Legislature(2017 - 2018)BARNES 124
04/17/2017 03:15 PM LABOR & COMMERCE
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SB 64-UNIFORM ENVIRONMENTAL COVENANTS ACT 4:19:56 PM CHAIR KITO announced that the final order of business would be SENATE BILL NO. 64, "An Act adopting the Uniform Environmental Covenants Act; relating to environmental real property covenants and notices of activity and use limitation at contaminated sites to ensure the protection of human health, safety, and welfare, and the environment; and providing for an effective date." 4:20:11 PM SENATOR PETER MICCICHE, Alaska State Legislature, as prime sponsor introduced SB 64. He said the goal of the bill is to return unused brownfields to the stream of commerce. In 2003 the Uniform Law Commission created a Uniform Environmental Covenants Act. The bill, he explained, would allow a challenged piece of property that is contaminated to transfer the liability for that contamination to the next owner. It protects the buyer and the seller of the contaminated property while allowing the fullest and best use until the contamination reaches safe levels. The bill creates a legal mechanism to safely transfer contaminated property through an environmental covenant. The covenant has no financial interest; it is just a recordable interest on the property that travels with the property until the contamination no longer exists. SENATOR MICCICHE, to provide an understanding of the value of the bill's provisions, related the story of a contaminated property in his community. He said this multi-acre property on the river had at one point a dry-cleaning facility. The "mom and pop" property owners cannot afford the cleanup, but there are interested developers that want that property and can afford the cleanup. This allows the contamination to be recorded on the deed, the new owners can come in and clean up the property, the contamination can be erased from the deed, and the new owners can go about their business. It provides transparency throughout the life of the property, he pointed out, and provides assurances to buyers and sellers that the risks will be managed. It is voluntary. Other states, he added, have found that the covenants help communities transform blighted property into marketable assets. SENATOR MICCICHE stated that there is support for SB 64 except from the federal government. About 51 percent of the currently contaminated properties are on federal lands, he noted, and a letter is expected from the federal government stating that it doesn't support the bill. However, he continued, [the bill's sponsors] feel that the federal government should meet the same requirements as Alaskans in the cleaning up of contaminated property. Alaska presently has 2,258 active contaminated sites and 1,048 of them are federally owned. Based on current trends, he said, the Department of Environmental Conservation (DEC) projects that about 835 of the current sites would be impacted and likely to have the benefit of environmental covenant if the bill is passed. 4:23:34 PM REPRESENTATIVE JOSEPHSON surmised that the previous owner would be essentially immunized from any litigation. He questioned whether this could be done given the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). SENATOR MICCICHE replied that his understanding is that there can be an agreement between [the seller] and the buyer for a negotiated proportion of responsibility. He added, "I'm not saying it has to transfer; I'm saying what has to happen in this voluntary program is that it is recorded on the deed." How the seller and buyer decide to negotiate the proportion of responsibility is a secondary process that can certainly occur. He said he thinks in the vast majority of the cases it is going to be someone wanting [to buy] that filling station on the corner and is willing to take on the responsibility of that contamination and cleanup. REPRESENTATIVE JOSEPHSON referenced the situation of the sulfa line leak with nine square miles of contamination in which [Williams Alaska Petroleum, Inc. ("Williams")] is one of two likely responsible parties. He inquired whether SB 64 would allow Williams to push off its liability to someone willing to accept it. SENATOR MICCICHE deferred to Ms. Kristin Ryan of DEC for an answer. However, he continued, he doesn't believe that would be the case. 4:25:58 PM KRISTIN RYAN, Director, Division of Spill Prevention & Response, Department of Environmental Conservation (DEC), on behalf of DEC testified in support of SB 64. She said the department thinks this is something that would help Alaska and help Alaska transfer land that has been contaminated back into commerce. Rather than the land being considered blighted and unusable, SB 64 would allow [DEC] to say the land is completely usable except for certain purposes such as a daycare, well, or whatever the restriction needs to be. The bill provides a process for amending a covenant in the future, she noted, so when it gets to a point where the contamination is no longer a problem the current holder of the property can ask DEC to remove the covenant. If the department agrees, it would remove the covenant. If the