Congress does not often pass environmental legislation, so the passage of the Brownfields Utilization, Investment, and Local Development Act (BUILD Act) is noteworthy.  While the amount of federal funds available will still be far less than needed to move the needle, there are important changes to the law that will help facilitate brownfield redevelopment.  The most notable of these changes include:

  1. Protections for Local Governments-  Local governments will no longer trigger CERCLA liability as “owners or operators” by simply taking title to property through law enforcement activity, seizures, bankruptcy, tax delinquency, or other circumstances.  The big change is that the BUILD act removed the term “involuntary” as a qualifier for local government protection from CERCLA liability if it takes ownership of contaminated property.  This allows local government to be more proactive in taking ownership of brownfield to promote redevelopment without triggering CERCLA liability.
  2. Extends Bona Fide Purchaser Defense (BFPD) to Tenants- U.S. EPA has used enforcement discretion to extend BFPD to tenants.  The BUILD Act now formalizes that protection into the law.
  3. More Money- The Act more than doubles funding available up to $200 million each fiscal year through 2023 and additional $50 million per year for state response program funding;
  4. Expanded Eligibility-  Certain nonprofit organizations, limited liability corporations, limited partnerships and community development entities are now eligible to receive grant funding;
  5. Increases the Funding Limit-  Max grants were raised from $200,000 to $500,000;
  6. Eligibility of Administrative Costs- up to 5% of a grant can be used for administrative costs, not including investigation or identification of site, design and performance of response action, or monitoring of a natural response;
  7. Petroleum Contaminated Site-  Sites with petroleum contamination are eligible when there is no viable responsible property;
  8. Prioritizes “Clean Energy” and Waterfront Projects-  Projects that involve clean energy or are located on the waterfront will receive more points when scoring applications thereby prioritizing these projects.

While each of the improvements have benefits, the most significant are the expanded liability protections for local governments and tenants.  Allowing cities to proactively target and acquire property without fear of CERCLA liability is a major development that will help facilitate redevelopment.

As discussed in my prior post, in September Ohio EPA announced that it would be sending “hundreds of letters” to property owners that have trichloroethylene  (TCE) contamination, including property owners that cleaned up their property under the Voluntary Action Program (VAP).  At the September meeting of VAP professionals the Agency announced that it could take legal action against property owners with TCE contamination even if the property owner received a Covenant-Not-to-Sue (CNS) under the VAP (i.e. a legal release).

Since the September meeting many in the environmental community have questioned whether the Agency has undermined a cornerstone of the program- the ability to rely on a legal release through a VAP CNS that no additional cleanup would be required.  The Agency was careful to state it would not be reopening the CNS to apply the more stringent TCE VAP cleanup standard.  The Agency still agrees the VAP CNS locks in the cleanup standards once the CNS is issued (even if standards get more stringent for certain types of contamination based on the more up-to-date science).

The ability to lock in cleanup standards has always been viewed as one of the most significant incentives for submitting a VAP No Further Action (NFA) letter to Ohio EPA to obtain a CNS.   Without the ability to rely on the legal release, the VAP would provide very little incentive to make public information about levels of contamination at your property.

While the Agency said it would not reopen a CNS issued under the VAP to apply the more stringent TCE cleanup standard, the Agency also said it has an obligation to protect public health and the environment.  The Agency indicated it has separate legal authority, outside the VAP program, to take action at properties it believes present a threat to public health and the environment.  The Agency stated it could perform cleanup itself and recover its costs under this separate legal authority if property owners refused to do anything more to address TCE at their sites.

Legal End Around?

While Ohio EPA says it would not reopen VAP covenants to apply more stringent cleanup standards, it said it could use other legal authority to take action to address TCE.  Most property owners won’t care which legal authority the Agency utilizes. Most will be upset that they are being told to perform more investigation or cleanup after they thought they had met all their obligations.

Does this the Agency’s recent announcement weaken the VAP program?  It certainly diminishes the incentive of entering the program.

