17 ELR 10395 | Environmental Law Reporter | copyright © 1987 | All rights reserved
ECRA: New Jersey's Cleanup StatuteHarriett Jane Olson
Editors' Summary: New Jersey's Environmental Cleanup Responsibility Act (ECRA) is probably the leading state effort to address hazardous waste cleanup without direct expenditure of government funds. ECRA attempts to harness the business incentives involved in the sale or transfer of real property to clean the property as it changes hands. This Dialogue outlines ECRA's provisions and analyzes its implementation by the New Jersey Department of Environmental Protection. The author, an experienced ECRA practitioner in the New Jersey private bar, praises ECRA's goals but offers specific criticisms about both its statutory structure and its regulatory implementation. The Dialogue compares ECRA to other states' statutes apparently patterned at least in part on the New Jersey experience, and reviews proposed ECRA reforms in New Jersey.
Ms. Olson practices with the firm of Pitney, Hardin, Kipp & Szuch in Morristown, New Jersey. She is a graduate of Houghton College and Harvard Law School. Karen Greco-Buta, also an attorney with Pitney, Hardin, assisted in the preparation of this Dialogue.
[17 ELR 10395]
New Jersey's Environmental Cleanup Responsibility Act (ECRA) is one of the newest and most powerful hazardous waste cleanup statutes in the nation. Ironically, the statute was enacted on September 2, 19831 with little publicity either in legislative circles or among the regulated community, having been somewhat overshadowed by the debate on New Jersey's Right-to-Know Act. The New Jersey Department of Environmental Protection (NJDEP) promulgated regulations on an emergent basis on December 30, 1983, and has since readopted them without change as Interim Regulations effective through September 16, 1990.2 Today, companies across the country are struggling to comply with — and understand — this statute, and other states are considering adopting similar laws. This Dialogue analyzes both ECRA's conceptual framework and its actual implementation.
Background on ECRA
ECRA was enacted to address the increasing number of environmental problems that affect the people and natural resources of the State of New Jersey. New Jersey's long history of heavy manufacturing and chemical, petrochemical, and pharmaceutical activity combined with dense residential development brings into focus the impact that industrial properties may have on their neighbors and vulnerable natural resources like air and groundwater. In adopting ECRA, the New Jersey legislature found that the industrial and commercial use of hazardous substances and wastes pose an inherent danger to the citizens, property, and natural resources of the state. ECRA is an attempt to impose compliance requirements on owners and operators of industrial property in New Jersey, both to protect the citizens of the state, and also to put the cost of cleanup on the entity responsible for contaminating the soil or water.
ECRA requires owners and operators of defined "industrial establishments" to file notice forms with NJDEP five days after the occurrence of certain events, such as announcing a decision to close a facility, signing a contract to sell real property in New Jersey, or signing acontract to sell shares of a business that operates in New Jersey. The Regulations elaborate on this statutory requirement by listing 17 items that must be submitted,3 and NJDEP has developed a two-part Initial Notice form that must be filed by the subject "owner or operator." The items to be submitted include a detailed description of the processes at the property, a list of all of the hazardous materials used on site, and site maps and a testing program to determine if any of the regulated hazardous materials have reached the environment. The notice requirements impose a significant reporting burden because of the extensive list of hazardous materials regulated; pervasive materials like petroleum products, including heating oil, are among the listed substances.
NJDEP reviews the Initial Notice submissions for completeness [17 ELR 10396] and then assigns each filing a "rank" representing the degree of complexity the reviewer expects to be involved in the sampling and cleanup process. The complete file may then wait as long as 29 weeks for assignment of a case manager. It takes longer for complex matters to get assigned than it takes for more straightforward files. Upon assignment the case manager fowards the sampling plan to NJDEP's in-house technical staff for review and schedules a site inspection. The complying party then receives both a Report of Inspection and a list of comments on the Sampling Plan that generally require revisions to the filing (or negotiations with NJDEP, or both) prior to implementation. Once the sampling data is available, a similar process of submission, review, comment, negotiation, and revision is generally followed with respect to any necessary Cleanup Plan.
