The Wiggin and Dana Manual on Legislative, Regulatory, and Financial Assistance Tools for Brownfields Development in Connecticut: Part I

A cradle of manufacturing and industry, Connecticut serves as home to a significant number of abandoned or partially used industrial properties.¹ Plagued or stigmatized by either real or perceived environmental contamination, these legacy properties constitute Connecticut's "brownfields." Factories and mills that once made clocks, pins, thread, hats, buggies, guns, military ordnance, and other products in plants throughout the state now lay idle and unused, suffering from the specter of environmental contamination. The redevelopment of these brownfield properties presents a significant economic opportunity for private developers while serving important public functions, including expanding the State's economic base, revitalizing towns and cities, and leaving prized undeveloped "greenfields" undisturbed.

This Manual aims to bring together in a single concise volume various materials concerning the legislative, regulatory, and financial assistance tools available for brownfields development in Connecticut. We do not intend for this work to serve as a comprehensive legal reference, particularly with regard to legislation and regulation governing the cleanup of contaminated sites. Rather, we focus on the facilitation of planning for and implementation of transactions involving properties challenged by real or perceived environmental contamination.

In doing so, we first present, in Chapter 1, a brief overview of the subject of brownfields development. We proffer an overall definition of brownfield properties, describe the liability scheme created by federal and state statutes that substantially contributed to the boarding-up and under-utilization of these sites, and briefly discuss the recent legislative trend to provide relief from that liability scheme and encourage brownfield development.

Next, in Chapter 2, we present a thumbnail description of the Connecticut Transfer Act, Connecticut General Statutes §§22a- 134 et seq., which regulates the transfer of establishments which at one time conducted hazardous waste operations, and other legislative and regulatory programs dealing with voluntary remediation of contaminated properties in Connecticut.

We have devoted the majority of our attention in this Manual to financial assistance tools, the subject of Chapter 3. We deal first with Connecticut programs, then with federal programs, and present a table that lists the programs by agency, showing (among other things) eligibility criteria and amounts available.

We hope you will find that this Manual serves as a useful and useable tool when you consider undertaking a brownfields project. Please do not hesitate to contact us at Wiggin and Dana if you have any questions about the subjects discussed in this Manual or if we can provide any other assistance.

Federal law defines a "brownfield site" as "real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant."² In a more general and practical sense, a brownfield consists of any real property which, due to actual or suspected environmental contamination, may lie idle, unoccupied, underutilized, unused, or have any one or combination of these characteristics. A brownfield may be industrial, commercial, agricultural, or even residential. In many, if not most instances, a brownfield will not be the subject of an active investigation, remedial, or enforcement action by the U.S. Environmental Protection Agency (EPA) or a state environmental agency, although it may be.

The contamination at a brownfield may stem from activities that took place or conditions that arose before current ownership and operation of the property, and as a result of lawful non-negligent conduct. Liability for brownfields cleanup arises under the federal Comprehensive Environmental Remediation, Compensation, and Liability Act ("CERCLA" or "Superfund", 42 U.S.C. §§ 9601 et seq.) and similar state statutes (e.g., Connecticut General Statutes §§ 22a- 133e et seq. and §§22a-451 et seq.), and extends to all past and current owners and operators of the property and to any party responsible for generating or transporting any hazardous substances requiring cleanup at the property. Liability under this scheme is "joint and several," i.e., each potentially responsible party ("PRP") bears the entire responsibility for all remedial expenses to a person who cleans up a site, notwithstanding the amount or nature of contamination for which the PRP may be individually responsible. Allocation among PRPs usually takes place in lawsuits or in other adversary contacts in which the PRPs seek equitable contribution among themselves. This liability scheme has discouraged parties who own properties which they believe may have contamination from putting these properties on the market, and likewise has discouraged parties who could purchase and rehabilitate these properties from doing so.

