APPROVED BY:____________

POL 520B

INTERIM POLICY--PROSPECTIVE PURCHASER AGREEMENTS

Recent amendments to the Model Toxics Control Act allow the Attorney General and Ecology to enter into settlements with a person not currently liable for remedial action at a facility who proposes to purchase, redevelop, or reuse the facility.

This policy provides Ecology employees guidance on the use of this form of settlement, typically called a "prospective purchaser agreement."

NOTICE: This policy is intended solely for the guidance of Ecology staff. It is not intended, and cannot be relied on, to create rights, substantive or procedural, enforceable by any party in litigation with the state of Washington. Ecology reserves the right to act at variance with this policy.

1. Prospective Purchaser Agreements May Be Used Only Where They Would Yield Substantial New Resources To Facilitate Site Cleanup.

The primary mission of Ecology's Toxics Cleanup Program is to effect cleanup of contaminated sites, not to absolve potential site owners of liability under MTCA. For consistency with this mission and the policies in state statute, the focus of any proposed agreement should be on how the agreement will result in expediting cleanup of a site that would otherwise not occur or would occur much more slowly without the agreement. The proposal must include significant, real (not speculative) resources. An example would be an applicant proposing to redevelop a site and in the process of the redevelopment will be cleaning up the historic contamination. Another example would be where there are already viable PLPs at a site, but they do not currently have the resources to do the entire cleanup. In this later case, the applicant, prior to purchasing the site, agrees to supplement the current PLP resources to complete the cleanup.

Ecology will not accept proposed agreements for sites that do not require remedial action under MTCA, such as sites where the only concern is potential for contamination from off-site sources. Proposals for sites where a remedial action is already underway under an order or decree will not normally be accepted unless there are strong compelling reasons to start over. Proposals for purchasing a currently operating company that merely transfer ownership to a new company without proposing to clean up the site do not meet this statutory test.

Additional factors to consider in evaluation of this criterion:

a. The completeness of the information on the extent of environmental problems at the site. Where the extent and decree has not been fully defined, it is not possible to know if the applicants proposed contribu- tion to the cleanup will be substantial. In these instances, the applicant may need to commit to further testing and cleanup as part of the redevelopment proposal.

b. The completeness of the cleanup and level of certainty that the cleanup will work. Proposals that provide for completion of all necessary remedial actions at the facility will be viewed most favorably. Proposals that provide for less than complete cleanups may also be considered; however, such proposals would be acceptable only if other factors weigh strongly in favor of proceeding with the agreement.

c. The availability of other PLPs or other funds to complete the cleanup, should a less than complete cleanup be proposed.

d. Getting a cleanup done by a private party that would otherwise require MTCA monies, or done much more quickly than would be done with MTCA monies.

e. The priority of the site for cleanup. Higher priority sites should be viewed more favorably.

2. In Addition To The Specific Statutory Requirements For Prospective Purchaser Agreements in RCW 70.105D.040(5), All Such Agreements Shall Be In the Form Of A Consent Decree Meeting the Requirements in RCW 70.105D.040(4).

A prospective purchaser agreement is merely one type of settlement provided for under MTCA. As such, these agreements are settlements subject to the requirements in RCW 70.105D.040(4). In addition, these agreements protect the settling person from contribution claims and may include mixed funding, if Ecology has any available. See WAC 173-340-520 for procedures for processing requests for consent decrees.

The decision to enter into negotiations for a prospective purchaser agreement is discretionary and must be agreed to by both Ecology and the Attorney General. Since they are consent decrees, prospective purchaser agreements require the involvement of an assistant attorney general in any negotiations and processing of the application.

