REDEVELOPMENT UNDER STATE SUPERFUND LAWS
42 Risk Management 29, February, 1995
In the fourteen years since CERCLA, nearly all states have passed some form of state hazardous substance cleanup law, and the trend over the last five years is toward increased state activity in Superfund matters and increased federal accommodation of state concerns. There are 70,000 sites on state Superfund lists compared to 1,300 on the federal National Priority List (NPL). State Superfund program spending is about one-half billion dollars per year, not counting PRP expenditures. This article will review state Superfund laws, discuss provisions of state Superfund laws affecting property transfers, outline negotiation of cleanup standards and review new legislative initiatives to provide for redevelopment of contaminated industrial sites.
1. OVERVIEW OF STATE SUPERFUND LAWS
Forty-nine states now have a state Superfund law, but the nature of the enabling legislation differs. The laws range from copies of the federal statute to some highly imaginative attempts at improving on the federal pattern. A state Superfund program has the following elements:
- Authority to take emergency response or environmental remediation activity;
- Financing of staff, studies and remediation;
- Authority to compel PRPs to study sites or perform cleanup;
- State lists and cleanup standards.
Other elements of state programs differ between the states. Seventeen states allow citizen suits for corrective action, some allow for recovery of penalties and even fewer allow citizens to sue for damages. Fourteen states allow victim compensation through alternate drinking water supplies, and five permit suits for broader damages resulting from a release of hazardous substances. (An Analysis of State Superfund Programs: 50-State Study 1991 Update, US EPA Publication 9375.6-08B; Washington DC, December 1991; pp. 7-9, 29.)
About half of the states use a state priority list; these can be copied from the federal CERCLIS and NPL or developed independently. Each state uses different standards to determine eligibility for the list. Some states include petroleum product contamination, some classify sites according to cleanup priority and some states have developed a Hazard Ranking System procedure. Staffing and funding levels vary remarkably from state to state. In 1991 New Jersey had 800 people in site remediation programs, but Wyoming had one person in its Water Quality Division working on cleanups. Ten states have more than 100 people employed in state Superfund programs. Figure 1, Id.
The funding and staff devoted to state programs may significantly restrict activity in a state with very broad legal powers. Massachusetts had 460 positions authorized in 1991, but only 208 were filled. Funding sources can be federal grants, state general funds or state cleanup funds. In order of importance, states use hazardous waste fees, penalties, general appropriations, bond issues, taxes and cost recoveries. (Id. at p. 17.)
Federal Superfund liability is strict, joint and several, but many states have different standards. Strict liability is liability without fault - no negligence or intent need be proved. While thirty-six states use a strict liability standard, vigorous battles are being fought on the state and federal levels to make proof of causation an element of liability in order to limit liability. Six states provide for a proportional liability allocation. (James M. McElfish, Jr. and John Pendergrass, Reauthorizing Superfund: Lessons From the States; Environmental Law Institute; Research Brief No. 2; Washington, DC; December 1993; p. 15.)
The standard of judicial review also differs in state Superfund actions. Federal Section 106 Orders cannot be reviewed before they become effective, but many states allow pre-enforcement review or even require a hearing before a cleanup order can issue. Some states have gone beyond federal CERCLA/SARA in encouraging hazardous site cleanup, such as Pennsylvania's presumption that groundwater contamination within one-half mile of a Superfund site is presumed to have come from that facility. 35 P.S. § 6018.611.
B. Cleanup Standards
Cleanup standards are controversial because they define when a site must be cleaned up and when the cleanup is complete. Moreover, as cleanup standards become more strict, remedial costs increase. There is a difference in the legally required cleanup standards under federal programs. RCRA corrective action standards apply to hazardous wastes as defined in that statute. Listed wastes, characteristic wastes, and debris or soil mixed with hazardous wastes have national cleanup triggers and cleanup endpoints. Superfund laws cover cleanup of a much broader class of hazardous substances, and the cleanup standard is set case-by-case, without a uniform national standard, and requires Applicable or Relevant and Appropriate Requirements ("ARARs") be followed upon demand of a state.
