In a Troubled Economy, They Can’t Leave Well Enough Alone

Since 1989, one bright spot for owners of property in California contaminated by petroleum releases from underground storage tanks has been monies available from the State of California Petroleum Underground Storage Tank (“UST”) Cleanup Fund (the “Fund”). Monies in the Fund are provided by a storage fee paid by petroleum UST owners through the permit process based upon the volume of throughput.

After payment of a modest deductible, typically in the $5,000- 10,000 range, qualifying tank owners could draw on the Fund for up to $1.5 million to defray the expenses to assess and remediate contaminated soil and groundwater. Small business owners or small real estate developers especially benefitted because they generally fell in the top priority class – Priority A – for dispersal of monies in the Fund. We have represented clients in recouping funds in this manner to minimize their ultimate out-of-pocket expenditures.

However, the Fund is expected to announce annual cost caps on reimbursable expenses for Priority A, B and C claimants. Beginning in Fiscal Year 2011/2012, the Fund plans to assign a category to each cleanup site based upon its remedial status. The cost cap assigned to the project for the coming year cannot be exceeded absent special circumstances. For many the anticipated cost cap will fall far short of the amount typically associated with the required cleanup and previously reimbursed by the Fund.

This follows on the severe shortfall of cash available from the Fund, compared to prior years, experienced in 2008. Current estimates are that more than 11,000 petroleum UST sites in California require cleanup and approximately 7,000 of these sites have been determined eligible for reimbursement of cleanup costs from the Fund. However, since the advent of the shortfall in 2008, much remedial work has gone unreimbursed or has stalled. Thus, it appears the Fund will not continue to be quite the bright spot for some California property owners it once was.