FEDERAL

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FEDERAL ALL APPROPRIATE INQUIRY RULE A NEW
PHASE IN PHASE Is?August 2004
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Overview

• EPAs AAI Rule
• Future of ASTM E 1527-00 Standard
• What Does AAI Mean?

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EPAs All Appropriate Inquiry Rule
Background
Behind- the-Scenes Negotiations
Nuts Bolts of Draft Rule
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AAI Rule Background-Brownfields Law

• 3 important components
• Amended innocent landowner defense
• Added two new landowner liability protections
• contiguous property owner protects buyer from
  contamination caused by migration of hazardous
  substances from off-site
• bona fide prospective purchaser protects buyer
  who knowingly purchases contaminated property
• 
  

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AAI Rule Background-Brownfields Law

• Now property owners have 3 avenues of protection
• IF all appropriate inquiry conducted before
  purchase so.
• 3. Congress mandated that EPA establish
  standards and practices for the purpose of
  satisfying requirement to carry out all
  appropriate inquiries
• - Two-year deadline (by January 11, 2004)
• - Statute lists 10 criteria EPA must include

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AAI Rule Background-Brownfields Law

• 10-Point Criteria for All Appropriate Inquiry
  Rule
• 1. Results of inquiry by environmental
  professional
• 2. Interviews with past and present owners,
  operators and occupants
• Reviews of historical sources
• Searches for recorded environmental
  clean-up liens
• Reviews of federal, state and local
  government records

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AAI Rule Background-Brownfields Law

• 10-Point AAI Criteria (contd)
• 6. Visual inspections of property and adjoining
  properties
• 7.  Specialized knowledge or experience
• 8. Relationship of purchase price to value of
  property if not contaminated
• 9. Commonly known or reasonably ascertainable
  information about property
• 10. Degree of obviousness of contamination at
  property

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Development of AAI RuleRegulatory Negotiations
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AAI Rule Negotiations

• Under Federal Advisory Committee Act (FACA), EPA
  chose to write AAI rule by Regulatory
  Negotiation (reg-neg)
• Why reg-neg?
• Solicit input from stakeholders in the process
• Minimize disruption to current real estate market
  
• Facilitate implementation
• Reduce significant public comments

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AAI Rule Negotiations (contd)

• EPA invited representatives of affected and
  interested stakeholder groups including
• Real estate developers
• Lenders
• Environmental professionals
• Federal, state, local and tribal governments
• Environmental interest groups
• Environmental justice community

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AAI Rule Negotiations (contd)

• EDR was a Resource Participant
• Attended all committee meetings
• Provided technical expertise and guidance to the
  committee
• EDRs Phase I ESA market data being used in EPAs
  Regulatory Impact Analysis

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AAI Rule Final Consensus Draft

• After 8 months and more than 100 hours of debate
  during 2003
• Reg-neg committee agreed on Final Consensus Draft
  AAI rule on November 14, 2003
• CFR Part 312 Standards for Conducting All
  Appropriate Inquiries
• Performance-based approach, relies on
  environmental professionals judgment

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AAI Rule Nuts Bolts of Consensus Draft
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Major Areas Impacting Conduct of Phase I

• Definition of environmental professional
• Expanded government records review
• Historical research
• Data gaps
• New interview and site visit requirements
• Phase I shelf life

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AAI Rule Professional Qualifications

• Who can conduct AAI?
• Committee sought to limit conduct of
  environmental inquiries to those qualified to
  make necessary judgment calls
• Draft rule contains hotly debated, controversial
  definition of environmental professional

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AAI Rule Minimum EP Requirements
Professional/Educational Qualifications Relevant Experience
PE or PG license/registration 3 years
Federal or state license/certification to perform environmental inquiries 3 years
B.A./B.S. degree or higher in relevant discipline (engineering, environmental science or earth science) 5 years
B.A./B.S. degree or higher (grandfather clause) 10 years
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AAI Rule Minimum EP Requirements

• AAI rule allows consultants who do not meet EP
  definition to conduct Phase Is under AAI,
  provided that
• - Inquiry is conducted under the supervision or
  responsible charge of someone who does
• - But EPAs preamble will recommend that the
  site visit be conducted by an EP!