ECRA applies to "industrial establishments" located in New Jersey. An industrial establishment is defined as a "place of business" that has a Standard Industrial Classification code number (SIC number) within the major groups listed in the statute.4 The SIC numbers are part of a system for economic reporting developed by the federal Office of Management and Budget.5 These numbers are not assigned by any government agency, but are selected by the complying party on the basis of the SIC Manual's descriptions of the activities of businesses in the various groupings.
In order to be classified as an "industrial establishment," hazardous substances or hazardous wastes as defined by the statute must be used on the premises. Extensive lists comprise the definitions of these terms, and include many materials whose use is not unique to manufacturing. Many facilities at which no actual manufacturing takes place are covered by ECRA.
Under ECRA, any "closing, terminating or transferring of operations"6 triggers the requirement to file the Initial Notice. Unfortunately, the statutory language describing such transactions or closures is quite broad, and the current regulations do little to clarify which transactions are regulated. The statutory definition of the triggering transactions uses language unfamiliar to the business and legal community, such as "sale of stock in the form of a statutory merger or consolidation" and "sale of the controlling share of the assets."7 Since stock sales are not accomplished via statutory merger and no percentage share of ownership of assets necessarily carries with it "control" of an operation, these phrases create problems for attorneys advising clients on ECRA applicability. NJDEP has taken the position that ECRA applies to every merger, stock sale, and asset deal that affects real property in New Jersey, or a substantial portion of the assets located at any facility in New Jersey.
As ECRA imposes obligations on the "owner or operator" of an industrial establishment, NJDEP takes the position that either owned or leased property may be subject to ECRA compliance requirements and that the landlord and tenant have joint and several responsibility for ECRA compliance.
Unfortunately for ECRA's laudable goals, both the drafting of the Act itself and the administration of the program enforcing ECRA have generated many problems for the regulated community. The ECRA program was so lightly staffed at its inception that practically from the first day of the Bureau's operation, there has been a substantial backlog in processing applications. In January 1984, NJDEP established the Bureau of Industrial Site Evaluation to administer ECRA. The Bureau started out with a staff of six, and now has a staff of over 60. The Bureau itself has been reorganized and renamed the Industrial Site Evaluation Element in recognition of its relative size among other NJDEP offices.
Most of the added staff arrived without training or experience. The constant change in staff and the varied levels of training that staff members receive means that the extent and intensity of ECRA review varies considerably among the various case managers working in the Industrial Site Evaluation Element. This contributes to the almost consistent exasperation with which ECRA is viewed by the business community.
Perhaps more serious problems are inherent in the statutory framework itself. ECRA purports to cover "places of business" having specific SIC codes.8 Places of business are not normally deemed to have SIC codes under the federal application of the SIC code system. Rather, a SIC code generally applies to the commercial or industrial operation as a whole. Hence, it is difficult to appropriately classify a branch, sectionn, or division of a major company. Based on Appendix A9 to the SIC Code Manual, NJDEP imposes ECRA compliance on all of the "auxiliaries" of each of the companies covered under the listed SIC sectionns. This interpretation of ECRA requires filings and full compliance for auxiliary establishments posing minimal risk of harm to the environment, such as warehouses, sales offices, and parking lots of industrial establishments. This cannot comport with the legislative intent and creates additional caseload for NJDEP and minimal benefit or protection for the environment.
ECRA's adoption of the SIC code classification system results in a pattern of applicability that is simultaneously too narrow and too broad. The exclusion of retail oil distributors and gasoline stations,10 for example, leaves significant sources of potential harm to the environment unregulated. Further, classifying a manufacturing company's researchand development laboratories as auxiliaries brings them within the covered SIC code of the industrial establishments they serve. However, research and development laboratories performing these same services on a contract or fee basis are included in SIC number 7391, which is not covered by ECRA.11 This particular discrepancy arises from NJDEP's interpretation of the regulatory system and is not forced upon the agency by the statutory language itself. NJDEP has tried to remedy some of the curious results caused by incorporating whole SIC code [17 ELR 10397] major groups in the statute's ambit by deleting subgroups that do not appear to pose a threat of environmental harm.12 However, the overall system still creates uncertainty within the regulated community as to which parts of various operations are covered and how best to determine which SIC number applies to any given facility.
