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Washington Creates New Funding Mechanism for Updating and Cleaning Up Underground Storage Tanks

November 28, 2016

In April 2016, the Washington State Legislature established the Underground Storage Tank Revolving Loan and Grant Program. This program, jointly administered by the Washington State Pollution Liability Insurance Agency and the Washington State Department of Health, provides funding to current underground storage tank owners and operators to clean up contamination caused by underground storage tanks and replace or upgrade tank infrastructure, with a special emphasis on installing new alternative fuel infrastructure. Many landowners affected by legacy or migrating contamination are not eligible for this program, as only current UST owners or operators are eligible for funding. This program, although small in scope, may mark a trend of shifting some responsibility for cleaning up historical contamination away from the Washington State Department of Ecology to other agencies.

Overview

Program Administration

The Underground Storage Tank Revolving Loan and Grant Program (“UST Loan Program”) is jointly administered by the Pollution Liability Insurance Agency (“PLIA”) and the Washington Department of Health (“DOH”) (collectively “Agencies”), with PLIA providing technical expertise and project management and DOH bringing its expertise in program administration and financial lending.[1]

PLIA was established in 1989 with a mandate of implementing a reinsurance program that would allow underground storage tank (“UST”) owners and operators to obtain affordable UST insurance.[2] PLIA also implemented the UST Community Assistance Program in the early 1990s, which gave grants to UST owners in rural areas to fund upgrade and cleanup costs.[3] In the mid-1990s, PLIA began offering pollution liability coverage and technical assistance for heating oil tanks, which are not covered under the UST insurance program.[4] PLIA brings its experience with UST insurance and cleanup to the administration of the new UST Loan Program.

DOH is a large agency that handles a wide range of public health programs, including: emergency preparedness and response to bioterrorism, infectious disease, and natural disasters; management of public records such as births, deaths, marriages, and hospitalizations; food and drinking water safety; and disease prevention.[5] DOH’s experience with loan programs such as the Drinking Water State Revolving Loan Program[6] and program administration will be helpful in implementing the new UST Loan Program.

The UST Loan Program took effect July 1, 2016, and the Legislature has allocated $2.5 million for startup activities and $10 million for the operation of the program in fiscal year 2017.[7] The money is allocated from the Pollution Liability Insurance Program Trust Account, which is funded by the petroleum products tax. With the administration of this program in mind, PLIA has hired three new personnel, including a hydrogeologist, fiscal analyst, and community involvement coordinator.[8]

The UST Loan Program will be governed by PLIA rules; however, official rulemaking is forthcoming with an estimated completion date of spring 2017.[9] In the interim, the UST Loan Program rules have been established by a non-binding guidance document.

Program Goals and Project Eligibility

The UST Loan Program’s goal is to provide UST owners and operators with access to capital to: 1) replace, remove, or upgrade aging USTs; 2) clean up historical or ongoing contamination caused by a UST release; and 3) transform old gas stations into the “gas stations of the future” by replacing old infrastructure with new infrastructure that can dispense renewable fuels or alternative energy sources for motor vehicles, including electric vehicle charging stations.[10]

Grants and loans are only available to current owners and operators of petroleum USTs. A facility is not eligible if it is under a Model Toxics Control Act (“MTCA”) order or decree.[11] Any asset acquired with program funding must have a useful life of thirteen years.[12] Costs of developing the application package, legal costs, costs incurred before admittance into the program, costs outside the PLIA-approved scope of work, and advance payments for services or equipment that have not been received are ineligible for funding.[13]

PLIA considers certain criteria when awarding grants and loans, including (in order of importance): age of the tanks; threat to drinking water, surface water, and groundwater; extent of contamination; insurance need; financial need; whether the current insurance policy is exceeded; environmental justice factors; and the need of and benefit to the surrounding community.[14] Projects that include electric vehicle charging stations may be awarded an interest rate reduction in the final loan.[15]

