North Carolina Remediation Requirements

See and

The Issue is the Cleanup of Contaminated Dry Cleaners
How It Is Affecting America's Drycleaners

The Drycleaning Solvent Cleanup Act of 1997
Building a Fair and Effective Environmental Cleanup Program for Drycleaners

Think You Don't Have a Potential Liability Problem? Think Again
An Explanation of Pollution Liability and How It Affects You

History of NCALC's involvement in the Passage of the Dry Cleaning Solvent Clean-up Act of 1997

Virginia
Serve-All Cleaners in Fairfax. Virginia, was in business for forty years when they suddenly had to hand over their livelihood to their landlord. The landlord threatened to use all legal means available to him in an effort to recover the costs for contamination in his shopping center. Serve-All Cleaners was completely unaware of any contamination that they had caused. Yet they had no means of fighting an expensive litigation battle. After forty years as a successful business that employed dozens of people and brought money into the economy, Serve-All Cleaners had to completely abandon their store.

New York
Roxy Cleaners is a family run business started in 1927. For years, they believed that they were well informed and up- to-date on all current environmental regulations. In fact, Roxy Cleaners was the first cleaners in New York state to have a hazardous waste number years before it was required.

Unexpectedly, in 1989, a well investigation requested by a neighboring business revealed contamination below the back door of the cleaners. Five years and three months later, Roxy Cleaners has had to pay close to $2.5 million in civil suits, site assessments, and remediation fees. Roxy Cleaners, once a leader in environmental compliance, has been demolished by press coverage, and is currently unable to obtain credit to update their other locations.

Georgia
Fashion Care Cleaners in Cumberland Crossing, Georgia, is also a family business chat has been running since 1965. When the landlord of the shopping center decided to sell, they did an environmental study and found contamination. As a result, the sale didn't go through, and the owner came back to the cleaner threatening legal action to recover the clean-up charges and possible damages. In the first month alone, legal bills for the cleaner have totalled $10,000 just in preliminary discussions with the landlord.

Joe May Valet Cleaners and Launderers in Georgia never even used perc in their operations. The owners, the Mays, sold their facility after twenty years of operation in the 1970s. Years later, when the present owners tried to refinance their property, perc contamination was discovered. More perc was found further down from the May's establishment where another drycleaning plant is located. There is more perc contamination there, yet the owner and the shopping center owner are maintaining that Mr. May's estate should be held liable, Now widowed, Mrs. May is left with her only remaining savings being threatened over something she may have had nothing to do with.

Wisconsin
Thomas Judge owns three drycleaning plants in central Wisconsin, providing jobs to 30 people. On Christmas Eve 1992, a property owner two lots away from Mr. Judge's Stevens Point plant accused Judge's Cleaners of being responsible for contamination on his property. To date, Mr. Judge has spent approximately $70,000 for legal counsel and site testing. Though testing performed at Mr. Judge's expense has suggested that the contamination is emanating from another site, the other property owner is continuing his threat to sue Mr. Judge,

Mr. Judge has also experienced Superfund problems at his Wisconsin Rapids location, which his family converted from a filling station to a drycleaning plant in 1960. Site drilling performed as a prerequisite for financing a facility expansion found a minute amount of perc contamination. Thus far, Mr. Judge has spent $45,000 for site investigation and thousands of dollars more for legal advice.

Gary Eckes owns a drycleaning plant in Wisconsin that is downslope from a Kentucky Fried Chicken and a gas station. When perc traces were found on KFC's property, they tried to sue Mr. Eckes for contamination. The drycleaner had minimal contamination on his property. Regardless of the facts, Mr. Eckes is facing to legal battle that could cost thousands of dollars.

Florida
A relatively new business was only in its Florida location for 15 years when they were sued by the state for perc contamination. The problem was detected when an adjacent property was tested for petroleum leakage. The cleaners complied with all applicable laws and immediately began to clean up. They have already spent approximately $350,000, while nothing has been spent on clean up.

by Sam Taylor
Two years ago the North Carolina Association of Launderers and Cleaners embarked on an ambitious effort to establish a state-sponsored environmental safety net for members of the drycleaning industry. The Association envisioned a new state statute that would provide money to assist with cleanup of drycleaning solvent contamination, that would establish new risk-based standards for solvent cleanup, and that would provide drycleaners immunity from lawsuits seeking further cleanup of such pollution.

