Federal And State Brownfields Developments

Friday, April 1, 2005 - 01:00

It has been ten years since the Environmental Protection Agency (EPA) began its Brownfields program, and the initiative is as vital as ever. Thousands of contaminated sites across the country are now productive, revenue-generating properties. The 2002 Brownfields Act gave a new impetus to the program, requiring EPA to refine its definitions and providing grants for developing contaminated property. Additionally, many state initiatives have occurred in the last year that added new programs and expanded existing programs.

I. Federal Changes

Financial Legislation

In 2004 Congress extended through 2005 the Brownfields Tax Incentive, which had expired in 2003. The incentive allows environmental cleanup costs as fully deductible expenses in the year they are incurred. EPA estimates the tax incentive is expected to leverage $3.4 billion in private investment and return 8,000 brownfields to productive use.

The Consolidated Appropriations Act of 2005 temporarily expanded the number of brownfields sites eligible for funding under EPA's brownfields assessment, revolving loan fund, and cleanup grants awarded under section 104(k) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA). Only municipalities, tribes, and non-profits are eligible for the federal funding. EPA estimates that $80 million will be awarded in approximately 200 grants, if the funds are available.

All Appropriate Inquiries

Also in 2004 the long-awaited regulations for All Appropriate Inquiries were published in draft form. ( See 69 Fed. Reg. 52542 (Aug. 26, 2004).) The Brownfields Act provides liability protections for certain property owners, such as innocent landowners and bona fide purchasers, if the property owners conduct all appropriate inquiries into present and past uses of the property and the potential presence of environmental contamination on the property. (Until the rule is final, ASTM E1527-00 is the standard approved by EPA.) Additionally, the All Appropriate Inquiries rule must be met by brownfields developers to satisfy the site characterization and assessment requirements under the brownfields grant programs in CERCLA § 104(k).

The EPA standards are different from the ASTM guidelines, and some say more stringent. Under the proposed rule, a Phase I environmental site assessment must be conducted by an "environmental professional." A person is entitled to the status if he or she fits within any of four categories that balance professional experience and academic qualifications.

The Phase I review must include a visual inspection, interviews with current owners and occupants of the property, and if the property is abandoned, interviews with neighbors. The report must be current as of 180 days prior to the purchase. Most of the work must be done by the environmental professional, although certain tasks, such as searches for cleanup liens, may be done by others. However, the environmental professional must sign the report stating that he or she is a qualified environmental professional and that all appropriate inquiries were made "in conformance" with the regulations. See Brownfields Law and Practice § 4.04[1][b] (Matthew Bender).

The purchasers must also be involved in the Phase I report. To establish they are indeed innocent landowners, the owners must state that the purchase price reflects the fair market value for the property or account for the difference and must indicate whether they have specialized knowledge of the property.

The Aviall Decision

Another important federal action of 2004 was the U.S. Supreme Court decision in Cooper Industries, Inc. v. Aviall Services, Inc., 125 S. Ct. 577 (2004). See Environmental Law Practice Guide § 31.03[4][a] (Matthew Bender) for more details. This case will affect brownfields developers who remediate a site but are not innocent landowners. Under the decision, those developers who clean a site may not seek contribution from other responsible parties for the cleanup expenses unless the developers were subject to a state or federal civil action. This decision overturned the Fifth Circuit en banc holding that the language in CERCLA § 113(f) allowed the right of contribution even if no civil action had been brought, since to hold otherwise would be to penalize people who acted voluntarily.

The Supreme Court decision did not resolve all questions about recouping remediation expenses for a cleanup, however. The court deliberately refused to consider whether a cost recovery action (under section 107 of CERCLA) is available to potentially responsible parties (PRPs) who undertook cleanup voluntarily. The Fifth Circuit is considering that issue on remand. However, the District Court for the Southern District of New York already made its decision. In Elementis Chemicals, Inc. v. T H Agriculture and Nutrition, LLC, 2005 U.S. Dist. LEXIS 1404 (S.D.N.Y. Jan. 31, 2005), the court held that such relief was not available. A summary of the decision appears in 16 Envtl. L. in N.Y. (May 2005). In effect the voluntary remediator had no federal basis for suit to collect from other polluters.

Also left unresolved by the Court in Aviall is whether unilateral administrative orders trigger contribution rights.

II. State Changes

Several states have recently enacted brownfields legislation including New York (2003) and South Dakota (2004). Other states that have brownfields laws pending include Mississippi, Arkansas, Kentucky, and South Carolina. And still others like California, Maryland, Delaware, Florida and New Jersey advanced their programs with regulatory or statutory changes. Tax relief and innocent purchaser immunity are common features in state brownfield programs. Unlike the EPA grants program, the benefits are generally open to for-profit entities. State programs are discussed in Brownfields Law and Practice published by Matthew Bender.