Process

  1. Eligible UST owners and operators apply to PLIA for preliminary planning assessment (“PPA”) funds.
    The PPA includes data assessments, soil borings, laboratory analysis of samples, development of conceptual site models, development of cleanup scope of work, and design specifications for alternative fuel infrastructure.[16] The maximum PPA award is $150,000, and the cost of the PPA is subtracted from the final lending limit.[17]
  2. PLIA awards PPA funding to qualified applicants.
    PLIA sorts applicants into four categories: small-mid-size business, portfolio, retrofit and upgrade, and abandoned properties.[18] Using the criteria discussed above, PLIA ranks applicants, presumably awarding PPA funding to the top applicants in each category.[19]
  3. PLIA completes the PPA and then considers project eligibility for loans.
    If an applicant is awarded a PPA, PLIA will choose an environmental consultant and pay up to $150,000 for the PPA, the ultimate purpose of which is to determine a scope of work for cleanup and infrastructure replacement.[20] PPA recipients must cooperate with PLIA to ensure a successful PPA, by allowing access to property and records and responding to any other PLIA requests promptly.[21]
  4. PLIA awards loans and/or grants for cleanup and new infrastructure to qualified applicants.
    In September of each year, PLIA and DOH rank sites with completed PPAs based on the criteria discussed above.[22] The Agencies also consider the cost to implement the proposed scope of work and the applicant’s ability to pay.[23] If the expected cost to complete the scope of work exceeds the loan amount for which the recipient qualifies, a grant may be awarded in addition to a loan.[24] PLIA will only award a grant if it will achieve 1) more expeditious or enhanced cleanup than would otherwise occur; 2) prevention or mitigation of unfair economic hardship; and 3) a public benefit.[25] The maximum funding amount per UST facility, including grants and loans, is $2 million minus the PPA cost.[26]
  5. Loan and grant recipients complete remediation and infrastructure work in coordination with the Agencies.
    After a loan or grant has been awarded, PLIA and the recipient enter into a Participant Agreement, which gives the terms of the loan, the scope of work, and the terms of loan repayment.[27] DOH distributes the loan funds only after the Participant Agreement has been signed, the recipient has contracted with a consultant to implement the scope of work, and activity has begun at the facility.[28] Payments are made directly from DOH to the consultant who performs work at the site, after the recipient and PLIA approve the invoices.[29] Work must be started within 12 months of signing the loan agreement.[30]
Figure 1
(Click to enlarge)

Source: Washington State Pollution Liability Insurance Agency, Publication No. 02-2016-01, available at http://www.plia.wa.gov/LGP_Flow.pdf.

Program Implementation Timeline

PLIA began accepting applications for PPA funding on October 4, 2016 and will continue to accept PPA applications for funding in 2017 until March 1, 2017.[31] Thereafter, applicants can submit applications at any time, but the deadline for funding each year will be March 1.[32] The first PPA awards will be given in the spring and summer of 2017, and the first loan agreements are projected to be finalized in September 2017.[33]

Pilot Project

Although actual cleanup and infrastructure replacement work under the UST Loan Program will not begin until late 2017, PLIA is currently overseeing work at three sites similar to those that the program hopes to encompass. In the 2015 budget, the Washington Legislature appropriated $1.8 million for a pilot demonstration project, directing PLIA to choose three sites that involved aging tanks, demonstrated impacts to soil or groundwater, and serious financial hardship.[34] The money was to be used for removal, replacement, or upgrade of UST fuel systems; retrofitting existing systems to dispense renewable or alternative fuels; or cleanup of contamination caused by legacy petroleum releases.[35] PLIA received twenty-one applications for the pilot program grants and in August 2015 awarded three $600,000 grants to Acme Fuel Company, Genesee Fuel and Heating Company, and Sharp Automotive.[36]

Acme Fuel Company, of Olympia, obtained a grant that will pay to rebuild its gas station infrastructure after the company’s insurance pays for cleanup of a catastrophic release that occurred when fuel was delivered to a discontinued UST.[37] Acme could not afford to clean up the contamination, even though it would be covered by insurance, because it could not obtain financing to rebuild its gas station after the cleanup.[38] The pilot project grant allows Acme to address severe contamination at the site, which it could not do without the promise of rebuilding.

Genesee Fuel and Heating Company’s grant will pay for the installation of new USTs that store heating oil, including a form of biodiesel used for home heating.[39] Genesee’s UST insurance was discontinued due to the age of its USTs, and the company could not obtain financing for new USTs.[40] Without insurance, Genesee could not operate legally.[41] This grant allows Genesee to continue its Seattle operations by installing new tanks that the company will be able to insure.

Sharp Automotive, of Moxee, will use its PLIA grant to pay for site assessment and vapor monitoring of a site contaminated by petroleum.[42] When the station’s USTs were upgraded in 1994, soil contamination was discovered but not remediated due to costs.[43] This fuel and service station provides essential services to the surrounding agricultural community, and the PLIA grant allows it conduct site investigation and vapor monitoring activities for which it could not obtain private financing.[44]

The characteristics of these three sites in the pilot program demonstrate the characteristics that PLIA finds attractive for UST Loan Program grant and loan recipients: threats to human health and safety, lack of insurance funds or private financing, and businesses that are important to their surrounding communities.

Conclusion

The UST Loan Program is relatively limited in scope, as it only provides funding to a small group (current UST owners and operators) for certain costs (UST replacement/removal, site cleanup, and alternative fuel infrastructure installation). The size of the program may also be inherently limited, as its funding is limited to $10 million in 2017 with no explicit promise of future funding; however, if the program is successful, funding may be increased, as the legislature indicates future costs up to $80,000,000.[45] Although a relatively limited program, it may foreshadow the Legislature’s desire to shift responsibility for toxics cleanup away from the Washington State Department of Ecology (“Ecology”) to other agencies.