One test of a consent decree is that it is supposed to expedite remedial actions. This includes negotiations as well as cleanup activities. Under WAC 173-340-520(1), for PLP-initiated consent decrees, Ecology sets a time limit for negotiations based on a schedule proposed by the PLP. A suggested time limit for negotiation of prospective purchaser agreements is 90 days, recognizing that complex sites may require more time. It should be made clear at the beginning of the negotiations that Ecology and the Office of the Attorney General do not have the resources to engage in protracted negotiations and if a settlement cannot be reached within the allotted time limit, staff may be reassigned to other projects. Where an application is rejected due to insufficient staff resources or negotiations are broken off due failure to reach agreement, the applicant should be reminded of the independent cleanup program option for less formal Ecology review of the cleanup.

As a consent decree under MTCA, prospective purchaser agreements may contain a covenant not to sue but such covenant must contain a reopener clause. This is an important element of these agreements, warranting careful attention of the site manager. The extent of any covenant granted should consider the sufficiency of the data defining the extent and degree of contamination at the site, the completeness of the cleanup, and the degree of confidence in the technical reliability of the cleanup method. Where a less than complete cleanup is proposed that will result in long-term care and maintenance costs (such as would be the case for cleanups relying on containment), the responsibility for these costs and any failure of the cleanup must remain with the prospective purchaser or another viable PLP. These responsibilities will need to be explicitly discussed in the consent decree.

3. An Application For A Prospective Purchaser Agreement Must Include Sufficient Information For Ecology To Make The Necessary Findings Under Chapter 70.105D.040 & .050.

The submittal requirements for consent decrees are specified in WAC 173-340-520 (1)(a). These requirements, plus that information necessary to make the requisite statutory findings for prospective purchaser agreements are compiled in Appendix A (attached).

4. The Department's Costs Of Negotiating A Prospective Purchaser Agreement And Overseeing Any Remedial Action Conducted Under The Agreement Shall Be Paid By The Person Proposing The Agreement.

Section Managers should encourage limited up-front consultation by potential applicants where the contents of this policy and needed information can be discussed prior to submitting a written application. It would also be appropriate to discuss other options, such as IRAP, that may satisfy the applicant's needs.

Ecology will not charge an up-front fee to screen an initial application for a prospective purchaser agreement. However, if significant time (more than 10 hours) is expected to be involved in the review of an initial application, a job code should be established. If Ecology and the Attorney General decide the application can proceed, the applicant should be requested to submit a detailed proposal accompanied by a signed prepayment agreement and a deposit of 25% of the total agreement amount (see Policy 500C). The prepayment agreement should reimburse the costs incurred for review to date and pay for the future costs of negotiating the agreement (See Policy 500C Prepaid Cleanup Oversight).

The Section Manager may waive the requirement for a prepayment agreement for program plan sites where resources have already been allocated to work on the site. In these instances the section manager should establish a job code to charge time for negotiating the prospective purchaser agreement and all costs incurred during negotiations should be reimbursed under the prospective purchaser agreement.

All proposed prospective purchaser agreements shall include provisions requiring payment of Ecology's costs to oversee implementation of the agreement.

NOTE: Applications may be rejected for substantive reasons and/or due to lack of resources to process the application by Ecology or the Attorney General's office. It is important for section managers to carefully consider resource impacts of prospective purchaser agreements, especially those with long-term resource commitments. A commitment to enter into a prepayment agreement should be made only after the Ecology Division of the Attorney General's office has indicated they have the resources to process the application.

5. Prospective Purchaser Agreements May Only Be Made With Persons Currently Not A PLP At The Site.

The applicant must include a PLP search with the final application. If the applicant is a privately held company, they must identify their company officers and all owners. If the applicant is a publicly held company, they must identify their corporate officers and all owners with at least a 10% financial interest in the company. The applicant must also identify the sources of financing proposed for the purchase/redevelopment. There must be no relationship between the current PLPs and the persons proposing the agreement, unless it can be clearly shown such relationships are incidental to the transaction and would not result in PLP status. Where such relationship is unclear, additional information should be sought to clarify the relationship. Where an applicant refuses or is unable to provide sufficient information, the agreement should be rejected.

If the site contamination is due in part to off-site sources, the information required should be expanded to include the applicant's relationship to the off-site sources.

