United States: EPA Issues Guidance Authorizing Use Of CERCLA Special Account Funds By Qualified Redevelopers

On March 27, 2018, the US Environmental Protection Agency (EPA) issued new guidance regarding use of Superfund special account funds in a memorandum titled "Guidance on Disbursement of Funds from EPA Special Accounts to Entities Performing CERCLA [Comprehensive Environmental Response, Compensation, and Liability Act] Response Actions." ¹ Significantly, for the first time in its guidance on this topic, EPA recognized that special account funds may be disbursed to bona fide prospective purchasers (BFPPs) undertaking CERCLA response actions. This guidance presents an opportunity for redevelopers to make use of outside funds for redevelopment of contaminated properties. The new guidance is part of EPA's implementation of the Superfund Task Force Recommendations, specifically the recommendation to maximize the use of special accounts to facilitate site cleanup and redevelopment.

CERCLA grants EPA authority to use funds received in settlement for purposes of carrying out response actions at a site. CERCLA § 122(b)(3) ("If, as part of any agreement, the President will be carrying out any action and the parties will be paying amounts to the President, the President may, notwithstanding any other provisions of law, retain and use such amounts for purposes of carrying out the agreement."). The funds are held in site-specific accounts within EPA's Hazardous Substance Superfund (Trust Fund), referred to as "special accounts." The recently-issued guidance memorandum explains the terms under which an entity may receive special account funds.

Special account funds may be used as a settlement incentive for potentially responsible parties (PRPs) taking response actions pursuant to an agreement under CERCLA (but not a unilateral order). This is a traditional use of special account funds, which EPA has long recognized.

In addition, special account funds may now be used to incentivize cleanups by bona fide prospective purchasers (BFPPs) that agree to undertake CERCLA response actions at a site. Under the federal BFPP legal defense, parties may purchase property knowing that it is contaminated after performing specific pre-acquisition due diligence and still qualify for legal liability protection so long as they comply with government clean up requests, are not affiliated with a PRP, and did not cause the contamination. EPA's new guidance makes clear that such entities are eligible for receipt of funds from special accounts. The guidance supersedes prior guidance issued by EPA on the topic, which did not specifically authorize disbursement of funds to BFPPs.

EPA intends to use special account fund disbursements to BFPPs to incentivize them to agree to conduct EPA-selected response actions. EPA believes that doing so will achieve multiple goals, including "promoting enforcement fairness by compensating a BFPP for costs it will incur in performing work that other parties would otherwise be expected to undertake or to fund, expediting cleanup and reuse of sites, and allowing EPA to conserve its annually appropriated Superfund Trust Fund money for use at other sites where viable PRPs do not exist." ²

The availability of funds to BFPPs will depend on the specific terms of the settlement agreement pursuant to which EPA placed funds into a special account, as well as competing funding needs for work related to the site. EPA will balance priorities for use of special account funds and make disbursement decisions on a case-by-case basis. Special account funds will only be disbursed to BFFPs for expenses related to the implementation of response action; redevelopment costs wholly unrelated to implementation of an EPA-selected response action are not eligible. EPA will not provide disbursements before work is performed, but rather as a reimbursement for costs incurred for completed work. Further, EPA regional offices must consult with the EPA Headquarters Office of Site Remediation Enforcement (OSRE) prior to making an offer of a special account disbursement to a BFPP. In contrast, where disbursements will be made to a PRP, prior written approval will be required.

The guidance also provides that in addition to BFPPs, other similarly-situated parties (e.g., those who may be subject to a statutory exemption or defense) may be eligible, at EPA's discretion, to receive special account funds when they conduct CERCLA response actions at a site pursuant to an agreement. Redevelopers that anticipate conducting post-closing CERCLA response actions would be well-served to evaluate the viability of BFPP legal defense and the possibility of reimbursement from the Superfund special account during legal due diligence. ³

Footnotes

1 Available here.

2 Id., at 4.

3 In addition, state funds are often available for use in investigation and cleanup of contaminated properties. For example, in California, state funding is available through the Orphan Site Cleanup Fund, the Site Cleanup Subaccount Program, and the Target Site Investigation Program, among other funding sources.

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