Despite work on USTs for decades, Washington still has more than 2,900 leaking underground storage tank (“LUST”) sites awaiting remediation.[46] In addition, UST manufacturers generally only warranty UST systems for 30 years, and nearly 70% of Washington’s UST infrastructure will be 30 years or older by 2021.[47] Traditionally, many LUST and gas station sites have been cleaned up through Ecology’s Voluntary Cleanup Program (“VCP”), which allows liable parties to cleanup sites independently and receive Ecology approval upon satisfactory completion.[48] In September 2016, Ecology established a wait list for participation in the VCP, citing increased workloads and diminishing staff and financial resources.[49] Unless Ecology is able to secure additional funding and hire more VCP site managers or can otherwise improve its efficiency and efficacy in dealing with contaminated sites, the State may turn to other programs such as this to address toxic contamination throughout the state.

For more information, please contact Sarah Wightman or one of the other attorneys in the Firm’s Property Development, Waste Cleanup, or Waste Management practice groups.

[1] Washington State Pollution Liability Insurance Agency, Underground Storage Tank Revolving Loan and Grant Program: 2016 Report to the Legislature, Publication No. 02-2016-06 at 3, available at http://plia.wa.gov/LegislativeReport.pdf (hereinafter “Report to the Legislature”).

[2] Washington State Pollution Liability Insurance Agency, Background, http://www.plia.wa.gov/#Background (last visited November 15, 2016).

[3] Report to the Legislature at 3.

[4] Id.

[5] Washington State Department of Health, Department of Health Programs and Services, http://www.doh.wa.gov/AboutUs/ProgramsandServices (last visited November 15, 2016).

[6] Washington State Department of Health, Drinking Water State Revolving Fund (DWSRF), http://www.doh.wa.gov/CommunityandEnvironment/DrinkingWater/WaterSystemAssistance/DrinkingWaterStateRevolvingFundDWSRF (last visited November 15, 2016).

[7] Report to the Legislature at 4.

[8] Id.

[9] Id. at 4-5.

[10] RCW § 70.340.030(1).

[11] MTCA is the main mechanism for toxic waste cleanup in Washington. Funded by a tax on hazardous substances and administered by the Department of Ecology (“Ecology”), MTCA broadly defines potentially liable persons, including current or past facility owners and anyone who arranged for disposal or treatment of hazardous waste at the site. Many cleanups proceed voluntarily, with potentially liable persons working cooperatively with Ecology to clean up sites; however, Ecology can also order a cleanup if an agreement cannot be reached. If a facility is governed by a MTCA consent decree, agreed order, or enforcement order, it is not eligible for funding from the UST Loan Program. Generally, Ecology does not offer financial assistance for cleanups through MTCA, so potentially liable persons must finance the cleanup themselves.

[12] Washington State Pollution Liability Insurance Agency, Revolving Loan and Grant Program Guidance, Publication No. 02-2016-04 at 21, available at http://www.plia.wa.gov/LG_Guidance.pdf (hereinafter “Guidance”).

[13] Id. at 23-24.

[14] Id. at 16.

[15] Id. at 17.

[16] Id. at 14-15.

[17] Id. at 11.

[18] Id. at 10.

[19] Id.

[20] Id. at 14-15

[21] Id.

[22] Id. at 15.

[23] Legislative Report at 5-6.

[24] Guidance at 18.

[25] Id.

[26] Id. at 17.

[27] Id. at 22.

[28] Id.

[29] Id.

[30] Id. at 11.

[31] Legislative Report at 7.

[32] Guidance at 10.

[33] Legislative Report at 7.

[34] HB 1115, Chapter 3 § 3085 (2015), available at http://lawfilesext.leg.wa.gov/biennium/2015-16/Pdf/Bills/Session%20Laws/House/1115.SL.pdf.

[35] Id.

[36] Legislative Report at 11.

[37] Id. at 12

[38] Id.

[39] Id. at 13.

[40] Id.

[41] Id.

[42] Id. at 14.

[43] Id.

[44] Id.

[45] HB 2380, Part 3 § 3022, available at http://lawfilesext.leg.wa.gov/biennium/2015-16/Pdf/Bills/Session%20Laws/House/2380-S.SL.pdf.

[46] Id. at 8.

[47] Id.

[48] Washington State Department of Ecology, Voluntary Cleanup Program, http://www.ecy.wa.gov/programs/tcp/vcp/Vcpmain.htm (last visited October 31, 2016).

[49] Washington State Department of Ecology, Voluntary Cleanup Program, Wait List, http://www.ecy.wa.gov/programs/tcp/vcp/vcp2008/waitlist.html (last visited October 31, 2016).

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