Controversial NEPA Implementation at HUD: Shifting Environmental Review Responsibilities to Local Grant Applicants

In a sweeping move that has raised some doubts among mayors, city attorneys and environmentalists, the U.S. Department of Housing and Urban Development (HUD) secured congressional enactment in August of a new authority to shift the burden of assessing environmental impacts of HUD-supported projects to local agencies which apply for HUD funds. The operative provision, § 104(h) of the Housing and Community Development Act of 1974,¹ states:

the Secretary, in lieu of the environmental protection procedures otherwise applicable may under regulations provide for the release of funds for particular projects to applicants who assume all of the responsibilities for environmental review, decisionmaking and action pursuant to [the National Environmental Policy Act of 1969] that would apply to the Secretary were he to undertake such projects as federal projects.

HUD has recently proposed regulations under this section which leave no doubt that the Agency intends to make full use of its new authority, as soon as it takes effect on January 1. The proposed regulations, published in the Federal Register on October 10,² state:

Except [where an applicant is found by HUD to lack capacity to assume or carry out such responsibilities] all applicants for assistance under Title I shall be required to assume responsibility for carrying out all of the provisions of NEPA relating to particular projects for which the release of funds is sought"³ (emphasis added)

The legal effect of § 104(h) is to alter with respect to HUD the requirement of § 102(2)(C) of the National Environmental Policy Act of 1969 (NEPA) that "all agencies of the Federal government shall … include … a detailed statement by the responsible official on the environmental impact of the proposed action …" (emphasis added) and which sets forth further duties for the "responsible federal official,"⁴ by authorizing the HUD Secretary to require local officials to assume these duties.

Further, § 104(h) will render inapplicable two court decisions under NEPA to HUD. The first is Greene County Planning Board v. FPC,⁵ which held that the federal agency responsible for the major federal action may not delegate to a state agency the duty of preparing the environmental impact statement required under NEPA. Under § 104(h), applicants for HUD funding, whether they are local or state agencies or officials,⁶ may be required to prepare impact statements. The second, a pair of cases, Ely v. Velde in 1971 (Ely I)⁷ and Ely v. Velde in 1974 (Ely II)⁸ held that "the unfettered nature of block grants apportioned to the states by the … LEAA … did not exempt federal participation from the requirements of … [4 ELR 10194] NEPA."⁹ Title I of the Housing and Community Development Act of 1974 expressly establishes a "block grant" program, which replaces seven "categorical grant" programs (including the Urban Renewal Program, the Model Cities Program and others) with a lump-sum approach for distributing funds to local communities.¹⁰ Section 104(h) — a part of the same Title I — is a congressional determination that HUD is to be exempted from NEPA obligations with regard to Title I block grants to the extent that HUD chooses to require local applicants to meet these obligations as they apply to particular component "projects" included in a block grant program. Of course, if local officials cooperate fully in preparing impact statements for block grant projects, and acknowledge that all of NEPA's environmental review requirements are binding on them, then the need to apply Ely I and II would be substantially diminished if not eliminated.

The practical effect of the proposed regulations will be to relieve HUD almost entirely of any participation in the environmental review of projects it supports with Title I funds under the 1974 Act. HUD makes it clear it does not even want to see impact statements.¹¹ Its role will be limited to the following functions: (a) receiving and reviewing a "certification" from a responsible local official that the applicant agency has "fully carried out all of the responsibilities for environmental review," (b) paying the environmental review costs of local applicants; (c) reassuming environmental review functions when local applicants are judged to lack the capacity to carry out the review themselves; and (d) delaying actual release of funds for 15 days from the date of receipt by HUD of the local agency's final request and certification.

An integral part of the new approach to NEPA set forth for HUD by the Congress is to require local applicants to shoulder the entire NEPA litigation burden. Up to now this burden has fallen on HUD itself, and has been substantial, reflecting the view widely held among environmentalists that the performance of HUD under NEPA has not been of the highest quality.¹² The Act and the regulations proposed under it require the local official who certifies to HUD that NEPA obligations have been met "to accept the jurisdiction of the Federal Courts for purposes of enforcing NEPA," and generally to consent to assume the status of the responsible federal official under NEPA insofar as its provisions apply to HUD. The regulations are silent on the question whether HUD will cover the costs of defending litigation that arises, and whether legal assistance will be available from the U.S. Department of Justice to applicants. Hopefully, the final regulations will address themselves to these points.

The thoroughness of HUD's attempt to delegate its role under NEPA role is startling. Under the regulations, HUD proposes not even to respond to environmental inquiries, complaints or objections concerning HUD-funded projects, when raised by the public or by other agencies, "excepting only to refer such persons and agencies to the applicant and the certifying officer of the applicant." Presumably, HUD does plan to respond to such inquiries when raised by CEQ or by local applicants, and to provide technical assistance to applicants trying to find their way through the review requirements for the first time. If so, however, this commitment is not made clear in the proposed regulation.

The proposed regulations spell out in great detail the step-by-step procedures local officials must follow in performing environmental review. However, for substantive criteria to use in weighing environmental consequences, and in preparing impact statements, local applicants are referred to CEQ Guidelines. Whether public hearings are held is left to the discretion of local officials.

Three ways for applicants to relieve themselves of a full environmental review are set forth in the proposed regulations. Applicants may seek a HUD declaration that they lack capacity to assume or carry out environmental review responsibilities.¹³ They may seek to categorizeproposed projects under one of eleven activities which the draft regulations propose to exempt from environmental review requirements.¹⁴ Finally, they may conduct a partial review and reach an "environmental finding" that the Project is not a major federal action significantly affecting the environment.

While the regulations exempt HUD from any impact statement review, they do require applicants to send draft and final impact statements to CEQ (five copies), to federal agencies (except HUD) whose areas of jurisdiction by law or special expertise are involved, to OMB-designated A-95 clearinghouses,¹⁵ to appropriate local [4 ELR 10195] agencies and entities, including local and area planning agencies, and groups or individuals known by the applicant to have an interest in the proposed action of the applicant.

The new NEPA compliance plan for HUD projects was proposed late in the deliberations on the Housing Act in the House Committee by HUD. HUD officials cleared the plan with the Council on Environmental Quality, the NEPA watchdog in the Executive Branch. CEQ supported HUD, and is generally satisfied both with the new concept and its execution by HUD. Among the provisions of § 104(h) is a requirement that HUD "shall issue regulations to carry out [delegation of review responsibilities under NEPA] only after consultation with the Council on Environmental Quality."

No other federal agency has won from Congress the power to delegate so thoroughly the environmental review responsibilities imposed by HEPA. Proponents of the plan assert that there is no violation of the spirit of NEPA in the arrangement, since NEPA requirements apply to those officials with discretion on how federal actions are carried out and federal monies spent, and Congress, in establishing a block grant program under Title I, removed this discretion entirely from HUD and shifted it to applicant local agencies.

In the past the prevailing wisdom among NEPA analysts has supported locating the responsibility for environmental review at the federal level. This grows from two concerns. The first is a desire to avoid defeating the purpose of environmental review and impact statement preparation by placing these tasks in the hands of grantees or licensees with a strong incentive to produce self-serving environmental analyses. It was this concern that was at the root of the court's decision in Greene County. The second is the belief that significant benefits would result if federal agencies built up environmental staffs to perform the various NEPA-imposed obligations. Such a staff presence would lead to increased agency awareness of the environmental implications of various policy alternatives, and to more frequent choice of environmentally sound options.

These objections to delegation of NEPA responsibilities by federal agencies to applicants for licenses or grants do not apply neatly to the HUD scheme. The concern that applicants might tend to ground their environmental assessments on self-serving assumptions is well based (see Greene County). However, where a federal agency, like HUD, is in the business of heavily promoting its programs (as opposed to merely regulating), the temptations it faces to engage in the same self-serving pronouncements are no less severe than those felt by the applicant. In HUD's NEPA record, there is room for nothing but improvement, and it could well be that local agencies will produce a better brand of environmental review than HUD. At the same time HUD's poor NEPA record may in itself provide that most cogent rationale for opposing the agency's attempt to abandon its NEPA efforts altogether. In any event, this debate, at least in the case of HUD, has been settled by Congress, and environmentalists are now forced to make the best of whatever scheme emerges in HUD's final version of regulations under § 104(h) of the Act, due in December.

The second argument, that impact statement preparation sensitizes the responsible officials to the environmental ramifications of their policy decisions, and leads to the alteration of environmentally harmful policies, applies with equal force to officials at the local level. And perhaps this sensitivity is more important at the local level, where the multifaceted decisions which shape land-use and directly affect the quality of life are made on a day to day basis. Moreover, it is among local officials that awareness of the need to preserve environmental values may be lower, and environmental values come into direct conflict more frequently with local business and development interests. Where this is the case, NEPA responsibilities can become offensive weapons in the battle of local governments to control and manage growth.

CEQ's support of § 104(h) before the Congress and its substantial agreement with the proposed regulations seems firmly based. CEQ points out first that the new scheme allows no relaxation from the tests of environmental impact currently in effect for federal actions. Substantively, the same CEQ guidelines will apply. Procedurally, the regulations leave little latitude for variation from the step-by-step requirements all applicants must follow. Thus the HUD regulations can be characterized as an effort to "federalize" the actions of local officials for NEPA purposes, rather than as an effort to "de-federalize" the action so as to avoid NEPA requirements altogether.

CEQ adds, furthermore, that local officials will know full well that the price of neglecting environmental considerations is the risk of a law suit in federal court, which they must defend on their own, and which will bring on heavy costs and serious delays. Required acceptance by local officials of the status of defendant in federal court in any legal challenge for failure to comply with NEPA helps assure that local officials will take their NEPA obligations seriously.

Third, it is clear that the new scheme will force consideration of environmental factors at an earlier stage of project development than has been the case, forcing abandonment or modification of many projects, upgrading the level of sensitivity to environmental considerations, and potentially reducing or eliminating the need for legal challenges by environmentalists.

Fourth, the HUD approach to NEPA compliance will contribute directly to achieving a critical long range environmental objective, bringing the front line of concern for environmental protection to the local level where the vast majority of land use planning and decision-making takes place.

It should be noted that CEQ has offered several suggestions for improving the proposed regulations, including [4 ELR 10196] one of some significance.¹⁶ CEQ has questioned § 58.21 of the regulation which sets forth a number of actions which HUD wishes to "exempt" from impact statement requirements, and suggested that this section be reworded to establish a "presumption of no significant impact" and to create a framework of review for HUD not contemplated by the current proposal.¹⁷

The comment closing date on HUD's proposed regulations was November 11. Regardless of one's position on matters of philosophical approach, it is clear from a reading of comments received by HUD that the final rule will have serious deficiencies if it fails to eliminate a number of practical problems.

Most seriously, throughout the comments, local agencies registered resistance to HUD's sweeping delegation of NEPA responsibilities; many asserted that localities should be entitled to choose which projects to review for environmental impacts, leaving at least some review to HUD. The mayor's offices of both Chicago and San Francisco, among others, objected to the draft regulations' attempt to make the chief executive officer of the locality "personally" responsible for noncompliance with NEPA. Several local officials anticipated that they would have difficulty, from their standpoint in a local city hall, determining which of their projects would constitute a major federal action. Several asked HUD to insert criteria in the final rules for determining when a local agency lacks the capacity to assume NEPA duties. The suggestion implicit in all of these comments is that the scheme imposes a heavy burden on local government units which many will resist. If large numbers of local agencies are accorded "lack of capacity" status by HUD, the result will be to throw NEPA responsibilities back into HUD's lap. On the other hand, if HUD refuses to grant the status to allbut a few who apply, the list of rejected applicants surely becomes a prime source for environmental groups seeking targets for litigation.

Second, the regulations fail to refer to EPA's duty to review the environmental impact of federal projects, as mandated by § 309 of the Clean Air Act.¹⁹ The regulations should not merely inform applicants of the existence of EPA's duty under § 309 (the position of EPA as of this writing), but should go further and explicitly require local agencies to take EPA comments into account in the final impact statement and in final project plans. If HUD chooses not to review impact statements, and if other federal agencies limit their review to the aspects of impact statements touching matters under their jurisdiction, then EPA stands as the sole source of broad review on a substantive basis at the federal level.

Third, once HUD receives a request for certification and for release of funds, it must act within 15 days. This, the last period within which objections may be raised, is clearly insufficient to allow full public comment, all the more so because there is no notice provision in the statute. Unfortunately, the 15-day period is etched in statutory language, reflecting Congress' desire for distribution of Title I funds with "minimum delay." At the very least, HUD might declare the 15-day period to begin on the day that notice of certification is published, so that groups which may wish to raise substantive or procedural objections will be informed of the limited time in which they must act. The opportunities for objection at earlier stages are largely controlled by the local agency (public hearings are optional under the proposed regulations, and applicants are not required to respond to complaints or objections in any formal manner). Thus the final opportunity is critical. HUD's own Region VIII office in Denver commented: "without a publication requirement, the 15-day objection period is a little rediculous."

Fourth, a local agency which exercises its option under the proposed regulations not to hold a public hearing, an option which is allowed even after the agency has determined a project to be a major federal action significantly affecting the environment, is inviting attack from environmentalists and other challengers. HUD should consider making the hearing provision mandatory, with a requirement that hearings be held after the publication of a draft impact statement, rather than before.