Another significant problem with ECRA's statutory provisions is the absence of any mechanism for determining NJDEP's position on the applicability of the statute. NJDEP has attempted to remedy this deficiency by providing "Letters of Non-Applicability" when rulings are requested for specific properties or transactions. These letters are determinations, based on affidavits submitted to NJDEP, which purportedly have no precedential value and apply only to the transaction or facility for which the letter was originally requested. Aside from the problem of interpretation created by NJDEP's issuing statutorily unauthorized rulings on the applicability of ECRA and the Regulations, these letters are neither indexed nor reported in any publicly accessible medium. Having an unreported body of interpretation has caused great confusion and consternation among the regulated community.
Another problem in the original ECRA scheme that the NJDEP has attempted to address is the requirement of obtaining an approved Negative Declaration or Cleanup Plan prior to carrying out the subject transaction.13 Due to the incredible backlog at NJDEP and the complexity of some of the sites under review, it is unreasonable to expect the ECRA compliance process to be completed in under a year for facilities with any significant environmental contamination. Moreover, it is seldom possible to complete the ECRA compliance process in any shorter time frame even for facilities without contamination, if their activities raise concerns about the possibility of contamination on site.
To date, NJDEP has been very cautious in approving Negative Declarations. While this may be appropriate in many instances, it places a great burden on regulated business transactions. Corporate transfers are not generally conducted in a setting in which a contract is signed a year or two years before the transfer of title is completed. An even more complex situation is presented when a stock deal or merger is contemplated and the time frame is based on response to a tender offer or on some financially based criterion.
In order to deal with the time constraints under which the business community normally operates, NJDEP has developed an Administrative Consent Order (ACO). An ACO is an agreement between the regulated entity and NJDEP governing post-closing ECRA compliance, secured by a bond in an amount determined by NJDEP. Unfortunately, NJDEP sees execution of this sort of agreement as a waiver of some of its "powers of persuasion" over companies anxious to complete a business transaction. Consequently, NJDEP reserves its right14 to void the subject transaction, and also to impose $5,000 a day stipulated penalties for failure to comply with the terms of the ACO. The ACO itself has developed into a standard form, which means that the alterations that NJDEP will permit in the basic model are few and far between. Since the form ACO is not particularly well drafted and requires the ordered party to waive significant rights to request review of NJDEP determinations, and since NJDEP retains its right to void the transaction, an ACO may not provide the comfort necessary to enable the parties to consummate the transaction in advance of final ECRA approval. To date, NJDEP has been unwilling to address the significant legal and commercial issues raised by the requirement of signing the form ACO.
Absence of Cleanup Standards
Further problems are created by NJDEP's position that sale or transfer of any portion of an "industrial establishment" triggers ECRA compliance requirements for the entire facility. The implications of this requirement are particularly problematic because NJDEP is dealing with the sampling and proposed cleanup work on a "case-by-case basis" with no published standards to guide the regulated community in an analysis of whether the property will be determined to be "clean" or contaminated. Although this approach is initially permitted in the statute, the statute also contemplates that regulations defining standards will be developed.15 Over the three-and-a-half-year life of the program, there has been no move in this direction. The problem of uncodified standards is exacerbated not only because the standards evolve over time, but also because they appear to fluctuate from site to site. Thus, a complying party is never sure whether the standard imposed on its facility will be one part per million of polychlorinated biphenyls (PCBs) or five parts per million PCBs, for instance. When dealing with an application for a facility with pervasive PCB readings of three to four parts per million, this difference is pivotal and may determine whether the proposed sale is viable or whether other alternatives must be pursued.
Exporting ECRA: Other States Follow Suit
Despite the problems with New Jersey's ECRA, it has been viewed as a model by other states. A similar statute has been adopted in Connecticut and an ordinance imposing similar requirements is in effect in San Francisco, California.16 Statutes based on similar premises have been proposed in the New York, Pennsylvania, Massachusetts, and Maryland legislatures.
The Connecticut statute is entitled "An Act Concerning the Disposal of Recycled Hazardous Waste Residue."17 This statute adopts some of the same definitions of covered transactions that are used in New Jersey's ECRA program. However, Connecticut's statute applies to any industrial establishment generating more than a hundred kilograms of hazardous waste per month or that recycles hazardous waste belonging to a third party. This eliminates some of the ECRA problems with SIC code definitions and applicability. The Connecticut statute also permits private transfer prior to approval of filings by any state agency. [17 ELR 10398] This provision, while decreasing the protection provided to buyers, frees the parties from the unbelievable time delays created by a system like ECRA in which administrative review must be completed prior to consummating a transaction. Like the ACO procedure developed by NJDEP, the Connecticut statute provides for a consent agreement in which the seller agrees to mitigate contamination on the property. However, unlike the system under New Jersey's ECRA, the Connecticut consent agreement need not be preapproved by the state, but can be submitted to the Commissioner after a transaction is complete.