The liability scheme of CERCLA can be summarized in four words: joint, several, strict, and retroactive. Liability will attach to any party that has any connection with a site that contains hazardous materials. For CERCLA purposes, "connection" means owning the property, operating the property, or having brought materials to the property, and there was a release from the property that prompted investigation and remediation.

An entity that undertakes the investigation and remediation at the site (i.e., the government or a private party) may sue any PRP connected to the site in a "cost recovery" litigation. "Joint & Several" liability means that every PRP is liable for the entire cost incurred for investigation and cleanup. Thus, if one PRP who contributed 99% of the contamination at the site has dissolved or otherwise cannot pay its share, but two other financially viable PRPs remain, each of whom contributed only 0.5% of the contamination, those two viable parties will each be required to participate in paying not a combined 1%, but 100% of the cleanup cost (although they may argue with one another over how to split that cost). Given that the average cost of a cleanup initiated by the EPA under CERCLA amounted to about $30,000,000 in the 1990s, this division of responsibility among PRPs often led to expensive and protracted litigation.

"Strict" liability means that the manner in which the PRP managed the site or the contamination makes no difference to liability: one need not have been negligent nor have intended to cause a release of contamination in order to be subject to liability. Thus, the mere fact that a release occurred from a property which required cleanup makes all connected parties responsible for the cleanup cost. "Retroactive" liability arises in the context of a site operating prior to CERCLA's 1980 passage, even if managed lawfully and pursuant to then-current state of practice. Retroactive laws are usually considered unconstitutional, but the government argued, and the courts agreed, that CERCLA's retroactivity withstands constitutional scrutiny because it is a "remedial" statute.

The Love Canal case from western New York state during the late 1970s could be considered the "grandfather" of hazardous waste sites that gave birth to CERCLA. In that case, a chemical company had, over a period of more than 20 years from the 1920s through 1940s, filled an old abandoned clay-lined hydro-electric canal with hazardous plant waste, and sealed the site with a cap. In 1948, several years after it had closed the site, the company sold the property to the local school board, under threat of a condemnation action. Although the deed conveying the property contained a restriction prohibiting breaking the cap, the school board did so anyway, inexorably releasing a witches' brew of chemicals over a period of time into the basements of houses surrounding the canal. By 1978, the residents of those homes experienced high levels of cancer and other diseases arguably related to exposure to the chemicals' release from the Love Canal. At that time, no federal statute existed to redress this sort of problem - contamination emanating from the historical use of industrial facilities. Congress reacted to the Love Canal incident with the passage of CERCLA. One of the great, regrettable, and unintended results of this well-motivated statute was the boarding up of properties. CERCLA's draconian liability scheme inhibited property owners from putting brownfield properties on the market for development lest they be stuck with this liability, and similarly inhibited purchasers from acquiring and developing these properties for fear of inheriting such liability.

The National Brownfield Association (http://www.brownfieldassociation.org), an organization made up of stakeholders in brownfield properties, recently conducted a survey that tracked the sale and development of industrial properties from pre-1980 (when CERCLA was enacted) until the late 1990s. In the 10 years before the enactment of CERCLA, the survey found a steady increase in the purchase and development of industrial properties. With the passage of CERCLA, however, came a precipitous decline. Then, in the mid 1990s, when the states became more aware of a brownfields problem created by the CERCLA liability scheme, and they started enacting voluntary cleanup initiatives, a renaissance emerged in the development and marketing of environmentally impaired properties. This trend continued with the enactment and signature in January, 2002, of the Small Business Liability Relief and Brownfields Revitalization Act (the Brownfields Revitalization Act).³

Recent developments in federal and state law, as well as creative transactional lawyering, have made it possible for brownfields to be developed in such a way as to protect the parties from onerous potential liabilities.