In July of 1997, the Association's vision became reality with the enactment of the North Carolina Dry-Cleaning Solvent Cleanup Act. The Act, as passed, was the result of a cooperative effort by the drycleaning industry, environmental organizations, and state regulators. All participants in the broad coalition supporting the Act viewed, and continue to view, the new statute as a promising opportunity to address the historically intractable problem of solvent contamination.

Unfortunately, today a series of unexpected developments threatens the Act's promise. Insurance policies providing coverage for historical releases, which had been available at the time of the Act's passage, can no longer be purchased. Available coverages are instead limited to releases occurring during the term of the policy. Also, revenues from a new drycleaning solvent excise tax have fallen short of the target estimated in the 1997 legislation. These problems have undermined the financing sources that the Act requires to fund most cleanups under the new program.

Now, the Association of Launderers and Cleaners is working cooperatively with the North Carolina Department of Environment and Natural Resources and other interest groups to find solutions to the funding shortfall and the failure of insurance marketers to provide coverage envisioned by the Act. Most participants in this process continue to view the Act as an important opportunity to address drycleaning solvent contamination in North Carolina; and most remain committed to restoring the Act's original promise.

This article outlines the provisions of the North Carolina Dry-Cleaning Solvent Cleanup Act of 1997 and the protections it affords dry cleaners, highlights on-going efforts to implement the Act, reviews the problems that have arisen in connection with the statute, and reports on legislation being developed by the Association of Launderers and Cleaners to address these problems.

Provisions of the Act
The Dry-Cleaning Solvent Cleanup Act of 1997 was designed to address drycleaning solvent contamination by funding assessment and remediation of existing contamination, providing for prioritization of cleanup efforts, and authorizing stricter regulations governing handling of drycleaning solvent.

Cleanup Funding.
To fund solvent cleanup, the Act imposes a new state excise tax on drycleaning solvent and requires dry cleaners and solvent wholesalers to obtain insurance covering the cost of future cleanups on a claims-made basis. The solvent tax, which is set at a rate of $5.85 per gallon of chlorinated solvent and $0.80 per gallon of hydrocarbonbased solvent, is collected by solvent wholesalers and forwarded to the state for deposit in a new Dry-Cleaning Solvent Cleanup Fund. Estimates of drycleaning solvent consumption, provided by a survey of North Carolina dry cleaners in 1995, suggested that these tax rates would produce approximately $1.5 million in revenues each fiscal year. Over the 10-year life of the Fund, the tax was expected to raise approximately $15 million for solvent contamination cleanup. Only 20 percent of monies in the Fund may be used for administrative costs. The remainder must be used to fund cleanup of solvent contamination.

As originally envisioned in the Act, monies in the DryCleaning Solvent Cleanup Fund were to be used predominantly for abandoned drycleaning solvent contamination sites and for contamination at operational drycleaning sites that could not obtain insurance. All other contamination was expected to be addressed by pollution remediation and legal liability insurance purchased by plant owners and operators. To assure that all dry cleaners obtained appropriate insurance, the Act specifically required the operator or owner of every drycleaning facility to purchase pollution remediation and legal liability coverage in the amount of $1 million. Dry cleaners unable to obtain insurance were permitted to apply to the Department of Environment and Natural Resources for a certificate of uninsurability. Sites obtaining such designation would be eligible for cleanup with monies from the Dry-Cleaning Solvent Cleanup Fund. Other uninsured sites would be ineligible for the cleanup program established by the Act.

Risk-Based Remediation Standards
In addition to making more money available for cleanup of dry- cleaning solvent contamination, the Act seeks to limit the statewide price tag for drycleaning solvent cleanup by requiring state environmental officials to develop a risk-based approach to such remediation. Under a risk-based framework, the Department of Environment and Natural Resources would be permitted to consider certain site-specific factors in determining the level of remediation necessary for a particular contamination site. Thus, sites in urban areas posing no threat to drinking water wells or sensitive facilities (such as schools and daycare centers) might be eligible for cleanup requirements less stringent than current state standards. The Act also directs the Department to consider site owners' voluntary agreements to restrict future use of the property in determining required cleanup levels.

