Archive for the ‘Navigation Law’ Category
Monday, November 28th, 2016
A 20-year old voluntary cleanup agreement (VCA) was the subject of the dispute before the New York Court of Claims in Alaskan Oil, Inc., v. State of New York, Claim No. 116072 Motion No. CM-81863 (Ct. Claims 7/25/16).
In this case, claimant Alaskan Oil Inc. acquired approximately 40 properties owned by Parrish Energy Fuels, Inc., and Webber Oil Company in 1994 and then sought to enroll the sites into the newly-created New York State Department of Environmental Conservation (NYSDEC) Voluntary Cleanup Program (VCP). After over negotiating for more than a year, Alaskan Oil entered into a VCA dated February 5, 1996 that covered all 40 sites. The VCA provided, inter alia, that Alaskan Oil would implement and complete remedial actions at all of the covered sites as well as reimburse NYSDEC for up to $66,000.00 in oversight costs.
Initially, work progressed pursuant to a schedule approved by NYSDEC that contemplated completing cleanup of all 40 sites by December 1998. However, only a handful of sites were remediated by the end of 1998. The pace of cleanups continued to lag and when Alaskan Oil ceased work in 2004, 19 sites remained unremediated. As a result, NYSDEC advised Alaskan Oil in October 2005 that it had failed to comply with the VCA and that the VCA would be terminated within thirty days unless Alaskan Oil came into substantial compliance with the terms of the VCA. After a series of meetings failed to produce any progress, NYSDEC terminated the VCA in September 2007 based on material breach of contract for failure to perform its obligations.
The parties again held several meetings but could not resolve their dispute. Alaskan Oil then filed an article 78 proceeding in January 2008, seeking to determine if DEC had acted within its authority. However, since the proceeding involved contract action against the State, the action had to be discontinued. Alaskan Oil then filed a claim with the Court of Claims in May 2008 alleging that it had suffered $1.3 MM in monetary damages as a result of NYSDEC’s actions. Specifically, the claimant alleged NYSDEC made it more difficult under the VCA to bring its sites into compliance, that the Region 6 technical staff continually interrupted business operations that caused or contributed to claimant’s inability to meet the terms and conditions of the VCA. Alaskan Oil also claimed that the Region 6 staff forced it to comply with more stringent cleanup than required for other sites under the VCA or sites operated by its competitors.
NYSDEC initially claimed that Alaskan Oil had filed its complaint too late because the alleged actions of interference occurred from the 1990s to 2001. However, in a Decision and Order dated September 29;2008, the Court ruled that the claim arose on the date the VCA was terminated and therefore, the claim was timely.
After Alaskan Oil was granted leave to file a late claim, the NYSDEC moved for summary judgement arguing it was immune from liability because it was acting pursuant to its authority under the Navigation Law, citing the savings clause of Navigation Law § 176 (2)(b)., which states:
“Section eight of the court of claims act or any other provision of law to the contrary notwithstanding, the state shall be immune from liability and action with respect to any act or omission done in the discharge of the department’s responsibility pursuant to this article; provided, however, that this subdivision shall not limit any liability which may otherwise exist for unlawful, willful or malicious acts or omissions on the part of the state,· state agencies, or their officers, employees or agents or for a discharge in violation of section one hundred seventy-three of this article.”
In response, Alaskan Oil asserted that NYSDEC was not immune because its employees committed unlawful, willful or malicious acts or omissions. In support of this argument, Alaskan Oil pointed to notices of violations and a proposed administrative Consent Order issued by the NYSDEC Region 6 office for non-compliance with the Petroleum Bulk Storage ACT, that the Region 6 office required more stringent cleanups at two sites than required at other similar facilities and a demand for reimbursement of $261,223.58 incurred for a cleanup conducted by Region 6 related to a 1988 spill which Alaskan Oil alleged breached the indemnity.
However, the Court found these allegations did not fall with the exception to the Navigation Law’s immunity shield because they related to sites or events outside of the VCA. Accordingly, the Court concluded that NYSDEC carried out its responsibilities under the Navigation Law in a lawful, non-willful and non- malicious manner, and dismissed Alaskan Oil’s claim.
Wednesday, March 19th, 2014
A month after Governor Cuomo proposed sweeping reforms to the Brownfield Cleanup Program, the New York State Senate proposed its own BCP amendments. The bill (S. 6359—C) is available at here.
The legislation includes a number of the changes proposed by the Governor’s bill including extending the BCP tax credits to 2025, extending the hazardous waste program fee exemption to cleanups performed under EPA or approved local government programs, allowing sites with groundwater Operation and Maintenance systems or sub-slab depressurization systems to qualify for track 1 (unrestricted) cleanups and eliminating oversight costs for BCP volunteers.
However, the Senate proposal departs from the signature feature of the Governor’s bill-changing eligibility for the tangible property credit (TPC) and redefining what costs qualify for the site preparation credit (SPC). The Governor’s bill proposes to limit eligibility for the TPC to three types of brownfield projects and would preclude so-called “soft costs” from qualifying for the SPC treatment. The feeling within the Executive Branch is that the BCP is paying for lots of excavation costs that would have been incurred in the absence of contamination and only wants to incur tax credit liability for costs required by the approved remedial action plan. The Executive Branch also thought that some applicants with captive contracting firms were “padding” SPC costs. To minimize this practice, the Governor’s bill proposed to bar costs paid to “Related Parties”. Yet another refining of the SPC definition would be to require applicants to capitalize certain costs such costs as property taxes, loan interest paid during the cleanup, etc. Since the so-called TPC “soft cap” is 3x the total SPC, reducing the eligible SPC costs would have the effect of reducing the TPC’s generated by the BCP.
In contrast, the Senate legislation retains the current framework that all BCP projects are eligible to claim the TPC and does not narrow the types of costs eligible for the SPC. (Recall that there are actually two types of SPC costs: Costs to qualify the site for the COC and other costs to prepare the site for construction of a building or structural building components.) The Senate would cap the total SPC available for any BCP project to $15MM.
Following are some highlights of the Senate’s legislation.
Senate Proposed Brownfield Site Definition–
The Senate bill not only retains the current subjective definition of brownfield site but double downs on its complexity. Currently, a brownfield site is defined as real property where the presence or potential presence of contamination complicates reuse. The Senate adds additional indicia of contamination and underutilization. The result is an incredibly convoluted definition that could produce as many lawsuits as applications.
The Senate bill proposes that the “contaminant or contaminants, do not overwhelmingly consist of historical fill, and exceed at more than minimal levels the soil cleanup objectives….that are applicable based on the reasonably anticipated use of the property, as determined by the applicant. “ The term “overwhelmingly” and phrase “at more than minimal levels” are a recipe for lawsuits.
Them the definition goes on to state that the contamination is to be established “by completion and submission of an ASTM Phase II environmental assessment report.” Why the bill drafters settled on ASTM E1903 as the methodology is nothing short of baffling. E1903 is a standard guide that established procedural framework for collecting soil and groundwater samples. However, the NYSDEC has already promulgated extensive regulations at 6 NYCRR Part375 and published its DER-10 Technical Guidance for Site Investigation and Remediation that sets forth a comprehensive list of standards, guidance and criteria (SGCs) for performing site investigations. One has to wonder if the drafters of this bill are familiar with NYSDEC’s remedial programs.
