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What will 2017 Bring? Dramatic Change?

20 Dec 2016

edit_calendar_ssk_47433454In prior years, we knew that regulatory and environmental change was coming but we expected it to be slow and incremental.  With an unknown quantity like President Elect Trump, one thing is clear – no one really knows what may happen.  Here are a few possibilities:

1.  Coal/Cleaner Energy Generation – revitalizing the coal industry was part of Mr. Trump’s midwest stump speeches.  Will Mr. Trump be able to reverse Barack Obama’s Clean Power Plan? What about the Paris Climate Accord?  Certainly, his team is looking at both of those right now. The dispute in Michigan v. EPA, decided in June 2015, continues to rage.  In 2015, the US Supreme Court ruled that the EPA didn’t properly justify its rule governing mercury and toxic pollution (MATS) from power plants because it did not specifically address costs at the initial stage of the rulemaking process. In April, the EPA announced it was standing by its MATS rule and concluded that the benefits far outweighed the costs.  Petitioners continue to litigate whether the EPA properly evaluated costs.  Here in Michigan, new legislation has been passed (and is awaiting the Governor’s signature) intended to encourage additional investment in energy generation and transmission while balancing consumer choice and a greater percentage of renewable energy generation.  Will it work? At a reasonable cost?

2. Power Generation Subsidies/Oil/Gas Generation – Mr. Trump’s attacks on “crony capitalism” would seem to mean that he will stop financial incentives for solar and wind generation.  Will he also attack oil and natural gas supports in the tax code?  Will he open up ANWAR to oil/gas exploration?  Will he scale back attempts to regulate fracking?  This will be difficult in light of the December EPA Report  which concluded that fracking posed problems such as:  fracking water withdrawals compete with other water needs; spills of hydraulic fracturing fluids and chemicals or produced water may impair groundwater resources; injection of hydraulic fracturing fluids into wells may allow gases or liquids to move to groundwater resources; discharge of inadequately treated hydraulic fracturing wastewater to surface water resources; and contamination of groundwater due to disposal or storage of fracturing wastewater.

3. Pipelines – will Mr. Trump reverse the Obama administration’s dim view of oil and gas pipelines such as the Keystone XL and Dakota Access Pipelines?  How will this affect Michigan where public awareness of two 60+ year-old pipelines under the Mackinac Straits has galvanized both sides of the political spectrum into action.  In 2014, Michigan convened a pipeline task force which issued a report in 2015.  In September, 2015, the State entered into a written agreement with Enbridge to prevent the transport of heavy crude oil through the Straits Pipelines.  The task force also recommended that the pipelines be independently evaluated and that additional financial assurance be provided.  The State solicited Requests for Information and Proposals (RFPs) and Enbridge agreed to pay $3.6 Million for the evaluation of the Straits Pipelines.  An independent evaluation of alternatives to the Line 5 pipelines is also underway.  When those will be completed is not known.

4. Infrastructure – Mr. Trump campaigned on infrastructure (although to hear him tell it, that only encompasses airport quality), and Governor Snyder appointed a 21st Century Infrastructure Task Force which concluded that the State needed to be investing $4 Billion more than it was in infrastructure to address roads, bridges, internet, water, sewer and other infrastructure needs.  Given the recent nationally publicized Flint Water debacle, will Michigan find the intestinal fortitude to fully invest in infrastructure or will we continue to patch and delay?  Given the State’s recent fight against a federal judge’s order to deliver clean water, and Michigan legislators “default anti-tax setting,” the future does not bode well.

5. Brownfields – as previously reported, Michigan adopted legislation streamlining its brownfield funding laws and deferred action on Dan Gilbert’s “transformational” brownfield funding legislation.  Will that resurface in early 2017?  I expect it will.

6. Other issues – there are a number of other issues on the horizon including cleanup standards, the maturing of the Great Lakes Water Authority and its ability to deliver clean water and septic services at a reasonable price, Michigan’s effort to reimagine its solid waste program, water withdrawals and protection of the Great Lakes from invasive species and nutrients leading to algal blooms.

