The Obama administration's recently enacted stimulus package seeks, among other things, to promote national economic revival through investment in projects intended to improve or protect the environment. Key examples of this focus include provisions supporting development of renewable energy generation, revitalization of contaminated brownfields, and upgrade and restoration of public sewage treatment systems. Other projects, such as roads and bridges, do not themselves focus on the environment, but raise issues under the environmental laws.

Some of these projects will turn out to be controversial. Opponents will look for opportunities to block the new development. Since the 1970s, the environmental laws have provided those opportunities. Moreover, the American Recovery and Reinvestment Act (ARRA) explicitly calls on federal agencies to use a minimalist approach to environmental reviews, pushing money as quickly as possible into a fiscal stimulus. Accordingly, the proponents of a project will find themselves defending important federal decisions based upon a record that may not be what would have been developed in less exigent circumstances.

Those proponents have to convince courts that what has been done to consider the environmental implications of a project is good enough. Moreover, the proponents often will have to persuade courts that they should not enjoin projects while litigation proceeds.

Prudent public agencies and private-project developers and participants will take pains to produce a credible record demonstrating a project's compliance with environmental requirements, even in the face of pressures to move work forward speedily to capitalize on dedicated public funding. The credibility of that record need not turn on how long the project proponents took to develop it, but instead on how serious they were in doing so. In the long run, serious efforts will help ensure not only that the project can obtain necessary environmental approvals to proceed, but that it can be defended and continue to proceed toward completion in the face of litigation in which project opponents use environmental claims as grounds for objection.

I. Environmental Programs Supported by the Stimulus Package

The ARRA stimulus package includes a number of provisions specifically intended to promote environmental objectives. Some examples of key provisions are detailed below.

1. Public wastewater/water system construction grants/loans

A sum of $6 billion is directed towards the Clean Water State Revolving Fund and the Drinking Water State Revolving Fund for capitalization grants and loans to help communities with water quality, wastewater, and drinking water infrastructure needs. Much of this money is likely to be directed toward restoring aging municipal sewage treatment and combined sewer systems. The ARRA dedicates an additional $1.38 billion to support $3.8 billion in loans and grants for needed water and waste-disposal facilities in rural areas.

2. Remediation program funding

The ARRA directs approximately $6 billion towards environmental cleanup of former federal weapons production and energy research sites. An additional $900 million has been set aside for the Environmental Protection Agency's (EPA) nationwide environmental cleanup programs, including $600 million for the cleanup of hazardous waste sites through the federal Superfund program, $200 million for cleanup of petroleum leaks from underground storage tanks, and $100 million for competitive grants to evaluate and clean up former industrial and commercial sites for reuse.

3. Green energy support

In addition to various tax incentives for measures supporting renewable energy and energy efficiency, the legislation provides increased funding and outright grants to spur renewable energy projects, including:

  • $6 billion for the rapid deployment of renewable energy generation and transmission projects through the U.S. Department of Energy's (DOE) Innovative Technology and Loan Guarantee Program, which supports commercial use of advanced technologies to avoid and lower air pollutants and greenhouse gases.

  • $3.1 billion for the DOE's State Energy Program, which provides grants and funding to state energy offices for energy efficiency and renewable energy programs, conditioned on states' assurances regarding regulatory policies, building code requirements, and the prioritization of existing state programs.

  • $1.6 billion for clean renewable energy bonds that finance wind, solar, closed-loop and open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, marine renewable, and trash combustion facilities. One-third of the funding goes to state/local/tribal governments, one-third to utilities; and one-third to electric cooperatives.

  • $4.5 billion for research and development, pilot projects, and federal matching funds for the Smart Grid Investment Program to modernize the electricity grid.

  • Grants of up to 30 percent of the cost of building a new renewable energy facility.

  • Significant investments in research and development activities relating to renewable energy and energy efficiency. The DOE is reportedly allocating $1.5 billion for carbon capture and efficiency improvement project grants and $70 million for geology research for carbon sequestration.

Green building support:  The stimulus bill designates $4.5 billion to help transform functioning federal government facilities into "high-performance green buildings." Another $5 billion is directed to the Weatherization Assistance Program, which provides assistance to improve the energy efficiency of modest-income homes through upgrading insulation, heating and cooling systems, air filters, and windows.