Under the Senate bill, applicants could have the option of submitting the ASTM phase with their application or up to 90 days after filing the application to demonstrate that the site meets the contamination criteria in the brownfield site definition of this title. For applicants that do not submit an ASTM Phase II investigation report with their application, the start of the 45-day period for NYSDEC to render a decision on the application will be deferred until the filing of the ASTM phase 2 but no later than 90 days after submission of the application.
The definition then goes on to state that sites with the requisite level of contamination must also exhibit one of more of the following characteristics (known as the “Brownfield Site Characterization Criteria”).
(i) a current legacy of vacancy or abandonment from previous industrial or commercial activity or tax delinquency for at least one year prior to the date of application; or
(ii) a current and historical legacy of severe economic or functional underutilization including use of such site as a hazardous waste or solid waste facility; or
(iii) in the case of a site characterized primarily by former industrial activity, functional obsolescence; or
(iv) the projected cost of the investigation and remediation based on the reasonably anticipated use of the property as determined by the applicant exceeds fifty percent of the certified appraised value of the property absent contamination; or (v) the site has been certified by the municipality in which the site is located as meeting any of the conditions set forth in this opening paragraph.
The phrase “severe economic or functional underutilization” is defined as a brownfield site and any improvements: (a) on which a building or buildings containing no more than fifty percent of the permissible floor area under applicable zoning is being utilized; or (b) has a value of equal to or less than seventy percent of the floor area of the average valuation of land in the county or city in which the land is located, except in a city having a population of one million or more inhabitants where the average valuation shall be based on the county in which the land is located.
The phrase “functional obsolescence” shall mean the brownfield site and any improvements thereon that:
(a) can no longer be functionally or economically utilized in the capacity in which it was formerly utilized because of the configuration of the building or substantial structural defects not brought about by deferred maintenance practices or intentional conduct; or
(b) The entire site or a significant portion thereof, with or without improvements is used irregularly or intermittently; or
(c) The functionality of the equipment inside the building or buildings is obsolete for a modern day application; or
(d) Has been certified by the municipality in which the site is located as underutilized pursuant to the criteria in this subdivision.
The Senate bill would allow the applicant to invoke dispute resolution if the NYSDC determines that it has not met the Brownfield Site Characterization Criteria.
The foregoing criteria would seem to be good starting point for modifying the Governor’s proposal for what sites/projects should qualify for the TPC. However, as part of the brownfield site definition, they they inject too much uncertainty into the BCP. We believe the Governor’s Brownfield Site definition is far superior approach than the Senate’s version. The Governor’s bill provides clear and objective criteria for determining if a site is contaminated (e.g., contaminants exceed applicable standards). The Governor’s definition provides more clarity to potential applicants and would likely result in less litigation over what is a brownfield site.
Of course, the Governor’s brownfield site definition is “cleaner” because it does not try to define factors that describe under what circumstances redevelopment is complicated by contamination as part of BCP eligibility. Instead, the Governor’s proposal focuses on those factors for determining what sites are eligible for the TPC. The NYSDEC became embroiled in lawsuits and the BCP virtually ground to a halt when the agency was unfairly tasked with limiting the costs of the BCP and had to adopt an unnaturally narrow interpretation of what was a brownfield site. The Senate’s proposal with its abundance of subjective criteria is more likely than not to bring us back to the bad old days where NYSDEC limited resources will be consumed defending administrative and legal challenges to its eligibility determinations. It seems far better to have an objective test for accepting sites into the program. Under the Governor’s proposal, these sites would be eligible to claim the SPC for their cleanup costs. With the issues narrowed, we Legislature and the Governor could the focus the time remaining refining the test on what types of projects should be eligible for the TPC.
New Applicant Ineligibility Criterion–
Like the Governor’s bill, the Senate proposal provides that an applicant may be denied enrollment in the BCP if it the applicant has been terminated from another NYSDEC remedial program by the agency or a court for failure to substantially comply with an agreement or order. However, unlike the Governor’s bill, the Senate would only extend this debarment to the preceding forty-two months.
Class 2 Eligibility-
There appears to be widespread agreement with the concept that volunteers (i.e., non-responsible parties) who are willing to redevelop class 2 sites on the state superfund list which is formally known as the Registry of Inactive Hazardous Wastes Sites (Registry) should be able to enroll the site in the BCP. The dispute is over what circumstances such sites should be eligible for the BCP. The Governor proposed that volunteers should be eligible where there is no viable responsible party. This was partially out of concern that recalcitrant parties who refused to remediate sites could not profit by selling sites that were now more valuable because of the potential tax credits available under the BCP. In our prior discussion, we said that this test might be too stringent and suggested some alternative formulation.
The Senate bill rejects any limitations on class 2 eligibility or for that matter any of the other statutory exclusions where the applicant is a volunteer. Specifically, the Senate legislation provides that if a volunteer submits a request for participation for real property that would otherwise be deemed excluded from classification as a brownfield site, such real property shall not be excluded. The bill goes on to state that any on-going state remedial program, enforcement action or order with regard to the site shall be stayed by the execution of a brownfield cleanup agreement (BCA) and shall terminate when the volunteer receives a certificate of completion (COC). Upon issuance of the COC, the site would be delisted from the Registry, unless the COC is later revoked for good cause. However, the stay would not apply where the NYSDEC is seeking to require an owner of the site at the time of the disposal, or other responsible party to address an imminent and substantial threat to public health or the environment, or is seeking penalties or reimbursement of response costs. Moreover, if the BCA is terminated, or the volunteer or subsequent site owner or operator fails to comply with the terms of an environmental easement, any state remedial program, action or order may resume or be recommenced after timely notice to all concerned parties.
While we agree that sites should not be “punished” where there is a volunteer willing to perform a cleanup and invest in redeveloping or re-positioning the property. On the other hand, there are legtimate policy concerns about why New York should incur tax credit liability when there is a responsible party on the hook or creating too broad an exeption that could create moral hazards that incentivize recalcitrant owners of developable property to simply sit back and wait until a volunteer appears who willing to pay a higher price reflecting the increased value of the land due to its potential to generate significant tax credits.
No Automatic Termination-
The Governor’s bill proposed an automatic termination of 12/31/15 for sites admitted into the BCP prior to June 23, 2008 (effective date of the last BCP amendments) and 12/31/17 for sites accepted into the BCP after 6/23/08 and before 7/1/14. The Senate bill does not contain an automatic termination date and quite frankly, we do not see the need for such a provision. The NYSDEC already has the authority to terminate sites that are not making substantial progress towards completing the remedial program.
Some believe this provision was included for sites that were ordered into the BCP by the courts and therefore NYSDEC is concerned it might not have the authority to terminate those sites. If that is indeed the concern, then it seems the automatic terminaiton should only apply to those sites. It remains unclear why the legislature should automatically terminated sites where NYSDEC has not exercised its statutory authority.
NY RAPID program-
The Senate proposes to establish an alternative to the BCP for applicants who are not interested in tax credits but simply desire liability protection and a covenant not to sue. However, the Senate proposal is far less flexible than the EZ-BCP proposed by the Governor. As an example of how poorly-conceived this proposal is, the legislation provides that sites that received a COC from the New York City Office of Environmental Remediation (OER) under the local brownfield cleanup program would be eligible for the NY-RAPID program. NYSDEC already honors COCs issued by OER. Why would any developer want to go through two remedial programs to obtain the same liability protection? This is just plain silly. The Governor’s version is clearly superior and more nimble. It could also be used as a platform by local governments such as NYC that have their own cleanup program
Other Tax Credit Changes-
In addition to retaining the current “as of right” TPC for all projects accepted into the BCP, the Senate bill appears to alters the ten-year period for claiming the TPC. Instead of starting the ten-year clock upon issuance of the COC, it appears to that the ten-year begins with the first day of the first taxable year in which qualified tangible property is placed in service.