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AAI Rule Minimum EP Requirements

• To ensure accountability, EPs report must state
  
• I, We declare that, to the best of my, our
  professional knowledge and belief, I, we meet
  the definition of Environmental Professional as
  defined in 312.10 of 40 CFR 312.
• I, We have the specific qualifications based
  on education, training, and experience to
  assess a property of the nature, history,
  and setting of the subject
  property. I, We have developed
  and performed the all appropriate inquiries
  in conformance with the
  standards and practices set
  forth in 40 CFR Part 312.

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Government Records Review

• KEY AREA OF DEBATE
• How extensively do government records of nearby
  or adjoining properties need to be reviewed?
• Should E 1527s search distances be used?
• Two extremes on committee
• Search out 1 mile for all databases
• Adopt ASTM E 1527-00 search distances

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Government Records Review (contd)

• For databases listed in E 1527-00, search
  distances in AAI rule are consistent, except

Database AAI ASTM E 1527-00
CERCLIS NFRAP 1/2 mile 1/8 mile
Delisted NPL 1/2 mile Target property
State brownfields 1/2 mile n/a
Records of registered storage tanks Adjoining property USTs adjoining ASTs n/a
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Government Records Review (contd)

• INSTITUTIONAL AND ENGINEERING CONTROLS (Activity
  and Use Limitations)
• Controversial issue for EPA committee
• Availability not all states have records
• Inconsistency across states different database
  names
• Cost/time involved in obtaining such records
  
• 
  but.

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Government Records ICs/ECs

• More states developing such inventories, so
• Consensus
• Institutional controls ½ mile
• Engineering controls ½ mile
• Departure from ASTM E 1527-00

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Government Records Local/Tribal

• Federal, tribal, state and local government
  records or databases of government records of the
  subject property and adjoining properties must be
  reviewed (AAI consensus draft)
• Local records review now mandatory
• Under ASTM E 1527-00, local records may be
  checked at EPs discretion
• If local USTs, brownfields available, state
  records alone are insufficient

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Government Records Local/Tribal

• Tribal records MUST be reviewed
• New requirement beyond ASTM E 1527-00
• Tribes maintain records of USTs, LUSTs
• Some environmental records housed at tribal
  offices

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Review of Historical Sources

• KEY AREA OF DEBATE
• How prescriptive should AAI rule be?
• How much research is enough?
• CONSENSUS
• Very general requirements
• Leaves decisions about research timeframe, data
  sources and search intervals up to environmental
  professionals judgment

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Review of Historical Sources (contd)

• Research timeframe
• AAI EP must cover a period of time as far back
  in the history of the subject property as it can
  be shown that the property contained structures
  or from the time the property was first used for
  residential, agricultural, commercial,
  industrial, or governmental purposes.
• versus
• - ASTM back to propertys obvious first
  developed use, or back to 1940, whichever is
  earlier

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Review of Historical Sources (contd)

• How much historical research is sufficient?
• In all areas of AAI, environmental professionals
  must seek to gather information that is
• publicly available
• obtainable from its source within reasonable time
  and cost constraints and
• which can practicably be reviewed

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Data Gaps

• Extensive, NEW requirements for data gaps

3. Comment on significance of gaps
1. Identify gaps
2. Identify sources consulted to address them
4. If data gaps prevent EP from reaching opinion
about property, gaps must be noted in EPs
opinion in written report
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Data Gaps (contd)

• Data gaps language raises bar for consultants
• Emphasizes need to conduct comprehensive research
  using all reasonably ascertainable sources to
  avoid gaps
• Must demonstrate attempt to fill gaps
• Sampling may be conducted to address data gaps,
  but is not required

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Interviews

• interviews with past and present owners,
  operators and occupants (10-point AAI criteria)
• KEY AREA OF DEBATE
• Strong arguments for involving community in
  environmental inquiry
• versus
• Concerns about
• Time
• Cost
• Confidentiality

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Interviews (contd)

• COMPROMISE
• Mandatory interview(s) with one or more (as
  necessary) owners or occupants of neighboring
  properties only in cases of abandoned properties
  
• Otherwise, up to EPs professional judgment
  (similar to ASTM E 1527-00)

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Visual Inspection

• visual inspections of the facility and
  adjoining properties (10 point AAI criteria)
• KEY AREAS OF DEBATE
• Will AAI require visual inspections of adjoining
  properties?
• What if consultant cannot get access to target
  property?
• 
  

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Visual Inspection (contd)

• CONSENSUS
• visual on-site inspection of the subject property
  must be conducted and
• visual inspection of adjoining properties from
  the subject property line, public rights-of-way,
  or other vantage point.
• Similar to ASTM E 1527-00 except.

