A powerful new tool for brownfield cleanup

California cities and counties have acquired a powerful new tool to clean up contaminated "brownfields" sites. On Oct. 5, Gov. Jerry Brown signed Assembly Bill 440, legislation that gives local government agencies in the state broad authority to investigate and remediate contaminated property in "blighted areas." The new law effectively revives the Polanco Redevelopment Act, which gave similar powers to now-defunct redevelopment agencies.

In 2011, as part of the larger effort to address the state budget deficit by transferring redevelopment district tax revenues to the state, the Legislature dissolved the local redevelopment agencies that had played an important role in brownfields development in the state for several decades. A legal challenge to the dissolution legislation ended when the state Supreme Court held, in California Redevelopment Association v. Matosantos, 53 Cal. 4th 231 (2011), that the Legislature's plenary power over the redevelopment agencies included the power to dissolve the agencies as well as to create them. The redevelopment agencies ceased to exist Feb. 1, 2012.

The dissolution statute (ABX1 26), upheld in Matosantos, included provisions that were intended to broadly transfer the authority of the redevelopment agencies to their "successor agencies" - primarily the cities and counties that created the now defunct redevelopment agencies. See Health and Safety Code Section 34173. However, the power of cities and counties to undertake environmental remediation under the Polanco Act and to recover remediation costs from parties responsible for the contamination remained unclear in the wake of the redevelopment agencies' dissolution.

AB 440 addresses this ambiguity in the post-redevelopment agency legal landscape and confers Polanco Act-like authority to clean up brownfields properties on cities, counties and some local housing authorities. As with the Polanco Act, the bill authorizes local government agencies to investigate and remediate hazardous waste-contaminated properties when the parties responsible for the contamination are unwilling or unable to carry out the remediation "in an appropriate and timely manner." See Health and Safety Code Sections 25403.1(a)(1)(A), 25403.1(b)(3)(A)(iii). In addition, and unlike the Polanco Act, which was limited to designated redevelopment areas, the bill authorizes local governments to undertake remediation anywhere in their jurisdiction that is designated as "blighted," a term that is defined to include property adversely affected by the presence or "perceived presence" of hazardous materials releases. See Health and Safety Code Section 25403(a)-(b).

The bill also retains the Polanco Act's provisions that provide local government agencies with immunity from liability under various state environmental laws for cleaning up contaminated property if the cleanup is approved by the Department of Toxic Substances (DTSC), the Regional Water Quality Control Board (RWQCB), or other designated oversight agency and the local agency complies with other procedural and notice requirements in the bill. See Health and Safety Code Sections 25403.2, 25403.3, 25403.7. In addition, local agencies will be able to recover investigation and remediation costs from parties responsible for environmental contamination, as well as recover attorney fees in cost recovery actions. Health and Safety Code Section 25403.5(a).

The new law imposes constraints on a local government agency's discretion in selecting properties for remediation. The property must be (1) "blighted" - defined by the presence or perceived presence of hazardous materials that contribute to vacancies, abandonment of property or "reduction or lack of proper utilization of property"; (2) within what the agency has determined to be a "blighted area"; and (3) determined to be contaminated with hazardous materials following a Phase I or Phase II environmental assessment. See Health and Safety Code Sections 25403(a)-(b), 25403.1(a)(1)(A).

Under the new law, local governments will have the power to designate responsible parties. Any appeals of a local agency's decision designating responsible parties may be heard only by that local agency's "governing body," and challenges to the governing body's decisions may only be presented in subsequent legal proceedings brought by the agency. Health and Safety Code Section 25403.1(c).

Once in court, the agency's decision will be upheld if supported by substantial evidence, and the responsible party's defenses to liability are limited to those in the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), which is incorporated by reference into the Health and Safety Code in Sections 25323.5, 25403.1(c) and 25403.5(b). Perhaps most significant among these defenses is the exemption from liability for "bona fide prospective purchasers," who acquire contaminated property after conducting "all appropriate inquiry" into pre-existing contamination at the site and comply with other requirements intended to prevent the spread of contamination and protect human health. See 42 U.S.C. Section 9601(40)(A)-(H).

Subject to limited exceptions, the local agency must provide written notice to any identified responsible parties of their obligation to remediate a contaminated property before undertaking the cleanup itself. In addition, for those sites already subject to regulatory oversight by DTSC or the RWQCB, the local agency must first contact the appropriate regulatory agency and provide them with the opportunity to object to the issuance of the 60-day notice to the responsible parties. Health and Safety Code Section 25403.1(a)(1)(B)-(C).

After receiving notice from the local agency, the responsible party has 60 days to respond and prepare an investigation plan, and a cleanup plan must be prepared within 60 days after the investigation is complete. Health and Safety Code Section 25403.1(b)(2)(A). The local agency determines whether the plans prepared by the responsible parties are "acceptable to the local agency" and "consistent with the intended development schedule and use of the property." See Health and Safety Code Section 25403.1(b)(2), 25403.1(c)).

The Polanco Act was widely criticized as a heavy-handed tool that allowed redevelopment agencies to over-reach in the pursuit of brownfields redevelopment in California. AB 440 is expressly intended to provide local government agencies with the same authority to clean up brownfields that redevelopment agencies had under the Polanco Act. The bill itself states that it is the "policy successor to the Polanco Act" and instructs courts to apply Polanco Act case law in its interpretation. See Health and Safety Code Section 25403.8.

AB 440 in fact extends the reach of local agencies further than the Polanco Act because, rather than simply replicating the Polanco Act, the authority that AB 440 gives local governments extends to "blighted properties" and "blighted areas" outside of a designated redevelopment area. This grant of authority raises the possibility of broad application of the bill's provisions to property outside of the types of areas that have been historically designated as redevelopment zones. It remains to be seen how widely cities and counties will use these new powers.

The transfer of Polanco Act-like powers to cities and counties may also be subject to legal challenges on preemption grounds. In Fireman's Fund Insurance Co. v. City of Lodi, 302 F.3d 928 (9th Cir. 2002), the 9th U.S. Circuit Court of Appeals considered a preemption challenge to a municipal ordinance that authorized the city of Lodi to recover hazardous waste cleanup costs and attorney fees from parties responsible for the contamination. The court held that the ordinance, while not wholly preempted, conflicted with the scheme for remediating contaminated property under the federal CERCLA statute if the city was a potentially responsible party (PRP) under CERCLA. The ordinance was therefore preempted to the extent that it purported to apply to circumstances where the city was a PRP.

The same reasoning may limit the application of AB 440 in cases where a city or a county owns the affected property or has contributed to the contamination and seeks to recover costs under the state statute, rather than through an action for contribution under CERCLA, and may offer a defense to other PRPs targeted with cleanup orders or cost recovery actions under AB 440.