The Brownfields Revitalization Act, referred to above, amended CERCLA by providing significant liability protection for brownfield developers, including prospective purchasers, innocent landowners, and owners of contiguous properties. In the new law's most significant change to the system of joint, several, strict, and retroactive liability, it exempts bona fide prospective purchasers of contaminated properties, provided that such purchaser "does not impede the performance of a response action or natural resource restoration." It also provides similar protections to qualified owners of properties contiguous to contaminated sites. The Act removes a party who qualifies as a "bona fide prospective purchaser" or as a "contiguous property owner" from CERCLA's definition of a PRP. It also clarifies the existing "innocent landowner" defense in CERCLA to allow current owners to rely (pending publication by the U.S.E.P.A. of its own regulations) on site assessment standards published by the American Society of Testing of Materials ("ASTM") to demonstrate their having made "appropriate inquiry" about the property before its purchase. Further, the Act provides that parties, even current owners, who do not qualify as "innocent," but who clean up contaminated sites under state programs (as discussed below) generally need fear no further cleanup enforcement by the U.S.E.P.A. The Act also provides $200 million for states to develop and expand environmental cleanup programs. By mitigating the legal risks associated with brownfields development, this law is intended to foster brownfields redevelopment projects.

Further, more than 40 states, including Connecticut (as described more fully in Chapter 2) have adopted, either by statute or administrative directive or regulation, programs for the voluntary remediation of brownfield properties. These programs facilitate the sale and redevelopment of brownfields by allowing cleanups based on site specific use and risk-based standards in lieu of an inflexible standard which may be technologically or financially infeasible. These programs also provide binding government approvals which allow parties in real estate and commercial transactions to quantify risk. Even in states without voluntary cleanup programs, brownfields development and avoidance of liability associated with brownfields may be achieved within the context of traditional transactions through the use of appropriate liability shifting, indemnification, and insurance mechanisms.

The Transfer Act sets forth the conditions under which an owner may transfer property or a business operation at which hazardous waste was generated on or after November 19, 1980. The Transfer Act assures the identification of contamination and allocation of responsibility for remediation of the contamination upon transfer of the property or business operation. It requires the owner of the "establishment" (as defined in the Transfer Act) to submit one of several property transfer Forms that discloses environmental conditions at the property or business operation to the transferee and to the Connecticut Department of Environmental Protection (DEP). The choice of Form depends upon the environmental status of the establishment. If the establishment has experienced a release of a hazardous waste or a hazardous substance, the party who signs the Form must also certify that he or she agrees to investigate the property and remediate pollution caused by any release of a hazardous waste or hazardous substance from the establishment. Four fundamental questions arise when considering the Transfer Act: 1. Does the property or business operation constitute an establishment? 2. Does the transaction constitute a transfer? 3. Which Form does the transaction require? 4. Who must submit or sign the Form?

1. Does the property or business operation constitute an "establishment?"

An establishment consists of real property at which (i) 100 kilograms of hazardous waste⁴ was generated in any one month on or after November 19, 1980; (ii) dry cleaning was conducted on or after May 1, 1967; (iii) furniture stripping was conducted on or after May 1, 1967; or (iv) a vehicle body repair facility was located on or after May 1, 1967.⁵ If a property or business operation qualifies as an establishment, then the party making the inquiry must move to the next inquiry.

2. Does the transaction constitute a "transfer?"

A transfer consists of a transaction through which an establishment will undergo a change of ownership but does not include, among other things:

• conveyance or extinguishment of an easement;
• conveyance of an establishment through a foreclosure;
• conveyance of a deed in lieu of foreclosure to a lender;
• conveyance of a security interest;
• termination of a lease and conveyance, assignment or execution of a lease for a period less than ninety-nine years, including conveyance, assignment or execution of a lease with options or similar terms that will extend the period of the leasehold to ninety-nine years;
• any change in ownership approved by the Probate Court;
• devolution of title to a surviving joint tenant, or to a trustee, executor, or administrator under the terms of a testamentary trust or will, or by intestate succession;
• corporate reorganization not substantially affecting the ownership of the establishment;
• the issuance of stock or other securities of an entity which owns or operates an establishment;
• the transfer of stock, securities or other ownership interests representing less than forty per cent of the ownership of the entity that owns or operates the establishment;
• any conveyance of an interest in an establishment where the transferor is the sibling, spouse, child, parent, grandparent, child of a sibling or sibling of a parent of the transferee;
• conveyance of an interest in an establishment to a trustee of an inter vivos trust created by the transferor solely for the benefit of one or more of the sibling, spouse, child, parent, grandchild, child of a sibling or sibling of a parent of the transferor;
• any conveyance of a portion of a parcel upon which portion no establishment is or has been located and upon which there has not occurred a discharge, spillage, uncontrolled loss, seepage or filtration of hazardous waste, provided either the area of such portion is not greater than fifty per cent of the area of such parcel or written notice of such proposed conveyance and an environmental condition assessment form for such parcel, is provided to the commissioner sixty days prior to such conveyance;
• conveyance of a service station;
• any conveyance of an establishment which, prior to July 1, 1997, had been developed solely for residential use and such use has not changed;
• any conveyance of an establishment to any entity created or operating under chapter 130 or 132 (Connecticut General Statutes §§ 8-124 et seq., 8-186 et. seq.), or to an urban rehabilitation agency, as defined in Connecticut General Statutes § 8-292, or to a municipality under Connecticut General Statutes §§ 32-224, or to the Connecticut Development Authority or any subsidiary of the authority;
• any conveyance of a parcel in connection with the acquisition of properties to effectuate the development of the overall project;
• the conversion of a general or limited partnership to a limited liability company under Connecticut General Statutes § 34-199;
• the transfer of general partnership property held in the names of all of its general partners to a general partnership which includes as general partners immediately after the transfer all of the same persons as were general partners immediately prior to the transfer;
• the transfer of general partnership property held in the names of all of its general partners to a limited liability company which includes as members immediately after the transfer all of the same persons as were general partners immediately prior to the transfer; and
• acquisition of an establishment by any governmental or quasi-governmental condemning authority.⁶

If an "establishment" undergoes a "transfer," then the transferor must answer the next question:

3. Which Form does the transaction require?

One cannot lawfully complete the transfer of an establishment without the submission to the transferee and filing with DEP of one of four distinctive Forms that sets forth the environmental condition of the site. The Forms, which the transferor must submit to the DEP within 10 days after the transfer of the property, cover environmental conditions ranging from those where no pollution has occurred to those where the pollution has already been remediated. In all transfers, the Transfer Act requires an investigation of the parcel in accordance with prevailing standards and guidelines in order to determine the condition of the property.

Form I applies in two instances: In the first, no release of hazardous waste or a hazardous substance has occurred at the establishment. In the second, no release of a hazardous waste will have occurred at the establishment, but a release of a hazardous substance will have occurred and will have been remediated⁷ in accordance with standards established by Connecticut's Remediation Standard Regulations ("RSRs").⁸ Form I must be accompanied by a completed Environmental Condition Assessment Form ("ECAF").⁹

Form II applies when a discharge, spillage, uncontrolled loss, seepage, or filtration of hazardous waste or a hazardous substance has occurred at the establishment, but a cleanup has been completed and approved in writing by the DEP or has been verified by a Licensed Environmental Professional ("LEP")¹⁰ to have been performed in accordance with RSRs. Form II must be accompanied by a completed ECAF.¹¹

Form III applies when a discharge, spillage, uncontrolled loss, seepage or filtration of hazardous waste or a hazardous substance has occurred at the establishment that has not been fully remediated or the environmental conditions at the establishment are unknown. The person signing the Form III certification agrees to investigate the parcel and remediate pollution caused by any release of a hazardous waste or a hazardous substance from the establishment in accordance with the remediation standards.¹² The statute does not require completion of remediation before transfer of the establishment. Form III must also be accompanied by a completed ECAF.