Like the Governor’s bill, the Senate legislation will allow the costs to be included in the SPC for purposes of calculating the 3x site “soft cap” that were not but could have been expensed and deducted under expired IRS section 198 (the federal brownfield tax credit). Likewise, the Senate would allow asbestos, lead or polychlorinated biphenyls abatement costs to be included in the SPC calculation.
Navigation Law Amendments-
Subpart B of the bill contains some interesting changes to the Navigation Law. It provides that a unit of local government will not be liable for the discharge of petroleum at a site where it involuntarily takes title pursuant to tax foreclosure and it has retained such site without participating in the development of such site.
The Senate also appears to inject some teeth into the third party defense that was added to the Navigation Law in 2003 but for some reason has not been widely adopted by the courts. Under the bill, if the party who NYSDEC has identified as a discharger and directed to implement a cleanup, the party may present evidence and request NYSDEC to determine if a third party is solely responsible for the discharge. Following such a request, the NYSDEC would have 30 days to determine in writing if the third party is a discharger. If the NYSDEC determines that the third party is solely responsible, then it would be required to direct that party to undertake the cleanup. If the NYSDEC finds the information presented insufficient to establish the responsibility of the third party by a preponderance of the evidence, the agency shall, within 30 days of such request, advise each of the parties that they are deemed dischargers subject to apportionment of liability for the discharge.
The Administrator of the Oil Spill Fund would also be extended to apportion liability for discharges where there is more than one discharger. An alleged discharger may request the administrator to determine on the preponderance of the evidence that a third party is in fact wholly or partially responsible. Within 30 days of receipt of such request, the administrator is required to determine in writing, if the third party is deemed an additional discharger to any pending or anticipated claim or if an administrative hearing as to liability is necessary to settle particular claims filed by injured persons or to apportion liability between and among dischargers.
Finally, the Senate bill would require NYSDEC to issue the same kind of liability limitations as under the BCP when dischargers completed petroleum cleanups. The proposed law provides that any person who agrees to remediate the discharge to the satisfaction of the NYSDEC would enter into a liability limitation agreement with the NYSDEC.
The conventional thinking is that the Assembly is holding out introducing legislation so it can extract concessions or maximize its leverage for the larger budget issues of importance to its members. However, time is running out. Only two weeks remaining for an agreement to be reached on the state budget. If an agreement on amending the BCP is reached as part of the budget deal, the outlook for BCP reform for this legislative session may be bleak.
Saturday, February 15th, 2014
Earlier this week, Governor Cuomo sent his sweeping BCP reforms to the State Legislature. Under the state Constitution, the Governor has 30 days to make technical amendments to his budget legislation without involving the legislature.
Despite vociferous complaints by brownfield developers, environmental lawyers and affordable housing advocates about the severe curtailments to the categories of projects that would be eligible for brownfield tax credits, the Governor made only modest revisions to the original bill. However, the Governor submitted his legislation under a self-imposed 21-day amendment process so it is possible that there will be additional tweaking to the BCP portion of the bill. Once the 30-day period has expired, changes to the BCP would be subject to the usual legislative process.
Notwithstanding the cacophony of critical voices to the proposed BCP changes, there is much to like about the proposed revisions. In this post, we will cover the positive changes. In a second post, we will then discuss the changes that need to be tweaked and then close the series with a review of the changes that threaten to transform the BCP into a zombie program.
The changes listed below are not in order of importance but simply track the changes in the legislation.
1. Extension of BCP- Obviously, the most important change is that the legislation would extend the brownfield tax credits (BTCs) to December 31, 2022. The fact that the Governor agreed to extend the BTCs was a victory for brownfield developers since there was considerable sentiment within the budget office to allow the BTCs to expire because of their costs. Sites accepted into the BCP after December 31, 2022 would not be eligible for brownfield tax credits.
2. New COC Deadlines– Under the existing BCP, all sites had to obtain their COCs by 12/31/15 to be able to qualify for the tax credits. The proposed amendments retain the 12/31/15 COC deadline for sites that were accepted into the BCP prior to the 6/23/08 amendments. Projects that were accepted after 6/23/08 but before 7/1/14 will have an extra two years to obtain their COC (12/31/17) to remain eligible for the BTCs. Sites accepted into the BCP after 7/1/14 will have until 12/31/25 to obtain their COCs and qualify for BTCs.
3. Revised Brownfield Site Definition- The new definition requires that an applicant do sufficient sampling to establish actually contains contaminants that exceed the applicable soil cleanup objectives or other health-based environmental standards promulgated by the NYSDEC. This change brings more clarity to what constitutes a brownfield site but really just conforms the definition to current NYSDEC policy since the agency was requiring applicants to demonstrate that the site was actually impacted by contamination by performing and including the results if a phase 2 in the BCP application. The revised language indicates that the applicant must submit an investigation that is sufficient to demonstrate that the site requires remediation to meet the remedial requirements of the BCP.
Significantly, the revised brownfield definition does not require the contamination to be from an on-site source which represents a significant eligibility expansion since applicants are currently required to establish an on-site source of contamination to be eligible for the BCP. Instead of excluding these sites from the BCP, the proposed bill would simply prohibit applicants of these sites from claiming tangible tax credits for addressing such contamination. For example, an applicant who would have to install an sub-slab depressurization system (SSDS) to address vapors from contaminated soil gas because of a plume that originated from an adjacent dry cleaner could enroll in the BCP and be eligible for site preparation costs tax credit but not the tangible property tax.
4. Eligibility Extended to Class 2 Sites- The original BCP legislation contained a six month amnesty period for class 2 sites to apply to the NYSDEC that expired in July 2004. Since then, class 2 sites have been ineligible for the BCP even when innocent parties seek to redevelop the properties or the site may simply sit above a regional plume.
The proposed changes would allow state superfund sites (class 2 sites) to be eligible for the BCP where the applicant is a volunteer who owns the site or where the applicant is a volunteer who is under contract to purchase a class 2 site and the NYSDEC has been unable to identify a PRP with the ability to pay for the cleanup. [emphasis added]. It is unclear if the clause containing the limiting language following the “and” only modifies the clause pertaining to volunteers under contract to purchase a class 2 site or if the clause applies to sites already owned by the volunteer.
The explanation for the “viability” test is that the State of New York does not want to incur BTC liability when there is a financially responsible party who could pay for the cleanup. A responsible party is likely only to remediate a site to its current or reasonably anticipated use but in the absence of a development plan, the reasonably antiicipated use of a property with obsolete or deteriorating buildings may not be obvious. In contrast, a brownfield developer will be enhancing the property and likely doing a more robust cleanup in a shorter period of time. While there is a legitimate concern for requiring class 2 sites that are under contract to be eligible only if there is not a financially viable responsible party, it may be worthwhile to consider other tests for determining when a class 2 site should be eligible for the BCP such as the responsible party does not currently own or has not owned the site since the expiration of the original amnesty period.
