Article Legal Notes Leah Goldberg

The Gatto Act Provides Cities With New Opportunities for Environmental Cleanup

Leah Goldberg is senior deputy city attorney with the City of San Jose. Prior to joining San Jose’s legal team, she worked closely with Assembly Member Gatto’s office on AB 440. The views expressed in this article are solely those of Goldberg and not the City of San Jose. Goldberg can be reached at Leah.Goldberg@sanjoseca.gov.

The Legislature’s elimination of redevelopment agencies in 2012, ostensibly a state budget-balancing measure, stripped cities of several important tools to address blight in the community. One such tool was the Polanco Redevelopment Act,1 also known as the Polanco Act, which authorized redevelopment agencies to compel cleanup in redevelopment project areas and recover the full costs of cleanup from recalcitrant responsible parties. It also granted legal immunity to the redevelopment agency, the redeveloper and lenders for hazardous substances releases cleaned up under an approved cleanup plan.

While the Polanco Act is still on the books, the law has no further application unless a redevelopment successor agency has an enforceable obligation mandating cleanup of a specific property in a former redevelopment project area. Meanwhile, contamination or the threat of contamination still serves as a blighting influence in many California communities because most developers prefer not to step into the chain of liability and deal with the uncertainties associated with contaminated property. This results in abandoned, idle and underutilized properties, or “brownfields,” that can serve as a catalyst for community degradation. Even if a developer wants to reuse contaminated property, finding a lender willing to make a loan on the project can be challenging.

The solution to the brownfields problem comes in two forms. The first is monetary relief in the form of grants and loans or tax credits to alleviate the financial burden associated with cleaning up contamination. The second is addressing the liability. The Polanco Act sought to address the liability by providing immunity for the redevelopment agency, the redeveloper and its lender. It also addressed the costs of cleanup by providing powerful cost-recovery tools to recover not only the cost of cleanup from recalcitrant parties, but also attorneys’ fees and staff costs. Assembly Bill (AB) 440 (Chapter 558, Statutes of 2013), unofficially known as the Gatto Act, took effect Jan. 1, 2014, and provides local agencies — including cities, counties and successor housing authorities — with a tool similar to the Polanco Act.

Similarities and Benefits for Cities

In sponsoring AB 440, Assembly Member Mike Gatto (D-43) recognized that blight in the form of contaminated properties remains a critical issue in the wake of redevelopment dissolution. He also realized that to be meaningful, the Polanco Act model needed to be available on a broader scale to cities, counties and housing authorities, rather than just to redevelopment successor agencies. As a result, the Gatto Act provides many of the same benefits as the Polanco Act. It provides California cities and other local agencies with the needed authority to compel cleanup of contaminated properties, now that redevelopment agencies have dissolved. As a result, cities can employ the Gatto Act anywhere within their jurisdictions,2 thus expanding this powerful tool for use nearly statewide.

Procedurally, both laws utilize a process much like nuisance abatement. Before the city can take action to clean up property, it must give the responsible party3 the opportunity to clean it up. If the responsible party fails to respond or fails to clean up the property in compliance with an agreed-upon schedule, the city can enter the property, conduct the site investigation and clean up and sue to recover its costs.

Like the Polanco Act, the Gatto Act provides the following benefits for cities:

  • It allows cities to require landowners to turn over environmental assessment information;4  
  • It provides immunity to the city, the redeveloper and its lenders for any release or releases of environmental contaminants addressed in an approved cleanup plan;5
  • It provides extensive cost recovery provisions that include recovery of city staff time and attorneys’ fees in addition to the cleanup costs;6
  • It can be used to clean up petroleum contamination;7
  • The city does not have to undertake the cleanup but can “cause” a third party to do the work;8 and
  • The city can take title to the property during the cleanup without entering into the chain of liability.9

Understanding the Differences

Although the Legislature stated its intentions that the Gatto Act serve as the policy successor to the Polanco Act and that existing case law used to interpret the Polanco Act be used to interpret the Gatto Act,10 the two laws are not identical. Failure to understand the differences can be a trap for unwary city officials.