Gilbert Transformational Brownfield Legislation Stalls

12 Dec 2016

MOnroeblock9Dan Gilbert’s team drafted legislation based on the current Brownfield law.  This legislation was  moving rapidly through the Michigan Legislature until the Michigan Speaker of the House announced that the House would wait until next year to move the bills forward.  While this seems to have killed the bills for now, some are still lobbying for them to become law before 2017.

Articles had appeared in the local papers describing two proposed towers for the Monroe block of downtown Detroit (pictured), These articles include statements that the buildings won’t be built without this legislation being enacted (and presumably implemented in their favor).

The legislation is based on an existing approach – when a project increases property value, the taxes on that increased value can be captured and used to pay for  “eligible expenses.” Typically, these TIF (tax increment financing) programs put the risk of failure on the developer (where it belongs) while they increase the potential return by reimbursing the developer for expenses it would otherwise absorb.  The current brownfield law allows communities to issue bonds and pledge their full faith and credit, but in the brownfield “universe” that almost never happens.

The brownfield TIF law allows reimbursements for cleaning up contamination and taking protective measures and, in more urban communities, for costs of site preparation and infrastructure improvements.   This State, like many others, has decided that these incentives are necessary to entice developers to take desired risks. This is not a tax credit, nor, do the taxpayers of the State front any money to the developer.  If the development does not result in the increase in taxes expected, the developer loses. Without a bond, if there is no tax increment, the community/state owes the developer nothing.  Further, the community is held harmless because the predevelopment property taxes continue to go to the government as they did before project development. In short, this is a kind of “deferred gratification” for the taxing authorities as they must wait until the developer is repaid to get taxes on the increased property values (certain taxes are exempted from the TIF program and so there is some immediate benefit to the community).

So what’s the fuss about the Gilbert legislation?  These bills take the Brownfield TIF and put it on a massive dose of steroids. In addition to capturing real property taxes,  the Gilbert team proposes to capture both income taxes and sales taxes generated on a property following its redevelopment, if the project is “transformational.” This legislation vastly broadens the eligible expenses which can be reimbursed.  Instead of covering only environmental cleanups, environmental due care and communal benefits like infrastructure, the Gilbert legislation would allow a developer to be reimbursed for all of its construction costs. This is bold and would almost certainly lead to new, riskier developments. A developer could wind up with a significant competitive advantage because his costs are could be fully reimbursed. This could allow such a developer to undercut the market or amass significant profits.  The potential for market distortion appears to have been overlooked by the few commentators who have spoken on the subject.

The legislation includes a cap on the number of such transformational projects per year and per community and with a maximum of $50 Million in the first year’s capture for new projects. It is tiered so what is transformational (based on a dollar amount) varies based on the size of the community. This was a sop to smaller communities to get their support for this legislation as was a provision putting funds into the State’s Brownfield revolving fund. There are also some exemptions from the spending requirements including one that seems directed right at Flint.

“Transformational” can mean many different things  but the legislation’s focus is whether a project will transform local economic development, community revitalization, growth in population, commercial activity and employment.

The legislation received little notice until recently. Interestingly, it has been criticized by those on the left and on the right. A Free Press column calling this legalized “serfdom” for employees seems over-the-top. Yes, taxes will be collected and ultimately reimbursed to the developer.  I don’t see that equaling employee slavery. The Mackinac Center piece is a bit closer to the mark. They complain of “crony capitalism.”  The fact that only a few developers can get these projects approved per year and one per community per year does seem like the sort of favoritism inherent in crony capitalism. Further, the fact that the projects are limited to extremely expensive ones (on a range between $15 Million and $500 Million depending on county population), again, seems to mean that only the elite get benefits that are not available to the ordinary developer. In that regard, as the Mackinac Center points out, this is no different than any TIF financing model (and there are many of them in use throughout Michigan and the US).  This is the world we live in as evidenced by President-Elect Trump’s efforts to keep a Carrier plant in Indiana.