California

California's Voluntary Cleanup Program oversees an average of 125 cleanups a year, but the state legislature found thousands of state properties needed redevelopment and expanded its brownfields law. The California Land Reuse and Revitalization Act of 2004 took effect January 1, 2005. See California Environmental Law and Land Use Practice, § 72.04[8] for more details. The Act creates exemption from liability for innocent owners, bona fide purchasers and contiguous property owners in what the state calls "urban infill" areas (vacant or underutilized property in populated neighborhoods). Superfund sites or properties that are listed by the state are not eligible. Neither are sites with petroleum spills from underground storage tanks. The law requires owners to make all appropriate inquiries into the property, using the state law definition of such inquiries, and to submit a site assessment plan for state approval. The immunity begins on the date the remediation agreement is signed. Even though the program is scheduled to sunset in 2010, the immunity will continue.

New York

The New York brownfields cleanup program was enacted in 2003 and amended in 2004. It provides extensive tax benefits to brownfields developers in addition to immunity. See "New York's New Brownfields/Superfund Legislation," 14 Envtl. L. in N.Y. 225 (Dec. 2003) (Part I) & 15 Envtl. L. in N.Y. 1 (Jan. 2004) (Part II). In 2004 New York received applications from the developers of several large projects who hoped to benefit from the brownfields program's very generous tax benefits. In several instances the property was only slightly contaminated, and the tax credits could significantly exceed the cleanup costs. These applications led to fears that the tax benefits could cost the state much more than anticipated. As a result, the state has resisted granting these applications and is considering restricting eligibility.

Environmental easements were created in the 2003 Act and the 2004 amendments require more specific details on recording the easements. The 2004 amendments also clarify the available tax benefits.

South Dakota

South Dakota passed its Brownfields Revitalization and Economic Development Program in 2004. Brownfield sites in South Dakota can include certain petroleum sites, mines and old methamphetamine labs. A revolving loan fund was created. Successful remediators of brownfields are entitled to liability protection from state action. An additional act (SB 143), which passed in March 2005, created environmental covenants imposing activity and use limitations on brownfields property. Environmental covenants run with the land and can be extinguished by a court but only if the agency that signed the covenant agrees.

New Jersey

New Jersey law appears to be unique in providing brownfields developers liability protection from natural resource damage liability. Its 2005 law expanded its innocent landowner protection to cover those brownfields developers who have received a state No Further Action letter from the costs of restoring the natural resources on the site. 2005 N.J. Laws 4. (A2444/S1374) (Jan. 19, 2005). In 2003 New Jersey signed 3,402 voluntary cleanup memoranda of agreement, more than any other state.

Maryland

As part of its Brownfields Redevelopment Reform Act, Maryland established the "inculpable person" status in 2004 for participants in the voluntary cleanup program who did not cause the contamination. The new legislation expanded the types of eligible properties to include oil-contaminated sites and those under active enforcement. The Act also shortens the deadline for the Maryland Department of the Environment (MDE) to review cleanup plans from 120 days to 75 days, and will reduce the fees for the program. More public input into cleanup plans is provided under the legislation. Public informational meetings are required and comments on voluntary cleanup plan applications are solicited on MDE's website.

Delaware

Delaware advanced its Brownfields Development Program (BDP) in 2004 by providing liability waivers for innocent prospective purchasers. If a person remediates a brownfield pursuant to a state-approved work plan, the remediator is insulated from liability from pre-existing contamination on the property. However, to qualify the developer must not have any contractual or familial relationship with any PRP. The state has a Voluntary Cleanup Program for developers that have connections to or are PRPs.

Florida

The definition of eligible properties for brownfields projects changed in Florida in 2004. Instead of only sites that are abandoned, idled or underused, the new definition was expanded to include all "real property, the expansion, redevelopment, or reuse of which may be complicated by actual or perceived environmental contamination." A brownfield site must also generate at least 10 new jobs not associated with the remediation. The 2004 law increases the required CGL insurance policy amounts, and professional liability insurance must be on a per-claim basis rather than per occurrence as before. Another significant change is that when brownfields revert to counties, the counties are immune from any liability from preexisting contamination.

Pending Legislation

Arkansas is considering legislation that would allow abandoned residential property to be eligible for the state brownfields program under SB562. Only parcels with less than five dwelling units would be eligible.

Mississippi has a tax law pending that would redefine capital improvements to include brownfield site remediations. The law would allow income tax credits for remediation costs if the cleanup was certified by the Mississippi Commission on Environmental Quality. A job tax credit is also proposed in HB 1341.

A tax law to help brownfields development is also pending before the Kentucky legislature. The law would create a voluntary environmental remediation credit of up to $150,000, and a reduced property rate valuation. Governor Ernie Fletcher is expected to sign the bill.

South Carolina's pending legislation (H 3650) would insulate "nonresponsible parties" from any third party claims initiated after the nonresponsible party executed a voluntary cleanup contract with the state.

Michael B. Gerrard is a Partner in the New York office of Arnold & Porter LLP, and Chairman of the American Bar Association's Section of Environment, Energy & Resources. He is co-author and/or general editor of Environmental Law Practice Guide (11 vols., Matthew Bender), Brownfields Law and Practice (4 vols., Matthew Bender), and Environmental Law in New York (monthly, Matthew Bender). California Environmental Law and Land Use Practice, referred to in this article is also published by Matthew Bender. Kristina Alexander of Arnold & Porter LLP assisted in preparation of this article. To purchase any titles referenced in this article, and receive a 10% discount, please visit www.lexisnexis.com/mcc6.

Please email the author at Michael.Gerrard@aporter.com with questions about this article.