CalEPA is Increasing Municipal Development Costs by Over $100 Billion

This article is an appeal from an environmental engineer and real estate investor to all of California’s municipalities. If municipalities want to be able to convert underused strip malls into mixed use facilities, they are going to have to make waves at California EPA (“CalEPA”). Any chance of effectively remediating those old gas station and dry cleaner sites has just been made impossible using unachievable and unnecessary cleanup standards. Yes, we’ve all raised our hands in disbelief in the past, but this time CalEPA has really stepped into it, and there is ample opportunity to take action.

Draft Vapor Intrusion Guidelines Background

The tool stifling infill development is the CalEPA Draft Vapor Intrusion Guideline (“DVIG”), which has established soil vapor criteria that are being used as de facto cleanup limits. There is an approximate 30-fold decrease in clean-up standards. These criteria were rolled out two years ago using a 2015 EPA study, based on an old data set, which came predominately from East Coast and Midwest properties with an average building age exceeding 80 years. The data was hardly commensurate with California buildings or climate.

As of this writing, CalEPA’s DVIG process has been flawed for numerous reasons, which include:

  • Utilizing inaccurate and outdated data yielding unachievable and unnecessary cleanup standards;
  • Ignoring the CalEPA Department of Toxic Substances Control’s (“DTSC’s”) peer reviewed California study that refutes the DVIG;
  • Declining to release the DTSC report (which, of course, has leaked);
  • Circumventing the California Environmental Quality Act (“CEQA”) illegally; and
  • Bypassing California’s rule making process with tens of billions of dollars at stake.

The dozens of statewide remediation oversight agencies have used the DVIG screening values to eliminate the issuance of No Further Action (“NFA”) letters and mandate Vapor Intrusion Mitigation Systems (“VIMS”) that must be used in perpetuity, or until the cleanup standards can be met (read: never). Try getting debt for your mixed use or multi-family development with no foreseeable NFA and a mitigation system absent a finite run time.

Had CalEPA accepted its own DTSC study, the new cleanup criteria would have reverted to the pre-DVIG numbers. In scientific terms, the soil gas attenuation factors and consequent clean criteria would remain unchanged.

Impact of the DVIG on Dry Cleaners, One of the Most Impacted Sectors

One could discuss nuances of the DVIG such as “attenuation factors” and “vapor monitoring” and “environmental screening levels,’ but let’s get down to brass tacks. The DVIG does not a provide health benefit, because the microscopic, remediated concentrations that would otherwise remain in place will not migrate into the building spaces for pre-DVIG concentrations. We’ve all heard the phrase “it’s impossible to remove every molecule of contaminants,” and the phrase is certainly appropriate in this case.

Winefield & Associates has completed an incremental cost analysis of pre-DVIG versus post-DVIG costs for a typical dry cleaner that used PCE cleaning solvents. Imagine you own a dry cleaner property and COVID has shut you down. As such, you want to make use of your most valuable remaining asset, the land, and convert a blighted property into mixed use or residential units. Our analysis shows that pre-DVIG your typical environmental remediation cost would be about $800,000, while post-DVIG the cost is about $1.9 million. These sites tend to be small, so the extra million dollars will kill many redevelopment plans based on financial returns alone. Add the lack of financing because no NFA would be forthcoming, and we’re really in sad shape here. There are approximately 55,000 abandoned and operating dry cleaning sites across California. Assuming eighty percent will now need to be remediated to DVIG standards, the statewide dry cleaner incremental DVIG liability is $44 billion with no additional health benefits. Dry cleaners are just one type of many environmentally impacted property types.

When one considers that dry cleaners are a small fraction of all commercial/industrial facilities, the DVIG price tag will surely exceed $100 billion. This kind of burden should not be addressed using a CalEPA guidance document, but deserves a CEQA analysis and a rule development process.

The DVIG’s Consequences So Far

The consequences of the DVIG clean- up standards can be measured not only in terms of cost, but also a delay in housing production (including affordable housing), greenfield development and sprawl, greenhouse gas and other air emissions, and lost opportunities for community revitalization. These impacts will fall disproportionately on low-income and people of color, raising significant equity issues. Governor Newsom’s office has been notified of how CalEPA’s DVIG conflicts with housing goals, and we hope (but are not counting on) movement in the right direction.

So, look out for brownfields projects thwarted by DVIG in your city, and you’ll have plenty of arrows in your quiver against CalEPA and its subsidiary agencies to effect change. In all likelihood one will need to take legal action for a property-specific agency demand that leverages the DVIG.

For now, however, this investor is considering brownfield investments outside of California.

About the Author: Matt Winefield, MS, MBA, PE, is a brownfield property investor who began his career in the late 1980s as an environmental engineer. Before buying contaminated properties, Matt worked for Chevron as a remediation manager, and later formed an environmental consultancy, which he sold in 2013.