For years, many outside attorneys and consulting firms have advocated simply cleaning up the property to VAP standards and obtaining an NFA, but electing not to submit the NFA to Ohio EPA to obtain a CNS.  What are the perceived advantages to this approach:

  • Meeting VAP standards provides a technical argument that the property does not present a threat to public health or the environment;
  • While not a legal release, the Ohio EPA or U.S. EPA would have a much more difficult time taking enforcement against a property that is deemed protective of the public health or the environment (as indicated by issuance of the NFA);
  • By not submitting the NFA to Ohio EPA all sampling data can remain confidential.  No information will be accessible by the public regarding the condition of the property; and
  • By not submitting the NFA, the owner avoids the costs associated with Ohio EPA’s review of a CNS

While there are advantages to not submitting an NFA to obtain a CNS, these must be balanced against the limitations of such an approach:

  • The CNS still locks in cleanup standards.  Obtaining only an NFA leaves the property open to application of more stringent cleanup standards;
  • A CNS still provides a much stronger legal defense against EPA enforcement for cleanup
  • A property with a CNS is more easily transferred to a new owner because the property still has a sign-off from the Ohio EPA that the property meets standards;
  • Financing is more easily obtained for a property with a CNS versus an NFA; and
  • While the VAP is self-implementing, it is very common for VAP Certified Professionals and Ohio EPA to disagree over whether the cleanup was sufficient.  Obtaining a VAP CNS provides the assurance the Agency signed off on the cleanup.

This laundry list of pro’s and con’s make this a complex decision for the property owner.  The recent announcement regarding notices to property owners holding a CNS with TCE contamination adds another factor to be considered.

The numbers don’t lie, the number of VAP CNS have gone down over the last few years.

VAP CNS Issued by Year
Year

NFA Letters
Requesting a CNS

CNS Issued Review Pending
2014 65 60 2
2015 33 33 0
2016 28 18 7
2017 to date 14 2 12

The cost and complexity of the program results in only a limited number of sites entering the property each year.  As has been discussed in prior blog posts, Ohio need to develop more options to address liability from pre-existing contamination to accelerate reuse of brownfields in Ohio.

While the Trump Administrations primary environmental agenda has been focused on deregulation, one area EPA Administrator Scott Pruitt has prioritized is Superfund (i.e. CERCLA).  Superfund is meant to investigate and cleanup the dirtiest sites in the country.  However, its long and complicated investigation, remedy selection and cleanup implementation processes have slowed cleanups to a crawl.  It is certainly a program much in need of an overhaul.

Administrator Pruitt created a task force to provide recommendations for improvement of the Superfund program.  The Administrator stated his goal was to "restore the Superfund program to its rightful place at the center of the agency’s core mission."  

The task force was given five goals:

  • Expedite cleanup and remediation;
  • Reinvigorate cleanup and reuse efforts by PRPs;
  • Encourage private investment to facilitate cleanup and reuse;
  • Promoting redevelopment and community revitalization; and
  • Engage with partners and stakeholders.

Ideas were evaluated in each of these areas.  The Administrator notes that some of the 42 strategies recommended will take time, including rule changes.  However, he identified strategies that he has directed the task force to immediately implement, including::

  1. Take immediate action at sites where the risk to human health are not fully controlled;
  2. Use interim or removal actions more frequently to address immediate risks;
  3. Prioritize sites for Remedial Investigation and Feasibility Studies (RI/FS) that require immediate action;
  4. Identify contaminated sediment or complex groundwater sites where adaptive management can be implemented;
  5. Evaluate redevelopment potential for NPL sites;
  6. Track remedy selection in real time with Superfund Enterprise Management Systems;
  7. Focus resources on NPL sites with most reuse potential;
  8. Identify sites for PRP-lead cleanup to spur redevelopment;
  9. Submit the total indirect costs charged to PRPs for 2016 and 2017
  10. Encourage PRPs to work with end users to voluntarily perform assessment and cleanup to spur redevelopment;
  11. Use purchase agreements for potential Bona Fide Prospective Purchasers outlining their actions necessary to preserve their BFPP status;
  12. Use unilateral orders against recalcitrant PRPs to discourage proactive negotiations of response actions; and
  13. Maximize deletions and partial deletions of sites that have been cleaned up.

For the task force’s full report click here.

What can we learn from the List of Priority Items?

Vapor Intrusion 

The most immediate take away is that sites that present vapor intrusion risks to on-site or adjacent property owners will be a priority.  In the last five years, vapor intrusion has become a major focus of both U.S. EPA and State EPA’s.  

The vapor intrusion pathway is often seen as the most immediate and direct public health threat presented by sites.  Therefore, it is logical to assume that and Superfund sites that present vapor intrusion risks will be prioritized.  Based on the strategies outlined above, it is very likely that we will see an increase in the use of unilateral enforcement by the EPA Region’s to address vapor intrusion risks.  