The capture of sales and income taxes would be new to Michigan and would put Michigan in the minority of states that allow such capture.

What has not been commented on is the need for a mechanism to ensure that the taxpayers of the State of Michigan are held harmless – so that the income and sales taxes to be captured are truly new to the State and not the result of a business moving its operations from one place to another.  This mechanism (and others needed) are to be developed later.  This is a practical consideration with large implications.  The State’s review of this legislation thus far includes an admission that the Legislature has no idea how much this might actually cost the State in revenue if it passes as is.

Will this package of bills pass?  I expect it will.  If not this month, then early next year.  If the Legislature doesn’t address some of the concerns expressed above, we may find ourselves with some major projects and some unintended consequences not too far down the road.

Flint – the lessons we are learning: no longer out of sight – out of mind

22 Jan 2016

watertankIt seems the whole Country is talking about Flint.  There is justifiable outrage about the process, the horrible impact on the community and the failures to detect and swiftly respond to the Flint water crisis.  There has been a lot of finger pointing about who is responsible but little discussion about preventing this from happening again (as Governor Snyder promised).  Here are seven questions that I think people will,or should be, thinking about as the initial furor dies down:

1. Was using Flint River water a bad idea or a good idea that went horribly wrong?  The Flint water crisis was a failure of execution.  The Flint River was known to be a poor quality water source but that doesn’t mean that the decision to switch to the River was wrong from the start.  Without getting too far down the blame game – it is clear that in June of 2013 (almost 9 months before the water switch), the then-Emergency Manager hired an engineering firm to figure out how to manage the Flint River water.  There has been, to my knowledge, zero discussion of what that firm, Lockwood, Andrews & Newnam, did or what they were qualified to do.  Had they done their job properly and advised the City and Emergency Manager properly, either Flint would’ve not made the switch or would’ve treated the water properly.  I expect that there will be hearings about this eventually.

2. Who should be preventing such problems?  In short, the EPA, the MDEQ, the Michigan Department of Public Health and the local government.  Governor Snyder’s own Task Force concluded that the MDEQ dropped the ball – stating that there was: (1) a culture of minimalist “technical compliance”  that failed to focus on the intent of the laws MDEQ was charged to implement; (2) a failure to respond in both substance and tone to the public’s concerns; (3) a failure to understand the federal lead and copper rule, particularly focusing on optimizing corrosion control – reportedly MDEQ told Flint that treatment for corrosion control was not needed until after two six month monitoring periods had been completed.

Allegations that MDEQ dropped bad results from its water testing seem to reflect the Governor’s Task Force’s concerns and, along with allegations that the Michigan Health Department hid lead health data, may lead to criminal charges.  Reports that both the Michigan Attorney General and the federal Justice Department are investigating may be leading some to have sleepless nights.

The EPA also bears responsibility – they recently (and almost certainly in response to Flint) released this Memorandum clarifying the requirement of corrosion control for communities with 50,000 or more residents.  Larger still is the assertion that EPA staff knew before June of 2015 that Flint wasn’t using required corrosion control and that a staff memo on the topic was buried.  On January 21, EPA issued a fairly scathing letter and emergency order to the State and City and so, “working together” seems a bit far off.

Both the State of Michigan and the EPA have established task forces and working groups looking at the causes of, and responses to, the Flint situation -my question is will there be correction at the agencies and better communication between them or will nothing change?

3. What about the rest of the State?  The Flint situation has further weakened the public’s trust in government’s ability to protect them.  Will this lead to people in Detroit, Lansing, Grand Rapids and elsewhere to question if their water systems are protective of human health?  Given that the nascent Great Lakes Water Authority (which serves almost half the State’s residents) is just getting off the ground and its system has parts dating back to the 1800s, will there be additional testing and assurances given that the tap water we all thought was safe really is?  For your information, here is a 2014 DWSD report that reflects “acceptable” amounts of lead in Detroit’s drinking water at taps they evaluated.

