Can You Expect Post Loan Environmental Liability Assessments?

The following blog post was submitted by Mark Resch, LPG, a geologist at The Dragun Corporation.

On August 20, 2013, the U.S. Department of Treasury, Office of the Comptroller of the Currency, released the “Comptroller’s Handbook, Safety and Soundness, Commercial Real Estate Lending.”  The handbook “provides guidance for bank examiners and bankers on commercial real estate (CRE) lending activities.”  It provides guidance for environmental risk management for banks after the loan has been approved.

Generally, banks have established policies for environmental due diligence prior to the purchase of commercial real estate (such as the federal Standards and Practices for All Appropriate Inquiries (AAI) regulations established under 40 CFR 312).  The environmental due diligence provides a process for users to qualify for one of the three defenses to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) liability act (the defenses are innocent landowner, contiguous property owner, and bona fide prospective purchaser).  Although often overlooked, CERCLA also requires the user to perform various “continuing obligations” to maintain the lender liability defense.  Many banks do not have a method for evaluating the users continuing obligations process.  Therefore, banks may not know if the loan value is being degraded due to an environmental condition.

This handbook provides guidance for banks to establish programs for evaluating the status of the continuing obligations or changes to the business that could affect the loan.  The guidance includes:

  • “provide guidelines that the lending staff should follow for monitoring potential environmental concerns for the duration of loans held in the bank’s loan portfolio. These guidelines should focus on changes in business activities that might result in an increased risk of environmental contamination associated with the property, thus adversely affecting the value of the collateral.”
  • “maintain guidelines for loan documentation that protect the bank from environmental liability and related losses. Loan documentation should ensure that contractual provisions, including rights of access, are sufficient to facilitate AAI-compliant evaluations.”
  • “collateral monitoring and periodic inspection requirements throughout the loan term for properties with higher environmental risk.”
  • “a means of evaluating potential environmental liability risk and environmental factors that could impact the ability to recover loan funds in the event of a foreclosure.”

What does this all mean?  Will your lender require more documentation of continuing obligations?  If they have a more “active role” in management of your environmental issues, does this create CERCLA liability for the lender?  Your lender may be able to provide some insight regarding their current and potential future policies.

All Appropriate Inquiry Changes Worth Noting?

The following blog post was submitted by Mark Resch, LPG, a geologist at The Dragun Corporation.

The United States Environmental Protection Agency (USEPA) proposal to amend the All Appropriate Inquiries (AAI) regulation (40 CFR Part 312) was not the type of riveting news that’s going to make great cocktail conversation. But it’s worth noting that the EPA is proposing to adopt the use of ASTM 1527-13, the “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process.” What is interesting (or not) is that EPA is proposing to allow the use of the new 1527-13 or the current 1527-05. So, which standard is the right version to use for your environmental due diligence?

The recent EPA announcement aside, it’s worth looking at the ASTM 1527-13 nuances. At the time of this writing, 1527-13 has not been released and is not “official.” But some of the changes from the current standard (1527-05) have been discussed widely among environmental peers.

Key changes to 1527-13 include: (1) revised definitions for Recognized Environmental Condition (REC), Historical REC (HREC), and a new definition Controlled REC (CREC), (2) incorporating the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) definition for a “release,” (3) the recommendation that regulatory agency files be reviewed if the target property or an adjoining property is identified in a regulatory agency record, and (4) a new definition for “migrate” that includes vapor.

The proposed changes are relatively minor and represent good environmental practices that, when necessary, are already being performed by competent environmental professionals using 1527-05.

You have to wonder if the introduction of this updated and new standard is just a change for change sake. It would appear that having two “acceptable” standards only blurs the line further as to what constitutes AAI and, therefore, the innocent landowner defense. With this blurring of the line, for providers of environmental due diligence, it might be better to double down on the quality review process… and make sure the E&O insurance is paid up.

All this boils down to this: it’s not about which standard is correct, but whether you are receiving professional advice from a trusted environmental professional and trusted legal counsel.

If you have any questions, or need assistance with environmental due diligence, please feel free to contact our office at 248.932.0228

If you would like to see the announcement follow this link http://www.gpo.gov/fdsys/pkg/FR-2013-08-15/pdf/2013-19763.pdf

RCRA Exemption is Now Final

Today’s announcement that US Environmental Protection Agency (EPA) has modified the Resource Conservation and Recovery Act (RCRA) to conditionally exempt solvent-contaminated wipes from waste regulations should be well received by the regulated community.

According to the EPA press release, “Today’s final rule excludes wipes that are contaminated with solvents listed as hazardous wastes under RCRA that are cleaned or disposed of properly. To be excluded, solvent-contaminated wipes must be managed in closed, labeled containers and cannot contain free liquids when sent for cleaning or disposal. Additionally, facilities that generate solvent-contaminated wipes must comply with certain recordkeeping requirements and may not accumulate wipes for longer than 180 days.”

