IC management imposes costs on environmental agencies, beginning with the process of IC selection and continuing indefinitely to cover IC registries, IC monitoring, stakeholder outreach, and IC enforcement. IC management costs affect the entire IC lifecycle (see Figure 1). While ITRC did not calculate the relative costs across each component of the IC lifecycle, IC management activities related to IC registries and IC monitoring likely constitute the largest share of IC management costs.
The ITRC survey gathered responses from states about how they fund IC monitoring specifically (Question 17) and IC management in general (Question 31). Most states reported that they fund IC activities through the same sources of funding that they use to fund other cleanup programs. IC-specific funding sources, however, are a growing trend, with seven states reporting mechanisms to collect fees related to ICs. IC-specific funding, in turn, triggers the question of how to estimate the IC-specific costs associated with site management. This section addresses IC cost estimating and state examples of IC-specific funding and fees.
Financial assurance presents additional costs. Financial assurance for ICs assures that obligated parties possess the needed funds to perform or pay for needed IC management. In the ITRC survey, approximately 25% of states reported the use of financial assurance specific to ICs. Finally, this section summarizes the typical best practices related to IC costs, cost estimating, and financial assurance.
Estimating the Costs of ICs
While some states calculate and assess IC fees, no generally accepted approach to estimating IC fees is broadly practiced. To address the lack of consistent cost estimates, the Association of State and Territorial Solid Waste Management Officials (ASTSWMO) has developed an IC costing tool designed to assist state agencies with the process of estimating the full scale of long-term IC stewardship costs (ASTSWMO 2012). Similar to the components of IC management described in this guidance, ASTSWMO’s cost tool divides IC costs into five cost categories: 1) planning, 2) community engagement, 3) information management, 4) monitoring and inspection, 5) enforcement. Within each category, the cost tool itemizes various costs items and provides a spreadsheet to assist with the process of identifying all the costs associated with ICs – ranging from relatively fixed costs related to computer systems and program management as well as site specific costs requiring staff time and other resources.
Current State Practices for Collecting IC Fees
Several state environmental agencies charge fees to cover the state agency costs for issuing and administering ICs. In general, states charge and collect IC fees in one of two ways: a one-time fee or ongoing fees. States that charge a one-time fee usually do so around the time of IC implementation. Other states charge ongoing fees, billed periodically, based on a fixed schedule or based on the labor hours and costs incurred by the stage agency. Kansas places these IC fees directly into a state IC trust fund where they are held for use solely on IC oversight and administration.
Financial Assurance and Using Insurance for ICs
Assuring that obligated parties possess the needed funds to perform needed IC management is often a necessary component of long-term IC management. Financial assurance mechanisms can guarantee the needed funds exist. As early as 2006, Government Accounting Office studies highlighted the need and importance of financial assurances for achieving full completion of environmental cleanup remedies (GAO 2006).
Common types of financial assurance mechanisms include trust funds, surety bonds, letters of credit, insurance, issuance of financial test and corporate guarantees, typically with the government regulator named as beneficiary. The ITRC survey indicates that approximately 25% percent of states reported that they require financial assurance specific to ICs. This survey and related research tends to show that state agencies increasingly require financial assurance to help assure long-term stewardship, particularly when ECs are used.
State approaches to financial assurance and using insurance ▼
Except under limited circumstances, the NJDEP requires financial assurance whenever ECs are used as part of a remedial action. NJDEP regulations and associated guidance documents list the types of acceptable financial assurance and describe acceptable procedures for calculating the amount of funds needed for financial assurance (Program 2010). Acceptable mechanisms, for example, include environmental insurance, a line of credit, or a remediation trust fund agreement.
In Kansas, legislation as well as KDHE regulations authorize KDHE to require financial assurance where ICs are used for “Category 3” sites; see discussion further above describing Category 3 sites (Environment 2005). Financial assurance should be adequate to cover the costs for various stewardship duties as set forth in a site-specific Long Term Care Agreement for activities such long term inspection and maintenance, protective structures, and the potential for release or migration of environmental contamination from the property. Acceptable forms of financial assurance include: environmental insurance; performance or financial guarantee bond (requires standby trust); irrevocable letter of credit (requires standby trust); qualification as a self-insurer (financial test); corporate guarantee (financial test). In addition, the department has determined that financial assurance may be demonstrated by the use of a trust fund or other methods as approved by the Secretary (Kansas 2005).
In Washington, legislation authorizes required financial assurance “where the cleanup action selected includes engineered and/or institutional controls” and it enumerates the type of acceptable financial assurance mechanisms (Washington 2003).
In Illinois, state rules allow “highway authority agreements” as an acceptable type of IC to address residual contamination left in place within a right-of-way (such as street, road, highway, and others). The highway authority agreements are entered into between the responsible party and the relevant highway authority, which can be a state agency or local agency depending on the type of right of way. The responsible party agrees to pay, in the future, for the costs of managing residual contamination during future right-of-way activities. A number of authorities (particularly local authorities) require, when entering into a highway agreement, that the applicant (obligated party) provide a payment bond as financial assurance. This bond covers the estimated amount it would cost to remediate (for example, excavate soils) within the scope of the highway agreement. This assurance provides the needed funds to address residual contamination if the applicant did not respond to written requests for reimbursement of costs associated with managing residual contamination during future right-of way activities.
States often list environmental insurance as an acceptable type of financial assurance. Environmental insurance is a cost mitigation tool designed specifically to address the outcome of a risk event. For the long-term stewardship of an IC, an insurance policy may be an effective means to protect agencies and stakeholders from unexpected costs arising from an IC failure. Site Pollution Liability, (SPL, also known as PLL or EIL) policies can be tailored to the long-term stewardship liabilities associated with ICs. SPL policies can cover preexisting conditions as well as coverage for errors and omissions in monitoring and enforcement. Underwriting criteria for SPL policies may require proper establishment of ICs and a plan for appropriate monitoring and annual certification. At least one insurer has tailored its environmental insurance policy directly for use when ICs or ECs exist (Terradex 2015).
Model Best Practices for Estimating IC Cost, Fees, and Financial Assurances
The process of estimating the costs imposed on environmental agencies and designing mechanisms to fund those costs remains an evolving practice. Relatively few states directly estimate IC-related costs or collect IC fees. The momentum beginning to occur in these areas, however, indicates a growing trend and practice.