Gas Stations Brace for Bad News from the UST Cleanup Fund but may get a Break from Environmental Regulators

October 2010

The California Underground Storage Tank Cleanup Fund (the “Fund”) is anticipated to announce by the end of the year annual cost caps on reimbursable expenses for Priority A, B and C claimants.  Effective in FY 2011/12, the Fund will assign a category to each active site based upon the status of the cleanup.  Each category will have a corresponding cost cap for the upcoming year which cannot be exceeded absent special circumstances.  Unfortunately for those in this hard hit retail industry, the proposed reimbursement cost caps are anticipated to be significantly less than the average cost associated with the corresponding cleanup category.  Tentative categories include site investigation; remediation selection; remediation implementation; verification monitoring; and activities conducted pending site closure requests.

In contrast to this dire news from the Fund, the California State Water Resources Control Board is expected to consider a Underground Storage Tank (“UST”) Low-Threat Site Closure Policy which could allow as many as 40%-70% of UST sites to qualify for closure or a “No Further Action” letter.  The draft policy is currently being circulated to environmental agencies and UST advisory groups for review and comment.  A formal public comment period is anticipated later this year as a part of the normal policy adoption process.

There are over 11,000 UST sites in California that require environmental cleanup.  Over 7,000 of these sites have been deemed eligible for reimbursement of their cleanup costs from the Fund.(1)  However, in 2008 the UST Fund experienced a sudden and severe cash shortage:  cash balances and reserves ran dry and claimant reimbursement payments in the millions were suspended.

In November 2009, AB 1188 was signed into law to relieve the Fund’s financial pressures and ease the burden on Fund claimants.  The bill temporarily increases fees over two years to create additional revenue, address the backlog of payments that were placed on hold, and to reactivate suspended claimants.(2)  Approximately $186 million is anticipated to be generated from January 1, 2010 to December 31, 2011 to help restore financial stability.  Although the temporary fee increase may sufficiently address the backlog of payments, after AB 1188 sunsets in 2011, it is expected that the demand of active claims will exceed available annual funds.

The Golden State is not alone:  California sits aside eight other states which, according to the May 2008 Vermont DEC Annual State Fund Survey, show a disparity between liability related to outstanding claims (reimbursements submitted but not yet paid) and their approximate fund balances.

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(1)  The USTCF was created by the Barry Keene Underground Storage Tank Trust Fund Act of 1989 (Health and Safety Code, division 20, chapter 6.75, section 25299.10 et seq.).  Funds for the program are generated by a storage fee paid by UST owners who are required to have a permit to own or operate a UST. The fee is based on the number of gallons of petroleum placed in the UST and is collected by the Board of Equalization.

(2)  AB 1188 increased the amount of the per-gallon fee by 0.6 cents from 1.4 cents to 2 cents a gallon.

The information in this newsletter is not intended to provide specific legal advice. You should consult with an attorney and not rely on any information contained herein regarding your specific situation.