4. How to improve governmental transparency?  Governor Snyder released 274 pages of emails and, for the most part, my review reflects that the Governor was out of the loop until late September of 2015 and then, he began to mobilize the State to respond. Why it took until January for him to issue a disaster proclamation and seek Federal aid is not clear.  The Governor could have stonewalled on his emails but in the face of public pressure, he released them.  Some have made hay out of the fact that he did not release his 2013 emails – when the decision to switch the water source was made.  I doubt there’s anything there but agree that he should release those as well.  One thing that should come out of this is an amendment to Michigan’s Freedom of Information Act to remove the blanket exemption from the Governor and his aides.  In the interest of good government, the inner workings of the highest levels of the administration should be open to the public as much as the inner workings of any of the State’s agencies.  Michigan is only one of two states to have such a blanket exemption and I think it’s time for that to change.

5. Will Michigan change the Emergency Manager law?  Many on the left have castigated the Governor for the Emergency Manager law he championed, arguing that it is unfair and improperly denies the public their voting rights and right to elected representation.  While I am not going to debate that here, it appears that the Flint Emergency Managers (there were several of them during the time in question – itself a problem) operated in an informational vacuum. This letter from the Emergency Manager in March of 2014 reflects a decision to use the Flint River rather than Detroit Water and appears to have been made without public consultation or comment.  I can see calls to change the law here based on Flint’s experience.  Certainly, better oversight of Emergency Managers is a must.

6. What about the infrastructure?  Governor Snyder announced that he  is convening a commission to study Michigan’s infrastructure needs, threats, opportunities and costs. The commission will be charged with recommending action items and investments to protect our health and well-being. Top priorities will include: water and sewer infrastructure, energy and electrical grids, broadband modernization, and upgrading the aging Soo Locks. The commission will lay the groundwork for state and municipal actions to take place.  Bluntly, this is long overdue and, candidly, given how poorly Michigan’s recent road funding process went, I’m dubious about whether this will make a difference with our State Legislature.  This needs to be the State government’s number one priority.  However, given the political damage Governor Snyder has suffered, it seems that a program of major infrastructure investment is a long shot – necessary but unlikely.  Will our “fix on failure” approach continue? Given that estimates to fix the Flint water system run to $60 Million Dollars (or more), and the Detroit/Great Lakes system into the hundreds of millions, if not billions, do we have the intestinal fortitude to invest in the future and in our health and that of our children? Do we need to replace the lead pipes or is it acceptable to rely on corrosion control treatment?

7. Will anyone going to jail?  Many people have said “this is criminal” and under federal and State law, prosecutors will be looking to see if there was “reckless disregard of the consequences,” “gross negligence” or an “intentional failure to obtain or follow proper regulatory approval or direction” which may lead to possible criminal charges.  The failure to use corrosion control seems a likely focal point as it might satisfy one or more of the above standards – but the facts still need to come out.  It seems that the strongest argument for criminal charges may be the altering of reports or data, covering up the lead results or obstructing the investigation. Certainly, civil lawsuits will abound (and have begun) and civil penalties may be imposed but, generally, making a mistake, even one of this gigantic magnitude with these horrendous consequences is unlikely to support a criminal conviction.  That’s why we have ballot boxes.

Dire Straits – Crude Oil under the Great Lakes – what will the Courts do about a 61+ year old pipeline?

2 Oct 2015

pipelineEnbridge (the operator of the pipeline that leaked into the Kalamazoo River in 2010) has been assuring the State that there is no reason to worry about its pipelines under the Straights of Mackinac.  A 2014 University of Michigan report concluded that because of mixed currents, within 20 days of a spill from one of the two pipelines, oil would cover a roughly 50 mile stretch between Beaver Island in Lake Michigan to the West and as far Southeast as Rogers City in Lake Huron.  This news catalyzed an effort by the State to review its 62 year old agreement allowing the two pipelines which reportedly carry some 23 million gallons of oil under the Straits of Mackinac each day.