The terminology in the Gatto Act differs from the Polanco Act. Instead of referring to a “remedial action plan,” the Gatto Act refers to a “cleanup plan.”11 The Gatto Act also uses the definition of “hazardous materials”12 instead of “hazardous substances.” And the law added definitions of “blighted area,”13 “blighted property,”14 “investigation,”15 “investigation plan,”16 “phase I investigation”17 and “phase II investigation.”18

Unlike the two-part definition of blight under the former redevelopment law, the definition of “blighted area” for Gatto Act purposes is “an area in which the local agency determines there are vacancies, abandonment of property, or a reduction or lack of proper utilization of property, and the presence or perceived presence of a release or releases of a hazardous material contributes to the vacancies, abandonment of property or reduction or lack of proper utilization of property.”19 By design, the definition to a large extent mimics the definition of a brownfield.20

Before giving notice to the responsible party to investigate and clean up a property, however, the city must find that the property is a blighted property in a blighted area. This finding was not required under the Polanco Act because that law was available only for use in redevelopment project areas. Redevelopment agencies found that the properties were blighted when they put the properties into the project areas, thus avoiding the need to make a separate blight finding when using the Polanco Act.

The Gatto Act also has some limitations not found in the Polanco Act. For example, when properties are already under regulatory oversight, the city must meet and confer with the appropriate regulatory agency before employing the statute.21 If the responsible party has entered into a Voluntary Cleanup Agreement with the Department of Toxic Substances Control (DTSC) and the city and DTSC cannot agree on the city’s use of the Gatto Act, the Lead Agency Designation Committee, sitting without the DTSC representative, serves as the neutral arbiter.22

Importantly, the Gatto Act does not require consistency with the National Contingency Plan, which is the Superfund process for cleaning up properties under federal law. Since the court in Redevelopment Agency of the City of San Diego v. Salvation Army23 held that strict compliance with the National Contingency Plan was not a requirement for cost recovery, the purpose of the Polanco Act’s National Contingency Plan consistency requirement was confusing. Accordingly, the Gatto Act replaced this obligation with robust public participation requirements.24

Concerned that some unscrupulous local agencies would use the Gatto Act to harass property owners, the Legislature also provided a right to appeal the notice to clean up the property. The responsible party has 30 days to appeal the responsible party determination to the city council. The appeal period stays the other timelines in the Gatto Act until the appeal is heard, but any challenges to the legislative body’s determination can be made only in the cost-recovery action following the cleanup.25

Procedural and Structural Differences Between Polanco and Gatto Acts

In addition, several procedural differences exist between the Polanco Act and the Gatto Act. First, the Gatto Act does not require the city to request cleanup guidelines. Second, regulatory oversight occurs much earlier when using the Gatto Act. Regulatory oversight commences at the site investigation stage rather than later at the cleanup plan stage.26 If the property is not fully characterized, meaning that the lateral and vertical extent of the contamination is not fully demarcated, the responsible party or the city submits an investigation plan to the applicable regulatory agency for review and approval. Because a drawn-out site investigation can stall the reuse of the property, regulators must review the investigation plan within 30 days of receipt.27Following the investigation in accordance with an agreed-upon schedule, the responsible party has 60 days to prepare a cleanup plan.28

Other notable differences between the Gatto Act and the Polanco Act include:

  • A right of entry for the city to conduct site investigation or cleanup;29
  • Authority for the city to make the initial determination whether a cleanup plan is acceptable based on the intended use of the property and the development timeline;30
  • More detail on the obligation of the city or the responsible party to pay oversight costs;31 and
  • Clearer language related to the conditional immunities letters that are issued concurrently with the cleanup plan approval.32

The most significant difference between the Polanco Act and the Gatto Act, however, is not statutory but structural. Former redevelopment agencies could float bonds secured against future tax increment to pay for cleanup costs. Cities currently do not have that option. Instead the costs of cleanup must either come from scarce General Fund money or from developers who agree to fund the work. This may result in greater emphasis on the cost-recovery provisions in the new law.

In the years immediately following promulgation of the Polanco Act, some regulatory agencies were apprehensive about overseeing cleanups that would result in certain parties gaining immunity. However, with the enactment of the Gatto Act, the regulatory community (DTSC and the water boards in particular) has immediately focused on how to work with cities and other local agencies to implement the statute. Shortly after Governor Brown signed the new law, DTSC convened a meeting to discuss its implementation with water board representatives, the U.S. Environmental Protection Agency (EPA) and the attorneys who worked on the bill with Assembly Member Gatto. Both DTSC and the water boards are now considering standard oversight agreements with cities — similar to the environmental oversight agreements former redevelopment agencies used with DTSC. The regulators have requested that sites be assigned to the regulatory agency through the CalEPA brownfields Memorandum of Agreement process.33 The regulators also suggested that, especially for time-critical cleanups, the city serve as lead agency for California Environmental Quality Act compliance purposes.

