With little fanfare in March, Congress and the Trump administration gave a jump start to the U.S. Environmental Protection Agency’s brownfields program and codified important liability protections with an addition to the Consolidated Appropriations Act of 2018 called the Brownfields Utilization, Investment, and Local Development Act of 2018 (the BUILD Act). H.R. 1625. Local governments and nonprofits interested in redeveloping abandoned properties and private investors should be excited by these important changes.
Brownfields are properties that face redevelopment or expansion challenges due to concerns about actual or potential historical contamination from previous industrial or other operations that used hazardous substances or petroleum products. Examples might be land with a vacant but serviceable building that formerly housed a manufacturing facility that used hazardous substances or a former dry cleaner or retail gas station. The EPA’s brownfields program is designed to return those properties to productive use by providing grants for property assessment or cleanup, revolving loan fund grants, area-wide planning grants and job-training grants.
The BUILD Act significantly upgrades this program by appropriating $200 million for the grant programs for each fiscal year from 2019 through 2023. BUILD Act, § 13. This resets the funding level to where it had been when the program was formally established in 2002. 42 U.S.C. 9604(12)(A). In the intervening years, funding had lagged to the point where EPA announced it would only award about $50 million in fiscal year 2018. EPA FY18 Guidelines for Brownfields Assessment Grants, Request for Proposal, EPA-OLEM-OBLR-17-07, p. 1. In addition, the BUILD Act provides $50 million for each of the next five fiscal years for small community technical assistance grants. Id., § 15.
New Liability Protections
The BUILD Act also codified EPA guidance that extended the bona fide prospective purchaser (BFPP) defense to liability under the Superfund statute (also known as CERCLA) to many more tenants. Tenants are generally considered a current “operator” of a facility, and thus can be liable under CERCLA. 42 U.S.C. § 9607(a)(1). When Congress established the BFPP defense in 2002, it was limited to persons who owned the contaminated property and their tenants, 42 U.S.C. § 9601(40), but only so long as the owner maintained its BFPP defense. This meant tenants could lose their BFPP protection through no fault of their own and could not obtain BFPP status if the owner did not have it if, for example, the owner acquired the property before the program began in 2002. In 2012, EPA published guidance saying it would exercise enforcement discretion not to assert liability against tenants in three circumstances: (1) if the tenant qualified as a BFPP by conducting appropriate pre-lease investigations and meeting the other BFPP requirements—even when the owner did not qualify for a BFPP defense; (2) if the tenant leased the contaminated property from an owner who was a BFPP; and (3) if the tenant leased the contaminated property from an owner who was a BFPP at the commencement of the lease but then lost the defense through no fault of the tenant.
Congress finally saw fit to amend CERCLA so the statutory definition of a BFPP now expressly includes tenants in the three circumstances noted above. Now tenants can qualify for the BFPP defense by conducting a Phase I Environmental Site Assessment before commencement of the lease and then complying with the other elements of the BFPP defense, e.g. giving required notices of site conditions to the government and providing access to the property for investigation and cleanup. BUILD Act, § 5. The BFPP defense does not technically apply to Resource Conservation and Recovery Act corrective action sites, but the EPA follows guidance providing comfort letters and similar relief for Resource Conservation and Recovery Act sites, and these amendments in the BUILD Act still provide greater options and certainty to new tenants operating on previously contaminated property.
The BFPP defense enhancements were not the only CERCLA liability relief in the BUILD Act. Government entities that gain ownership or control of land through seizures, abandonments, bankruptcies, foreclosures or similar means no longer have to do so “involuntarily” to avoid liability. Among other things, this modification makes clear that if a local government seizes property under law enforcement actions or settles a bankruptcy or foreclosure action by taking title to property, it will not be deemed to have CERCLA liability because it voluntarily became the owner of the property. BUILD Act, § 2. Another provision of the new act provides a CERCLA liability exemption to Alaskan Native villages or Native Corporations in certain circumstances. Id., § 3. These changes will make government entities more likely to be eligible for EPA brownfield grants and also will allow Alaskan entities access to the grants.
Brownfield Program Improvements
In addition to the new liability protections, the BUILD Act adopts a number of improvements to EPA’s brownfields grant program. One of the most notable improvements expands program benefits to nonprofit organizations. Id., § 6. Brownfield grants are only available to “eligible entities,” which has been restricted to states and local government entities, quasi-governmental entities, including redevelopment agencies, and Indian tribes. 42 U.S.C. § 9604(k)(1). With the BUILD Act revisions, 501(c)(3) nonprofits and certain affiliated limited partnerships and LLCs can also apply for grants. Importantly, a limited partnership is eligible if all the general partners are 501(c)(3) entities, and an LLC is eligible so long as all the managing members are 501(c)(3) entities. This could allow some for-profit entities to indirectly benefit from brownfield grants, albeit they would not have any management control. Qualified community redevelopment entities under Internal Revenue Code section 45D(c)(1) also are now eligible for brownfield grants.
The BUILD Act also expanded the usefulness of the grant program by increasing the per-site grant limits in two ways. First, Congress directly increased the per-site maximum grant for cleanup from $200,000 to $500,000, which can be further increased to $650,000 by EPA if certain requirements are met. BUILD Act, § 8. Second, there will now be a new sub-program for multi-purpose brownfield grants to investigate, characterize, assess, plan and remediate at one or more brownfield sites in an area proposed by an eligible entity. Multipurpose brownfield grants can be up to $1,000,000 per area, and the aggregate of such grants in any fiscal year can be as much as 15 percent of the available funds. Multipurpose brownfield grants must be fully spent within five years of the award and are only available to eligible entities that actually own the brownfield site. Id., § 9.
The BUILD Act provided a spur to waterfront brownfield sites and sites that would be reused for renewable energy or energy efficiency projects. These changes were made by requiring the EPA to consider these factors as additional criteria to rank grant applications. Id., § 11. Applications for sites adjacent to a body of water or a federally designated floodplain, for sites intended for reuse for renewable energy facilities (wind, solar and geothermal), and for sites intended to host an energy efficiency improvement project will now be on an even footing with sites slated for recreational, park and similar revitalization efforts.
Governments and Indian tribes also benefit from a program expansion that allows some sites acquired before January 11, 2002 to receive brownfield grants. Id., § 7. Historically, the program has provided grants only to sites acquired by eligible entities after the date of enactment of the program. 42 U.S.C. § 9601(40)(BFPP only applies if property purchased before January 11. 2002). Now, eligible governmental entities and Indian tribes (but not nonprofit eligible entities) can apply for funding for earlier acquired sites even if the eligible entity is not a BFPP “so long as the eligible entity has not caused or contributed” to the contamination at the property. BUILD Act, § 7.
The BUILD Act also made it easier for applicants to obtain grants for brownfields with petroleum contamination. The brownfield program has allowed grants to assess and clean up petroleum contaminated sites despite the general petroleum exclusion in CERCLA, but restricted those grants to sites that posed “a relatively low-risk” compared to other petroleum-only sites in the same state. Because so many brownfield sites have petroleum contamination, this imposed a real limitation on the program and also required a difficult administrative judgment as to the eligibility of many sites. BUILD Act, § 4. Another change to the brownfield program allows up to 5 percent of a grant or loan to be used to cover administrative costs of the eligible entity. Id., § 10.
All in all, the BUILD Act is a welcome revitalization of EPA’s brownfields program and provides new tenants with greater options and certainty in avoiding responsibility for pre-existing hazardous substance contamination.
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