By: Erik S. Mroz
On March 23, 2018, the President signed the Consolidated Appropriations Act of 2018. The law, better known as the Omnibus Spending Bill, funds the federal government through September 30, 2018. Contained within the approximately 2,300 pages of federal spending is the Brownfields Utilization, Investment and Local Development (B.U.I.LD.) Act of 2018. The B.U.I.L.D. Act’s purpose is to expand protections, resources and incentives for public and private brownfield redevelopment while encouraging the development of renewable energy and energy-efficient projects and the promotion of waterfront brownfields projects.
A. What is a Brownfield?
Under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601, et seq. (“CERCLA”), a “brownfield site” is any “real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant.” 42 U.S.C. § 9601(39)(A). Under federal law, hazardous substances generally refer to substances that are hazardous to human health or pose a risk to the environment. In other words, a “brownfield site” is any property that is or may be contaminated with a hazardous substance such that it negatively impacts the property’s productive use. Since developers tend to avoid investment in contaminated properties, we can be reasonably certain that just about any contaminated property could qualify as a “brownfield site” under certain conditions.
EPA estimates that there are between 400,000 and 500,000 brownfield sites in the United States. Many of them are located in Indiana. Brownfield sites range in size from small abandoned shops and old gas stations to multi-acre industrial facilities, old landfills and dump sites. Due to the presence of contamination, and often without a responsible party to clean it up, these properties can be a financial strain on local governments.
B. Legal Impediments to Redevelopment
One of the primary impediments to the redevelopment and reuse of brownfield sites is the law itself. When Congress passed CERCLA in 1980, it adopted the so-called “polluter pays” principal. In theory, the “polluter pays” principle means that the government should avoid using taxpayer money to remediate contaminated properties. Instead, government would use legal means to compel the “polluter” to use its own funds for cleanup. Thus, instead of creating a government funded tax-and-spend program to deal with affected properties, Congress created a liability regime to compel private parties to remediate their own properties.
By “polluter pays,” however, Congress did not limit CERCLA liability to only those parties that actually caused pollution. Section 107(a) of CERCLA imposes strict and joint and several liability on current owners and operators of contaminated property regardless of fault. 42 U.S.C. § 9607(a). This means that, under most circumstances, innocent landowners are liable for 100% of the cleanup cost. Such liability can be to the federal government, the state, and private parties, and there are few defenses available.
Originally, Congress included only three defenses to CERCLA liability: (1) An Act of God; (2) An Act of War; and, (3) An act or omission of the third party with whom a potentially responsible party has no contractual relationship. 42 U.S.C. § 9607(b). None of these defenses fit the usual scenario in which a developer seeks to purchase and redevelop contaminated property. For instance, it would be exceedingly difficult for a new owner to prove that the release of hazardous substances at a property was “solely caused by an Act of God or an Act of War.” The fact-sensitive nature of those defenses presents an almost impossible burden for an otherwise innocent developer to overcome. Further, in most cases, the developer would have a contractual relationship with the polluting party by way of a purchase and sale agreement for the property itself. Thus, the so-called “third-party defense” would not apply to most developers and most redevelopment projects.
CERCLA’s “polluter pays” principle has historically acted as a deterrent to the reuse of impacted properties. Few developers were willing to take on costly environmental liabilities caused by others. Since the cost of cleanup often exceeds the value of the property itself, it is difficult, if not impossible, for the remediation to be priced into the project and still remain viable.
C. Past Attempts by Congress to Promote Brownfield Reuse
In 1986, Congress passed The Superfund Amendments and Reauthorization Act (“SARA”), which modified the CERCLA third-party defense to include certain innocent landowners and those that acquired contaminated property by inheritance or bequest. Under the amended statute, a “contractual relationship” is deemed to not exist when a purchaser conducts pre-sale due diligence on the property but yet does not know or has no reason to know of the contamination at the time of purchase. Under SARA, such an unknowing purchaser would be spared CERCLA liability but would be required to comply with any continuing environmental obligations after acquiring the property. The innocent landowner’s defense under SARA is extremely narrow and does not apply to most property transactions involving contaminated sites. Crucially absent from the defense is any protection to purchasers that undertake the pre-sale due diligence and then learn that contamination may be present.
In 2002, Congress passed the Small Business Liability Relief and Brownfields Revitalization Act (“Brownfields Act”) to expressly encourage the acquisition and redevelopment of contaminated properties through the bona-fide prospective purchaser (“BFPP”) defense to liability. Under the 2002 Brownfields Act, a BFPP is a person who acquires ownership in a property after January 11, 2002 and who establishes the following by a preponderance of the evidence:
- The hazardous substance disposal occurred before the purchaser acquired the property;
- The purchaser conducted pre-sale due diligence by making “all appropriate inquiries;”
- The purchaser complies with all continuing obligations after acquiring the property; and,
- The purchaser has no affiliation with a liable party.
Under the 2002 Brownfields Act, a developer could acquire a contaminated parcel with full knowledge of the contamination and, so long as it complied with all other legal requirements, avoid liability to the government or a private party under CERCLA. The BFPP defense is automatic. There is no specific government program that a person needs to enroll into in order to qualify. As a defense to liability, the person claiming BFPP status will have to show by a preponderance of the evidence that he/she has complied with all elements of the defense.
The federal government and the states have also created brownfields programs, which aim to provide assurances, authorize certain revitalization funding and provide technical assistance. One benefit of these programs is that the government can issue a comfort letter to a BFPP that outlines the steps that the BFPP must take to maintain BFPP the defense to CERCLA liability. These comfort letters can be especially helpful to a BFPP/developer trying to understand its post-acquisition environmental responsibilities, and their attendant costs, before the property is even purchased.
