EPA Negotiated Rulemaking on All Appropriate Inquiry

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EPA Negotiated Rulemaking on All Appropriate
Inquiry

• Environmental Bankers Association June 23, 2003

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Goals of the Session

• Overview of All Appropriate Inquiry, address the
  market drivers and review the legislative
  framework on AAI
• Why should lenders care about the proposed
  changes to the due diligence standards?
• What are the criteria and continuing obligations
  of the standard?
• Actions Items for EBA membership

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Overview of the AAI Negotiated Rulemaking

• Statutory Framework for the Regulation
• Regulation sets forth Standards and Practices to
  carry out All Appropriate Inquiry
• Overview of the EPA Negotiated Rulemaking Process
  and 25 stakeholders
• Mission Statement and Preamble
• Agenda of Issues

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Standards and Practices

• Interim Standards for Due Diligence-ASTM E1527-97
  and E1527-00
• Defining All Appropriate Inquiry and Landowner
  Requirements
• Generally Accepted Good Commercial and Customary
  Standards and Practices
• Exercising Appropriate/Due Care, taking
  Reasonable Steps to-Stop and prevent continuing
  releases and threatened future releases at the
  property
• Compliance with any land use restrictions/institut
  ional control
• Criteria in Promulgated Regulation
• EPAs Common Elements Guidance for landowner
  liability protections

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Legislative Framework of All Appropriate Inquiry

• Innocent Landowner Defense
• Congressional Intent and Statutory Issues
• Affected Parties to Standards and Practices and
  the Landowner Liability Protections
• Innocent Landowners
• Bona Fide Prospective Purchasers
• Contiguous Landowner
• Brownfields Site Characterization and Assessment
  Grant Programs

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Secured Creditor Protections for Lenders

• Why should banks care about changes to AAI?
• How is AAI relevant to bankers?
• Whos protected and where are the potential loss
  exposures?
• What are the credit and trust potential
  exposures?

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Real Estate Transactional Marketplace and the
Drivers

• Size of the Phase I and Transaction Screen
  Marketplace
• The New AAI Rule may influence
• Commercial Real Estate and Trust Transactions
• Facilities and Pre-foreclosure/OREO actions

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Ten Statutory Criteria

• (I) The results of an inquiry by an environmental
  professional
• What is the definition of an environment
  professional? Which professionals are best
  equipped to perform an ESA?
• What type of license or certification is needed,
  if any?
• What is the liability and the responsibility of
  the environmental professional?

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Ten Statutory Criteria

• (II) Interviews with past and present owners,
  operators and occupants of the facility for the
  purpose of gathering information regarding the
  potential for contamination at the facility
• How can we ensure a valid attempt is made to
  identify previous owners and collect available
  information?
• Who should be interviewed? Should neighbors also
  be included in the process?
• How do we ensure the standard is rigorous, but is
  conducted in reasonable time with reasonable
  cost?

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Ten Statutory Criteria

• (III) Reviews of historical sources, such as
  chain of title documents, aerial photographs,
  building department records, and land use
  records, to determine the previous uses and
  occupancies of the properties since the property
  was first developed
• How many of these documents need to be reviewed?
• How far back in time should a search extend?
  What is first developed?
• To what extent can the results of a previous
  assessment be transferred to subsequent property
  owners?
• Should different levels of of investigation be
  required for different types of land-use?

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Ten Statutory Criteria

• (IV) Searches for recorded environmental cleanup
  liens against the facility that are filed under
  Federal, State or local law
• Are environmental liens reasonably available or
  accessible ?
• What are the limitations to the information
  provided by a lien?

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Ten Statutory Criteria

• (V) Reviews of Federal, State and local
  government records, waste disposal records,
  underground storage tank records, and hazardous
  waste handling, generation, treatment, disposal,
  and spill records, concerning contamination at or
  near the facility
• How do we ensure a high level of certainty in
  identifying potential environmental concerns
  without imposing time consuming and unnecessarily
  expensive regulatory requirements?
• Should the standard require searches for specific
  information such as NPL or regulatory permits?

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Ten Statutory Criteria

• (VI) Visual inspections of the facility and of
  adjoining properties
• Should we require that visual inspections be
  conducted by an environmental professional?
• What information is necessary to determine the
  potential contamination of adjacent and adjoining
  properties, as well as underlying groundwater
  resources?
• Can visual inspections of very large tracks of
  land be limited to developed areas?

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Ten Statutory Criteria

• (VII) Specialized knowledge or experience on the
  the part of the defendant. Cannot hide
  information not uncovered by environmental
  professional
• What types of information may investor,
  developer, or user (new property owner) have that
  could be relevant to the investigation and how
  should this information be documented?

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Ten Statutory Criteria

• (VIII) The relationship of the purchase price to
  the value of the property, if the property was
  not contaminated
• Should owners be required to document why
  property was attained below fair market value?

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Ten Statutory Criteria

• (IX) Commonly known or reasonable ascertainable
  information about the property
• Must be able to document and defend commonly
  known information?

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Ten Statutory Criteria

• (X) The degree of obviousness of the presence of
  or likely presence of contamination at the
  property and the ability to detect the
  contamination by appropriate investigation
• How do we defineability to detect?
• Is there a point where it must be determined
  whether a Phase I investigation is good enough to
  detect environmental contamination?
• When or to what extent should sampling and
  analysis be required to document contamination?

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Other Issues

• How do we balance the goals and priorities of
  state regulatory programs, current voluntary
  consensus standards, and the Congressional
  mandate for a federal standard for conducting all
  appropriate inquiry?
• How do we reduce potential disruptions to the
  real estate development markets as we move from
  the current standard(s) to a new federal standard?

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Other Issues

• What information collected during an assessment
  should be disclosed to regulatory agencies and/or
  the public?
• Should the regulations identify specific
  documentation or record keeping requirements?
• How can we ensure that the federal AAI standard
  is sufficiently comprehensive without being over
  burdensome?

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Action Items

• How do we define the Triggers for bankers
  relative to AAI
• - regulatory and marketplace
• What type of Tiered Approach to due diligence
  should we advocate?
• based on risk categories Flow chart or Risk
  Matrix
• What role do we want in drafting the regulation
  and providing comment?