The Act also allows State environmental officials to direct limited cleanup resources to those sites most in need of cleanup. Specifically, the Department is authorized to adopt rules governing the participation of contaminated sites which provide for consideration of the degree of harm or risk the contamination poses to public health and the department, the relative cost of the assessment or remediation activities required for the site, and the date on which the owner of the facility first seeks assistance in addressing the contamination. The Act specifically requires that the prioritization program be geared to maximizing the overall reduction of harm or risk to people and the environment.

Solvent Handling Regulations.
To minimize the risk of future drycleaning solvent releases, the Act authorizes state environmental officials to adopt minimum management practices for drycleaning solvent handling at drycleaning and wholesale distribution facilities. These standards may:
· Require that all new perchloroethylene drycleaning machines meet air emissions standards that equal or exceed those of comparable dry-to-dry perchloroethylene drycleaning machines with integral refrigerated condensation;
· Prohibit the discharge of drycleaning solvent or water containing drycleaning solvent into sewer or septic systems;
· Require spill-containment structures around drycleaning machines and related equipment;
· Require floor sealants for cleaning rooms; and
· Require improved solvent transfer systems to prevent releases at the time solvents are delivered (such rules cannot take effect before January 1, 2002).

Assessment and Remediation Process.
Under the Act, dry cleaners who have paid solvent excise taxes, complied with minimum management practices, and purchased required insurance (or satisfied state environmental officials that their facilities are uninsurable) are eligible to enter into agreements with the State to help fund assessment and remediation of solvent contamination at their facility Specifically, the state may pay dry cleaners out-of-pocket cleanup costs in excess of $5,000 to $45,000, depending on the size of the drycleaning company operating at the site. Table I shows the financial responsibility dry cleaners must undertake according to size and type of facility.

In the case of insured sites, state funding is limited to costs in excess of available insurance coverage and the financial responsibility requirements shown in Table 1 .

Dry cleaners seeking assessment and remediation agreements must provide a wide variety of information to the State. They must show, for example, that persons engaged to undertake the assessment or remediation are qualified, that all permits necessary to conduct the assessment or remediation have been obtained, and that the dry cleaner has authority to enter affected property for the purposes of conducting assessment and remediation activities. Other requirements also apply. The State may refuse to enter into agreements with petitioners who have failed to pay solvent taxes, purchase required insurance, abide by minimum solvent management standards, pledge the financial resources required by Table 1, or accept responsibility for conducting or supervising necessary assessment or remediation activities.

Liability Protection
In most cases, a dry cleaner who enters into an assessment or remediation agreement with the State, and who is complying with the agreement, will not be liable in any action at state law to compel further assessment or remediation of the contamination described in the agreement. The Act's liability protection does not extend to suits under federal or to state lawsuits seeking recovery for personal injury or property damage resulting from contamination. If the applicable assessment and remediation agreements are completed successfully, the dry cleaner will generally continue to enjoy the liability protection described above.

Some exceptions apply, including cases where remediation-related land-use agreements are violated or when new information shows that the site continues to pose a threat to human health or the environment.

The Act's liability protection also extends to other potentially responsible parties who assist the dry cleaner in funding assessment and remediation at the site. These parties may include landowners, previous owners or operators of the facility, and other persons who may have legal liability for the contamination under state or federal law. These "umbrella" protection provisions are designed to encourage all parties who have potential liability for the contamination to cooperate in assessment and remediation actions. Indeed, the Act specifically provides that several potentially responsible parties may join together in seeking assessment and remediation agreements with the State.

Recent Developments
State Working Group
In 1998, the Department of Environment and Natural Resources began working to implement the Act. Because early revenues from the solvent excise tax were low, the Department convened a working group of volunteers from state agencies, the industry, and environmental interests to begin work that could not be funded. The working group is continuing to meet and is developing site certification application forms and models for solvent assessment and cleanup arrangements. Preliminary work has also begun on minimum management practices and risk-based standards for solvent cleanup.

In January of this year, the Department hired two fulltime staff persons to assist the working group and lead the State's implementation efforts for the program.

Despite these efforts, the Department has not met the Act's January 1, 1999, deadline to make the Act's cleanup program operational. Indeed, it is likely that rules and other necessary program documents will not be ready until late 1999 or possibly even 2000. Dr. cleaning industry leaders generally agree that the Department has made a good faith effort to implement the Act, and deserves credit for its work to date. In addition, although the Department's Water Quality Section issued a limited number of Notices of Violation for solvent contamination at dry-cleaning sites in 1998, the Department does not appear to be in an aggressive enforcement posture with respect to these facilities.