In June a state panel issued a 64-page Michigan Petroleum Pipeline Task Force Report which expressed unease with Enbridge’s assertion it could use the pipelines forever.  The report concluded that the Task Force had “inadequate information at this time to fully evaluate the risks.”   The Task Force recommended independent studies of the risks, alternatives for the safe transport of oil, and an accounting of the costs of responding to a spill from Enbridge Line 5 (the pipelines that flow under the Straits.

It seems as if Michigan’s regulators are not so willing to take Enbridge at its word.  The Attorney General has begun asking Enbridge for documentation and re-requesting when he does not get everything he asked for.  Enbridge appears to have jumped at the change to sign an agreement not to pump heavy crude (the problem in the 2010 spill) through the Straits without giving the State 180 days notice. This cost them nothing as they weren’t using the pipelines for heavy crude and had no plans to do so.  This gave the Task Force the chance to check the first item off its “to do list.”  Enbridge also rushed into place a “dress rehearsal” for a spill which made the front pages of the newspapers. Of course, this exercise was planned and Enbridge’s vendors themselves admit that in some cases equipment would have to be brought from Detroit – a 5 hour car trip in good weather.

While the federal government largely controls pipeline operations, the State’s negotiators in the 1950’s did an OK job with the easement they drafted (see here). The easement has some shortcomings like a bond of $100,000 and a flat insurance amount of $1 Million and no reopeners for changed regulations but it also requires the pipeline to “eliminate any oil or substance which may escape” from a leak or break and to indemnify the State from all damages or losses and the insurance required must be acceptable to the State covering the pipeline’s liability.  Particularly in light of the recent Volkswagen environmental scandal, it seems as if Michigan is taking its environmental stewardship of the Great Lakes even more seriously than usual.  The problem is that unless there is some evidence of a breach of the easement’s standards (as has been alleged regarding the spacing of the pipeline supports) or an imminent threat of a release, there isn’t much that State regulators can do.

While the easement gives the State some say over what Enbridge does, ultimately,  Michigan and federal law will  apply.  As noted by the Task Force, Michigan law gives the State a lot of power after there’s been a spill from a pipeline but not nearly as much over a threatened spill.  The law allows the State to step up and deal with a “threat of release” but there are precious few cases explaining what that means.  When dealing with a “threat” – even one with consequences as potentially huge as a release into the Straits of Mackinac, the Courts have demanded  quite a bit before granting any sort of injunctive relief.  It’s fair to say that unless the pipeline actually begins to leak, there is almost nothing the Courts will do under Michigan law except to hold Enbridge to the somewhat vague terms of a 60+ year old easement.

 

 

What do Tom Brady and every dispute with an environmental agency have in common?

13 May 2015

 A friend of mine recently pointed out that if Tom Brady appeals the punishment against him, the process is spelled out in the NFL Collective Bargaining Agreement (see here). Buried at Article 46 (between injury protection and union security), is the process for appealing a sanction by the Commissioner.  For appeals of everything other than unnecessary roughness and unsportsmanlike conduct (which have a slightly different, slightly more pro-player process), the Commissioner, after consulting with Union’s Executive Director, appoints one or more hearing officers. If that seems to unfairly stack the deck against Brady, well, you’re not alone in that opinion.