While pondering the conditions for allowing class 2 sites to be eligible for the BCP, the legislature should also consider allowing sites that are under enforcement orders to be eligible for the BCP. This would particularly make sense for sites that are covered by multi-site manufactured gas plant (MGP) orders on consent that several utilities have entered into with NYSDEC. Many of these sites will have cleanups that require long-term institutional and engineering controls because the contaminants lie beneath existing commercial structures. So long as these sites are subject to site management plans (SMPs), the NYSDEC considers these sites to be still subject to an enforcement order and therefore not eligible for the BCP. It seems that the same rationale for allowing class 2 sites to be eligible for the BCP should apply to sites subject to enforcement orders. Indeed, there is precedent for this suggestion. In 2004, the legislature amended the BCP law to allow sites that were subject to petroleum stipulations agreement issued under the Oil Spill Program of the Navigation Law to be eligible for the BCP. If an innocent party is willing to remediate and redevelop a contaminated site, it should be able to enroll in the BCP subject to reasonable conditions such as ensuring that NYSDEC is reimbursed for past costs and the volunteer has not indemnified the responsible party.
5. Expansion of Track 1 Cleanups- If a BCP project has to use institutional or engineering controls, it is not eligible for a track 1 cleanup which allows for a higher site preparation cost tax credit and a 2% bonus for the tangible property tax credit. Where all the contaminated soil has been removed but elevated levels of contaminants remain in groundwater, the NYSDEC has been willing to approve conditional track 1 cleanups if there has been a significant reduction in the contaminant mass and contaminant levels have reached asymptotic conditions. Under this approach, the applicant will have to record an environmental easement and continue to monitor groundwater for five years. However, if the contaminant concentrations remain above groundwater standards after five years, the cleanup would revert to a lower cleanup track that could cause recapture of tax credits.
The proposed legislation will allow sites to qualify for an unconditional track 1 status where engineering or institutional controls are required for more than five years solely to address vapor intrusion as well as for groundwater remediation where the bulk contaminant concentrations have been reduced to asymptotic levels. However, there would no longer be a 2% tangible tax credit bonus for achieving track 1 cleanup;
6. Transfer of COCs- The legislation clarifies that COCs may only be transferred to subsequent legal or equitable title holders of all or a portion of the brownfield site. It had been unclear if the COC could be transferred without title changing hands.
7. BCP-EZ program- The proposed amendment would create a streamlined remedial program that would be called the BCP-EZ program. Applicants that qualify as volunteers would be exempt from certain procedural requirements for implementing remedial investigations and remedial actions for sites where the contamination does not pose a significant threat provided the applicant waives rights to any tax credits and the work satisfies the technical requirements of Part 375.
8. Oversight Costs- Because both the NYSDEC and the New York State Department of Health (NYSDOH) play a role in the state remedial programs, oversight costs can be significant especially for larger projects. Under the proposed bill, volunteers will no longer be required to pay oversight costs on or after July 1, 2014. This exemption applies both to applications submitted after July 1, 2014 as well as sites accepted into the BCP prior to July 1, 2014. However, parties that are accepted into the BCP as “Participants” will be required to pay the NYSDEC for past costs incurred prior to the effective date of the brownfield cleanup agreement but the NYSDEC may negotiate a “reasonable” flat rate fee for future oversight costs.
9. Extra Tangible Tax Credits For Certain Projects– The Governor’s bill would allow certain categories of projects to be eligible for extra tangible property tax credits above the base of 10%. A bonus of 5% would be available for projects with affordable housing (based on square footage of the total affordable housing units(§25), an extra 10% could be claimed by projects on sites located Environmental Zones and a bonus of 5% would be available for “strategic sites” located in and conforming with a Brownfield Opportunity Area (BOA) plan.
10. Clarifies Treatment of Costs for Expired Federal Brownfield Tax Credit- BCP applicants are currently allowed to claim up to $35MM ($45MM for manufacturing sites) in tangible property tax credits (known as the “hard cap”) or 3x the site preparation costs (6x for manufacturing ), whichever is less. The 3x or 6x times site preparation calculation is known as the “soft cap.” The proposed legislation clarifies that on-site groundwater remediation costs and costs that could have been ”expensed” and deducted for purposes of the IRS 198 brownfield tax credit but were not given such treatment may be used in calculating the “soft cap.”
11. Clarifies Treatment of Costs To Address Treatment of Contaminated Groundwater From Off-Site Source– Based on the way the qualifier in section 3 of the proposed legislation excluding tangible property tax credits for off-site contamination migrating onto property, it appears that site preparation tax credits will be available for costs to address contamination migrating onto site if required in the approved remedial action plan.
12. Abatement and Disposal of Hazardous Building Materials- The proposed amendment would allow applicants to include abatement costs for removing and disposing asbestos-containing materials, lead-based paint or PCB caulking in their site preparation costs provided the work is done under supervision of the Department of Labor or Department of Health would be eligible.
13. Hazardous Waste Generation Fee Exemption– Urban sites often contain significant swaths of fill material that may contain constituents such as heavy metals, semi-volatile organic compounds (SVOCs), petroleum and lead-based paint from demolished buildings. As a result, construction projects in urban areas can generate large quantities of excavated soil that may have to be managed as hazardous waste. Having to dispose soils and building debris as hazardous waste not only significantly increases disposal costs but can also trigger two types of state hazardous waste tax assessments or fees that can significantly add to the total project costs.
If the remediation is performed under the state superfund program or BCP, the generator of the waste does not have to pay the hazardous waste tax or fee. However, projects enrolled in the Voluntary Cleanup Program (VCP) administered by the New York City Office of Environmental Remediation (OER) are not exempt from the tax or fee. Depending on the size of the site or the depth of the excavation, the hazardous waste taxes could approach or even exceed the total remediation costs. Click here for more information about the hazardous waste fee and tax
The bill would also exempt remediation wastes from the state hazardous waste generator fee that are generated for cleanups are done under an agreement with EPA, pursuant to an order issued by a court or an agreement with a municipality such as OER that has entered into a memorandum of agreement with NYSDEC.
The legislation also includes some new submission deadlines and grounds for revoking COCs that have been criticized by some business groups but seem to fall into the into the “Meh” category (for readers who are not fans of the TV show “The Simpsons”, the term is like a verbal shrug of the shoulders that expresses indifference or lack of enthusiasm). At the very least, the provisions do not seem to be worth expending political capital and advocates would probably be better served keeping their powder dry for other more important issues raised by the bill.