Funding Shortfalls
While the Department and its volunteer working group have pushed to implement the Act, the overall promise of the program has been threatened by two unexpected developments. First, the insurance industry, which had originally provided policies covering liability for virtually all dry-cleaning solvent contamination - regardless of when it occurred - is now limiting coverage to only that contamination that occurs after the inception date of policy Unfortunately, an insurance policy that covers only contamination originating during the term of the policy will address only a fraction of a dry-cleaner's potential liability. Further, because it is often difficult to determine when a particular instance of dry-cleaning contamination occurred, launderers and their insurers may wind up going to court over whether a particular claim is covered by the policy, and if so, to what extent. Disputes of this sort would waste valuable cleanup resources on litigation.

Because the scope of available insurance coverage is narrower than expected, most instances of dry-cleaning solvent contamination discovered in coming years will now require assistance from the Dry-Cleaning Solvent Cleanup

Fund. Indeed, the Department of Environment now estimates that cleanups eligible for the Fund could amount to more than $12 million per year (or higher, if less favorable assumptions are used). This is the exact opposite of the funding balance envisioned by the Act, which anticipates that most contamination reported after January 1, 1999, will be addressed through insurance policies.

A second problem for the Act has been an unexpectedly low flow of revenues from the solvent excise tax. The tax, which had been expected to raise $1.5 million per year in revenues for the Cleanup Fund, brought in only $710,000 in the period from October 1997 through September 1998. Revenues in the 1998-99 tax year are expected to reach about $880,000 -- still only about 60% of the collections originally projected.

Corrective Legislation
With the Dry-Cleaning Solvent Fund facing both increased demands and reduced revenues, leaders of the North Carolina Association of Launderers and Cleaners are seeking ways to bring the budget for the cleanup program into balance. One attractive option is to recommend legislation that replaces the existing North Carolina sales tax on dry- cleaning services with a gross receipts tax dedicated to the Solvent Cleanup Fund. From a public policy viewpoint, such a proposal makes sense. As a general rule, sales taxes are applied only to goods. Service providers - such as lawyers, accountants, doctors, plumbers, and others - are generally not required to collect sales tax. Laundry and drycleaning services are an exception to this rule. Sales tax applies to both laundry and drycleaning services.

The Association of Launderers and Cleaners has long planned a statewide effort to repeal the sales tax on drycleaning and laundry services - which, as explained above, unfairly discriminates against the industry.

Now the need for action is made even greater by increasing demands on the Solvent Cleanup Fund. State fiscal analysts estimate that the tax on laundry and dry-cleaning raises a total of nearly $15 million per year. Two-thirds of that revenue accrues to the State. The remaining third goes to local governments that have exercised their local option to also collect sales tax. By repealing all or part of the sales tax on laundry and dry-cleaning - and replacing that tax with an equal gross receipts tax on laundry and dry-cleaning revenues - the State could both eliminate an unfair tax and address the growing needs of the Dry-Cleaning Solvent Cleanup Fund. The result would be no net increase in tax on drycleaning services, and a significant boost to environmental protection.

Unfortunately, there is likely to be significant resistance to any measure that would reduce State General Fund Revenues in the 1999 Legislature. Under current revenue forecasts, state tax revenues in the 1999-2000 tax year will be several hundred million less than required to continue existing state services and meet planned goals for increasing teacher pay and expanding state education funding. Indeed, state agencies are already being asked to identify program cuts of as much as 5% in order to help meet the budget shortfall. Repealing the current sales tax on drycleaning services would take as much as $10 million from the State's General Fund.

If legislators reject efforts to repeal the sales tax on drycleaning services, the industry will need to come up with money from another source to keep the Dry-Cleaning Solvent Cleanup Fund in the black. Such funds might be raised through an increase in the excise tax on solvent, or possibly a gross receipts tax on drycleaning and laundry services that is not offset by a reduction in the sales tax.