The states use a great variety of cleanup standards: some follow federal Superfund or RCRA standards, some use risk assessment alone or in some combination, some use drinking water limits or water quality criteria, and others require cleanup to background levels. Background level is the ambient concentration of a substance in a particular location and is usually the most strict cleanup standard. Cleanup to background level is far more expensive than cleanup to a risk standard, and may not result in any measurable environmental or health improvement. Pennsylvania is one of the states that requires treatment to "garden of eden" standards for groundwater, and the agency recently abandoned background level as a soil treatment standard by publishing risk-based standards for soils. The Pennsylvania legislature is working to change the treat-to-background standard for groundwater, as discussed below.
Forty-two states refer to existing surface water quality or groundwater quality criteria in setting cleanup standards. Many state groundwater laws parallel federal drinking water standards - the Maximum Containment Levels (MCLs) and secondary MCLs - which are based on risk standards. However, modern surface water quality criteria are required to make discharges safe for aquatic organisms, which are substantially less tolerant of pollutants than humans. Therefore, aquatic life protection levels are far lower than the concentrations allowed in human drinking water. A cleanup to surface water standards can be as strict and expensive as a cleanup to background levels. Some calculated surface water quality criteria can be lower than measured background levels, and some are below detection limits. (Harry F. Klodowski, Jr., "Complying with Water Quality Permit Limits: The Role of Analytic Variability"; Journal of Environmental Regulation; New York; Spring 1993.)
Risk assessment levels are used to some extent in about forty states; some are numerical standards and others are set on a case-by-case basis. The level of risk specified ranges from 1 in 10,000 (104) to 1 in 10,000,000 (107) risk of an additional case of cancer. The risk assessment methodology ties the cleanup goal to risk of harm abated. The current trend is to include residential and industrial risk-based cleanup criteria in state Superfund statutes, and to move away from background or water quality limits.
2. LENDER LIABILITY PROVISIONS
A number of Superfund provisions are particularly important for lenders, including lender liability provisions, lien laws, and notice requirements. Banks have been found liable as owners of contaminated properties and as operators of polluting facilities. Thirty-one states have a form of lender protection law. Many states have tried to assist the financial community by providing regulatory guidance on activities that can be taken to protect a security interest, and how to foreclose on collateral without incurring owner liability. Many of the new state laws read very much like the vacated federal lender liability rule.
A. Liens and Superliens
A feature shared by all state and federal Superfund acts is a cause of action to allow the government to recover funds expended in remediation. A common but not universal feature in such acts is the creation of a lien in favor of the government against the property remediated, and perhaps other assets of the responsible parties.
SARA established a lien in favor of the United States for reimbursement for its response costs, damages to natural resources, and expenses for health studies. 42 U.S.C. § 9607(1). This lien may attach not only to the property remediated, but also to all real property rights belonging to a liable person. 42 U.S.C. §§ 9607(1)(1)(A) and (B). The federal lien is subordinate to liens accorded priority under state law, which usually accords priority to a lien in order of recording:
The lien imposed by this subsection shall be subject to the rights of any purchaser, holder of a security interest or judgment lien creditor whose interest is perfected under applicable State law before notice of the lien has been filed in the appropriate office ...designated by State law, in which the real property subject to the lien is located.
42 U.S.C. § 9607(1)(3). A remedial claim under CERCLA may obtain a higher priority over certain property if the Federal Priority Statute is triggered. 31 U.S.C. § 3713. See also, U.S. v. Vertac, 671 F. Supp. 595, 620 (E.D. Ark. 1987).
While lenders are rarely fond of competing liens, the existence of a senior lien is often a compelling reason to refuse to make the loan, or at the least to charge a higher rate of interest to compensate for the increased risk. Under a Superlien provision, a lien to repay the government for remediation is given seniority over other liens, even though the government did not record its lien until after the other liens, and indeed even though the government's lien may not have even arisen until after the other liens were recorded. Twenty-three states have lien laws, but only eleven have superpriority lien laws. Some superpriority liens only pertain to the property which has been decontaminated.
B. Notice and Disclosure Laws
A number of states have Superfund provisions directly affecting property transactions, including four states that require an assessment and cleanup before a real estate transaction. (New Jersey, Connecticut, Indiana, Louisiana). Sixteen states have laws requiring that hazardous disposal or the presence of hazardous substance be disclosed in a deed when a property is sold, and roughly sixteen other states have other methods of giving a purchaser notice of a contaminated property or transfer.