Slow Moving Sites

The task force has targeted sites that have taken "far too long to remediate."  The task force will establish a "Administrator’s Top Ten List" that will get weekly attention.  Sites that have been on the NPL for five years or longer without "significant movement" will be reviewed.  

Unfortunately, without a major overhaul to the National Contingency Program (NCP) which governs Superfund, the report and recommendations are highly unlikely to result in significant acceleration of cleanups.

Sites with Redevelopment Potential

Several of the Administrator’s recommendations focus on targeting sites with redevelopment potential.  For these sites it is possible that the Agency will be more flexible to voluntary cleanup programs that could put land back into productive use more quickly.  Following the traditional long and drawn out investigation, remedy selection and implementation will not put property back into productive use quickly.

EPA has shown greater flexibility toward accepting state brownfield voluntary cleanup programs.  The focus on redevelopment by the task force provides an opening to PRPs and developers to, perhaps, leverage greater acceptance of these state voluntary brownfield cleanup programs. In reality, leveraging state voluntary cleanup programs may be best opportunity to accelerate cleanup at Superfund sites.

On August 24th, Ohio EPA released new guidance that incorporates an unprecedented approach to vapor intrusion.  Under the new guidance, Recommendations Regarding Response Action Levels and Timeframes for Common Contaminants of Concern at Vapor Intrusion Sites in Ohio, the Agency is for the first time demanding immediate action when contaminant levels exceed certain established "trigger levels."  In the case of one particular contaminant, trichloroethylene (TCE), the Agency expects action within days if the associated trigger levels are exceeded.  The guidance, as outlined below, has major implications for businesses, property owners, consultants and attorneys.

The guidance establishes specific trigger levels for sub-slab and indoor air.  With regard to TCE, it establishes trigger levels for groundwater in addition to sub-slab and indoor air.  Groundwater or sub-slab exceedances will require immediate indoor air sampling.  If indoor air trigger levels are exceeded, immediate action is required in the form of installation of a remedy and/or notifying regulators.  The response times for exceedance of indoor air trigger levels are set forth below.

Response Times for Common Indoor Air Contaminants

Exceeds Indoor Air Risk Standard
Chronic Response Resample or install remedy within 3-90 days
Accelerated Response Coordinate with appropriate state, local and health authorities on response action

 

* Common contaminants include: vinyl chloride, tetrachloroethylene, chloroform, carbon tetrachloride and naphthalene

 

Response Times Specific for TCE

Exceeds Indoor Air Risk Standard
Accelerated Early and interim response actions evaluated within weeks
Urgent Response actions evaluated within days. Consider relocation of residents/occupants
Imminent Immediately contact state, local and public health officials.  Relocate residents/occupants

The Agency made the following public statement following release of the new guidance:

The Division of Environmental Response and Revitalization (DERR) has developed a memorandum on action levels and response timeframes for sites that are being investigated for vapor intrusion of trichloroethylene (TCE) and other associated chemicals. These actions levels and time frames are based primarily upon the short term exposures to TCE and the potential for cardiac malformations in developing fetuses. DERR developed this guidance in consultation with USEPA and use these risk levels and response times when conducting Ohio EPA lead investigations for the CERCLA and RCRA programs. This guidance does not have the force of law, but Ohio EPA recommends its use to outside stake holders, including the Voluntary Action Program (VAP), in evaluating the concentrations of volatile compounds in ground water, soil gas or indoor air in residences and commercial buildings.(emphasis added)

What is unprecedented about this new guidance is the requirement to take immediate action, within days in some cases, based upon risk based screening values.  Historically, vapor intrusion risks were vetted through sampling and analysis, a process that could take a year or more before cleanup was implemented.

Guidance on TCE

TCE is a very common metal degreaser.  As set forth above, the response timeframes for exceedances of TCE trigger levels are particularly aggressive.  Ohio EPA bases its urgent call to respond upon a specific evaluation of the risks of TCE exposure:

“In September, 2011, [U.S. EPA] updated the toxicity assessment for TCE which concluded, in part, that women in the first trimester of pregnancy are one of the most sensitive populations to TCE inhalation exposure due to the potential for fetal cardiac malformations. Because the key steps for cardiac development occur within the first 8 to 10 weeks of pregnancy, exposure to TCE during early pregnancy is of concern.”

To give some perspective as to the number of sites in Ohio that may have some level of TCE contamination, earlier this year, Massachusetts recently announced a TCE initiative in which it reviewed 1,000 closed cleanup sites across the State.  Ohio, a much larger and more industrial state, likely could have more TCE impacted sites. 