Conclusion
The Dry-Cleaning Solvent Cleanup Act of 1997 was landmark legislation. The Act sets out a plan for addressing drycleaning solvent contamination in North Carolina in a way that meets concerns for public health and safety, without breaking the back of the drycleaning industry or wasting limited financial resources on costly litigation. If the Act functions well, dry cleaners will once again be free to sell their property or pass on their family business without fear of catastrophic financial liability.

The promise offered by the Act is real, but it is not accomplished yet. To win the future envisioned by the Act, the Association and its member dry-cleaners need to continue their push for the principles embodied in the legislation - industry-funding for cleanups, risk-based remediation levels, and strict standards to prevent future pollution, By keeping these principles foremost and asking others to do the same, North Carolina's launderers and cleaners can build a program that will serve them and their businesses well -- and stand as a model for other states and industries seeking a safe and economically secure environmental future.

The author is an attorney with the North Carolina-based law firm, Womble Carlyle Sandridge & Rice, PLLC. Mr. Taylor worked with industry and state environmental offi cials to draft and win enactment of the Dry-Cleaning Solvent Cleanup Act of 1997 and is currently retained by the North Carolina Association of Launderers and Cleaners to help with corrective legislation in the 1999 General Assembly. He practices lobbying and administrative law in Raleigh, North Carolina.

The North Carolina Division of Waste Management recognizes dry cleaners as hazardous waste polluters, with perchloroethylene (perc) now being regulated in groundwater at the incomprehensible level of 0.7 parts per billion. This is an extremely small standard of tolerance; for example, it is the fractional equivalent of one second in forty- six years. Similarly, it is also roughly the same as one inch is to the circumference of the planet. Did you know that spilled perc flows straight down, unimpeded through concrete and most other materials? That most cleaning machines emit perc through the fugitive emissions to the outside world where it sinks through parking lots and into the ground? That solvent lasts for decades in the ground and many times traverses neighboring properties to end up long distances from the original source? That it is heavier than water and therefore sinks deep into the earth's (water resource) aquifer systems? That it eventually breaks down into vinyl chloride, which is even more toxic than perc itself? And petroleum plants also have similarly serious problems with environmental releases. Virtually all cleaners have such scenarios to dread in the coming years. Many cleaners are already being educated. Approximately 65 plants are currently on the State contaminated sites list.

Everyone agrees this represents a mere fraction of all the contaminated sites, and it is very likely that most sites have some amount of contamination. Almost everyone in the industry will eventually have to cope with the regulatory standards; whether it stems from landlords or cleaners attempting to borrow money with an investigation being required, or perhaps a nearby property owner discovering solvent on their property and the cleaner is then reported to the State. Then that nearby property owner sues the cleaner because they are unable to sell or borrow. Worst is the scenario where solvents are found in someone's drinking water. And just because a plant has been sold or abandoned in the distant past does not absolve the former operator or their successors from cleanup or third party liability. Remember those solvents last for decades, and it's just a matter of time (when not if) before all former and currently operating plants are checked.

And if assessment and clean-up of a facility is required, the cost will typically soar into the hundreds of thousands of dollars, not including legal fees and potential payments to third parties. The situation is serious and it is complex. There are no easy answers, and no one at the State or Federal government is going to step up and fix this industry's toxic problems, regardless of the fact that the situation is completely unfair to individual businesses. But there are options, and the industry must unite with resolve to tackle the issues.

The NCALC has already begun this vital work. After significant effort and expense, the association successfully lobbied for the passage of House Bill 225, known as the North Carolina Dry-cleaning Solvent Cleanup Act of 1997. This legislation was intended to provide for the protection of the environment and likewise to preserve the integrity of small and large businesses within the industry. It set forth a mechanism for pollution response funding through a combination of solvent taxes and required private insurance coverage.

It also mandated a common sense process that ultimate cleanup requirements be based upon rational, site-specific risk analyses. That is, simply put, to cleanup only problems which represent an actual calculable risk to humans or other potential environmental receptors. Unfortunately,a critical setback to the promising program resulted from the recent bailout by the insurance industry. After responding to a few initial claims, they realized that providing appropriate insurance products resulted in exposing them to liability for decades of incremental spillages, and they correctly concluded that this was a losing endeavor for their industry. Now the cleaners are left with a seriously underfunded program which is in danger of collapsing if not addressed immediately. Furthermore, other businessprotective elements of the program such as risk-based cleanup may also be lost.