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Visual Inspection (contd)

• In unusual circumstance of inability to gain
  site access, EP must
• 1. Visually inspect property from nearest
  accessible vantage point
• 2. Document efforts taken and explain reason for
  failure
• 3. Document other sources of information
  consulted and comment on significance of failure
  to conduct visual on-site inspection

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AAI Shelf Life

• Under AAI,
• Phase I valid without updating if not more than
  180 days old
• 180 days to 1 year, certain components must be
  updated
• interviews
• reviews of government records
• visual inspections and
• declaration of EP.

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AAI Shelf Life (contd)

• If more than one year has passed since
  environmental inquiry was conducted, all
  information must be collected or updated within
  one year prior to the purchase date of the
  subject property.
• Previously collected information must be updated
  to include relevant changes in the conditions of
  the property
• Under ASTM, it is acceptable to update only
  select components of old Phase Is

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AAI Rule Next Step

• Ball in EPAs court
• Prepared draft rule using Final Consensus
  Document
• Wrote preamble with guidance, interpretation
• Provided OMB with final Economic Impact Analysis
  (cost impacts)
• Published proposal package in Federal Register on
  August 26, 2004
• 60-day public comment period expires October 25,
  2004
• Final rule by late 2005 (tentative)

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Future of ASTM E 1527-00 Standard
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ASTM E 1527-00 Current Status

• Until EPA finalizes AAI rule, ASTM E
  1527-00 (and ASTM E 1527-97) will satisfy AAI
  requirement
• E 1527 (as revised) could be recognized by EPA in
  AAI rule if standard is fully compliant with
  final AAI rule
• Next milestone is pre-compliance review of
  revised E 1527 by EPA
• ASTM hopes to publish updated E 1527 as EPA
  finalizes AAI rule (mid 2005-tentative)

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What Does AAI Rule Mean?
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AAI Rule The Bottom Line

• What we know
• Environmental due diligence will change
• Consultants have to do more, document more
• What we dont know
• How much of an impact?
• Who will be required to comply?
• More Phase Is?
• Fewer providers?

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AAI Rule Consultants Expectations

• Mixed reactions from consultants
• Significant increase in level of effort
• Little effect, already go beyond E 1527 standard
• Could increase insurance costs due to flexibility
  in AAI rule
• More Phase IIs conducted to fill data gaps

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Predictions About AAI Rules Price Impact

• More than 60 of EDRs DDD attendees in 6
  cities predict price increase of 11 or more

Chicago Dallas Houston Los Angeles Minneapolis Sco
ttsdale
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AAI Rule Market Impact

• Impact will extend beyond CERCLA liability
  concerns
• Likely to see trickle down effect in market
• Rating agencies (Moodys, SP, Fitch) could adopt
  AAI/ASTM converged standard
• Federal agencies could require AAI and
• State governments may adopt AAI rule
• Some users still plan to predominantly use E 1527
  for detailed guidance, standardization of process

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AAI Rule Market Impact

• ASTM E 1527 will be revised to reflect new AAI
  requirements and remain the de facto standard
  practice for environmental due diligence
• AAI could result over time in higher quality
  Phase Is because of the more stringent EP
  definition and the price of Phase Is will
  increase slightly (10-15)

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What Can You Do Now?

• Read consensus draft for familiarity with
  possible changes, terminology, new defenses
• Read EPAs proposed rule at www.edrnet.com/aai/FR
  _AAIproposedrule.pdf
• Prepare for modifying your services as necessary
  to meet AAI, revised E 1527
• Be cautious!