C. Recording and Disclosure Statutes
Eight states require information disclosing that property that has been or is being used for disposal or storage of hazardous substances be recorded with the recorder of deeds. Federal RCRA and all state RCRA program regulations require the owner of property used as a hazardous waste disposal facility to record that information in the deed. 40 C.F.R. § 264.119(b)(1), 1989. In three states (Indiana, Iowa, and West Virginia), the recording statute is triggered by a proposed transfer of the property, and in five states (Louisiana, Michigan, Missouri, New York, and North Carolina), recording is triggered by the presence of hazardous materials or the listing of the property as a hazardous material site.
Ten states require the seller to disclose information about the presence of hazardous materials on the property or the use of the property for activities involving hazardous materials. In California, any owner of a non-residential real estate property interest who knows or has reason to believe that a hazardous substance is located on or beneath the property, is required to notify, in writing, each buyer of the condition of the property prior to the sale of the property. Lessees of residential and non-residential property are required to give notice to the property's owner of any release of a hazardous substance on or beneath the property. Failure to give notice can subject the seller to liability for damages and civil penalties. Sellers of real property consisting of one to four dwelling units must disclose whether they are aware of the presence of any substances, materials, or products which may be an environmental hazard.
Connecticut requires anyone transferring ownership in a business that generates more than 100 kg of hazardous waste per month or which stores, handles, treats, transports, or disposes of hazardous wastes generated by another to certify to the transferee and the state that wastes on site are being properly managed or that the waste will be cleaned up in accordance with an agency - approved schedule. The requirements also apply to all dry cleaners, auto body repair shops, painting shops, and furniture stripping facilities operating after May 1967.
D. Duty to Clean Up Prior to Property Transfer
Four states, Connecticut, New Jersey, Indiana and Louisiana, require the seller to either clean up the site prior to transfer of real property or to obtain an approved cleanup plan prior to transfer of real property. Connecticut requires the owner to certify that there has been "no discharge, spillage, uncontrolled loss, seepage or filtration of hazardous waste on-site, or that any such discharge . . . has been cleanup up in accordance with procedure approved" by the state and that "any hazardous waste which remains on-site is being managed in accordance" with the law. If the owner is unable to submit a negative declaration, the transferee or any other party to the transaction must certify that the property will be cleaned up to the extent necessary to protect human health or the environment pursuant to an order, stipulated judgment or consent agreement approved by the state.
New Jersey requires any industrial establishment closing, selling, or transferring operations to submit either a negative declaration or a cleanup plan for the site prior to completing the transaction. The state must approve the negative declaration or the cleanup plan before the transaction may be completed and the owner or operator must supply financial security sufficient to guarantee performance of any cleanup plan. In the event of a false negative declaration, or completion of the transaction without prior state approval, the transaction may be voided by the state or the transferee.
3. NEGOTIATING CLEANUPS
The goal in negotiating the cleanup of a release of a hazardous substance is to meet standards, that is, comply with laws and protect human health and the environmental, at the lowest total cost - considering treatment costs, project supervision, legal costs, and penalties. Usually the treatment is the largest element of the cleanup bill, and it usually makes sense to move a cleanup towards the highest possible cleanup standards. The project costs less when the cleanup target is high. A risk-based cleanup target is preferred. A risk-based standard, for example the drinking water maximum contaminant level, is likely to be 1,000 times higher than a detection level cleanup standard. The cost of treating to the background level goals is enormous, as is cost of operating a perpetual pump-and-treat system. Does the state use risk assessment methods for both soil and groundwater? Many states will now allow you to suspend groundwater treatment, on grounds of feasibility, if you can establish that the treatment system is no longer removing pollutants from groundwater, and many will now allow "institutional controls" in lieu of treatment.
The first step in negotiating a cleanup is to decide whether the contamination is properly classified in the regulatory system. Generally, RCRA cleanups are the most expensive, followed by Superfund, petroleum and voluntary cleanups. Soils contaminated with hazardous wastes are highly regulated under the state and federal RCRA programs. However, the RCRA rules are very complicated and agency and industry personnel frequently err in classifying materials as RCRA regulated wastes. Cleanups of "listed" wastes and debris are very expensive due to RCRA land ban requirements. For example, dirt contaminated with an "F-listed" solvent waste must be incinerated. A characteristic waste containing the same concentration of the same chemicals can be landfilled after treatment, at about 20% of the cost of incineration. If the same chemicals are found in soil from a leaking gasoline tank, the contamination is exempt due to the petroleum exclusion and can be landfilled without treatment, at a cost of about 5% of the cost of disposing the "listed waste."
