Superfund Financial Assurance Made Easy (Not!)

Posted on December 7, 2012 by David Rosenblatt

Since the early days of the Superfund program, EPA has required settling parties to provide financial assurance of the PRPs’ (potentially responsible parties) ability to perform the cleanup work.  EPA regulations afford   PRPs a choice of financial assurance mechanisms to fulfill this requirement including:  a self-funded trust, bonds, letters of credit, insurance or the satisfaction of the “financial test” provided in 40 CFR §264.143(f). 

As originally promulgated, the financial test applied to owners and operators of hazardous waste facilities permitted under RCRA.  EPA has adopted this test for Superfund financial assurance requirements and state agencies have likewise borrowed it for their own programs.  For many years, the “financial test” was the least cumbersome method for PRPs to satisfy their long-term financial assurance obligations.  It was also attractive to PRPs because as long as at least one large company met the test, the other PRPs could save the cost of employing alternative financial assurance mechanisms such as prefunding their entire obligation or purchasing letters of credit.  Further, while the financial test in 40 CFR §264.143(f) does include very specific and complex financial criteria, in practice  EPA often found submission of financial statements or other public financial reports by large companies to be sufficient. 

In recent years, perhaps in recognition of the new economic order where major airlines, automobile manufacturers and even manufacturers of famous brands such as Twinkies have filed for bankruptcy, EPA has made strict compliance with the financial means test a settlement priority.  All of the forms for financial assurance are now prescribed via EPA’s website.  Perhaps the most challenging form for a financial means proponent is the sworn letter from the company’s CFO or accountant certifying that the company satisfies the different elements of the financial test.  The letter must be updated and resubmitted every year.  The form letter may be found here.

In an era where CFOs and accountants are already burdened with a host of new Sarbanes-Oxley requirements and other regulatory controls, companies are less than enthusiastic about preparing another set of certifications to EPA concerning their company’s financial status.  A further challenge presented by the letter is that it must be submitted on behalf of the specific entity participating in the settlement or its parent.  Often, a parent corporation cannot or does not want to guaranty a subsidiary’s obligations, and its subsidiary’s financials may not be maintained in a format which makes compliance with the EPA letter practical or feasible.

EPA’s renewed emphasis on financial assurance requirements is understandable in today’s economic climate and even has some benefit for performing parties interested in ensuring that other settling PRPs likewise perform.  Indeed, PRP Groups, with the self-interest of protecting themselves from each others’ business failures, often require their group members to provide letters of credit for the benefit of the Group or prefund their Superfund settlement shares into a Group- controlled trust, even if other financial assurance mechanisms have been selected to satisfy EPA.

Whether PRPs like it or not, what is clear is that the era of less than strict compliance with EPA’s financial assurance requirements for Superfund settlements is over. 



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