices (Breyer, Ginsburg, Sotomayor and Kagan).  While Justice Kavanaugh in his concurring opinion suggests he was following Justice Scalia’s literal reading of the statutory language, he still disagrees with the position advocated by the Trump Administration before the Court that would have narrowly defined when a CWA permit is required.

There are multiple challenges to other Trump Administration rules working their way through the Courts.  The County of Maui case suggests a willingness by conservative justices to put some restraints on efforts to reduce federal environmental regulation.

Polyfluoroalkyl substances (PFAS)- used in non-stick applications such as cookware, paper packaging, and textiles, as well as in certain types of firefighting foam- have become the new asbestos, and  PFAS litigation has been filed in multiple states.  Both the federal government and state governments have been moving forward with significant new regulation of the PFAS compounds.  Summarized below are actions taken at both the federal and state levels to regulate PFAS substances.

Federal Regulation of PFOS and PFOA

  • Interim Cleanup Recommendations for PFOS and PFOA– On December 19, 2019, U.S. EPA established preliminary cleanup standards for CERCLA and RCRA cleanup sites; however, as the guidance documents makes clear in the first footnote on the memorandum, it is “not considered binding on any party.”
  • Safe Drinking Water Act (SWDA)- On February 20, 2020, U.S. EPA issued a preliminary regulatory determination under the SWDA for perfluorooctane sulfonate (PFOS) and perfluoroctanoic acid (PFOA).  EPA has proposed a standard of 70 parts per trillion as the maximum amount allowable in drinking water.  This is the first step in a lengthy regulatory process to establish “maximum contaminant level” (MCL) under National Primary Drinking Water Regulation.  MCLs   have two major regulatory impacts: 1) drinking water plants must treat finished drinking water below the MCLs ; and 2) MCLs become the default cleanup standard for groundwater contamination at most cleanup sites.  While EPA is taking this initial step, it could take four or five years before the MCLs are finalized between public comments periods and scientific justification of the new MCLs.
  • Certain PFAS Compounds Listed as Hazardous Substances under CERLCA– According to the National Law Review, EPA had committed to regulated PFOA, PFOS, and a PFOA-replacement chemical known as GenX as hazardous substances under CERCLA by the end of 2019;  however, EPA has not yet issued a proposed rulemaking.  Even if designated as hazardous substances, U.S. EPA would have to establish appropriate cleanup levels.  If EPA waits for finalization of MCL standards it could be years before cleanup standards are established; however, as discussed below, some states have moved forward in establishing their own MCLs.  In those states, once the PFASs are designated hazardous substances, state cleanup standards must be followed in CERCLA cleanups in those states.  In those states that adopt state specific MCLs, it will unlock CERCLA’s broad reach to recovery cleanup costs from companies that generated, transport or disposed of PFAS compounds.
  • Petition to Regulate as Hazardous Waste- On January 15, 2020, environmental groups filed a petition asking U.S. EPA to regulate certain PFAS compounds as a hazardous waste under the Resource Conservation and Recovery Act (“RCRA”).  If PFAS compounds were regulated as hazardous waste it would have huge implications for the generation, transport and disposal of PFAS waste materials.
  • Added to List of Reportable Chemicals- On December 4, 2019, EPA published a proposed rule for public comment adding certain PFAS compounds to the list of toxic chemicals subject to reporting under section 313 of the Emergency Planning and Community Right-to-Know Act (EPCRA).  One component of the proposed rule is whether the reporting threshold should be lowered from the typical thresholds of 25,000 lbs or 10,000 lbs depending on how the chemicals are used. On December 20, 2019, the National Defense Authorization Act added certain PFAS chemicals to the list of reportable chemicals pursuant to the Toxic Release Inventory (TRI) set forth in EPCRA Section 313.  Businesses should be tracking releases of these chemicals this year and will be required to report by July 1, 2021.
  • Import Regulation under TSCA– EPA is committed to using its authority under TSCA to evaluate new uses of PFAS.  On February 20, 2020, U.S. EPA issued a proposed supplemental significant new use rule (“SNUR”) under its TSCA authority.  A SNUR would require anyone seeking to import one of the listed  PFAS compounds to notify the EPA in advance.  EPA would then evaluate the risks posed by the proposed use.  EPA also recently developed a proposal to require notification and review under TSCA before PFAS chemicals are imported or manufactured in the U.S.
  • National Defense Authorization Act-  On December 20, 2019, the National Defense Authorization Act (NDAA) was signed into law.  NDAA automatically added 172 PFAS compounds to the EPA’s Toxic Release Inventory (TRI) which requires companies to report management of certain toxic chemicals. As a result of NDAA, facilities that manufacture, process, or otherwise use PFAS must report releases of these chemicals by July 1, 2021.  NDAA also requires all public water systems that serve 10,000 persons to monitor PFAS under the Safe Drinking Water Act.  While proposed, NDAA did not designate PFAS compounds as hazardous substances under CERCLA.

Ohio Action on Regulation of PFOS and PFOA

On December 2, 2019, Ohio EPA and the Ohio Department of Health issued the PFAS Action Plan for Drinking Water.  The plan includes the following steps:

  • The Ohio Plan calls for 1,500 public water systems to be sampled for PFAS compounds by the end of 2020.
  • While U.S. EPA moves forward with the slow process of establishing MCLs for PFAS compounds, Ohio EPA is using U.S. EPA’s non-binding Health Advisory Level (HAL) of 70 parts per trillion (ppt) for PFOS and PFOA.  Ohio EPA also will use action levels for four other PFAS compounds-  GenX compound (>700 ppt), PFBS (>140,000 ppt), PFHxS (>140 ppt) and PFNA (>21 ppt).
  • Ohio EPA and Ohio Department of Health will issue response protocols for public and private water systems that show exceedances of the HALs.
  • Ohio EPA will provide information on loans and technical assistance to public water systems on treatment for PFASs compounds.

As discussed below, other states have moved forward with the establishment of MCLs without waiting for U.S. EPA to finalize national drinking water standards.  As more states adopt standards, pressure will increase on Ohio to do the same, especially once it collects data showing contamination in public drinking water supplies above HALs.

Other States Adopt Drinking Water Standards

Many states have decided not to wait for EPA to move through its long rulemaking process to establish a national drinking water standard.  The following states have moved forward with adopted regulations establishing MCLs for drinking water in their states:

  • New Jersey proposed an MCL of 14 ppt for PFOA and 13 ppt for PFOS in drinking water
  • New Hampshire established an MCL of 12 ppt for PFOA and 15 ppt for PFOS in drinking water
  • New York proposed an MCL of 10 ppt for PFOA and PFOS in drinking water
  • Minnesota has established non-binding health advisories of 15 ppt for PFOS and 35 PFOA in drinking water
  • California established response levels of 10 ppt for PFOAs and 40 ppt of PFOS in drinking water
  • North Carolina proposed 70 ppt for PFOS and PFOAs in groundwater; 140 ng/l for Gen X compounds as a health advisory
  • Illinois proposed 14 ppt for PFOS and 20 ppt for PFOA in groundwater
  • Massachusetts proposed an MCL for drinking water at 20 ppt for six PFAS
  • Wisconsin has proposed a groundwater enforcement standard of 20 ppt for PFOA and PFOS
  • Michigan has proposed MCLs for seven PFAS compounds, including 8 ppt for PFOA and 16 ppt for PFOS
  • Colorado adopted the U.S. EPA health advisory standard of 70 ppt for PFOA and PFOS