However, Tom Brady isn’t alone in this situation.  Before a company or person “aggrieved” by an agency decision may appeal that decision to the Courts, typically, she must “exhaust” her administrative remedies and process and create a record for review by the Courts. So, if your permit has been pulled or conditions have been imposed on you that you think are unfair, before you ever get to see a judge, you must, in Michigan, typically proceed through what’s called a “contested case.” Under the  Michigan Administrative Procedures Act,  the agency itself or one or 1 or more hearing officers designated and authorized by the agency to handle contested cases, are required to be the presiding officer in a contested case. While the law does say that hearings are to be conducted impartially, it does seem odd that an employee of the agency whose decision one is appealing gets to sit in judgment on that appeal and is the one to control the making of an administrative record that a court would review.

While the hearing officer in Tom Brady’s case results from a negotiated agreement, it does seem that foxes guarding the henhouses is the order of the day and some are only now realizing that perhaps we should reconsider what looks like a fair process on the surface appears skewed when one scratches only a little below the surface.

What will be the top stories of 2015?

23 Jan 2015

edit_calendar_ssk_47433454Happy new year!  I know it’s almost February but as this is my first blog post of the year, I thought (particularly after hearing the State of the Union and the State of the State speeches)  I’d predict the big stories of 2015 in no particular order:

  • Wetland Rules – the EPA and the Army Corps of Engineers finally proposed rules in 2014  to address the fallout of the Rapanos case.  The proposal was met with a firestorm of disapproval, particularly from the farming world.  Will they ever finalize them?
  • Brownfield TIF Legislation – after all that work last year, will the Legislature take up streamlining this program and expanding it to allow Michigan to be even more competitive in redeveloping brownfields?
  • EPA Greenhouse Gas Rules vs. Congress – in September, 2013, EPA issued a proposal for carbon pollution from new power plants; in June  2014, EPA issued a proposal to cut carbon pollution from existing power plants – the GOP and coal and oil interests in Congress have fought this for some time.  Will the rules be adopted and enforced?  Will there be enough time for electricity generators to get alternative plans in place before being forced to shutter their oldest, least efficient and most polluting plants?
  • Keystone Pipeline – President Obama and Congress have been locked in a politically charged dispute over the Keystone XL pipeline for almost 3 years now – he seemed to indicate in the State of the Union that he’d veto legislation – will he?
  • Energy Policy – Governor Snyder has pushed for an energy policy, legislation is expected this year and the Governor recently mentioned an intention to develop a new energy agency that would make Michigan more competitive for business.  What that will entail in light of the likely changes due to federal regulations will be interesting to see – will Michigan upgrade or discard its renewable portfolio standard? Can Michigan reduce electrical cost while improving both reliability and environmental performance?
  • Water Policy – the Governor’s long-awaited great lakes policy is expected this year.
  • Pipelines – in addition to the Keystone pipeline, there has been a lot of interest in pipelines in, under and around the Great Lakes – could there be federal and state changes there?
  • Detroit’s Water Authority – it is supposed to morph into a regional authority – as I said previously, the easy part was getting to the agreement last year – will the hard work succeed or will it fail, causing major shockwaves for roughly half of the State’s population?

CSI Part II – MDEQ rolls out brownfield tax increment financing proposal – five major changes you should know about

11 Nov 2014

moneyAs you may recall from this spring, I was asked to serve on MDEQ’s initiative to  review and improve the “patchwork quilt” of statutes and rules regarding brownfield redevelopment incentives, grants and loans.  A CSI II group (of which, in full disclosure, I chaired the Legislative Committee) met regularly over the Spring and Summer and MDEQ has announced two meetings (see the attached flyer) to roll out the proposed changes. These changes have not yet been introduced in the Legislature and thus, are currently only an MDEQ internal recommendation. The hope is that these changes will be introduced shortly.

if passed, these proposed changes should streamline, simplify and speed up the process for loan, grant and TIF approvals to enable projects to get started faster than ever before while supporting a greater range of eligible activities than previously available.

There was some tension between those championing redevelopment and those focusing on environmental remediation but ultimately, there was agreement on a set of changes and clarification of the rules and statutes to clarify the process for obtaining loans, grants and tax increment financing for brownfield redevelopment.  The five most significant changes include: (more…)