- An applicant will not be eligible for the BCP if it has failed to substantially comply with an agreement or order under another NYSDEC remedial program and the applicants participation in that other remedial program has been terminated by the NYSDEC or a court;
- NYSDEC will now have 30 days to advise an applicant if its application is complete;
- Applicants must implement work plans within 90 days of approval and complete the work in accordance with the schedule set forth in the document;
- Every report required to be submitted under the BCP must include a schedule for submitting subsequent work plans required under the BCP;
- Applicants must execute environmental easements within 180 days of commencement of the remedial design or at least 90 days prior to the anticipated issuance of the COC;
- The period of time for recording an environmental easement by an owner of an inactive hazardous waste site or the person responsible for implementing the remedial program is extended from 60 days to 180 days of commencement of the remedial design;
- Applicants seeking tangible property tax credits must evaluate two alternative remedies, with one alternative being a track 1 cleanup;
- Where the NYSDEC approves an alternative remedy (cleanup tracks 2,3 or 4) at a site that has been determined not to pose a significant threat, the public comment period notice shall apply to both the selected remedy and the approval of the alternative analysis by the NYSDEC;
- Final Engineering Reports now have to describe any interim remedial measures (IRMs) and the costs of the IRMs;
- COCs will now include the date of the brownfield cleanup agreement (BCA); the names of the parties eligible for the tax credits and the applicable percentage available as of the date of the COC;
- A COC may be revoked if the applicant makes a misrepresentation of a material fact concerning its eligibility for the tangible property tax credit. There was already a revocation for misrepresentation about the applicants qualification for volunteer status;
- A COC may be revoked if the environmental easement is not effective or enforceable. This was revocation condition was added as part of the streamlining of the environmental easement process to highlight the consequences of not properly preparing and recording the environmental easement;
- NYSDEC authority to grant waivers from local permits extends to investigations or remediation for contamination migrating from a brownfield site;
- NYSDEC is expressly authorized to inspect sites for compliance with site management plans including evaluating operation and maintenance of remedial components, confirming site use and collecting samples;
- The Department of State has responsibility for not only certifying Brownfield Opportunity Areas (BOA) but also confirming conformance with BOA plans for purpose of qualifying for the tangible property tax credit;
- Elimination of the environmental insurance tax credit for sites admitted after July 1, 2014;
- A municipality seeking to apply for funds from the Environmental Restoration Program (ERP) must assist in identifying responsible parties for the site by searching local records including property tax records;
- NYSDEC may implement an ERP project on behalf of a local government provided the municipality periodically pays its share of the costs to the state.
Monday, November 11th, 2013
Storage tanks used for the storage of heating oil for on-site consumptive use are excluded from federal underground storage tank (UST) program. However, a number states including New York regulate heating oil tanks.
There are approximately 3 million residential heating oil tanks in New York State. While home heating oil tanks for single family homes typically range from 275-to 1,000-gallons. However, heating tanks for multi-family or commercial properties frequently have capacities up to 20,000-gallons.
The New York Petroleum Bulk Storage Act (PBSA) program generally regulates USTs and aboveground storage tanks (ASTs) that are used to store petroleum and have a combined storage capacity (either individually or collectively) of more than 1,100 gallons. If the combined total capacity of all petroleum storage tanks at a property that have least 110 gallon capacity exceeds 1100 gallons, then all the tanks at the property are subject to the PBS program.
However, there are special rules for heating oil tanks. For purposes of determining if the property exceeds the 1100 gallon threshold for regulation, the volume of heating oil tanks with a capacity less than 1,100 gallons are not included in the calculation. Thus, if a property has a 1,000-gallon gasoline USTs and a 500-gallon heating oil tank, none of the tanks will be subject to regulation. Likewise, a property with four 500-gallon heating oil tanks will also not be subject to the PBS program even though the total capacity of the tanks at the property is 2000-gallons.
The performance and operating standards for regulated USTs under the PBS program are considerably more extensive than those for ASTs. Thus, it is particularly important to ensure that tanks in multi-family or commercial buildings are properly registered. However, the rules for classifying a tank as an UST or AST are-yes quirky. A tank located in a basement could be regulated as an UST under some circumstances which means it could be subject to periodic testing and other performance standards.
NYSDEC has commenced numerous enforcement actions against residential buildings for failing to properly register tanks, report spills and remediating contamination. Indeed, a number of multi-family buildings in NYC have been required to pay in excess of $1MM for tank violations and cleanup. One of the recurring themes I have seen in the cases involving significant fines or cleanup costs has been when the property or building management has hired a “tank” company to repair a failed tank system. The building manager believes that the “tank” company will deal with all of the issues associated with the failed tank system and are then shocked when they get a notice of a hefty fine from NYSDEC for failing to properly close out a spill. See our prior post on the importance of hiring the right kind of consultants for leaking heating oil tanks.
Another quirk of the NYSDEC PBS program is the closure requirements for heating oil tanks. Regulated PBS tanks that are out-of-service for more than one year must undergo closure. Unlike the federal UST program, though, the NYSDEC PBS program does not require an environmental assessment to close heating oil tanks. The tank has to be cleaned out and visually inspected for holes but soil or groundwater samples are not ordinarily required to achieve closure of heating oil tanks unless there is visual evidence or a leak.
Thus, it is possible that a heating oil tank that was closed in place and obtained regulatory closure by the NYSDEC may have impacted the property. Accordingly, it is advisable for purchasers of property with abandoned heating oil tanks to review the closure documentation to see if sampling was conducted. In the absence of such documentation, the purchaser should consider conducting its own sampling since the purchaser could be strictly liable under the state Navigation Law if an abandoned tank that was closed in place has impacted the environment.
In New York City, chapter 34 of the Fire Code establishes requirements for Out-of-Service Storage Systems storage tanks (3 RCNY §3404-01. Closure of storage tank systems that have not been used for one year must be closed a certain licensed individuals. The owner or operator of a permanently out-of-service storage system or the permit holder for the tank system must also file an affidavit with the Fire Department certifying that the tank system was removed and disposed or abandoned in place in compliance with the requirements of Fire Code. If an environmental site assessment is required by federal or state law or regulations, the owner/ operator of the storage system, the permit holder for the system or the person filing the affidavit of compliance must submit a written statement to the Fire Department that such environmental site assessment has been performed in accordance with such law and regulations.
Finally, the New York City Department of Environmental Protection (NYDEP) has issued regulations to phase-out the use of Number 6 oil (No. 6) and Number 4 oil (No. 4) fuel oil that is burned at approximately 10,000 buildings to reduce the quantity of fine particulates emitted by buildings. Studies had shown that 1% of the buildings in the city produce 86% of the total soot pollution from buildings.
Effective May 23, 2001, all newly-installed/permitted boilers may only burn low sulfur No. 2 oil, natural gas, or the equivalent from an emissions standpoint. For existing boilers, the regulations provide for a phase-out of No. 6 oil. Beginning July 1, 2012, building owners are required to convert to a cleaner fuel (No. 4 oil or cleaner) before their three-year certificate of operation expires. Building owners will not be able to renew Certificate of Operation for a boiler burning #6 heating oil unless the applicant demonstrates that the No. 6 fuel that will be used will emit the same or less PM and NOx than No. 4 on an annual basis. All boilers must be converted to low sulfur No. 4 heating oil or an equivalent cleaner fuel by mid-2015. By 2030, existing boilers that have not been replaced must be modified to meet the equivalent emissions of burning low sulfur No. 2 oil or natural gas. The regulations are available here.
Financing and other incentives are available for building owners required to convert to cleaner-burning fuels. NYC has established a webpage that provides information on financing options and incentives available to building owners. Click here for Information on the permitting process
Sunday, November 10th, 2013
During the summer, NYSDEC issued draft revised regulations to its Petroleum Bulk Storage (PBS), the Major Oil Storage Facility (MOSF) program and the Chemical Bulk Storage (CBS) program. The revisions are intended to make the PBS and CBS regulations consistent with the federal underground storage (UST) regulations codified at 40 CFR Part 280 so that these program may qualify for delegation under 40 CFR Part 281.