The EPA Press Release can be found here http://yosemite.epa.gov/opa/admpress.nsf/0/C8F3D2B0B740904B85257BB0005CFD6D

If you have questions about compliance with RCRA (including qualifying for this exemption) or questions regarding other environmental regulations, contact Matthew Schroeder, P.E. (mschroeder@dragun.com) at 248-932-0228.

Water Quality Study Looks at Agriculture

Healthy streams and waterways are important.  After all, clean, healthy streams conjure up images of fly fishing on a glorious summer morning or evening, or a peaceful canoe trip with the family.  Both of which are far more “Rockwellian” than my leg-numbing experience of standing in an icy-cold stream to collect data for a stream ecology class on a cold, November day in the Midwest.

So what is the health of the streams in the United States, and how do we define this health?  This is what the United States Geological Survey (USGS) set out to understand in their study and subsequent report, “Ecological Health of the Nation’s Streams.”

The USGS’s study covered the years 1993-2005 and examined natural stream ecosystems, urban stream ecosystems, and agricultural stream ecosystems.  In evaluating the various ecosystems, they considered the physical, chemical, and biological factors.

The impact of developments to streams when local land use patterns change is not a new area of environmental consulting.  Loss of impervious surfaces associated with developments have increased flooding from sheet flow (water that might have otherwise recharged the local aquifer).  This runoff can carry with it increased sediment loading and chemical loading…which impact the biological community of a stream…and on and on.  This isn’t rocket science, but finding realistic and workable solutions might actually be more complex than rocket science.

Part of the complexity comes from trying to understand non-point sources of pollution (i.e., those not emanating from a pipe) and what is causing the resurgence of algal blooms and dead zones.  Recall the restrictions and banning of phosphate detergents in the 1970s that was supposed to bring an end to the historic algal blooms and eutrophication (excessive nutrients).

Without getting into too much detail and turning this blog entry into an environmental consulting journal entry, it’s worth looking at the finding of the recent USGS report as it relates to agriculture.  According to the report, there are five specific items listed among the major findings.  Number four of five is “Efforts to understand the causes of reduced stream health should consider the possible effects of nutrients and pesticides, in addition to modified flows, particularly in agricultural and urban settings (emphasis added).”

Again, this shouldn’t come as a surprise to anyone who has been following water quality issues and/or agricultural issues.  The USGS report states that the following are among the environmental factors impacting stream quality “…tile drains, used to drain subsurface water, route seepage directly to the stream channel rather than allowing gradual infiltration through soils. Water withdrawal for irrigation and channelization can also change the natural flow regime.”

The USGS report further points out that runoff from agricultural lands, “may contain (1) sediment from soil erosion on tilled lands; (2) nutrients from the application of fertilizer and manure; (3) chloride and other salts from irrigation return flows; (4) pesticides used in the past and present to control insects, weeds, rodents, bacteria, or other unwanted organisms; and (5) other synthetic compounds used for varying purposes along with their degradates.”

So, should those in the agricultural community be concerned about the findings in this report?  Again, I don’t think there are any great environmental epiphanies in the report.

If there is a caution from this report for the agricultural community it is the “ready, fire, aim” mentality that can sometimes occur when an environmental problem gets the attention of regulators.  Genuine solutions need to follow the rigors of science, which means clearly understanding a problem before offering solutions.  When environmental problems lack this rigor, they invariably end up costing someone a lot of money and, many times, an undeserved tarnished image.  Our peer review service is designed to avoid such potential disasters.

If you would like to read the USGS report, follow this link http://pubs.usgs.gov/circ/1391/pdf/circ1391.pdf

As always, if you have questions or have an environmental consulting need, big or small, contact our office at 248-932-0228.

“Simple” Jobs Performed with Passion

A friend of mine, Brad, was a very brilliant and accomplished veterinarian with one minor impediment in his career path; he hated his job.  Brad lost the passion he once had, and both he and his wife knew what he had to do: quit.  Later, Brad tried his hand at professional fishing and selling cars (two very typical Ph.D. career paths) before eventually returning to his veterinary practice, but more importantly, he rediscovered his passion.

Personally, over the past 35 plus years in the environmental business, I’ve seen plenty of examples of passionate and indifferent professionals – the contrasting results are stark.

I was fortunate to work with a colleague early in my career who was passionate about getting the job done, and done right.  This led us to escapades such as carrying a 16-foot boat with a motor, samples containers, and equipment over boulders the size of small homes so we could launch into Lake Erie.  It was the only way we could get the best possible water samples (with just a small risk to life and limb).  Another time we spent the better part of a week, including about 20 weekend hours, in an old, turn of the (last) century sewer in the inner city of Detroit (with cockroaches the size of Volkswagen Beetles) so we could get the right flow measurements for our client.

To no surprise, the passionate way in which we approached simple sample collection led to very loyal clients.  This would pay dividends in the coming years as the competition level increased several-fold in the emerging, environmental market.