Implications of New Vapor Intrusion Guidance

The guidance has major implications for businesses/property owners, consultants and attorneys:

  • Property owners have increased liability risk, in particular if they are aware that trigger levels may be exceeded.
  • Through guidance and training sessions, Ohio EPA has pressured consultants to come forward with data even in instances when their clients may not want the information to be public;
  • It will be critical for attorneys to ensure adequate evaluation of vapor intrusion is included in Phase Is.  While it is a requirement to evaluate vapor intrusion risks under the current Phase I standard (ASTM 1527-13), inconsistencies persist among consultants in evaluation of vapor intrusion in their Phase I reports.
  • Where Ohio EPA has data and wants further evaluation of vapor intrusion risks, the Agency is notifying property owners they must take action or the Agency will proceed with sampling.
  • In early summer, Ohio EPA revoked portions of its prior vapor intrusion guidance that relied upon use of the Johnson & Ettinger model (a less conservative model than U.S. EPA Vapor Intrusion Screening Level (VISL) Calculator).  Ohio EPA still hasn’t been clear as to whether it will reopen previously closed cleanup sites that relied upon the Johnson & Ettinger model.
  • While the guidance states it does not have the force of law, EPA is taking action based upon the new guidance.  

 

On November 2, 2015, President Obama signed into law the Federal Civil Penalties Inflation Adjustment Improvement Act of 2015.  The law required all federal agencies to increase civil penalties with inflation. While there were previous requirements to increase civil penalties, the new law provides for more dramatic increases attributable to the following changes:

  • Requires adjustments annually instead of every four years as had been previously been required;
  • Institutes a "catch-up" period to increase penalties assuming the more accelerated schedule had previously been in place with a cap on total increases of 150% (which is quite dramatic)
  • Formula for the "catch-up" period is based on how much the October 2015 Consumer Price Index (CPI) exceeds the 1990 CPI (called the "cost-of-living multiplier")

The EPA promulgated the Civil Monetary Penalty Inflation Adjustment Rule to establish a schedule for penalty increases including implementation of the "catch up" provision.  The schedule began implementation on August 1st.  EPA described the purpose of the rule as follows:

The primary purpose of the rule is to reconcile the real value of current statutory civil penalty levels to reflect and keep pace with the levels originally set by Congress when the statutes were enacted.  

EPA’s Adjustment Rule includes the following increases (there are a range of potential penalties in the Adjustment Rule.  The ranges shown below are for some of the more common violations):

  • TSCA toxic substances violations – go from $25,000 per day to $37,000
  • RCRA-  from $25,000 per day to anywhere from $56,467 to $70,117 depending on the nature of the violation
  • Clean Air Act-  from $37,500 (set in 2009) to $44,539 for EPA administrative penalties and a maximum of $93,750 for penalties assessed by a court (the maximum increase of 150% allowed under the rule)
  • Clean Water Act- from $37,500 to anywhere from $44,539 to $51,570
  • ECPRA and CERCLA- from $37,500 to $53,907

To understand the specific penalty increases for particular violations of the statutes set forth above, consult Table 2 of 40 CFR Section19.4 of the EPA Civil Monetary Penalty Inflation Adjustments Rule.

While EPA still has discretion to seek less than the per day maximum civil penalty set forth in the Adjustment Rule, the rule shows an intent that penalties for environmental violations will be significantly larger even when EPA exercises is discretion.

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

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

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

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

Rethinking Ohio’s Incentive Programs

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

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

Rethinking Ohio’s Tools to Address Environmental Liability

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

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

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

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

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

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

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

This second post in the series discussing brownfield redevelopment in Ohio will provide an overview of the extent and nature of Ohio’s brownfield problem.  First, the post will discuss Ohio’s progress in spurring brownfield versus greenfield redevelopment.  Second, the post will provide an overview of public information regarding the number of brownfields in Ohio  

Urban Sprawl in Ohio

One issue discussed in Part 1 of this series was how failure to re-utilize urban core properties significantly contributes to the issue of urban sprawl.  The negatives of urban sprawl are well documented:  decay of inner urban areas, increase infrastructure costs, more traffic (and associated air pollution) and greater impact to wetlands and streams as development moves to greenfields.