The New York bill, which would be called the Hazardous Substance Remediation Responsibility Act,18 is very similar to New Jersey's ECRA. It uses the SIC numbers applying to facilities dealing with hazardous substances or wastes and certain listed transactions as applicability criteria. Presumably based on the New Jersey experience, the New York proposal also provides for Letter of Non-Applicability determinations and the granting of Consent Orders. The New York version also permits the state agency to void the transaction, and includes $25,000 per day fines for first violations and additional penalties of $50,000 per day for second and subsequent violations.
The Massachusetts bill19 would require the Massachusetts Department of Environmental Quality Engineering to identify "sites" and "priority sites" located within the state. The term "site" includes "any place or area where oil or hazardous material has been deposited, stored, disposed of or placed,"20 while "priority sites" are defined as sites constituting a substantial hazard.21 Once identified, the list of priority sites is to be updated annually, and once a site is confirmed as a priority site, it must be cleaned up to the fullest possible extent within four years of confirmation. Other sites must be cleaned up within six years of confirmation. The proposed statute also contains a provision for dividing all Massachusetts property into Class I and Class II property. Class I would include all properties that are likely to contain oil or hazardous materials based on commercial or industrial use after 1880. Class II would include all other properties. The ECRA-like provisions of this proposal center around an Oil and Hazardous Materials Report that must be filed for Class I property prior to sale or transfer. If the report shows that hazardous materials exist at the property, the report must include a response plan. If the report indicates that hazardous materials are present above the threshold levels, a cleanup plan must be approved and recorded in the chain of title prior to transfer. The definitions of transactions that trigger this requirement in the statute do not echo the ECRA language, but are very similar to NJDEP's interpretation of those transactions that require ECRA compliance in New Jersey.
One of the unique provisions of the Massachusetts proposal is that once a cleanup has been completed and approved, or if cleanup is determined not to be necessary, owners or operators of the property may elect to participate in an insurance scheme that would cover any future cleanup of precertification spills. The premium would be based on the fair market value of the property. The Massachusetts bill would be funded by a tax on transfers rather than the filing and review fees charged in New Jersey.
The Massachusetts bill would require any person learning of a release or threatened release of oil or hazardous materials through the preparation or review of an Oil and Hazardous Materials Report to notify the appropriate state officials. The bill would also require public meetings discussing the proposed response plan for priority sites or upon request of ten or more residents. This proposal is quite extensive and has long-range implications for all Massachusetts industrial property, whether or not a transfer is contemplated.
Outlook for the Future
Some of the problems of ECRA in New Jersey are addressed by recently proposed amendments.22 The revisions would clarify the definition of "closing, terminating or transferring of operations." Following current NJDEP practice, the amendment uses "50% of the assets" to define the phrase "controlling share of the assets," which appears in the original statute. It also defines those events in a bankruptcy proceeding that trigger the five-day filing provision. It further specifies that transfers due to death of the owner or operator, transfers to a beneficiary under specific trust provisions, and transfers between family members do not trigger the Act.
The amendment would also provide that remedial activities under other state environmental statutes will satisfy ECRA requirements without further action. It would exempt facilities using a de minimis quantity of hazardous material from ECRA compliance. Other significant changes include time limits on NJDEP review of certain submissions, priorities in the order in which NJDEP will look to an owner or an operator for compliance, codification of the Letter of Non-Applicability and ACO procedures, and adoption of a "limited conveyance" exception in which ECRA compliance would be exacted only for the portion of the property being transferred if the value of that portion does not exceed 20 percent of the appraised value of the entire "industrial establishment."
Room for Improvement
While the proposed amendment would address some specific ECRA problem areas, it leaves significant areas of concern untouched. For example, the statute, as amended, would still rely on the SIC Manual (including its Appendix A) in defining an "industrial establishment." Exempting the more innocuous of the "auxiliaries" from the ambit of ECRA compliance would decrease the current NJDEP workload without a significant decrease in the protection afforded by the statute.