This increasing competition wasn’t so kind to those budding environmental professionals who approached their jobs with indifference or with a singular focus on the next order.  They couldn’t survive the massive changes in the market, and they became obsolete with the next lowest bid.  The “value” they brought to the market was low bid.  The lesson I learned early on in my career was low bids can easily be bettered, but those who have genuine passion for excellence have a more lasting value.

I still work with that colleague from my youth; he sits down the hall from me.  Now I just have many more colleagues in multiple offices who share in this passion for our clients and for getting it right.  As for my friend, Brad, last I heard he was still passionately involved in the veterinary sciences and was practicing somewhere in Germany.

Environmental Anything v Environmental Something: Being Different

Twenty-five years ago, with a different vision about how environmental consulting should look, we opened our doors for business. We believed that science and ingenuity had a place in the market.  But, truthfully, the barriers to market entry were not very limited.  Environmental Anything would do just fine.  So, how did we start?  We didn’t put environmental in our name, we went with The Dragun Corporation.  From day one, we set out to be very different.

With an abundance of opportunities in the late 1980s, conventional wisdom suggested that if you simply follow the regulator’s requests for more work, you will have plenty of profitable work.  However, what we saw in these requests was flawed science that would not help our clients achieve their goals, and we resisted the request for more data for the sake of data.  The result: we had less short-term work, but more long-term clients.  This was different.

One of the industry limitations we recognized early was a need for more hard, scientific data that would allow for better informed decisions.  So, we tasked ourselves to write technical books and papers on our own time.  This was most certainly different.

The trend in the 1990s was to hire “any warm body,” to carry out tasks.  However, we believed that those with scientific and engineering degrees and those with a propensity to be complex problem solvers, were more suited to a long-term business model.  This was different.

And then as projects became more challenging and complex, some shied away; but we accepted the challenge.  We achieved many “firsts,” including risk-based closures and eliminating unnecessary remediation that benefited neither the environment nor the client.  This was a difference our clients appreciated.

Later, when tough economic times and shrinking market share began to reshape and test the industry, we focused on our strengths.  We were rewarded as we were engaged on challenging and consequential projects that made their way to the highest courts in North America, and another that involved aggressive negotiations with the Department of Justice.  This, too, was very different.

And today, there are global environmental challenges, leaving many with a cynical view…and so we find ourselves again taking a different view.  Because we see an abundance of opportunities and we are confident that we can, and will, find solutions – solutions based firmly on sound science and engineering principles.

In 1988, we set out to challenge the conventional wisdom and the norms of our industry.  We truly believed then, and continue to believe to this day, that there is a market for an environmental consulting company that uses science and ingenuity to find practical business solutions.  And so we remain – proudly different as we celebrate our 25th year.

The Dragun Corporation: Established May 18, 1988

The Perception of Environmental Consulting

The sum total of the spoken and unspoken viewpoint of environmental consultants held by many (like it or not) is

 “You can’t trust environmental consultants – once they start an investigation or remediation project it never ends.  And if a regulator suggests an additional scope-of-work, they will simply follow the regulator’s orders.”

…which is what makes a simple, matter-of-fact email we received last week from one of our clients (an attorney), so significant (email excerpted below).

“Here is the signed letter from the (State regulators), concluding activities at (the Site).”

Imagine that, concluding activities. No more soil samples, no more groundwater samples, no more regulator “what ifs”; done.  The barriers to starting a project are limited to a proposal and a willing party to sign a purchase order. The barriers to concluding a project are far more demanding…

“Thank you for all your hard and effective work in assisting me in this…endeavor.”

The truth is hard work is not enough. Hard work that is not focused on the solution will only lead to more billings and additional scopes-of-work (i.e., a waste of time and a waste of money).  Effective work requires understanding the issue(s), understanding the site conditions, understanding the objectives, and the knowledge and expertise needed to develop a clear, concise plan.  It also requires defending your position, whether it is defending it against unreasonable requests of regulators or in the courtroom. 

“Once again, thank you for your assistance. It is always a great pleasure to work with you and your professional team.”

Assistance…not a hindrance, not “make work” busyness, not a check-box mentality – assistance to get the project completed; period.

This wasn’t a complicated project where we had to deal with some exotic chemical with complicated exposure pathways.  It was consulting.  The attorney who retained us has worked with us on some extremely complicated projects over the years.  He knew that regardless of the nature of the project, he could count on us to effectively work toward closure.

It’s worth noting that we were initially retained by the attorney on this project to conduct a peer review…precisely because the previous consultant had lived up to the preconceived perception of consultants. Trust was violated.

Look, we’ve been in business for nearly 25 years now, and we are well aware of the perception issue that permeates our industry.  Whether it is an over-engineered project, inexperienced project managers in over their heads, or a “follow the regulator’s demands” mentality, the unfortunate result is the same – a tarnished industry image.

So we get it – when someone retains us to assist them, we are on trial; we are being asked to prove our worth regardless of any past achievements. In essence, every project is another lying down of the gauntlet…and it’s a challenge we gladly accept.

Your questions and comments are always welcome.

Alan Hahn

ahahn@dragun.com