by Jack Bails, Vice President and Senior Consultant for Natural Resources

This Advisor discusses the new polluter pay legislation, especially its potential effects on older urban areas.

In January 1995 a coalition of Michigan’s core city mayors recommended changes to the Michigan Environmental Response Act (MERA) to expedite the redevelopment of contaminated properties in our cities. While most of the mayors’ recommendations were included in House Bill 4596, their original proposal called for moderate reforms compared to the substantial modifications eventually adopted by the Michigan legislature. HB 4596, which has passed both houses and is awaiting the governor’s signature, has created considerable controversy.

Statewide business and industry organizations have applauded the changes as long overdue corrections to a statute that imposes unreasonable cleanup requirements and routinely entraps businesses with cleanup responsibility for contamination problems they did not cause. Environmental and conservation organizations believe the proposed changes will gut the pollution prevention aspects of MERA and represent a major step backwards in Michigan’s efforts to protect the environment. The controversy centers primarily on the issue of liability for cleanup costs.

Liability Changes

The 1990 amendments to MERA, the so-called polluter pay provisions, created the Michigan equivalent to the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) by establishing strict, joint and several liability for owners and operators of sites contaminated with hazardous substances. The current debate over HB 4596 focuses on the issue of liability for cleanups and how the proposed changes substantially narrow the definition of who is responsible for cleanup costs and where the burden of proof lies.

Under the 1990 amendments Michigan adopted the federal scheme in which current owners and owners and operators at the time of release were equally responsible. The burden was on the potentially responsible party or parties to establish a defense against liability or to resolve between themselves allocation of cleanup and damage costs. The portion of cleanup costs attributable to parties that could not be found, or to those who had no assets, were divided among the responsible parties with sufficient funds. The Michigan law went even further than the federal law by declaring all intervening owners (owners subsequent to the release of the hazardous substance up to the current owners) responsible parties.

Under the new amendments to MERA current owners and operators are considered liable only if they are responsible for an activity that causes a release or threat of release. Even owners and operators at the time of the release of a hazardous substance are not defined as liable under HB 4596 unless they were responsible for an activity that caused a release or threat of release. Thus, interim owners are not liable and the state must establish that any potentially liable current or past owner or operator was responsible for an activity causing the problem. Owners who purchase contaminated property after the effective date of the amendments are not liable for any historical contamination provided they conduct a baseline environmental assessment on the contaminated site and report the results to the Michigan Department of Natural Resources (MDNR).

Implications for Contaminated Urban Properties

Developers will welcome the changes in liability for new owners of contaminated property. Basically, if they undertake an adequate environmental assessment, new owners and developers will not be held liable under state law for historical site contamination problems. In theory, it will be easier to redevelop and reuse urban properties that have low levels of environmental contamination that do not pose a significant risk to public health safety or welfare. It is not clear what is likely to happen to contaminated property where significant cleanup will be required to allow for the intended reuse, especially absent funding sources or state grant programs.

With fewer, if any, responsible parties available under the new law to share the cost of cleanup at highly contaminated sites, the net result will be that fewer significantly contaminated sites will be remediated unless a large new source of public funding becomes available. How investors and lenders will respond to these liability changes is unclear. Lenders—whose primary concern has been and will remain the market value of any contaminated property that is used as collateral for a loan—were insulated from responsibility for costs and damage claims for contaminated sites under the former law.

The “savings” realized by former and present owners and operators who are not liable under the revised statute are not likely to be invested in the cleanup of contaminated urban sites. The few responsible parties that remain liable under the amended statute may not have sufficient assets to remediate existing contamination, and the number of orphan sites that become a public responsibility could increase substantially.

In the past, new owners of contaminated sites often sought covenants not to sue under MERA in which sale proceeds were dedicated for site cleanup activities in exchange for liability protection. Under HB 4596 new owners are protected from liability if they perform and report a baseline environmental assessment, further limiting the private dollars available to address problem sites.

Modified Cleanup Standards

The MERA administrative rules contain some of the most precise and stringent environmental cleanup standards in the nation. The protection of groundwater is a major focus based on the fact that most of Michigan’s rural population depends upon relatively shallow wells for drinking water and many urban areas in the central part of the state draw their municipal water from vulnerable, regional groundwater aquifers.

The former standards for cleanup of groundwater contaminated by carcinogenic chemicals required treatment to reduce the risk to less than one new cancer in a population of one million exposed over a lifetime. The standard was applied statewide regardless of whether the groundwater was used or available for use as a drinking water supply. Many argued that the standard was too conservative and should not apply where groundwater was not being used and drinking water was being supplied from the Great Lakes.

The new law’s standards increase the allowable risk for carcinogens to a projected increase of one new cancer in a population of 100,000 persons exposed to the hazardous substance. The new standards also allow contaminated groundwater to remain untreated under certain circumstances where the risk of public or environmental exposure to the contaminants can be minimized (presumably, in areas where groundwater is not used as a water supply and does not represent a risk to lakes and streams).

Environmental and conservation organizations are concerned that by allowing contaminated groundwater to go untreated, incentives in MERA that encouraged pollution prevention will be lost and the poor management practices that caused groundwater contamination in the past will continue. They are also concerned that uncontaminated groundwater in rapidly urbanizing rural areas will be especially vulnerable, since the future cost of cleanup under the amendments of any release of a hazardous substance may be less than the cost of investing in pollution prevention measures.

A noncontroversial change in law eliminates the so-called Type C restrictive use cleanups, where contaminants are allowed to remain in place, in favor of a cleanup designation based on future uses. Restrictive residential reuse would have the highest cleanup standards based on projected exposure, while restricted industrial reuses would allow greater concentrations of contaminants to remain in place since potential exposures would be limited.

The MDNR is directed under the amendments to promulgate rules to implement these restrictive use cleanup categories. It is hoped that the change will remove the stigma associated with Type C cleanups that limited use of this approach in the past.

Redevelopment of Contaminated Urban Sites

Clearly, part of the justification for lower standards is to encourage cleanups by making them less costly for both public and private entities. With fewer responsible parties available to pay cleanup costs under the new law, the assets available from the remaining responsible parties can be used more efficiently to achieve closure and reuse of contaminated sites. Many urban areas in Michigan obtain drinking water from the Great Lakes, and these areas will benefit the most from the modifications that would allow contaminated groundwater to remain untreated so long as it poses no immediate threat to public health or surface waters.

It is not certain that stretching available cleanup dollars will result in more reinvestment for reuse, however. Many factors other than environmental contamination influence where new investments are made. If the changes result in a larger number of urban sites being cleaned up and made available for reuse, one of the existing barriers to reinvestment and redevelopment will have been removed.

The legislature required the MDNR to prepare a report within two years after adoption of the amendments on the effectiveness of the new standards in restoring the economic value of contaminated property. At a minimum, if more current sites of environmental contamination can be addressed, contiguous, noncon-taminated properties will benefit from removing these sources of urban blight.

Mandated Action of Owners and Operators of Facilities

The amendments to MERA require certain actions of owners and operators of sites of environmental contamination defined as facilities. Current owners and operators who are not liable but have knowledge that the property is contaminated must exercise due care to mitigate unacceptable exposures to hazardous substances to protect public health and safety. In addition, they must prevent exacerbation of existing contamination and take reasonable precautions against the consequences of actions of a third party at the facility.

Moreover, owners or operators who have knowledge that a property is a contaminated site as defined in the amendments and are liable are required under the new law to take actions. They must determine the nature and extent of the release, report it, immediately stop the release, implement source controls or removal measures that are technically practical and cost effective, remove free product contaminating the groundwater, take actions to prevent fire and explosions, and otherwise diligently pursue response activities necessary to achieve the cleanup criteria required by law. The critical question is which owners are liable and therefore mandated to take these actions?

Voluntary Changes

Although the new amendments require liable owners and operators to take actions, this mandate has limited value without a court determination of liability. Since the amendments require that the state establish that the owner or operator was responsible for actions that resulted in a release of a hazardous substance, few persons are likely to waive available defenses, declare themselves liable, and proceed to clean up a site. The new mandates are not likely to increase either the number or speed of voluntary cleanups.

Winners and Losers

Those who were responsible parties and liable for cleanup costs under the old law and are now not liable will save money under the new amendments. This category includes many Michigan major manufacturers, who by the nature of their businesses have historically owned or had an interest in a significant portion of the industrial property in this state that is now contaminated. Other winners include current owners of contaminated property who will now claim exemption from liability on the basis that the site was contaminated when purchased.

Also among the winners are owners and operators at the time the property was contaminated who are now protected from liability unless the state can prove they took actions that resulted in the release of hazardous substances at the site. Owners of property currently on the Act 307 list of contaminated sites that will be removed from the list as a result of the revised standards will certainly benefit from the amendments. Those still liable for cleanup costs will realize significant benefits if the groundwater remediation expenses are reduced as a result of the amendments.

While the MDNR estimates that under the new law the cost of cleaning up contaminated sites would be reduced by 30–40 percent, the Senate Fiscal Agency reports that the net increase in costs to the state under the liability changes will range between $100 million and $500 million. (See exhibit.) The Michigan taxpayer will be the losers if these projections are correct.

If public funds are not available for cleanups at all the remaining highly contaminated sites, adjacent property owners will suffer. Without new public funds, highly contaminated properties will continue to stymie revitalization of Michigan’s older industrial core city areas.

Who Will Pay?

That only polluters should pay seems like simple justice. Proving someone is a polluter is difficult under HB 4596. Under the old law, you were a polluter by status: If you owned or operated the site at the time the release occurred you were assumed to be liable and had to assert and establish your defense in court. The same was true if you were a current or interim owner of a contaminated site. Under the amended law you are a polluter only if in addition to being the owner or operator you were responsible for actions that resulted in the release. The state must prove you took the actions it claims were responsible for the release.

The amendments basically support the contention that historical environmental contamination problems are pervasive and usually the result of industrial and commercial practices that were deemed acceptable in the past. Unless the state can prove a person was responsible for a specific activity that resulted in pollution, the amendments appear to support the conclusion that the cleanup costs should be a public expense.

Under HB 4596 the attorney general has a significant burden to prove who is a polluter. In some ways the new amendments make it more difficult to prove liability for contamination problems than was the case under common law in effect prior to the passage of MERA polluter pay provisions in 1990.

Although the new provisions of HB 4596 purport to offer automatic protection from liability under CERCLA to new owners of contaminated sites, all owners and operators are still liable under this federal law. Those who purchase contaminated sites in the future and former owners and operators seeking liability protection under federal law must still reach a legal settlement with the Michigan attorney general.

Summary

Older urban areas may never realize the benefits the mayors hoped for under their original proposal for revised cleanup standards and expedited liability protections for new developers. The radical change in liability status has so limited the number of responsible parties that without a large infusion of new public dollars, abandoned, heavily contaminated, former industrial sites in our cities will remain a chronic problem.

Finding a mechanism to publicly fund environmental cleanups has never been easy. Given the general resistance to new taxes or fees, finding sufficient dollars to address the remaining contaminated sites is a formidable task. New proposals to publicly fund expanded environmental cleanup activities in our older urban industrial areas will find few serious supporters among elected state officials unless there is an outcry of public support.

Copyright © 1995

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