The regulatory classification of the waste dictates costs other than offsite disposal. The proposed RCRA corrective action rules let you treat wastes onsite without a RCRA Treatment Storage Disposal (TSD) permit, which saves substantial permit, engineering and operational costs. The cleanup standard is also defined by the regulatory program. State hazardous waste programs often require cleanup to background levels; the federal RCRA and Superfund programs tend to use risk-based numbers. You should conduct your cleanup under the appropriate regulatory standard to identify the proper cleanup goal and minimize treatment and disposal costs. If you are able to use a risk assessment methodology, determine whether there are statewide presumptive risk standards or whether you can calculate site-specific cleanup standards. Examine the assumptions in the risk assessment model - the proposed use of the property (vegetable gardens and day care centers are not common in former steel mill sites), the cancer risk level (104 to 107), whether the compound is a carcinogen, how it migrates through soil and water, whether the contamination is old or new - all of these assumptions are all appropriate variables in the risk equation. A table listing common assumptions for a residential use risk assessment is attached as Table 1.
In choosing among the remedies which meet the threshold criteria, consider the following factors in evaluating remedies:
- long-term effectiveness
- permanence of the remedy
- the remedy's reduction of toxicity, mobility, or volume through treatment
- short-term effectiveness
- public reaction
Having determined cleanup goals and standards, a cost-effectiveness determination can be made by comparing the cost of alternative remedies that achieve cleanup goals and standards. In determining the cost of alternatives, it is important to consider both short-term and long-term costs - that is, the total costs of the remedy. For instance, although it may be cheaper in the short-term to excavate contamination from only a limited portion of a site, the overall costs of the remedy may be more expensive in the long-term due to the need to operate and maintain an extended ground water treatment system that results from the decision to leave some contaminated soil in place.
Treatment or removal of contamination to the required levels is not always technologically possible or feasible. In these cases, most states now require the responsible person to do everything that can feasibly be done to clean up the site to meet the cleanup goals. Many factors determine whether it is feasible to attain the remedial requirements, including the degree or extent of contamination, removal or reduction that various technologies promise to achieve, the actual success of such technologies at other sites, the severity of the risk to the environment and humans posed by the contamination, the degree of protection achieved at the site after remediation, and the costs of various technologies. In situations where it is not feasible to remove or treat contamination to an acceptable level, the use of institutional or engineering controls is now possible in many states. These controls include, but are not limited to, caps, fences, land use restrictions, and water use restrictions. Cleanup plans which include land use restrictions should incorporate appropriate deed restrictions.
4. REDEVELOPMENT LEGISLATION
There has been a recent movement to amend federal and state Superfund laws to encourage (or more accurately, "to discourage less") redevelopment of former industrial sites. Ohio, Connecticut and Tennessee have passed cleanup reform laws this year, and a number of other states are working to encourage redevelopment of industrial sites. Pennsylvania has been active in this area for two years and may pass a "Brownfields" law this year. EPA has used parts of Pennsylvania's proposed legislation in the administration's Superfund reauthorization bill. The elements of a "Brownfields" program are:
- Limit liability of innocent purchaser by excluding prior pollution and ending joint and several liability;
- Limit liability of lenders, development agencies and municipalities;
- Standardize site investigation and cleanup procedures; and
- Define cleanup standards.
In an attempt to avoid legislative veto of the state Groundwater Protection Standard requiring treatment to background levels, the Pennsylvania Department of Environmental Resources has published guidance documents on property assessment procedures, and methods for conducting cleanups and calculating cleanup criteria based on a risk-assessment model. The legislation would impose a three-tier cleanup standard and provide buyers with a "No Action Determination" when the cleanup standard is met. The three levels of cleanup are:
- Background, defined as analytically reliable measurement;
- Statewide health standards, including MCLs for water and EPA models for soil contamination;
- Site-specific standard based on a remedial investigation, risk assessment report and use of the site after cleanup.
No further remediation is required if the owner complies with one of the remediation standards. The re-opener provisions state that a person given cleanup liability protection can be liable in the future if false information is given to the agency, new information of toxicity on the site is discovered, or the remedy fails. In some cases, a re-opener may allow future work if technology which makes the cleanup significantly more feasible is developed.
State Superfund laws can have a great impact on future use of contaminated parcels, because there are so many sites. Efforts to speed the cleanup of these sites are occurring in many states