The Association has and continues to consult extensively with cleaners, legal experts, site cleanup specialists, the North Carolina Division of Waste Management and other stakeholders to develop realistic proposals for dealing with the funding shortfall. A strategy has been developed by the Association to request action by the NC General Assembly during the 1999 session. The strategy consists of proposing that the currently unfair sales tax on cleaning services be redirected to an environmental assurance fund. It is ' believed that this would generate sufficient money to do the job and that it would be the fairest solution.

However, this redirection of funds will reduce revenue to the State's budget. Since a significant two-year State budget shortfall is already anticipated, the sales tax redirection may be an unrealistic expectation. Therefore the backup plan is to propose an additional 2% gross receipts tax on cleaning services which would be allocated to the environmental assurance fund.

While it is not certain whether this rate will generate enough capital to adequately fund the program over the long term (the next decade), it will go a long way toward making the program a realistic mechanism of environmental financial responsibility for business owners.

North Carolina's drycleaners still have a voice in controlling their destiny. And now is the time for the industry to act in unified support of the proposals.

If no solution is reached, another extremely undesirable consequence could occur. That is for the industry to lose credibility in negotiating with the State, who has thus far been lenient in enforcing cleanup requirements as an initiative to the cleaners to get the program into financial working order. And make no mistake about the fact that State regulators don't mind assigning liability and issuing assessment and cleanup orders With or without the industry's cooperation or input.

Just remember that each business owner is threatened by the regulations. Moreover, the entire drycleaning industry stands to lose a measure of public trust (customers) if the perception is created by a few newspaper articles or television news stories that drycleaners are unfriendly to the environment.

Mr. Clark is a geologist with vast experience with contamination. He is Principal-in-Charge at Clark Environmental Services, PC., which is based in Wilmington, provides investigations and remedial actions across the southeastern United States.

In February of 1995, Denny Schaffer and Chris Edwards attended the Denver Roundtable of Dry cleaners to discuss strategies for our industry to deal with Superfund issues. We returned from that meeting knowing that our industry must develop a plan to survive the devastating effects of retroactive liability. Our industry like other small businesses faced severe penalties for contamination that occurred through little to no fault of our own.

A national strategy was developed to initiate a tax on dry cleaning solvent as well as registration fees to fund a clean up program. This attempt met with much opposition on Capitol Hill from regulators as well as legislators.

By April it was determined that a state by state strategy was an appropriate fall back measure. It was the feeling of our national industry leaders that if enough state laws were passed to deal with this issue, then the federal government would be forced to pass federal legislation.

Our association Board of Directors discussed various options to deal with these issues. It was concluded that our objective would be to "Stop actions and suits relative to Superfund that will bankrupt Dry Cleaners of North Carolina" We felt we could do this by having passed "favorable legislation that would transfer the liability for cleanup from the dry cleaner to the state fund, meet environmentalists concerns by cleaning up contaminated sites, and to collect and disburse funds on a statewide basis for costs associated with clean-up and administration."

Soon after this board meeting we retained the law firm of Womble, Carlyle, Sandridge and Rice to draft and lobby for a new law. In March and April of 1995 we held meetings at six locations across the state to hear Dry Cleaners thoughts and feelings about our proposal. We had tremendous support from those that attended. We proceeded to try to introduce our bill in 1996. We met with a lot of initial opposition from the NC Department of Environment and Natural Resources, and we were not able to successfully pass the law in 1996.

We re-introduced the bill in 1997 after gaining a favorable recommendation from the Environmental Review Commission. This commission is made up of State Senators and Representatives, and they hold meetings throughout the year to work on environmental matters for the state.

We also held six additional meetings across the state in March of 1997 to communicate with the Dry Cleaners of North Carolina. Through the long hours and dedication of Denny Schaffer and the rest of our Environmental task force, as well as the Dry Cleaners that contacted their representatives in Raleigh, we were successful in having the North Carolina Dry Cleaning Solvent Clean-up Act of 1997 signed into law by the Governor on August 14, 1997.

At least six other states have now passed similar laws to address the retroactive liability provisions of Superfund.

While our milestone was surpassed in 1997, we continue to work with state regulators to define the way our program will work. There have been some problems with this law, such as the availability of insurance carriers to write policies to insure against past contamination. We plan to address those problems in the 1999 legislative session.