How is Ohio doing with regard to urban sprawl?  Not well based upon an analysis performed in 2014 by Smart Growth America.  Here are the rankings of some of Ohio’s largest cities:

  • Cleveland 153
  • Cleveland 138
  • Toledo 117
  • Dayton 116
  • Canton 93
  • Akron 111
  • Cincinnati 166

Cincinnati Urban Sprawl Trends

A study performed by Smart Growth America of the Cincinnati region showed that during the time period of 1196-2005 the trends on brownfield versus greenfield redevelopment were as follows:

  • Thirty (30) businesses that expanded operations moved from transit accessible areas to areas without transit (i.e. out of the urban core);
  • Eight (8) business expanded within the urban core

This is a clear demonstration of the trends that the costs to redevelop brownfields pushes many businesses to expand or relocate to the suburbs contributing to Ohio’s urban sprawl issues.

Cleveland Urban Sprawl Trends

Some times a picture (or in this case a graphic) is worth a thousand words.  Here is a graphic that shows developed land in Cuyahoga County from 1948 to 2002:

 

 

 

 

 

 

 

 

 

It is worth noting that there may be a major shift in these trends due to the millennials preference for downtown living.  A recent study showed that 7 city centers outperformed their surrounding metros in the 2002-07 period, 21 outperformed the periphery in 2007-2011.  Certainly, that trend is evident right here in Cleveland where residential occupancy is above 97.8% with major new downtown residential developments planned.  

The major shift in living preferences creates a golden opportunity to accelerate brownfield redevelopment.  

How many Brownfields are in Ohio?

Ohio does not maintain a registry that provides a good inventory of all brownfield sites.  The most extensive registry maintained by Ohio EPA was referred to as the "Master’s Site List."  However, after a property owner challenged its listing on the MSL, it was determined Ohio EPA did not have the legal authority to maintain the list.  Ohio EPA stopped maintaining the list in 1999.

Currently, Ohio EPA maintains the Ohio Brownfield Inventory, but listing of properties is voluntary. Typically, properties are listed in order to qualify for some brownfield redevelopment incentives. Therefore, the registry does not provide a good estimate of the actual number of brownfields.

Public information is limited on brownfields.  A review of local studies and information from local officials and U.S. EPA reveal the following statistics which provide some insight into the extent of the brownfield problem in Ohio:  

  • 119 brownfields in Lucas County (1996 estimate);
  • An estimated 62% of real estate transactions in Lucas County are encumbered by environmental issues;
  • An estimated 25% of transactions in Toledo were abandoned due to environmental issues with an average job lost of 20 jobs per lost transaction;
  • An estimated 4,623 acres of brownfields are in Cuyahoga County;
  • 350 brownfields in Cleveland with an estimated 1,000 to 2,000 condemned structures
  • 40,000 acres or 14% of Cuyahoga County’s land was industrial at some point (Estimate by the Cuyahoga Planning Commission)

Statewide estimates on brownfields:

  • 417 Ohio sites are currently identified on CERCLIS (sites on or being evaluated for Superfund Listing)
  • Over 5,000 RCRA sites listed on US EPA RCRAInfo data base
  • 4,000 to 6,000 brownfield sites in Ohio (as estimated by the Government Accounting Office)
  • U.S. EPA has a higher estimate- Over 10,000 brownfield sites have been inventoried by local governments according to testimony from Joe Dufficy (U.S. EPA) before Congress in 2005

Importance of Better Information on Brownfields

A strong case can be made that Ohio needs tools to create a better inventory of brownfields.  It’s current system of waiting for volunteers looking for incentives to list sites results in very limited information.  

A better inventory helps to inform public policy as well as better track progress in addressing brownfields.  Also, better information provides more public information regarding sites that have issues.

Some may argue that there should be a mandatory law requiring all brownfield sites to be listed. However, there are many issues with this concept.  Such mandatory laws discourage brownfield redevelopment or even gathering data regarding contamination on property.  This is the exact opposite of what Ohio needs to do if it wants to encourage more brownfield redevelopment.

A mandatory law exists in New Jersey and my colleagues familiar with the New Jersey market state it acts as a strong deterrent to gathering data regarding contamination as well as transactions.

A better system is one that offers strong incentives to voluntarily disclose information regarding conditions of property.  The final post in this series will discuss Michigan’s Baseline Environmental Assessment program which has been highly successful in gathering public information regarding the condition of contaminated property in the state while at the same time spurring brownfield redevelopment.

Two weeks ago I participated in the Ohio Brownfields Conference in Columbus, Ohio.  2016 marks the twentieth (20th) anniversary of Ohio’s Voluntary Action Program (VAP) which is implemented by Ohio EPA and is the primary regulatory program for cleanup of brownfields.  