Proposed PBS Revisions
The New York “Control of the Bulk Storage of Petroleum Act” (PBSA) regulates USTs and aboveground storage tanks (ASTs) that are used to store petroleum and have a combined storage capacity (either individually or collectively) of more than 1,100 gallons. Note there are slightly different threshold rules for heating oil tanks which are discussed in our companion piece on NY’s Quirky Heating Oil Tank regulations here.
The New York State Department of Environmental Conservation (NYSDEC) issued regulations implementing the PBS program in 1985 that are currently codified at 6 NYCRR 612-614. Under the draft revised regulations, NYSDEC proposes to replace at 6 NYCRR 612-614 with a new Part 613. The revised Part 613 will establish separate requirements for tanks that are regulated by the federal UST program as well as those that are only subject to the PBS program such as heating oil tanks. See our companion post on New York’s quirky heating oil regulations here.
The revisions will include requirements mandated by the federal Energy Policy Act of 2005 including ensuring that facility operators have been trained, authority to prohibit delivery of petroleum and hazardous substances to tanks that are or may be leaking, tanks operated in significant non-compliance, and requirements for piping and dispenser secondary containment. The proposed changes will also changes to the definition of “petroleum” and of “facility that were made by the 2008 amendments to PBSA.
NYSDEC has issued a number of guidance documents and policies governing USTs and ASTs that are subject to the PBS program. These documents are available here.
It should be noted that Nassau, Suffolk, Rockland, Westchester and Cortland Counties administer the program in these localities, pursuant to delegation from DEC. Because these counties may have more stringent requirements than the PBS program, owners and operators with tanks in these jurisdictions should be familiar with the specific local requirements. In particular, some of these delegated counties have adopted regulations that apply to smaller heating oil tanks than the NYSDEC PBS program.
It is important to remember that the PBS closure and corrective action requirements are not the only source of liability for owners or operators of property contaminated with petroleum. Article 12 of the Navigation Law imposes strict and joint liability on dischargers who are defined as persons who are “in any way responsible” for petroleum discharges. While mere ownership of property that is contaminated with petroleum discharges may not automatically result in liability for a property owner, state courts have broadly construed this phrase so that owners who had the ability to control storage tanks such as landlord have been found liable under the Navigation Law. Moreover, purchasers of property contaminated by abandoned petroleum tanks have often been found to be ineligible for reimbursement from the Oil Spill Fund on the grounds that they owned the abandoned tanks. Thus, it is important for purchasers to determine if abandoned tanks, in particular abandoned heating oil tanks, are present at the property prior to taking title. If tanks are discovered, they should be removed prior to the closing or before the purchaser assumes control of the property.
Proposed CBS Revisions
NYSDEC is also proposing changes to its CBS program which implements Articles 37 (Substances Hazardous to the Environment) and 40 (Hazardous Substances Bulk Storage Act). Article 37 requires the NYSDEC to regulate all substances covered by CERCLA, FIFRA, and TSCA along with other chemicals that NYSDEC determines to be hazardous. Article 40 regulates the sale, storage and handling of hazardous substances.
NYSDEC proposes to consolidate and amend its CBS regulations as follows:
- Repeal Part 595 (Releases of Hazardous Substances) and move these requirements in Parts 597 ((general requirements for spill reporting) and 598 (facility specific reporting requirements).
- Replace Part 596 with a new Part 596 titles Hazardous Substance Bulk Storage Facility Registration. Significant changes include:
-This section modifies the definition of hazardous substances so that the term is not limited to those listed on the table in Part 597.
-The definition of owner is to clarify that the property owner will be responsible for registration and that the tank owner will be responsible for all other “owner” requirements designated in the rule.
-The definition of UST is also modified to conform to the federal definition.
- Replace current Part 597 (List of Hazardous Substances) with a new Part 597 (Hazardous Substance Identification, Release Prohibition and Release Reporting). Among the key changes:
-The definition of hazardous substance is being clarified to include listed substances, substances meeting certain characteristics, certain mixtures, and hazardous waste.
-The list of hazardous substances is being updated to be consistent with CERCLA. The existing definition of hazardous substance had included petroleum but this was deleted to avoid conflicts with the PBS program.
-The persons required to comply with reporting obligations have been changed to any person in actual or constructive control or possession of the hazardous substance when it is released or any employee, agent, or representative of such person who has knowledge of the release.
-The reportable quantity is also being changed to conform to the federal definition that refers to a 24-hour period. Because the existing requirement did not have a time period, the proposed change will narrow the reporting obligations;
-elimination of the exemption for releases that were the result of an unavoidable accident
-elimination of the exemption to the spill reporting requirements for carries and transporters;
- Amend Part 598 (Handling and Storage of Hazardous Substances). This section now includes the release reporting, investigation, confirmation, and corrective action requirements previously contained in Parts 595 and 596. In addition, the federal public participation requirements for corrective action plan have been added;
- Amend Part 599 (Standards for New Hazardous Substance Tank Systems).
Friday, April 26th, 2013
A property owner was found liable under the New York Navigation Law for cleanup costs incurred by the New York State Department of Environmental Conservation (NYSDEC)responding to gasoline fumes that had migrated a quarter of a mile from the gas station. While the vast majority of the state’s costs were associated with the cleanup of soil and groundwater, it was the presence of the vapors that drew regulatory attention to this spill.
In State of New York v Slezak Petroleum Products, 947 N.Y.S. 2d 189 (App. Div-3rd Dept 2012), the defendant leased its property in Amsterdam, New York to a gas station operator. In October 2004, gasoline fumes were detected in a warehouse located approximately one quarter mile from the gas station. The NYSDEC conducted an investigation and determined that that the vapors from a gasoline spill had infiltrated nearby sewer lines and residences. After the USTs at the site failed a tightness test, the he tanks were removed and holes were observed on the bottom. Further sampling confirmed the presence of extensive soil and groundwater contamination.
When the defendant declined to undertake further investigation for financial reasons, NYSDEC retained a contractor to implement response actions. The NYSDEC determined that the groundwater flowed from the gas station towards toward the warehouse and affected residences. In addition, the highest concentrations of contaminated groundwater were consistently found in the monitoring wells at and immediate downgradient from the gas station. The petroleum detected in monitoring wells at the affected residences revealed minimally weathered gasoline and MTBE.
After investigating other potential sources of the contamination, including two nearby gas stations, NYSDEC concluded that the defendant’s property was the source of the petroleum contamination causing the vapors at the warehouse and the affected residences. When the defendant again declined to take further action, NYSDEC implemented extensive remediation measures to remove the contamination at the gas station and mitigate the vapors at the affected business and residences.
DEC filed a cost recovery action pursuant to article 12 of the Navigation Law along with penalties. The trial court granted DEC’s partial summary judgment that the defendant was strictly liable for all cleanup and removal costs and prejudgment interest, and entered a judgment for $937,233.53.
The defendant appealed, arguing that there other discharges who had contributed to the contamination and that as a property owner who did not operate the gas station, it could not be held strictly liable as a discharger under the Navigation Law. The appellate court affirmed, noting that while liability for remediation costs cannot be premised solely on land or ownership of the tank system, owners who have “control over activities occurring on their property” and who had reason to believe that petroleum products were stored there could be liable as dischargers. The court then found it was it is undisputed that defendant was the owner of the contaminated site as well as the petroleum tanks and system from which the spill emanated, had control over the activities on and the use of its property, and was aware that petroleum products were stored in underground tanks and sold from its property. Because the defendant clearly had the “capacity to take action to prevent an oil spill or to clean up contamination resulting from a spill, the court said defendant was strictly liable as a discharger.