The decree must include an attached affidavit in which the person requesting the prospective purchaser agreement certifies that they are not a PLP at the site. The decree must also include language indicating that the decree is void if the prospective purchaser is a PLP. Site managers should consult with an assistant attorney general for appropriate language to meet these requirements.

Factors to Consider:

6. Where A Less Than Complete Cleanup Is Proposed, An Enforcement Strategy Shall Be Developed For Addressing The PLP Status Of The Current Site Owner And Other PLPs.

Current owners are PLPs under MTCA. However, former owners are PLPs only if the release occurred while they owned the property, a more difficult standard to prove. Under normal circumstances, the current owner would be held accountable for the cleanup.

Prospective purchasers are required to provide substantial new resources towards site cleanup. If the prospective purchaser is proposing to assume responsibility for only part of the cleanup, then additional resources will be needed to complete the cleanup. In these instances the prospective purchaser should be requested to do a PLP search to identify other PLPs at the site, and Ecology staff should carefully review and evaluate this information.

Bringing other PLPs into the process has the advantage of bringing additional resources to the table for completing the cleanup. However, the disadvantage of bringing in other PLPs is that this can complicate and delay the process--an important consideration when a real estate transaction is pending. These factors need to be evaluated in developing an enforcement strategy for the site. At a minimum, when the prospective purchaser is proposing to assume less than full responsibility for the cleanup, all PLPs identified in the PLP search should be sent PLP status letters. This may bring to light additional information and open opportunities to bring in the additional assets of willing PLPs.

One concern that needs to be evaluated is whether assets gained from the sale of the property which could be applied to the cleanup could be unavailable in the future. If this is a concern, it will probably be appropriate to bring at least the current property owners into the transaction.

Any costs incurred for bringing other PLPs into the process should be paid by the prospective purchaser as an allowable expense under the prepayment agreement. Once a separate settlement has been negotiated with the other PLPs, the cost of administering the separate settlement should be borne by the settling parties.

NOTE: Whenever PLPs other than the prospective purchaser are brought into the site cleanup negotiations, it is necessary to negotiate a separate, parallel settlement.

7. The Applicant Must Have A Legal Commitment To Purchase, Redevelop, Or Reuse The Facility.

The commitment must be in the form of a long-term lease agreement, purchase option or contract or equivalent legal commitment to purchase, redevelop, or reuse the facility. The commitment must also include a schedule for starting the project within a reasonable period of time (a suggested time frame is two to five years depending on the time for cleanup to be completed and anticipated development permitting requirements). The applicant must be able to demonstrate the proposed use is consistent with current comprehensive plans and zoning for the jurisdiction the facility is located in. For redevelopments, the applicant should also have correspondence indicating the proposed use has undergone at least a preliminary review by relevant permitting agencies and the proposal is feasible pending resolution of cleanup issues.

8. The Prospective Purchaser Agreement Must Provide Substantial Public Benefit.

All proposals for prospective purchaser agreements must identify the public benefits of the project. The statute provides two examples of substantial public benefit:

a. "...the reuse of a vacant or abandoned manufacturing or industrial facility..."

To qualify under this provision, the applicant must demonstrate the facility proposed for redevelopment is currently idle and not being used. The applicant must also provide information confirming the facility was a manufacturing or industrial facility either through historic records or zoning. In addition, the proposal for reuse or redevelopment must be a manufacturing or industrial facility. The size of the proposed manu- facturing facility or number of jobs to be created does not need to pass a certain threshold to meet this requirement. A proposal for a facility with substan- tial economic benefits (such as creating an abundance of high paying jobs) should be given a higher priority than smaller facilities, other factors being equal.

b. "...the development of a facility by a governmental entity to address an important public purpose..."