The amendment also does not deal with the issues raised by the ACO process. The revisions also leave open the question of the propriety of exacting compliance from a participant in a merger or stock sale for second- or third-tier subsidiaries that own or operate property in New Jersey.
Perhaps a more basic concern, which the amendment [17 ELR 10399] attempts to address by imposing time limitations on NJDEP, is the current backlog and the resultant delays created by the ECRA compliance process. The solution to this, aside from streamlining the ECRA process to eliminate properties that pose no real threat of environmental harm, is to add competent staff to the current membership of the Industrial Site Evaluation Element. This solution has also been endorsed by the state Office of Management and Budget in a time/management report evaluating the performance of the ECRA administration.23 The current state of affairs, under which a completed application may wait 25 to 29 weeks for assignment of a case manager, is an embarrassment and an unfair imposition on business transactions in New Jersey.
Hence, while ECRA's goals of getting property cleaned up and putting the liability for cleanup on the party responsible for any discharges or spills, are greeted with general approval by the business community, the drafting of the statute and the administration of the regulatory system has been the subject of much deserved criticism. Unfortunately, the revised regulations currently proposed by NJDEP24 will do very little to fix the problems currently faced in conducting business in New Jersey. The legislative proposal will make some steps in that direction, but a more thorough-going revision of ECRA and the Regulations would assist companies in their attempts to comply and NJDEP in its attempts to enforce the statute.
1. 1983 N.J. Laws 330, codified at N.J. STAT. ANN. § 13:1K-6 et seq. The statute's effective date was December 31, 1983.
2. Adopted March 5, 1984 at 16 N.J. Reg. 151(a), readopted March 5, 1986 at 18 N.J. Reg. § 242(a), readopted March 5, 1987 at 129 N.J. Reg. 10(a).
3. N.J. ADMIN. CODE tit. 7, §§ 1-3.7(d) (1984).
4. N.J. STAT. ANN. § 13:1K-8(f) (1983).
5. Executive Office of the President, Office of Management and Budget, Standard Industrial Classification Manual (1972).
6. N.J. STAT. ANN. § 13:1K-8(b) (1983).
8. N.J. STAT. ANN. § 13:1K-8(f) (1983).
9. Standard Industrial Classification Manual, supra note 5, p. 583.
10. Retail fuel oil dealers fall under SIC number 5983 and gasoline service stations fall under SIC number 5541, neither of which are covered by ECRA. See N.J. STAT. ANN. § 13:1K-8(f) (1983).
11. N.J. STAT. ANN. § 13:1K-8(f) (1983).
12. N.J. ADMIN. CODE tit. 7, §§ 1-3.20(e) (1986).
13. N.J. STAT. ANN. § 13:1K-9 (1983).
14. N.J. STAT. ANN. § 13:1K-13(a) (1983).
15. N.J. STAT. ANN. § 13:1K-10(a) (1983).
16. SAN FRANCISCO CALIF., PUBIC WORKS CODE ch. 10, art. 20, § 1000 et seq. The ordinance is triggered by applying for a building permit for construction that will disturb more than 50 cubic yards of soil. If soil analyses show contamination, a site mitigation plan is required.
17. CONN. GEN. STAT. § 22a-454 (1985).
18. New York Assembly Bill No. 1474 (proposed January 21, 1987).
19. Massachusetts House of Representatives Bill No. 2130 (proposed January 29, 1987).
20. Id., § 1.
22. Assembly Bill A-4151 ("An Act to Amend and Supplement the Environmental Cleanup Responsibility Act"), 202nd Legislative Sessions, 2nd Annual Session (1987).
23. N.J. Dept. of Treasury, Office of Management and Budget, Division of Management Services, Management Consulting Unit, "The Environmental Cleanup Responsibility Act 'ECRA' Program: An Analysis with Recommended Efficiency Improvements and Staffing Levels and an Evaluation of Fee Charges" (Nov. 1986).
24. Environmental Cleanup Responsibility Act Rules, published at 19 N.J. Reg. 681(a) (May 4, 1987).
17 ELR 10395 | Environmental Law Reporter | copyright © 1987 | All rights reserved