In support of its motion for partial summary judgment, the plaintiff had submitted affidavits of two NYSDEC environmental engineer directly involved in the investigation and remediation that concluded the defendant’s property was the principal source of the contamination, and that the plume had migrated downgradient to the other affected properties in the neighborhood. The conclusions were based upon the sampling results from over 100 groundwater monitoring wells, soil borings and soil gas.
The defendant alleged that spills at other nearby locations were the source of the contamination at the residences and warehouse. In opposing plaintiff’s motion, the defendant submitted an affidavit of one of its principals refuting defendant’s liability for the off-site contamination and suggesting that it came from other nearby businesses. The court also found that affidavit submitted by defendant’s geologist contained only conclusory and speculative assumptions and assertions, noting that defendant’s expert affidavit did not conclude that migration from the gas station did not occur but that there were unanswered questions that needed further investigation. Because this affidavit was speculative and unsupported by any evidentiary proof, the court said it could not support a verdict in defendant’s favor. Likewise, the court found that the affidavit of defendant’s counsel was insufficient because the counsel did not have any expertise in applicable scientific disciplines or possess sufficient personal knowledge of relevant matters on the material disputed issues.
In sum, the court said the uncontroverted evidence established that the defendant’s property was the source of the contamination. The key facts noted by the court were that:
- the gasoline tank excavated from the defendant’s property had holes in the bottom;
- the petroleum was found in the tank grave after the excavation;
- high concentrations of gasoline and MTBE were found in the soil and groundwater at the defendant’s property;
- the defendant’s property was identified as being at the top edge (highest point) of the contamination plume;
- groundwater migrated away from defendant’s property toward the impacted sites;
- vapors detected at the warehouse and affected residences were identified as a petroleum product;
- a buried stream channel in the bedrock at the defendant’s property provided a migration pathway for the gasoline contamination to travel to the impacted areas;
- there was a continuous impacted area between the spill site and the downgradient impacted warehouse;
- forensic analyses of the petroleum in the wells at the affected residences established that it was post-1990 unleaded gasoline; and
- the defendant’s property were the only nearby retail source of unleaded gasoline produced after 1990.
Besides, the court went on to say, the plaintiff was not required to exclude other parties as contributing dischargers to establish defendant was strictly liable under the Navigation Law. The court said the possibility that other dischargers contributed to the off-site contamination was irrelevant to the question of if the defendant was strictly liable as a discharger under the Navigation Law. The court said that once the plaintiff established defendant was strictly liable as a discharger for all cleanup and remediation costs associated with the contamination, the defendant had the burden of proof to raise a triable issue of fact with regard to its liability and it failed to do so. Accordingly, the appellate court affirmed the granting of the summary judgment in favor of the plaintiff.
Of course, the defendant is not without recourse. It can proceed with a Navigation Law contribution claim against the other parties that it believes are dischargers.
This case illustrates the importance of identifying preferential transport pathways when evaluating the potential for vapor intrusion at sites with petroleum releases. EPA’s proposed “Guidance For Addressing Petroleum Vapor Intrusion At Leaking Underground Storage Tank Sites” (PVI Guidance) that was released for public comment last week indicated that lateral distance beyond which buildings and other structures may not be threatened by potential PVI is a site-specific analysis. For the vertical separation distance which is the thickness of clean, biologically active soil between the highest vertical extent of a contaminant source and the lowest point of an overlying building, EPA recommends vertical separation distances of 6 feet for dissolved and 15 feet for LNAPL sources.
However, EPA also states that preferential pathways can increase the speed at which contamination moves through the subsurface so that contaminants are not biodegraded by the time they reach receptors. Preferential pathways can be natural (e.g., gravel lenses, buried stream beds, solution channels in karst terrain, bedrock fractures) and human features (utility corridors, trenches, sumps, drainage pits). Other factors that EPA identified in its pVI Guidance can impact degradability of petroleum contamination and thus may require investigation include exceptionally dry soils and areas of extensive impervious paving.
Friday, April 26th, 2013
Large swaths of New York City contain fill material that may contain constituents such as heavy metals. Other soils may contain VOCs, petroleum and lead paint from demolished buildings. As a result, brownfield projects in New York City can generate large quantities of excavated soil that may have to be managed as hazardous waste. Having to dispose soils and building debris as hazardous waste not only significantly increases disposal costs but can also trigger two types of state hazardous waste tax assessments or fees that can significantly add to the total project costs. Indeed, depending on the size of the site or the depth of the excavation, the hazardous waste taxes could approach or even exceed the total remediation costs.
The first type of fee is the New York State Hazardous Waste Program Fee (Program Fee). Under ECL Article 72, persons that generate 15 tons or more of hazardous waste in a calendar year must pay an annual fee to the New York State Department of Environmental Conservation (NYSDEC) that is based on the quantity of hazardous waste generated. ECL §72-0402. The fee rate is $130 per ton of hazardous waste generated but is capped at $800,000 for persons who generate 10,000 tons or more tons of hazardous waste in a year.
The second tax is known as the New York State Special Assessments on Hazardous Waste Generated (Special Assessment). While the Special Assessment is also based on the quantity of hazardous waste generated, the fee varies depending on how the waste is managed. For hazardous waste that is removed from the site of generation (e.g., development site) and disposed in a landfill, the Special Assessment is $27/ ton but is $16/ton when the hazardous waste is treated or disposed at a disposal facility that is not a landfill or incinerator. When the hazardous waste is removed from the site and incinerated at an off-site facility, the tax is calculated at $9/ton but drops to $2/ton when the hazardous waste is incinerated on site. The Special Assessment must be paid on a quarterly basis to the New York State Department of Taxation and Finance.
ECL §72-0402 established a number of statutory exceptions to the Program Fee. A developer will not trigger the Program Fees liability if the hazardous waste is generated pursuant to an agreement or order with the NYSDEC under the state superfund program (ECL §27-1301 et seq.), the state brownfield program (ECL §27-1401 et seq), the state New York Navigation Law, the Environmental Restoration Program (ECL § 56-0503), and a state RCRA permit or corrective action order (ECL § 27-0901) or otherwise with the approval or the NYSDEC or in compliance with the NYSDEC regulations. The Special Assessment is not triggered for cleanups performed under the state superfund law (SSF), state brownfield cleanup program (BCP) or the Environmental Restoration Program (ERP).
Unfortunately, cleanups performed under the New York City Voluntary Cleanup Program or that are performed in accordance with a remediation plan approved by the New York City Department of Environmental Protection (NYCDEP) to satisfy mitigation requirements under the City Environmental Quality Review (CEQR) Act do not at this time qualify for the statutory exemption. The New York City Office of Environmental Remediation (OER) is seeking a legislative fix so that OER-supervised cleanups will be eligible for a statutory exemption.
Until Article 72 is amended or an administrative solution is achieved, developers working with OER or NYCDEP oversight should perform hazardous waste determinations as part of a phase 2 or remedial investigations. If it appears that the proposed activity will generate significant quantities of hazardous wastes, the developer should consider applying to the state Brownfield Cleanup Program (BCP). If the site is not eligible for the BCP because, for example, the only contamination at the site is due to the presence of fill material or groundwater has been impacted by an off-source source, the developer should consult with counsel to determine if it can or should try to enter into an order with NYSDEC to qualify for one of the statutorily provided exemptions. It is important for developers to plan before they commence earth-moving activities so they can avoid or minimize unanticipated significant Program Fees or Special Assessments.