Finally, HUD's attempt at total withdrawal from NEPA responsibilities seems ill-advised. At the very least, HUD should be open to reassuming impact statement preparation when local agencies claim to be, or prove themselves, incapable of assuming environmental review tasks. HUD's acceptance of a local agency's certification of compliance with NEPA without formally monitoring [4 ELR 10197] the local agency's fidelity to the procedural requirements of HUD regulations can only suggest to local agencies that HUD totally lacks interest in environmental consequences. If HUD doesn't care, will the local agencies? At a minimum, HUD must retain what CEQ calls a framework for review, so that it can tell whether its system is working, and so that it can shape any necessary reforms to the system in preference to having them imposed from the outside.

HUD has won itself an important opportunity to develop a decentralized process for environmental review. It is perhaps the most realistic approach from a conceptual standpoint yet proposed to the problem of applying the impact statement requirements of NEPA to block grant programs, in which discretion is lodged not at the federal level, but at the city and county level. If the numerous and serious practical problems in HUD's draft regulations can be corrected before the rule is put into final form, then the basic concept — early consideration of environmental effects by the officials with authority to select and shape federally funded projects — will have a fair trial. The concept has the support of those environmentalists who have studied it. However, the task of ensuring that the program is adequately designed and policed is one in which environmental groups, congressional staff responsible for oversight, and officials at EPA and CEQ must share.

1. 42 U.S.C. § 5301 et seq. Public Law 93-383, signed into law August 22, 1974.

2. 39 Fed. Reg. 36554 et seq. (Oct. 10, 1974).

3. 39 Fed. Reg. at 36555 (§ 58.5(a) of the Proposed Regulation).

4. This phrase appears in § 102(2)(c)(v) of NEPA, 42 U.S.C. § 4332. (Emphasis added.)

5. 455 F.2d 412, 2 ELR 20017 (2d Cir. 1972), cert. denied, 41 U.S.L.W. 3184 (Nov. 7, 1972). See also Comment, 2 ELR 10153 (1972).

6. In practice, most applicants for HUD grants are local agencies. In Greene County, the agency in question was the Power Authority of Southern New York.

7. 451 F.2d 1130, 1 ELR 20612 (4th Cir. 1971).

8. __ F.2d __, 4 ELR 20369 (4th Cir. 1974).

9. 4 ELR 20369.

10. For a full explanation of the block grant program, see 39 Fed. Reg. 40136 et seq. ("Community Development Block Grants, Regulations," Nov. 13, 1974)

11. 39 Fed. Reg. at 36558, under §§ 58.15 (e)(3)d., and 58.15 (e)(4), of the proposed regulation.

12. Through September 1973 HUD had prepared only 74 impact statements. See Council on Environmental Quality, 102 Monitor, 3:9 (October, 1973) at 176. See also letter from Sen., Henry Jackson to Hon. John Sparkman, July 29, 1974, reprinted at 120 Cong. Rec. S14885 (August 13, 1974).

13. 39 Fed. Reg. at 36555, § 58.5(b) of the proposed regulation. If a local agency is declared to lack capacity, HUD will presumably reassume its review responsibilities.

14. 39 Fed. Reg. at 36558. (§ 58.21). The listed items include such activities as developing comprehensive plans and "improvement of public services not involving construction … including those concerned with employment, economic development, crime prevention, child care, health, drug abuse, education, welfare, or recreation." (§ 58.21(b)(10) of the proposed regulation). For a discussion of CEQ's objections to these provisions, see note 16 infra, and the accompanying text.

15. The A-95 Clearinghouses are the subject of an ELR Article. See Morgenthaler, OMB Circular A-95: A Neglected Environmental Assessment Tool Provides An Early Pressure Point, 4 ELR 50043 (October, 1974).

16. CEQ offered two additional comments on the proposed rulemaking, that applicants be informed that they must be responsible for their own legal counsel in any litigation arising over NEPA matters (legal assistance from the U.S. Department of Justice will not be available to defend applicants in such litigation, according to CEQ), and that a finding by an applicant that the project is not a major federal action with significant environmental impacts should include a brief discussion of the alternatives to the action, their environmental impacts, and the reasons for their rejection. See letter dated November 11, 1974, from CEQ to HUD, in HUD Docket R-74-297, Room 10245, HUD, 451 7th St. S.W., Washington, D.C.

17. Ibid. See supra, n. 14, for examples of the activities HUD is seeking to exempt under this provision of the proposed rule. It should be noted that NEPA itself provides for no exceptions.

19. 42 U.S.C. § 1857h-7, which states in pertinent part: "The Administrator shall review and comment in writing on the environmental impact of any matter relating to duties and responsibilities granted pursuant to this Act or other provisions of the authority of the Administrator, contained in any … newly authorized Federal projects for construction and any [major federal action subject to the impact statement requirements of NEPA]." (Emphasis added). See Article 3 ELR 50071 (August, 1973).