November 28, 2018

Texas Close ’Em: Municipal Setting Designations as a Closure Tool

John Slavich and David E. Whitten

I. Introduction

Dealing with sites that have contaminated groundwater is always a challenge. Risk-based closure standards in Texas and other states require that contamination in the groundwater be addressed in order to achieve regulatory closure. In certain instances, that can be achieved using an institutional control prohibiting the use of the groundwater. However, before the State of Texas will consider the use of such an institutional control, contamination in the groundwater plume must be fully delineated. The resulting work needed to “chase the plume” is, in many cases, expensive and time-consuming. Municipal Setting Designations can serve as a closure tool in Texas to short-cut the traditional regulatory closure process by removing the groundwater ingestion pathway as a regulatory concern.

The Texas Legislature created Municipal Setting Designations (MSDs) in 2003 (Tex. H.B. 3152, 78th Leg., R.S. (2003)) as a legislative amendment of the Texas Risk Reduction Program (TRRP) standards established by the Texas Commission on Environmental Quality (TCEQ). The MSD statute is codified at Tex. Health & Safety Code § 361.801 et seq. There are no implementing regulations regarding MSDs.

TRRP serves as the TCEQ’s “cleanup cookbook” for Texas remediation projects under the Voluntary Cleanup Program (VCP) and the Corrective Action Program. MSDs can provide particular relief from the factor typically responsible for the greatest amount of cost and time in addressing environmental impacts at a contaminated site—potential human consumption of contaminated groundwater—where conditions indicate that human consumption of affected groundwater is not reasonably anticipated. With an MSD, persons addressing impacted property may be subject to less stringent assessment and cleanup requirements than would otherwise be required under TRRP. MSDs can be used to obtain regulatory closure from the TCEQ for a site with contaminated groundwater more quickly and with more certainty and less cost as compared to other approaches under risk-based corrective action standards.

II. Municipal Setting Designations and Regulatory Closure

A. Background
An MSD is not a stand-alone regulatory fix for a contaminated property. An MSD does not substitute for a Certificate of Completion (COC) under the Texas VCP or a no-further-action determination under one of the other Texas remediation programs, such as the TCEQ’s Corrective Action Program or Petroleum Storage Tank Program. Rather, it is a tool used as a component of the State’s regulatory closure process.

MSDs can be used to avoid a complete delineation of the lateral and vertical extent of impacts to affected media above TRRP Protective Concentration Levels (PCLs) for chemicals of concern, which would otherwise be required by the TCEQ. Delineation of contaminated groundwater will many times be the most costly and time-consuming component of the TRRP closure process.

B. The Municipal Setting Designation
An MSD is a specified geographic area that is certified by the TCEQ pursuant to an application by a property owner, municipality, or others enrolled in a TCEQ closure program. The statute has one criterion for eligibility: a public drinking water supply system must exist that is capable of supplying drinking water to the MSD property and property within one-half mile of the MSD Property. (A previous statutory provision required that the property be within the corporate city limits or extraterritorial jurisdiction of a municipality with a population of at least 20,000; that was eliminated by legislative action in 2007 to allow for wider utilization of MSDs in Texas.) The boundaries of an MSD may or may not be identical to boundaries of the property subject to the TCEQ closure program. An MSD can extend beyond the applicant’s property and also cover adjacent properties. Generally, such a multi-property MSD will require the authorization of the owners of each of the properties covered by the MSD. For example, the City of Dallas sponsored an MSD along the Singleton Boulevard corridor in West Dallas, but only properties where owners elected to participate were included in that MSD. In contrast, the City of Fort Worth spearheaded an MSD covering approximately 2000 acres in the Trinity Uptown section of the city without the prior written approval of property owners within the MSD boundaries.

Certification (i.e., approval of an MSD by the TCEQ) affects TRRP standards by changing the applicable assessment and cleanup levels for groundwater, and also for soil, with respect to the MSD site. So long as groundwater contamination is not causing, nor is it reasonably anticipated to cause, off-site impacts to human health within a one-half mile buffer zone surrounding the MSD, then groundwater and soil assessment and cleanup levels based directly or indirectly on safe drinking water standards do not apply under TRRP. The determination of actual or potential exposure to contaminated groundwater is based on a survey of existing groundwater wells within the one-half mile buffer zone surrounding the MSD. Even if there are state-registered groundwater wells within the buffer zone surrounding the MSD property, if the groundwater contamination impacting the MSD property is not reasonably anticipated to impact these existing wells, the human ingestion pathway for groundwater will not be considered under TRRP. To justify elimination of the human ingestion risk factor, the municipality in which the proposed MSD is located must adopt an ordinance or deed restriction prohibiting potable use of affected groundwater within the surveyed boundaries of the MSD.