Form IV applies when a discharge, spillage, uncontrolled loss, seepage or filtration of hazardous waste or a hazardous substance has occurred at the establishment, and all actions to remediate any pollution caused by any release at the establishment have been taken in accordance with the remediation standards except post-remediation monitoring, natural attenuation monitoring, or the recording of an environmental land use restriction. The person or persons signing the Form IV must agree, in accordance with the representations made in the Form, to conduct post-remediation monitoring or natural attenuation monitoring in accordance with the RSRs, and must further certify that if further investigation or remediation are necessary, to perform further actions to investigate the establishment in accordance with prevailing standards and guidelines and to remediate the establishment in accordance with the remediation standards.¹³ Form IV must also be accompanied by a completed ECAF.

4. Who must submit or sign the Form?

Forms I and II each constitute a "Negative Declaration"¹⁴ with regard to contamination at an establishment. For establishments that meet the eligibility requirements for filing a Form I or Form II, the transferor of that establishment must submit the Form I or Form II to the transferee before the transfer, and to the DEP within 10 days after the transfer. If the establishment does not meet the criteria for a Negative Declaration, however, the Transfer Act requires the transferor to submit to the transferee and file with the DEP "a complete Form III or Form IV prepared and signed by a party associated with the transfer to the transferee."¹⁵ This signatory party may include one or more of the following entities:

a. the present or past owner of the establishment;

b. the owner of the real property on which the establishment is located;

c. the transferor, transferee, lender guarantor, or indemnitor;

d. the business entity which operates or operated the establishment; or

e. the state.¹⁶

Upon receiving the Transfer Act Form, the DEP must notify the party who filed the Form whether the DEP will oversee and approve the remediation of the property or whether an LEP can have that responsibility.¹⁷ In determining whether the DEP will review and approve the remediation or whether an LEP may verify that the remediation has been performed in accordance with the remediation standards, DEP will consider the following:

1. the potential risk to human health and the environment posed by any discharge, spillage, uncontrolled loss, seepage or filtration of hazardous waste or a hazardous substance at the establishment;

2. the degree of environmental investigation at the parcel;

3. the proximity of the establishment to significant natural resources;

4. the character of the land uses surrounding the establishment;

5. the complexity of the environmental condition of the establishment; and

6. any other factor the commissioner deems relevant.¹⁸

If the DEP notifies the certifying party that an LEP may verify the remediation, the certifying party must, within thirty days after receipt of the notice, submit to DEP a schedule for investigating and remediating the establishment and the schedule must provide that the investigation will be completed within two years after the date of receipt of notice. Remediation must begin within three years after the date of receipt of the notice. The schedule must include a schedule for public notice of the remediation prior to the initiation of the remediation.

If the DEP determines that the investigation and remediation of the establishment will require its review and approval, the certifying party must, within thirty days after the receipt of the notice, submit a schedule for investigating and remediating the establishment, submit scopes of work, technical plans, technical reports and progress reports and provide public notice of the remediation prior to the initiation of remediation.¹⁹

In 1995, the Connecticut General Assembly established two Voluntary Remediation Programs administered by the DEP's Bureau of Water Management Division of Permitting, Enforcement, and Remediation to encourage the cleanup of contaminated sites in the state. Unlike the Covenants Not to Sue, discussed below, parties responsible for contamination at a site or who are affiliated with such responsible parties, may participate in and take advantage of these programs.

The Voluntary Remediation Program, codified under Connecticut General Statutes § 22a-133x, provides eligibility to owners of sites that are (1) municipallyowned; (2) defined as "establishments" under the Transfer Act; (3) on the inventory of hazardous waste disposal sites maintained pursuant to Connecticut General Statutes § 22a-133c; or (4) located in areas where groundwater is classified as GA or GAA (groundwater designations that denote supplies of water known or presumed to be suitable for drinking without treatment).

