September 28, 2017

Working around an unworkable Voluntary Cleanup Program

Martin

In 1997, the Washington Department of Ecology rolled out its Voluntary Cleanup Program, which allows individuals who conduct independent cleanups to request informal advice and assistance from Ecology and receive a written opinion on the sufficiency of completed cleanups under the Model Toxics Control Act.

An NFA letter — an opinion from Ecology that “no further action” will be required at the site — often provides enough assurance for a lending institution to finance real property sales and development, or for potential buyers to enter into real estate transactions.

By all accounts, Ecology’s VCP has been wildly popular in Western Washington. Over 5,000 applications were submitted for VCP enrollment between 1997 and 2015. As of December 2015, 56 percent of the VCP cleanups were in the Northwest Region (which includes King County), 35 percent were in the Southwest Region (includes Pierce County), 5 percent were in the Central Region and 4 percent were in the Eastern Region.

Participation in the VCP is driven by redevelopment: The number of new VCP applications fluctuates with real estate demands, redevelopment needs and construction season.

Unfortunately, the popularity of the program has also been its Achilles’ heel. At the same time as participation is increasing, Ecology staff numbers are down and the agency has a limited ability to rehire because of revenue constraints. As a result, VCP sites are not moving through the program, threatening development projects and real estate transactions.

Ecology has tried to address the problem in several ways:

• In June 2016 it required that plans and reports submitted to Ecology for review include information specified in checklists, or they would be returned without processing.

• In August 2016 Ecology announced that new complex sites would not be eligible for the VCP, and complex sites already in the program would be handled on a case-by-case basis, with some participants with complex sites being encouraged to leave the VCP program and enter into the formal cleanup program.

• In December 2016 Ecology instituted two different wait lists, one for existing VCP projects where no site manager is assigned, and a second for new VCP applications. It is not possible to “get in line” and reserve a slot on the wait list for when a project is ready for an opinion — Ecology will not accept applications if written opinions or technical assistance are not requested at the time of application.

Existing VCP participants with complex sites will be urged (and perhaps required) to leave the program and proceed under a formal cleanup. Sites where there has been no action for an extended period of time may be required to take action, submit a plan for action, or risk being kicked out of the program until a written opinion or technical assistance is requested.

Environmental consultants, real estate developers and construction contractors most impacted by the VCP backlog have asked why Ecology cannot simply employ a pay-to-play model that allows developers to expedite VCP review by paying increased fees, as municipalities do.

For example, Pierce County provides for expedited project review performed by Planning and Land Services staff, third-party consultants and extra hires paid for by the applicant under an expedited review agreement. King County has a similar program, which funds the expedited review through expedited review fees of 150 percent of the regular review fee.

Contractors have also inquired about Ecology using qualified outside consultants to review VCP projects. Outside consultants have been used successfully in the water rights arena to clear the backlog of pending applications and speed up the decision-making process.

Quicker decisions result under the program because the resources of a consulting firm are dedicated to the investigation of a particular application, and can return a decision within a matter of months rather than a matter of years. This model may be the solution for the VCP, but it will require legislative action to amend MTCA.

So, what is a developer or seller of contaminated property to do? Neither Ecology nor state law prohibits the transfer of contaminated property. Rather, banks, transaction financiers and buyers require assurance regarding liability stemming from contamination as a condition of lending or acquisition, and many believe that the absence of an NFA letter is a deal killer.

With the current condition of the VCP, an NFA letter may be three years out. Fixes for the VCP may be in the works, but waiting for the Legislature to act will likely not meet acquisition or construction timelines.

The simple answer is to be creative. Here are some tips:

• Educate your lenders or deal partners. Many lenders are under the false impression that an NFA letter means a site is “clean” and subsequent owners have no risk of having to deal with potential environmental liabilities. That simply is not true. An NFA letter, even one that says that no further action will be required to satisfy MTCA cleanup requirements, does not fully absolve a person of liability to the state or third parties. Ecology does not have the authority to settle with any person potentially liable under MTCA except under a consent decree.

• Consider specialized environmental insurance such as pollution legal liability, remediation cost cap, blended finite risk and secured creditor policies to allocate environmental risks in transactions and provide certainty for lenders or purchasers.

• Assemble an experienced team to help you. An environmental consultant can advise what would need to be done to meet MTCA cleanup regulations and obtain approval from Ecology if and when the cleanup is submitted to Ecology for review. An environmental lawyer can draft contractual provisions such as environmental disclosures or indemnity provisions as stand-alones or on concert with specialized insurance policies.

• Don’t be afraid to go it alone (i.e., perform an independent cleanup without any Ecology oversight). A cleanup conducted by an experienced consultant, in compliance with MTCA, can be submitted to Ecology for approval under the VCP after it is completed.

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