If no groundwater wells exist within the buffer zone, or if it can be shown that the contamination is not reasonably anticipated to impact any existing wells, the VCP or Corrective Action applicant can eliminate the following PCLs for purposes of assessment and cleanup under TRRP:

  • The groundwater PCLs for direct human ingestion of groundwater (GWGWIng).
  • The soil PCLs for protection against leaching of contaminants from soils into groundwater at levels that would be unsafe for human ingestion (GWSoilIng).

At sites where an MSD can eliminate the groundwater exposure pathway, the effect on assessment and cleanup standards can be dramatic. For example, many dry cleaner sites are contaminated with the solvent used in dry cleaner operations. That solvent is typically tetrachloroethylene, commonly known as “perc.” The groundwater PCL, based on ingestion of perc, is 0.005 ppm. That number will be considered the “critical” PCL and groundwater assessment and cleanup to that level would be required under TRPP. By eliminating the ingestion pathway with an MSD, the critical PCL will no longer be the ingestion pathway, but rather the inhalation pathway, of 500 ppm, which is 100,000 times greater than the non-MSD critical PCL of 0.005 ppm.

Also, although groundwater contamination may be the primary focus at a site, an MSD can also relax soil assessment requirements and reduce the amount of soil that must be removed or otherwise remediated to achieve regulatory closure. When an MSD removes the groundwater ingestion pathway, the critical PCL for soil will be based upon a combined ingestion, dermal and inhalation exposure level rather than a soil-to-groundwater protection level. For example, elimination of the ingestion PCL for perc, at a site with a source area under half an acre, can result in an increase in the critical PCL for soil from 0.05 mg/kg (GWSoilIng) to 710 mg/kg (TotSoilComb) for a residential site and 1400 mg/kg (TotSoilComb) for a commercial/industrial site.

In many cases, TCEQ can issue a VCP Certificate of Completion, or a no-further-action letter under the Corrective Action Program, for a site with an MSD without requiring remediation of impacted groundwater. Certification of an MSD does not, however, eliminate all assessment and cleanup requirements under TRRP. As noted above, two of the groundwater-related exposure pathways (ingestion, and protection of groundwater from surface and subsurface soil contamination) are eliminated from the risk analysis under TRRP. There are, however, three other groundwater pathways that must still be considered and either eliminated or addressed: inhalation of volatiles; discharge to subsurface water; and ecological protection. Similarly, an MSD does not eliminate all assessment and cleanup requirements for soil contamination.

An emerging issue that will also need to be considered is vapor intrusion. When contaminated groundwater will not be remediated as part of the closure approach (such as where an MSD is utilized), the concentration of volatiles remaining in groundwater can present other concerns. While TCEQ has not adopted standards that address vapor intrusion from soil, groundwater, or soil gas beneath a property, the agency can point to broad enabling language in TRRP and choose to add vapor intrusion pathways into the closure process on a case-by-case basis. This subjective approach can add uncertainty to the closure process. Additionally, the marketplace has developed views on vapor intrusion. Lenders and purchasers may require vapor sampling at closed sites to allay concerns that extend beyond regulatory closure. When vapor is a potential concern to the TCEQ, current agency policy is to require a deed notice to be filed in the real property records requiring further steps.

For these and other reasons discussed above, it is important that persons planning to use an MSD strategy to address contamination under TRRP conduct an initial screening investigation to evaluate whether an MSD will satisfy all TRRP assessment and cleanup requirements, or whether other pathways present issues that would need to be addressed in satisfying regulatory closure requirements.

C. The Municipal Setting Designation Process
The MSD process involves a series of requirements at the municipal and state levels.

1. State MSD Requirements
The steps to obtain MSD certification for a site are defined in Subchapter W of the Texas Health & Safety Code. These steps include application and payment of a $1000 fee; notice of the application (mailed to affected municipalities, municipal and retail public water utilities, and registered water well owners); public comment period (60 days); staff technical review (90 days); and certification by the TCEQ.

2. Municipal MSD Procedures
Obtaining an MSD at the local level is an inherently political effort. An MSD project starts at the local municipal level, where an applicant must obtain either (i) a municipal ordinance that prohibits the use of affected groundwater from beneath the property as potable water and that appropriately restricts other uses of and contact with that groundwater, or (ii) a restrictive covenant approved by municipal resolution and enforceable by the municipality in which the property is located that prohibits the use of designated groundwater from beneath the property as potable water and appropriately restricts other uses or contact with affected groundwater. An applicant must receive approval of the city council of the municipality in which the MSD is located. Additionally, depending on the specific circumstances, an applicant may need to obtain resolutions of support from municipalities or water systems located within a specified radius of the MSD property (one-half mile and five miles, respectively).

Some Texas municipalities have adopted procedural ordinances regarding the consideration and adoption of an MSD. Other municipalities consider an MSD on a case by case basis. The municipalities with established MSD procedural programs have varied approaches to application fees, notice requirements, public participation, and paperwork independent of and in addition to the determinations required by the TCEQ. Here are some examples:

  • The City of Dallas requires an applicant to provide a limited power of attorney to indicate that it is authorized to file the MSD of record on property it does not own.
  • The City of Houston requires full delineation of the contaminant plume, removal of the source, and demonstration of plume stability.
  • The City of Carrollton requires indemnification of the municipality by the applicant, which can be satisfied by environmental insurance.

Whether the jurisdiction has adopted a procedural ordinance, or whether it considers an application on a case-by-case basis, an MSD applicant must obtain certain resolutions in support of the MSD before the TCEQ may certify an MSD. Except for MSD property in the City of Houston, resolutions in support of the MSD must be obtained from (i) the city council of the municipality in which the MSD is located, and any other municipalities located within one-half mile of the boundary of the MSD; and (ii) the governing body of each municipal and retail public utility having a groundwater supply well within five miles of the MSD. In Houston, however, an applicant for an MSD will be deemed to have received approval that would otherwise be provided by resolutions of support if, after providing the required notices, none of the affected municipalities or public utilities within 120 days from the date of receipt of the notice pass a resolution opposing the application for the MSD.

Obtaining the necessary resolutions can be a practical challenge since these other entities may not have the same interest in approving the MSD as the host municipality. Consequently, the MSD is, at its heart, a political process, with accompanying environmental technical aspects, and it is imperative that the MSD applicant keep in mind that its project team will need to include professionals that can assist with the political and related legal issues, which are very different than the expertise provided by most environmental consultants. Often working with the city attorneys to help explain the process from both a legal and technical perspective is critical to the success of an MSD effort.

D. Is an MSD an Institutional Control?
An institutional control is defined by TRRP as “a legal instrument placed in the property records in the form of a deed notice, Voluntary Cleanup Program Certificate of Completion (VCP Certificate of Completion), or restrictive covenant which indicates the limitations on or the conditions governing the use of the property which ensures protection of human health and the environment or equivalent zoning and governmental ordinances.”

By creating a restriction on groundwater use using a municipal ordinance or deed restriction, an MSD has the same practical effect as an institutional control. However, the State of Texas effectively places MSDs in a category separate from institutional controls under TRRP. In order to satisfy cleanup responsibilities at a contaminated property, the various requirements under TRRP Remedy Standard A or B are to be used to ensure that the property is rendered protective of human health and the environment.

While an institutional control can be used to demonstrate that a property has achieved a Remedy Standard A for commercial/industrial land use, by implication an institutional control cannot be used for a residential land use under Remedy Standard A. In contrast, the TCEQ allows an MSD to be used to obtain a Remedy Standard A residential closure for appropriately remediated property.

One practical effect of that distinction is that the VCP applicant can use a Self Implementation Notice (SIN) under TRRP rules to perform the work necessary to achieve target cleanup levels for a Remedy Standard A residential closure. A SIN allows the VCP applicant to proceed with remediation without requiring submission of a Response Action Plan, which, unlike a SIN, will require State approval. Use of a SIN can save time in the remediation schedule, which can be critical to a developer.

E. The Importance of MSDs to Real Estate Deals in Texas
MSDs offer more certainty and finality to projects involving contaminated properties. As noted earlier, an MSD strategy can eliminate the need to “chase the plume” of contamination, which would otherwise be required under TRRP. That is particularly useful in situations where the plume has migrated and impacted off-site properties.

A combined VCP/MSD approach can substitute for an Innocent Owner/Operator program (IOP) strategy for a site. The certificate issued by the TCEQ under its IOP program provides a release of liability from the State without addressing regulatory closure of the contamination. In contrast, an MSD/VCP approach can provide regulatory closure and also overcome the primary drawback of an Innocent Owner Certificate (IOC) to real estate developers: the IOC does not run with the land.

MSDs can also address concerns regarding liability exposure for environmental conditions that may have impacted surrounding properties. MSDs can reduce the potential for tort exposure by demonstrating that levels that exceed TRRP published standards can be left in place and still be deemed protective of human health and the environment under TRRP. MSDs also offer a vehicle for the owners of impacted adjacent property to join with the MSD applicant and extend the boundaries of the MSD to cover that adjacent property.

For the reasons noted above, MSDs provide an important tool for property owners needing an exit strategy for environmentally impacted properties, and for purchasers and developers dealing with the challenges of redeveloping contaminated property.

John Slavich and David E. Whitten

Published: November 28, 2018

John Slavich and David E. Whitten are shareholders in the Dallas office of Guida, Slavich & Flores, P.C. Mr. Slavich focuses his practice on contaminated property transactions and brownfield redevelopment projects, as a natural progression from his experience cleaning up messes as a janitor during college. Mr. Whitten’s post-law school experience as a D.C. congressional counsel and lobbyist has positioned him to handle the governmental affairs aspects of the MSD process as part of his environmental regulatory and transactional practice. In 2004, they guided the very first MSDs in Texas to approval and both have been involved in dozens of MSD-based closures in Texas in the ensuing years.