Thursday, April 25th, 2013
EPA and some state environmental agencies may occasionally issue “comfort letters” to facilitate a particular brownfield project to assuage concerns of developers or lenders about their potential liability. However, regulators have made it clear that they do not have the resources to review conclusions in phase 1 or phase 2 reports generated during routine real estate or financing transactions.
As a result, property owners and lenders are forced to evaluate recommendations or conclusions about environmental conditions identified during due diligence based on their own risk tolerance. The definition of a “Recognized Environmental Condition” (REC), which is used in phase 1 reports that conform to the ASTM E1527 phase 1 standard, involves a certain level of professional judgment and it is not unusual for a property owner or its counsel to disagree with an environmental consultant if a certain condition rises to the level of a REC. Moreover, environmental consultants often tailor their recommendations to the risk profile of their clients or the structure of a particular transaction. For example, a consultant may recommend additional sampling for one lender who will retain the loan on their books and where the loan is highly-leverage. On the other hand, another lender with a recourse loan that has guaranty from a high net worth individual or well-capitalized entity may not feel it necessary to further define the potential liability associated with the environmental condition.
This subjective approach to environmental risk often causes borrowers to misperceive the risks associated with a property. As we have previously written, borrowers typically believe that a site is “clean” if a bank determines that a Phase 1 or phase 2 is acceptable. However, what many borrowers do not realize is that lenders are positioned differently than property owners from a liability standpoint and therefore may have risk tolerances that are different from those who take title to potentially contaminated property. Because of the secured creditor exemption under CERCLA and most state superfund laws, lenders will not be liable for remediation unless the borrower encounters financial difficulties and the bank either takes over the borrower’s operations or forecloses on the property. As a result, the bank’s liability for environmental conditions is generally limited to the value of the loan.
In contrast, a borrower/property owner will be first in line for any enforcement actions that may result if the land turns out to be contaminated. Indeed, there have been a number of recent cases where borrowers relied on a Phase 1 that was acceptable to its lender only to find out after the borrower acquired title that the site was contaminated
To help reduce this uncertainty and to facilitate redevelopment of contaminated properties, the New York City Office of Environmental Remediation (OER) has the authority and ability to issue two types of letters that can help facilitate real estate transactions or enable lenders to become comfortable with the environmental conditions at a property.
The first type of letter is known as an “acceptance letter”. This type of letter is particularly useful when a phase 2 identifies contaminants above the standards established by the New York State Department of Environmental Conservation (NYSDEC) but there are not any completed pathways because of the existence of a building foundation, paved surfaces, etc. OER will review phase 2 reports and if it agrees that no further action is required, OER will issue a letter indicating it accepts or agrees with the conclusions of the report.
The second letter is known as a pre-enrollment “comfort letter.” Frequently, when a consultant recommends further sampling or cleanup, lenders may require a borrower to enroll in a voluntary cleanup program prior to the closing and require borrower to covenant to obtain a no further action letter from the appropriate regulatory agency. Unlike other remedial programs, the OER voluntary cleanup program does not accept applicants until after a site has been characterized and documented in a remedial investigation report. Thus, a borrower may not be able to actually enroll in the NYC VCP until after the closing. To provide assurance to a lender, OER will issue a pre-enrollment letter indicating that the borrower is making progress towards acceptance into the OER VCP. OER interprets this sentence very broadly and will write letters to satisfy concern of lenders.
Monday, March 11th, 2013
EPA proposed to approve final authorization to the New York Department of Environmental Conservation (NYSDEC) to administer the state hazardous waste program in lieu of the federal RCRA program. 78 FR 15299 (3/11/13). The authorization will become effective on May 10, 2013 unless EPA receives adverse written comment by April 10, 2013. The NYSDEC hazardous waste regulations are at 6 NYCRR Part 364.
Once New York receives final authorization, NYSDEC will issue permits for all the provisions for which it is authorized and will administer the permits it issues. EPA will continue to administer any RCRA hazardous waste permits or portions of permits still in effect that were issued prior to the effective date of this authorization, and also process permit modification requests for facilities with existing permits.
New York used oil regulations are more stringent than the corresponding Federal regulations in a number of different areas. The more stringent provisions are being recognized as a part of the Federally-authorized program and are Federally enforceable.
- New York requires that laboratory tests or sample analyses, including rebuttable presumption analyses, be performed by a State-certified laboratory;
- New York does not accept reliance upon generator knowledge of the halogen content;
- Used oil collection centers are subject to the more stringent transfer facility standards;
- Used oil transfer facilities are subject to a number of additional requirements including the general facility standards for processing and re-refining facilities, additional testing, reporting and emergency procedures, and closure requirements;
- Aboveground and underground used oil tanks must also be in compliance with more stringent installation, closure, inspection and repair standards, and registration requirements in New York’s Petroleum Bulk Storage (PBS) rules, 6 NYCRR Parts 612, 613, and 614;
- the state subjects used oil burners to the more stringent management standards in the state Air Quality regulations of 6 NYCRR Part 225;
- New York prohibits the use of used oil as a dust suppressant;
- Storage of used oil must also be in compliance with local and state fire and building codes, including NFPA-30;
- Spills are subject to requirements in Article 12 of the Navigation Law, its implementing regulations, and related provisions in the Environmental Conservation Law and the PBS regulations, in addition to the federal standards;
- New York requires additional labeling of units associated with used oil storage;
- New York requires additional notification, recordkeeping and increased periods of record retention for several aspects of used oil management;
- New York prohibits the storage of used oil in pits, ponds and lagoons;
- New York requires that processors/re-refiners must submit to the department’s Central Office and Regional Office, an annual report instead of a biennial letter, as required in the federal regulations;
- New York prohibits the disposal of recyclable used oil by means of absorbents, except to clean up spills;
- Owners and operators of used oil transfer facilities must test all incoming loads of used oil for total halogen content, in accordance with a written quality control plan;
New York’s hazardous waste program also has some components that are broader than RCRA. EPA cannot enforce broader-in-scope requirements though these requirements are enforceable by NYSDEC. The following state requirements are not part of the EA authorization:
- New York regulates used oil containing greater than 50 ppm of PCB wastes as hazardous waste, unless the PCBs were derived solely from small capacitors; however, these wastes are not considered hazardous wastes under the Federal RCRA program. PCB wastes are regulated under the Federal Toxic Substances Control Act (TSCA) at 40 CFR part 761;
- New York has not adopted the federal exclusion for oil re-refining distillation bottoms that allows these materials to be used as feedstock to manufacture asphalt products.
Friday, December 28th, 2012
According to representatives of the New York State Department of Environmental Conservation (NYSDEC), approximately 1600 residential properties suffered oil spills following Superstorm Sandy. Most of the spills were the result of damaged heating oil tanks. More than 3000 oil spills were reported following Sandy for all categories of properties.
NYSDEC performed emergency response such as removing damaged tanks and floating product but property owners are responsible for completing remediation. To facilitate insurance coverage, NYSDEC will issue notice of liability letters upon request. These letters can be obtained by contacting the NYSDEC region offices.