To mark the anniversary, Ohio EPA encouraged presenters to reflect on the success of the VAP and other brownfield programs in Ohio.  Presenters were also encouraged to discuss ways to accelerate brownfield redevelopment in Ohio.  

Despite twenty years of the VAP as well as some of the best incentive programs in the country, Ohio has failed to get ahead of its brownfield problem.  I believe it is time to rethink some of the tools used to greatly accelerate brownfield redevelopment.  This three part series will cover the following:

  1. Review the Brownfield Problem-  Without looking at the issues created by brownfields it is impossible to properly design policies to address them.
  2. An Inventory of Ohio Brownfields-  The second post will discuss public information regarding the number of brownfields in Ohio.  
  3. Review Ohio’s Progress in Tackling its Brownfield Problem-  The second post will provide an overview of Ohio’s progress using tools like the VAP, Clean Ohio, JobsOhio Revitalization Program and brownfield tax incentives.
  4. New Strategy to Accelerate Brownfield Redevelopment–  The final post will provide recommendations for ways to better utilize incentives, streamline regulatory cleanup and better address public health issues.

OHIO’S BROWNFIELD PROBLEM

What causes brownfields to occur?

Two primary forces create brownfields- market forces and fear of environmental liability.  

MARKET FORCES

  • Expansion of business-  businesses looking to expand in urban areas often find the cost of expansion significantly higher to expand in onto neighboring property versus moving to a greenfield.  One study in Ohio found the cost of developing on a brownfield property four times higher then the cost of building on a greenfield. 
  • Closure/Relocation/Consolidation of Businesses-  Businesses close for a variety of reasons. One of the hardest hit sectors has been manufacturing.  When these businesses close they often can leave behind contaminated sites.  
  • Lower Tax Rates or Incentives-  Businesses can also be lured away by either lower tax rates or incentive packages.
  • Moving to a "Better Area"- Some businesses also move because of the decay of the urban areas where they are located.  

 ENVIRONMENTAL LAWS

  • Liability-  Expansive liability provisions in environmental laws also act as a strong impediment to businesses choosing to expand on a brownfield. The law with the broadest liability provisions is CERCLA (Superfund) which contains provisions that make any "owner" liable for pre-existing contamination regardless if they created the contamination.  Many other environmental laws can also create liability concerns as well (RCRA, underground storage tanks, TSCA, etc.)
  • Financing Considerations-  Banks understandably are concerned with the risk to their borrowers should they seek to redevelop a brownfield.  These concerns can translate into extensive due diligence requirements, more complicated financing or even refusal to finance certain projects.
  • Timing/Delays-  Navigating the complex environmental liability issues and addressing contamination under regulatory cleanup programs takes significant time.  Many businesses simply don’t have the time to address the issues presented by a contaminated sites.

What social issues and environmental issues do brownfields create?

SOCIAL ISSUES

  • Vacant Buildings-  Invite abuse, including stripping of parts, materials vandalism, arson and "midnight dumping." 
  • Unemployment-  Higher unemployment occurs when businesses leave areas and those areas become blighted
  • Urban Blight- Discourage investment and contribute to pervasive sense of poverty and hopelessness.
  • Infrastructure-  Investment shifts from urban core to suburbs.  As a result of urban sprawl, more infrastructure is needed to be maintained. 
  • Taxes- Revenue sources for cities to pay for services are reduced as jobs migrate away from urban core.

ENVIRONMENTAL ISSUES

  • Contaminated Sites-  Brownfields present public health risks from exposure to contaminants. Contamination can also migrate onto neighboring properties, discharge to surface water or create vapor intrusion issues.
  • Urban Sprawl-  Expanded development away from our urban cores results in more impacts to wetlands and streams.  Also, urban sprawl results in greater air pollution due to more vehicle miles traveled and less use of public transportation.

 

There has not been a lot of recent case law applying the CERCLA Bona Fide Purchaser Defense or Innocent Landowner Defense.  Every time a new case emerges it is picked apart by the environmental bar trying to discern the value of the CERCLA defenses as well as pitfalls that will result in failure to establish the defense. 

The latest case is Viola Coppela v. Gregory Smith (Case No. 11-cve-01257-AWI-BAM, E.D. Cal., Jan 15, 2015).  The case involved contamination from dry cleaners.  Plaintiff owned a dry cleaner facility.  In 2011, the State of California issued an order requiring plaintiff to investigate and remediate contamination from its dry cleaner.