To qualify under this provision, the applicant must be a governmental entity. The facility should be identified in the public entity's capital facilities plan, and a firm schedule for facility development established and committed to. Buying land to simply hold it for some unidentified potential future use would not qualify under this provision. The proposed facility must serve an important public purpose. An example would be a facility identified as an essential public facility under the Growth Management Act. Another would be a key parcel of land needed to realize completion of a typically much larger public project and no other reasonable alternatives exist.

For proposals consistent with the above examples and for others circumstances that do not fall within these two specific statutory examples, the following factors should be considered:

a. Making currently idle land productive again.

b. Number of new jobs created or existing jobs retained, especially high paying base industry jobs (i.e., jobs that pay higher than the median income for the area).

c. Consistency of the purchase/redevelopment proposal with land use plans and other regulatory requirements.

d. Social benefits/impacts of the purchase/redevelopment.

e. Recreational benefits of the purchase/redevelopment.

f. The environmental benefits of the project (in addition to cleanup).

g. The affect of the proposal on the tax base of the community.

h. Whether future operations will cause additional environmental problems at the site.

NOTE: In addition to the above factors, the benefits of site cleanup can be factored into the "public benefit" analysis. However, any proposal that focuses primarily on the public benefits of the cleanup does not meet this statutory test. There must be a clear substantive public benefit to the project, in addition to the cleanup proposed. Thus, this evaluation of public benefits should focus initially on the redevelopment project itself. The benefits of site cleanup should be considered only after, or in addition to, the other public benefits of the project having been weighed. See the discussion under "substantial new resources to facilitate cleanup" in paragraph #1 of this policy for factors to consider in evaluating the public benefit aspects of the cleanup.

9. Proposed Remedial Actions At The Site Must Be Consistent With The MTCA Rules.

A prospective purchaser agreement should not be used as a vehicle to shortcut necessary technical investigations and evaluations, public opportunity to review and comment on the proposed cleanup, or the technical standards with which a cleanup must comply under the law. Proposals to only partially clean up a site must identify who would be responsible for the remainder of the cleanup, and when the cleanup would be expected to be completed.

Public review of prospective purchaser agreements must comply with the requirements for consent decrees provided for in WAC 173-340-520 and the public participation requirements in WAC 173-340-600.

10. The Applicant Must Demonstrate That The Use Proposed For The Site Will Not Contribute To The Existing Release Or Threatened Release Or Interfere With Remedial Actions That May Be Needed At The Site.

To make this demonstration, the applicant will be required to:

a. Define the extent and degree of the existing contamination. This will require essentially a remedial investigation level of study at many sites.

The level of information may be less than a full RI if, in the site manager's judgement, this demonstration can be made with less information. Likely situations where this could occur are: (1) The applicant is committing to a complete cleanup of the site, or (2) The applicant is committing to a less than complete cleanup of the site but there are other viable PLPs to do the rest of the investigation and cleanup and the proposal would not foreclose any remedial actions.

However, even in these situations the minimum level of study to make this demonstration would be defining the contamination sufficiently for areas of future construction and operation, and for areas that could be affected by future construction and operation.

NOTE: Sufficiently defining the extent and degree of contamination is also critical to defining what the prospective purchaser agreement covers (i.e., The decree must include a reopener for conditions unknown at the time of the settlement. Therefore, what isn't defined is not covered in the decree.).

b. Select a proposed cleanup action that is consistent with the rules under MTCA or, if a cleanup action has not been selected, identify cleanup actions representing a range of likely alternative remedial actions at the site that would be consistent with MTCA. This should be information equivalent to a state feasibility study.

NOTE: This is not intended to imply an expensive full-blown feasibility analysis be done if the necessary cleanup action is obvious and undisputed. For example, if the applicant is proposing to excavate all of the contaminated soil as part of foundation work for the redevelopment, and ground water contamination was not a problem at the site, the focus of the feasibility study could be limited to disposal or treatment options for the excavated soil.

c. Have firm, detailed plans for future use of the site. These plans should have completed at least an initial review by the local land use authority (often called a feasibility review).

Factors to consider in evaluating proposals: