USEPA Interim Policy May Benefit Municipalities

By D. J. SARTORIO

In December 1989, the United States Environmental Protection Agency (USEPA) issued its final "Interim Policy on CERCLA Settlements involving Municipalities or Municipal Wastes" (OSWER Directive No. 9834.13). The interim policy indicates how the USEPA will proceed in attempting to reach settlements at sites involving municipalities or municipal wastes. Given that about 25 percent of the approximately 1220 proposed and final sites on the USEPA's current National Priorities List may involve municipalities or municipal waste, this interim policy should have a major impact on future CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act, also known as "Superfund," U.S.C. §§9601 et seq.) settlements.

Although the interim policy is fairly recent, there has already been dispute and confusion as to what it provides. In fact, the nature and substance of the policy is presently the subject of litigation arising out of the Beacon Heights Landfill and the Laurel Park Landfill in Connecticut. Thus, it is probably valuable to start by discussing what the interim policy does not appear to provide:

(1) The interim policy does not provide an exemption from potential CERCLA liability for municipalities.

(2) The interim policy does not generally affect the rights of any private party seeking CERCLA contribution from a municipality.

(3) The interim policy is not a law or regulation and, that being the case, it does not create any enforceable rights. It is merely an internal guideline for use by USEPA personnel in exercising their enforcement discretion. It was, however, developed with the intent of creating a consistent agency-wide approach for addressing municipalities and municipal wastes in the Super-fund settlement process.

There are four fundamental issues with respect to municipalities addressed by the interim policy. First, should municipalities be included in the USEPA's initial information gathering process? Second, under what circumstances should municipalities be identified by the USEPA as potentially responsible parties (PRPs) under CERCLA? Third, once a municipality is notified that it is a PRP, should it receive any different or special consideration with respect to settlement? Fourth, how does the treatment of municipalities under the interim policy affect the rights of other involved PRPs?

Under the interim policy, municipalities are to remain fully involved in the information gathering process. This means that municipal generators/transporters, as well as municipal owners/operators, should generally receive information request letters from the USEPA pursuant to Section 104(e) of CERCLA and should otherwise be fully included in the USEPA's information gathering process. This is an extremely important process, as the information gathered is used by the USEPA in determining who to notify as a PRP. Thus, municipalities must be very precise in their responses and should enlist the assistance of counsel and probably their municipal engineers in preparing their responses. Moreover, although such a request for information by the USEPA probably does not trigger any insurance coverage, if a municipality believes that it has coverage for environmental claims, the information gathering stage is a wise time to notify all potentially involved insurers.

Mr. Sartorio is a partner in the Chicago law firm of Tribler & Orpett, P.C.

December 1990 / Illinois Municipal Review / Page 15

PRP or not PRP, that is the next question. The interim policy does not provide an exemption from CERCLA liability for municipalities. Under the policy, however, municipalities generally will not be notified as PRPs when they are generators/transporters of municipal solid waste or sewage sludge, so long as that waste or sludge does not contain hazardous substances from non-household sources. The only probable exception to that general policy is where the total contribution of commercial, institutional, and industrial hazardous waste to the site by private parties is "insignificant" when compared to the municipal solid waste. Where municipal wastes contain other "hazardous substances,"as defined by Section 101(14) of CERCLA, municipalities will probably be named as PRPs. At that point, notice must be given by the municipality to any of its potential insurers.

Although the general goal and overall process for reaching settlement at sites involving municipalities or municipal wastes is the same as for all other sites, the interim policy does set forth some special settlement provisions that are particularly suitable for facilitating settlement with municipal PRPs because they take into account a municipality's status as a governmental entity. Three such special settlement provisions are detailed in the interim policy. They are:

(1) Delayed payment: If a municipality has demonstrated difficulty providing a lump-sum payment upfront, a settlement may be structured to allow the municipality to pay at a specified future date. This would allow the municipality time to raise the money needed to cover its contribution (e.g., a municipality may need to hold a special vote to gain approval to issue a bond or arrange for other financing).

(2) Installment payments: A settlement may also be structured to allow the municipality to pay over time based upon a predetermined schedule of payments. Such a settlement agreement could include a "structured settlement," whereby the settlement amount is paid over time, generally through an annuity.

(3) In-kind contributions: In many instances, especially where a municipality can provide only a portion of its share of costs or is unable to provide any monetary payment, an in-kind contribution will benefit all parties to the settlement, the sorts of things that an in-kind settlement could involve include contributions by the municipality of labor, equipment (particularly heavy equipment), and/or the use of the municipality's sewage treatment plant. In considering the appropriateness of an in-kind contribution, the USEPA will consider the overall financial health of the municipality, the amount of the municipality's share, the value of the in-kind contribution, and the effect of the in-kind contribution on the overall effort to achieve settlement. Realistically, a municipality's contribution of the use of its sewage treatment facility may often be a key to a successful settlement. Finally, it is important to note that nothing in the interim policy affects the rights of any party in seeking contribution from a municipality, unless the municipality has entered into settlement with the United States and has specifically obtained contribution protection under Sections 113(f) and 122(h) of CERCLA. Thus, whenever less than all of the PRPs are settling with the government, a settling municipality must make certain that it is protected from suits by the non-settling PRPs. As with any interim policy issued by the USEPA, this policy is subject to change at any time. Before acting, it is important that municipal bodies consult with counsel, as the costs of a mistake in this area can be extremely great. The good news, however, is that this interim policy should provide municipalities with some relief with respect to their potential liability for municipal waste sites.

Page 16 / Illinois Municipal Review / December 1990