To participate in the § 22a-133x Program, owners of eligible contaminated sites must submit an ECAF and review fee of $3,000 to the DEP Commissioner. Within thirty days after receipt of an ECAF, the Commissioner will then notify the owner in writing whether (1) the owner may proceed to use an LEP to verify that the participating site has been investigated in a manner consistent with prevailing standards and remediated in accordance with the RSRs or (2) the Commissioner will maintain oversight of the investigation and remediation of the site. For sites requiring DEP oversight, an owner must submit all schedules, plans, and reports for DEP review and approval before investigation and remediation may proceed. For sites not requiring DEP oversight, owners must submit a copy of an LEP's verification letter confirming a site's effective investigation and remediation to the DEP.

A second Voluntary Remediation Program, codified in Connecticut General Statutes § 22a-133y, applies to sites where a spill of hazardous waste has taken place. To qualify for the § 22a-133y Program, a site (1) must be located in an area where groundwater is classified as GB or GC (designations that denote groundwater (a) known or presumed unsuitable for drinking without treatment and (b) underlying waste disposal and surrounding areas) and (2) may not be subject to any order, consent order, or stipulated judgment issued by the DEP regarding a spill. To participate in the program, a site owner must submit to the DEP a remedial action plan prepared by an LEP and must comply with the notice requirements of Connecticut General Statutes § 22a-133y(b) prior to undertaking any remedial action. Once remediation is complete, the LEP responsible for the remediation must submit a final remedial action report to the DEP for review, possible audit, and approval.

Voluntary cleanups completed under these programs will qualify the owner of an establishment to make a negative declaration with a Form II filing under the Transfer Act.²⁰

III. Covenants Not to Sue

For bona fide innocent purchasers and innocent owners of sites who had no connection with contamination of the property, Connecticut General Statutes §§ 22a- 133aa and 22a-133bb provide Covenants Not to Sue, i.e., legally binding assurances that the DEP will not require present or future owners to undertake additional cleanup at a site once it has been remediated to current standards. First incorporated into DEP's remediation programs in 1995 and expanded with the passage of "An Act Concerning Brownfields Redevelopment and Recycling" in 1998, Covenants Not to Sue facilitate the redevelopment of properties by eliminating the risk of future liability from past contamination.

Under both sections, the DEP Commissioner may enter into covenants not to sue with (1) prospective purchasers of contaminated property; (2) current owners of contaminated property; and (3) lending institutions to which owners or prospective owners have conveyed a security interest in such property. Under Connecticut General Statutes § 22a-133aa, the DEP (rather than an LEP) must have approved the applicant's plan of remediation. This Covenant is transferable to a successor owner. The Covenant Not to Sue under Connecticut General Statutes § 22a-133bb applies where the remediation plan has received the approval of an LEP and is not transferable to a successor owner.

To obtain a Covenant Not to Sue under either section, prospective or current owners of a site must demonstrate that the site has been remediated and that they did not cause contamination at the site and have no affiliation with any party that did. In addition, prospective or current owners must attest that they will continue the productive use of the property or redevelop the property for productive use. Such an owner who obtains a transferable Covenant Not to Sue under § 22a-133aa must also pay a fee equivalent to 3% of the value of the property, based on an appraisal of the property as if it were uncontaminated. (Successors in interest to Covenant holders are not subject to the fee requirement.)

Although Covenants Not to Sue bar the DEP from ordering further remediation at a site related to contamination that pre-dates the Covenant, they do not protect against potential liability from third-party damage claims. Covenants also do not relieve owners from responsibility for contamination that occurs after the effective date of the Covenant, nor do they eliminate the requirement of additional remedial action if the DEP discovers previously unknown contamination resulting from a release prior to the date of the Covenant. Given the alternates provided in §§ 122a-133aa and 122a- 133bb, owners and prospective purchasers may choose between the less expensive and easier to obtain nontransferable Covenant and the more expensive but more valuable transferable Covenant.

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