department doesn't agree, there would be an administrative appeal process for the property holder to appeal DEC's decision. There is no fiscal note, she noted, because the department is already performing this work. MS. RYAN explained that DEC puts restrictions on property all the time, but that it is not necessarily communicated to buyers. The department maintains a database that can be found in its office and on its website. The public can look on the website. Some realtors do, and some title companies do, but not everybody. This bill would just ensure that that's communicated on the title, so the title search company would be guaranteed to find that information when it does a title search. There is no fiscal impact to DEC, she added, it is just a transparency and a communication about restrictions that DEC is placing on a property. MS. RYAN addressed Representative Josephson's question regarding liability, stating that Alaska's statutes mimic CERCLA. Alaska has CERCLA-like statutes and, yes, the current owner is the responsible party that DEC would first approach like it did in the Flint Hills situation [with Williams]. She explained that DEC was working with Flint Hills and the Koch brothers because they owned the property and DEC settled with them. But, she continued, DEC is pursuing litigation against Williams as the other responsible party to contribute to that remedy. So, she advised, the state would still have the capacity to pursue all responsible parties for a release as this bill does not have any impact on Alaska's liability statutes. REPRESENTATIVE JOSEPHSON requested further confirmation on Ms. Ryan's statement that SB 64 would have absolutely no impact on Alaska's liability statutes. MS. RYAN responded correct. 4:28:14 PM REPRESENTATIVE BIRCH said SB 64 is heading in the right direction and is good legislation. He noted that a home seller must provide a disclosure document regarding any problems with the home. He asked whether disclosure for a home with some sort of an environmental concern would tie in with the title rather than the real estate disclosure. He further asked whether there is any overlap of those two things. MS. RYAN answered that Alaska has a disclosure law that requires disclosure of contamination on a property when it is being sold, but DEC has found that that doesn't always happen. The property may have been contaminated several owners back and it gets lost in the shuffle and it isn't communicated as people move forward. She related a situation with a gas station in Anchorage where the tanks were pulled. Fuel that was left in the dirt around the tanks spread and went around the foundation of the building. Because the only way to remove the fuel around the foundation would be to remove the foundation, DEC agreed to leaving it until the foundation could be removed as the property was transferred from person to person. However, she continued, that restriction was not communicated, and the current owner pulled that building out and spread the dirt everywhere. Had he known he would have managed the dirt appropriately when he removed the foundation. Now there is contamination on his neighbor's property that would have been avoided had he understood that restriction was in place. The restriction was in DEC's database, but he didn't know it was there. 4:30:14 PM REPRESENTATIVE STUTES noted that regarding contaminated properties, the federal government is one of the worst offenders, and one of the worst contaminated areas in the country is on the U.S. Coast Guard base at Kodiak. She offered her understanding that SB 64 would have no effect in requiring any kind of cleanup; it would only apply if the federal government chose to transfer that property to another owner. MS. RYAN replied that DEC's first goal is cleanup; the department wants people to clean up things to DEC's cleanup levels. She said the Environmental Protection Agency (EPA) is also involved because of the way that site is regulated. Sometimes there are legitimate reasons for leaving contamination in place, she pointed out, such as the previously mentioned gas station. This would only come into play when contamination is left above a cleanup level and that is a decision that the responsible party and DEC would make together. If it were decided to leave the contamination, then the responsible party would need to do a covenant. The party always has the option to clean it all the way up and then this becomes a moot point. SENATOR MICCICHE added that just because a site is contaminated doesn't mean it can't be used for other things. The covenant would be specific to the risks at a particular site and would restrict certain activities. For example, an ex-filling station may be a great site for an auto parts store but may not be a great site for a daycare center. The transfer can still take place even though it remains contaminated and remains in commerce, he said. If at some point it is decided to use it for one of the restricted activities, then the responsible party would have to clean it up to that level. 