April 14, 2022

Environmental Response Trusts: Surrogate for Federal and State Regulators?

Posted on April 14, 2022 by Elliott P. Laws

A common result of corporate bankruptcies is the creation of environmental response trusts or “ERTs”. ERTs are created to address environmental issues for which the bankrupt company has responsibility.  ERTs typically are independent entities with no previous connection to the bankrupt company or activities that led to the environmental issues.  Its responsibilities are to correct those issues within the parameters of its charter. Funded with a finite amount of money for environmental cleanup, no opportunity exists to supplement that amount except through any returns on very conservative investments. An underlying, if unspoken, theme of ERTs is the realization that removing the entity that “caused” the issues from the equation should eliminate the standard conflict and adversarial relationship that often exists between environmental regulators and the parties they oversee.

One such ERT, RACER (for Revitalizing Auto Communities Environmental Response) was born out of the General Motors Corp. (“GMC”) bankruptcy. At the time it was the largest ERT ever and was given a dual mandate: To conduct safe and effective environmental cleanups at former GMC properties, where necessary, and to sell the properties for redevelopment, jobs and the attending community benefits.

RACER was established by Trust and Settlement agreements entered signed by the United States and the 15 States and Tribes where former GM property was transferred to it. These agreements resolved GMC’s environmental obligations and set forth a process for RACER to begin environmental activities.

RACER recognized that, to achieve its mission, it was best to work cooperatively with its regulators. The Trust has committed to operate transparently with regulators and the public.  This includes sharing and explaining data, processes and priorities, and engaging in dialogue and collaboration to make the best use of limited funding. The Trust has built strong relationships with regulatory personnel who are willing to work within the constraints of the agreements, which has fostered expeditious and efficient environmental action.

The dual challenges facing most ERTs are money and time.  Funds run out.  Unknown conditions, emerging contaminants, and changing standards all put an ERT at risk of running out of money before its job is finished.  The longer it takes to complete the ERT’s work, the greater the risk some of those conditions will manifest themselves.  Similarly, time is the enemy of relationships with regulators.  As people in state agencies and EPA move to different positions or retire, the institutional knowledge of how the ERT was established, the goals it was intended to accomplish and how it was expected to accomplish those goals begins to get blurred. New project managers and supervisors see the ERT as they view any other regulated entity.  The sense of partnership and collaboration starts to fade. This results in a more typical, adversarial relationship which delays action and increases costs — costs which an ERT has limited funds to meet.

As with most ERTs, when RACER runs out of money, responsibility for environmental conditions at the sites will fall to the state or EPA. So, the role of the Trust is to address environmental issues before that responsibility shifts to the public. ERTs stand in the stead of responsible entities as well as regulator-lead responses. With that understanding, they should be viewed as surrogates for regulators, and partners responsible for protecting the environment, correcting existing conditions and avoiding the need for the expenditure of public dollars. There needs to be a greater and more successful effort on the part of regulators to ensure that this recognition exists for the entire life of the ERT.

Elliott Laws is the Managing Member of EPLET, LLC, Administrative Trustee of RACER Trust (www.RACERTrust.org)