Defendant, Martin and Martin Properties, LLC ("M&M") owned a commercial center in close proximity to Plaintiff’s property.  As it turns out, a former dry cleaner operated on Defendant’s property from 1959 to possibly 1971.

Plaintiff learned about the former dry cleaner on Defendant’s property likely because it was listed on CERCLIS (a federal database of properties that are suspected to have contamination).  Defendant’s listing on CERCLIS was due to a 2006 investigation performed by the State of California .  In 2009, a site investigation was performed which did detect low levels of PCE in the soil.  EPA determined that no further cleanup was needed due to the low levels.

Once Plaintiff learned of the investigation of Defendant’s property it likely believed it had an opportunity to claim releases from Defendant’s property migrated onto its property.  Therefore, Plaintiff asserted Defendant should share responsibility in cleaning up its property.  This is very common with regard to dry cleaners and gas stations (i.e. parties try to deflect blame by pointing to historical releases that may have occurred on neighboring property).

Plaintiff sued Defendant under CERCLA as well as brought common law claims.  Defendant asserted the Innocent Landowner’s Defense under CERCLA.  The defense allows parties to avoid CERCLA liability if it did not contribute to contamination, conducted proper due diligence prior to purchase and exercised due care with any contamination found.  The burden is on the party asserting the defense to establish it is entitled to the liability protection provided by the defense.

Court’s Analysis of the Innocent Landowner’s Defense

M&M moved for summary judgment on Plaintiff’s CERCLA claim alleging to be an "innocent landowner."  M&M alleged prior to its purchase it had performed the following due diligence activities:

  • Reviewed prior environmental reports prepared for the prior owner;
  • Conducted a physical inspection;
  • interviewed the seller, neighboring business owners, and financial consultant’s regarding the properties prior use

Clearly, the level of due diligence exercised by M&M would not be adequate under current standards (ASTM 1527-13). Defendant did not even retain its own environmental consultant to perform an independent review.  Rather, it relied on reports prepared for the prior owner- something not allowed under U.S. EPA current "All Appropriate Inquires Rule" (AAI) which recognizes ASTM 1527-13.

However, the property transfer took place in 1995- before U.S. EPA promulgated its AAI rule. Therefore, despite the fact Defendant’s level of due diligence was inadequate under current standards, the Court was willing to rule mostly in favor of Defendant, concluding some of the key elements for the "Innocent Landowner" defense were satisfied.  To establish the innocent landowner defense you must establish the following:

  1. The party acquired the property after the disposal or placement of the hazardous substances occurred;
  2. At the time of acquisition, the party did not know and “had no reason to know,” i.e. made all “appropriate inquiries” in accordance with customary “standards and practices,” that any hazardous substance was disposed of or placed at the facility;
  3. The party did not actively or passively contribute to the “release” of the hazardous substance; and
  4. Once contamination was found, the party exercised due care with respect to the hazardous substance concerned, took precautions against foreseeable acts or omissions of third parties and the foreseeable corresponding consequences, and acted in compliance with land use regulations and governmental responders.

The Court determined that M&M satisfied elements 1, 3 and 4.  With regard to element 2, the Court noted that the M&M did not hire its own consultant and simply relied on reports prepared for the benefit of the prior owner.  With regard to the issue of whether M&M exercised "all appropriate inquiries" (element 2) the Court refused to grant summary judgment.

Frankly, I’m surprised how far the Court went in finding in favor of Defendant on elements 1, 3 and 4. Furthermore, Defendant still has the possibility of establishing element 2.  At trial, Defendant could produce evidence that it was common in 1995 (prior to EPA’s AAI Rule) to rely on a prior owners environmental reports.  If successful, Defendant will still be entitled to the "Innocent landowner" defense.

I think the key takeaways from this case are the following:

  • Prior to EPA’s "All Appropriate Inquiries" Rule, Parties may have wider latitude to argue what was standard industry practice and the accepted level of due diligence;
  • After AAI, the party should make sure it follows ASTM 1527-13 or it is very unlikely a party will meet its burden in establishing the defense;
  • There is a lot of value to the defense to fend off exactly this type of litigation- a property owner in the vicinity with contamination on-site who is looking to deflect blame or try and offset their own costs; and
  • Courts may inclined to protect parties that showed genuine effort to perform proper due diligence prior to purchase.

 

One of the issues that has prevented local governments from being more aggressive in addressing brownfields has been liability concerns associated with existing environmental contamination.  Prior to 2009, some local governments learned the hard way that placing their name in the chain of title as an "owner" exposed the local government to liability under CERCLA (i.e. Superfund) or other environmental statutes. 