4:32:36 PM REPRESENTATIVE WOOL stated he supports the legislation and that it looks like it is solving a problem. He asked what the situation is regarding the dry-cleaning property in Soldotna that was mentioned by the sponsor and whether the property can be sold under current law. SENATOR MICCICHE deferred to Ms. Ryan for an answer and requested that Representative Wool pose a hypothetical scenario. REPRESENTATIVE WOOL posed a hypothetical scenario in which a property is contaminated and asked what must happen under current law if someone wants to purchase the property. MS. RYAN responded that under current law if someone knows the property is contaminated and wants to purchase it, there is something that is called prospective purchaser agreement, which is an arrangement made between the seller and the buyer where they negotiate those risks and agree on who is responsible for what. It provides some protection for liability and is an upfront negotiation between a buyer and a seller. SENATOR MICCICHE noted that the aforementioned doesn't allow for that to be placed on a deed and recorded. So, if it changes hands in the future, then an unwary buyer may not be aware of the previous contamination and could be buying into a nightmare that may be well above the costs that the buyer can afford to develop the property. The bill would just clean it all up, he said, and protect the seller so that the seller can transfer a property with the knowledge of contamination by both the seller and buyer on that piece of property. The bill would also protect the buyer in having full knowledge of what is on that piece of property. It would remain on the deed until that contamination no longer exists. 4:34:49 PM REPRESENTATIVE JOSEPHSON referenced the negotiations mentioned by Ms. Ryan and said his main concern with SB 64 is whether someone could shift liability. MS. RYAN offered her understanding that SB 64 would not change Alaska's liability statutes in any way. An example would be the gas station in Anchorage that she discussed. The person the department is asking to clean it up is the person who moved the dirt around, but that person has the capacity to go after the original person who caused the contamination and DEC would still have the statutory authority to go after the original person. She deferred to DEC's attorney with the Department of Law to provide an answer in legal terms. JENNIFER CURRIE, Senior Assistant Attorney General, Environmental Section, Civil Division (Anchorage), Department of Law (DOL), in response to Representative Josephson's question explained that private parties to a sale of either a residence or industrial piece of property could negotiate on their own to shift liability. But, she continued, those private contracts are not valid when looking at Alaska's liability statutes for Alaska's mini-CERCLA statute that is just like CERCLA. So, it would not affect the liability for which the state could pursue the buyer and the seller. REPRESENTATIVE JOSEPHSON assumed that the disclosure would have to be comprehensive and complete so that the purchaser would be fully informed of a toxic leak or other form of contamination. MS. CURRIE replied yes. The goal of the covenant, she said, is to have details about the past contamination that is located at the site, whatever cleanup took place, and the current restrictions that are placed on the property, and those are intended to be comprehensive. 4:37:27 PM REPRESENTATIVE JOSEPHSON recalled two notorious leaks in Alaska. One was some sort of gas leak along the rail corridor at Crown Point near Moose Pass and one was a railroad leak in Gold Creek near Curry in the Talkeetna area. He asked whether situations like those are lost to history or whether DEC flags and monitors them as areas of concern such that they are not just footnoted. MS. RYAN answered that before the time of the railroad situation in Talkeetna, DEC did not have contingency plans for the railroad. A big change resulting from that was that DEC added the railroad as now an organization that is required to have contingency plans when hauling fuel, meaning the railroad must have the capacity to clean up an accident like that. Learning from larger spills usually results in changes to Alaska's statutes. Additionally, all contaminated sites, even if they are cleaned up, remain in DEC's database and are accessible by anybody as closed. So, she said, that information is out there and is often utilized by individuals doing research. 4:39:16 PM SENATOR MICCICHE noted that the shift of liability does not formally occur. Through capture in a deed, SB 64 allows the voluntary acceptance of the cost of the cleanup by the person purchasing the property. That is probably less likely with commercial and industrial spills, he said, and he is thinking more of a "mom and pop" where a $40,000-$100,000 cleanup may be well outside of their budget, but someone who really wants to develop a piece of property may be more than willing and able to afford that cost of cleanup. So, he continued, he sees some real benefits and can think of many pieces of property. There is likely property in each district in the state where SB 64 would help bring that property back into productive condition. 4:40:19 PM CHAIR KITO held over SB 64.