Conclusion

While redevelopment agencies might be history, the community benefits of cleaning up brownfields can still be achieved using the Gatto Act. Despite concerns about the lack of upfront funding to initiate cleanup, the statute provides cities with a new, but familiar, tool to combat blight throughout the state.

“Brownfields,” as these former abandoned, idle or underutilized industrial properties are often called, stem from the liability scheme in the federal and state environmental laws. From the 1960s through the 1980s, Congress sought to address the degradation of the nation’s air and water by enacting the Clean Water Act and the Clean Air Act. In response to Times Beach and Love Canal, whereby single family homes were built on former toxic waste dumps resulting in increased birth defects and cancer clusters, Congress enacted the Resource Conservation and Recovery Act,1 mandating cradle-to-grave management of hazardous wastes, and the Comprehensive Environmental Response Compensation and Liability Act1 (commonly referred to as the “Superfund”) to address cleanup of hazardous substances. Congress intended for polluters to pay for cleaning up hazardous substances. Congress defined the term “polluter” broadly to include owners and operators at the time of the release, current owners, and anyone who arranged for the disposal of hazardous substances and transporters. Additionally, the liability is “joint and several” meaning that one party can be responsible for cleaning up the entire problem regardless of the extent of that party’s culpability.1 Given this draconian liability scheme, it is no wonder that developers shy away from contaminated properties and even those properties perceived to be contaminated.

Footnotes:

[1] Health & Safety Code section 33459 et seq.

[2] Health & Safety Code section 25403.1(a)(1)(A).

[3] For the definition of responsible party see, Health & Safety Code section 25323.5(a) or Water Code section 13304(a).

[4] Health & Safety Code section 25403.1(f).

[5] Health & Safety Code sections 25403.2© and 25403.3.

[6] Health & Safety Code section 25403.5.

[7] Health & Safety Code section 25403(i).

[8] Health & Safety Code sections 25403.2(a)(1) and 25403.6.

[9] Health & Safety Code section 25403.6(a).

[10] Health & Safety Code section 25403.8.

[11] Health & Safety Code section 25403(c).

[12] Health & Safety Code section 25403(i).

[13] Health & Safety Code section 25403(a).

[14] Health & Safety Code section 25403(b).

[15] Health & Safety Code section 25403(j).

[16] Health & Safety Code section 25403(k).

[17] Health & Safety Code section 25403(n).

[18] Health & Safety Code section 25403(o).

[19] Health & Safety Code section 25403(a).

[20] 42 USC section 9601 (39).

[21] Health & Safety Code section 25403.1(a)(1)(B) and (C).

[22] Health & Safety Code section 25403.1(a)(1)(C).

[23] 103 Cal.App.4th 755 (2002).

[24] Health & Safety Code section 25403.7.

[25] Health & Safety Code section 25403.1(b)(3)(C).

[26] Health & Safety Code section 25403.1(a)(2).

[27] Health & Safety Code section 25403.1(a)(3).

[28] Health & Safety Code section 25403.1(b)(2)(A).

[29] Health & Safety Code sections 25403.1(a)(1)(A) and 25403.1(f)(2).

[30] Health & Safety Code section 25403.1(b)(2)(B)(i) and (ii).

[31] Health & Safety Code section 25403.4.

[32] Health & Safety Code section 25403.1(a)(5).

[33] The MOA was developed by CalEPA to avoid forum shopping between regulatory agencies. Anyone wanting regulatory oversight of a brownfield fills out an application. DTSC and the water boards meet to review and discuss the applications and assign the sites to the regulatory agencies, taking into account factors such as end use of the property, the potential impacts to ground or surface waters, the capacity of the agencies and whether there was any past regulatory action and, if so, by which agency.

About Legal Notes

This column is provided as general information and not as legal advice. The law is constantly evolving, and attorneys can and do disagree about what the law requires. Local agencies interested in determining how the law applies in a particular situation should consult their local agency attorneys.

This article appears in the June 2014 issue of Western City
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