Ohio Passes Limited Environmental Liability Protection

Ohio attempted to address this gap in the law back in 2009.  Ohio Revised Code 5722.22 provides the following liability protection to County land banks:

R.C. 5722.22 Immunity of land reutilization corporation.
A county land reutilization corporation is not liable for damages , or subject to equitable remedies, for breach of a common law duty, or for violation of sections 3737.87 to 3737.891 of the Revised Code or Chapter 3704., 3734., 3745., 3746., 3750., 3751., 3752., 6101., or 6111. of the Revised Code or any rule adopted or order, permit, license, variance, or plan approval issued under any of those chapters in connection with a parcel of land acquired by the county land reutilization corporation.

This broad immunity provision appears to allow County land banks to assemble brownfield parcels without fear of exposing the entity to liability for pre-existing contamination.  However, what clearly is missing from the list of statutes in R.C. 5722.22 is a reference to CERCLA.  This is because a state cannot pass legislation that provides immunity from CERCLA, only Congress could create such an exception.   

Involuntary Acquisitions

Local governments are entitled to a liability defense if they acquire contaminated property involuntarily.  Pursuant to § 101(20)(D) of CERCLA, a unit of state or local government will not be considered an owner or operator of contaminated property (and thus is exempt from potential CERCLA liability as a PRP) if the state or local government acquired ownership or control involuntarily. This provision includes a non-exhaustive list of examples of involuntary acquisitions, including obtaining property through bankruptcy, tax delinquency, abandonment, or “other circumstances in which the government entity involuntarily acquires title by virtue of its function as sovereign."

While this provision is useful, there are times when a municipality or land bank would like to help facilitate brownfield redevelopment by proactively acquiring property.  In those circumstances, the local government will have to perform proper environmental due diligence just like any other buyer.

Municipalities and the Bona Fide Purchaser Defense

If a local government does not come into ownership of contaminated property involuntarily, it must proceed with caution in order to protect itself from liability.  In situations where a local government would like to acquire contaminated property voluntarily, it must act like a private party in order to establish CERCLA liability protection-  It must meet the requirements of EPA "All Appropriate Inquiries" (AAI) Rule in order to establish the Bona Fide Purchaser Defense (BFPD) to CERCLA.

EPA specifically identifies these steps in its CERCLA guidance document regarding local government acquisition of contaminated property:

While many abandoned properties that are of interest to land banks and redevelopment authorities are not likely to be contaminated, local governments should be aware that contamination and potential CERCLA liability may exist. A local government may increase the likelihood that the land bank or redevelopment authority is eligible for CERCLA liability protection by ensuring that the land bank or redevelopment authority conducts AAI prior to acquiring the property. Not only is AAI a critical requirement for obtaining most CERCLA landowner liability protections, but it also aids local governments in making informed property acquisition decisions. When acquiring abandoned contaminated properties, EPA encourages local governments to obtain BFPP status prior to acquisition if it is unclear whether other exemptions, affirmative defenses, or liability protections may apply. 

Under the BFPD, the local government must perform an ASTM 1527-13 compliant Phase I environmental assessment prior to taking ownership.  If potential contamination is identified, then the local government will also have to take "reasonable steps" to prevent exposures or stop ongoing releases of contamination.

County Land Banks Focus on Residential Property

Despite the environmental liability risks, some cities have been aggressive in attempting to manage brownfield properties.  Municipal land banks, such as the City of Cleveland Industrial-Commercial Land bank, have assembled and even cleaned up some brownfield sites. 

As discussed above, pursuant to R.C. 5722.22, County land banks have greater immunity from environmental liability pursuant to state statutes or common law.  Despite these protections, County land banks have been less proactive when it comes to brownfield properties.

Right now, County land banks are much more focused on addressing vacant residential properties. A current review of property held by the Cuyahoga Land Bank shows a long list of residential properties:

With the foreclosure crisis, its logical that County land banks would be focused on the residential property issue.  

However, the reason the Ohio General Assembly inserted the environmental immunity provisions contained in R.C. 5722.22 was to encourage land banks to address brownfield properties.  

County land banks that perform a limited amount of due diligence in advance of taking ownership (i.e. BFPD), coupled with the state immunity provision in R.C. 5722.22, can be powerful allies in addressing brownfield properties.  We need to see more examples of County land banks working collaboratively to facilitate cleanup and redevelopment of these properties.