D. What Does the B.U.I.L.D. Act Do?
The 2018 B.U.I.L.D. Act “builds” upon the 2002 Brownfields Act. It both expands and refocuses existing programs and creates new incentives. First, it reauthorizes the federal brownfields program through FY 2020. Second, it amends CERCLA to exempt most acquisitions of contaminated property by units of local government. Third, it protects certain lessees from federal environmental liability. Fourth, the B.U.I.L.D. Act changes how federal brownfield grants work. Finally, it updates and creates additional funding for authorized recipients and authorized projects.
1. Shields Local Governments from Liability
One of the most important provisions of the B.U.I.L.D. Act is that it expanded liability protection for local governments. Prior to the B.U.I.L.D. Act, local governments were not protected from liability unless the local government acquired contaminated property “involuntarily.” The B.U.I.L.D. Act has amended CERCLA’s definition of “owner or operator” to exempt local governments that acquire ownership or control over contaminated properties through law enforcement activities, eminent domain by purchase or condemnation, or “through other circumstances in which the unit of State or local government acquires title by virtue of its function as a sovereign.” Importantly, this protection is not an affirmative defense (like BFPP). Rather, Congress has now determined that units of local government generally will not be liable under CERCLA for the contaminated properties they own. The only exception is if the unit of local government actually “caused or contributed to the release or threatened release of a hazardous substance.”
2. Expands BFPP Protections to Lessees
Since 2012, EPA’s internal guidance has provided that lessees of contaminated properties can acquire and maintain BFPP protections just like an owner. The B.U.I.L.D. Act amends CERCLA to expressly provide this statutory protection. For a lessee to claim BFPP status, it will have to establish that it has complied with all pre- and post-acquisition requirements – just like any other BFPP. A lessee will also have to establish by a preponderance of the evidence that “the tenancy or lease is not designed to avoid liability under this Act.”
3. Expands Eligibility Requirements for Federal Grants and Other Funding
CERCLA Section 104, 42 U.S.C. 9604, defines the entities that are eligible to receive federal funding for brownfields projects. Prior to the B.U.I.L.D. Act, only governmental or quasi-governmental agencies were eligible for funding. The B.U.I.L.D. Act amends 42 U.S.C. 9604(k)(1) to expand the definition of “eligible entity” to include:
- A Section 501(c)(3) tax-exempt organization;
- A limited liability company or partnership in which all managing members or general partners are 501(c)(3) tax-exempt organizations; and,
- A qualified community development entity under Section 45(c)(1) of the IRS Code.
4. Changes Federal Grants and Adds New Funding
The B.U.I.L.D. Act changes the way federal grants and brownfields funding works:
- The B.U.I.L.D. Act establishes a new “multipurpose brownfield grant” program. This provides funding to an eligible entity to “carry out inventory, characterization, assessment, planning or remediation activities at one or more brownfield sites in a proposed area.” Individual grant amounts are capped at $1 million.
- The B.U.I.L.D. Act also increases funding for remediation grants under Section 104 of CERCLA from $200,000 per site to $500,000 ($650,000 with a waiver). However, total brownfields funding remains set at $200 million per year for FY 2019 through 2023. Thus, it appears probable that there will be larger grants issued to fewer projects. EPA has identified this as a potential problem and has asked for comments from the regulated community on this issue.
- The B.U.I.L.D. Act established a Waterfront Brownfield Grant program. Despite its name, this is not a separately managed program. Congress has not authorized any additional funding. Rather, Congress has directed EPA to “take into consideration whether the brownfield site to be served by the grant is a waterfront brownfield site and give consideration to waterfront brownfield sites.” The B.U.I.L.D. Act defines “waterfront brownfield” as a “brownfield site that is adjacent to a body of water or a federally designed floodplain.”
- The B.U.I.L.D. Act also establishes a new clean energy brownfield grant program. The grant, which will not exceed $500,000, provides funding to eligible entities to “carry out inventory, characterization, assessment, planning, feasibility analysis, design, or remediation activities to locate a clean energy project at one or more brownfields sites.” In turn, “clean energy project” is defined as a “facility that generates renewable electricity from wind, solar, or geothermal energy; and, any energy efficiency improvement project at a facility, including combined hear and power and district energy.”
5. Other Changes Provided by the B.U.I.L.D. Act
In addition to the provisions discussed above, the B.U.I.L.D. Act also amends CERCLA and the federal brownfields program in other important ways. For example, the B.U.I.L.D. Act amends CERCLA to provide that publicly-owned brownfields sites are eligible for redevelopment grant money even if they were not owned by a BFPP and acquired before January 11, 2002. The B.U.I.L.D. Act also expands federal grants to include certain sites affected with petroleum contamination. Congress will also allow up to 5% of a grant award to be used for administrative costs.
The 2018 B.U.I.L.D. Act is another act of Congress to promote the reuse and redevelopment of contaminated properties. It does this by expanding liability protections, allocating funding, including changes to existing grants and the creation of new grants, and through other incentives. On June 26, 2018, EPA began soliciting public comments on the implementation of the B.U.I.L.D. Act. All comments were due on July 10, 2018. One of the issues identified by EPA in its Federal Register Notice was whether the regulated community will support a higher per grant funding amount even if the result is that fewer communities will receive brownfields cleanup grants. It will be interesting to see how stakeholders will respond.