II. Environmental Requirements Governing the Commencement and Eligibility of Stimulus Bill Projects and Providing Opportunities for Opposing Litigation

While the ARRA includes the above provisions and mechanisms designed to promote environmental objectives, existing environmental requirements are likely to impact projects that the ARRA is designed to promote, even projects not environmentally oriented.  The National Environmental Policy Act (NEPA), the Endangered Species Act (ESA), and the National Historic Preservation Act (NHPA) are examples of key federal statutes that may impose additional up-front review requirements or constraints on development projects promoted by the ARRA. The potential breadth of the process requirement imposed by these statutes also provides opportunities for project opponents to pursue litigation designed to derail projects, either through success on the merits or simply through delay while a case is pending.

Reviews under these statutes often can be conducted in coordination with each other.  Other environmental laws also can come into play to impose construction permit or contamination evaluation requirements for a proposed ARRA-supported project.

1. The National Environmental Policy Act

As a general matter, NEPA requires federal agencies to evaluate the projected environmental impacts of their proposed actions before undertaking them. "Federal actions" include development or infrastructure projects initiated or undertaken by the federal government. However, allocating federal funds to projects undertaken by private developers, through a grant or loan, or issuing a federal permit to authorize private activity also can be "federal actions" that trigger NEPA review. Thus, projects that receive funding authorized by the ARRA may implicate NEPA and may require detailed study of the environmental impacts before the project may proceed. Tax breaks, however, typically are not "actions" by a federal agency that trigger NEPA. Thus, if tax incentives rather than government funding stimulate a project, the project may avoid NEPA review requirements unless another aspect of the project triggers the statute.

NEPA requires federal agencies to prepare a "detailed statement" regarding all "major federal actions significantly affecting the quality of the human environment." (Emphasis added.)  This statement, known as an Environmental Impact Statement (EIS), must describe, among other things, (1) the "environmental impact of the proposed action,” (2) "any adverse environmental effects which cannot be avoided should the proposal be implemented," and (3) "alternatives to the proposed action." NEPA does not require a federal actor to choose the alternative with the least environmental harm. Rather, the EIS must accurately catalog a project's anticipated environmental impacts and consider mitigation of those impacts to the extent possible so that the EIS "provide[s] full and fair discussion of significant environmental impacts and …. inform[s] decision makers and the public of the reasonable alternatives which would avoid or minimize adverse impacts or enhance the quality of the human environment."

Frequently, an agency's regulations will allow for NEPA review to begin with the preparation of an environmental assessment (EA) to evaluate whether the environmental impact of a federal action will be significant. If an agency concludes through the EA that its action will not produce significant environmental impact, it prepares a finding of no significant impact (FONSI). In that case, an EIS is not necessary and NEPA review is complete. However, if the EA concludes that that action will have a significant impact, the agency will proceed to conduct an EIS. While the ultimate obligation to issue an EA/FONSI or EIS rests with the federal agency taking the action in question, the proponent of a project benefiting from the federal action sometimes will take the lead in conducting the environmental review and submitting that review to the federal agency for approval and adoption.

Typically, preparing an EA takes less time than an EIS.  For example, an EA might take six to nine months, even less, to prepare. An EIS might take 12 to 18 months to complete. Either way, the environmental documents generally are subject to public notice and comment and agency consideration of comments.  Moreover, an agency's decision to prepare an EA instead of an EIS can be subject to judicial challenge.

When an action has both federal and nonfederal components, NEPA is silent as to the scope of analysis a federal agency must perform in determining whether the "action" significantly affects the quality of the human environment. For example, a dredge and fill permit from the Army Corps of Engineers may be for just one aspect of a larger waterfront project. The federal permit triggers NEPA, but the statute does not expressly define whether the environmental review must consider the entire waterfront project or just the environmental impacts that flow from the dredging and fill work being permitted. Some agencies have developed regulations designed, in part, to set out guidelines for the scope of environmental review when federal action is one part of a larger nonfederal project.

Not all federal actions are subject to NEPA. NEPA regulations allow a federal agency to "categorically exclude" from NEPA review categories of actions  the agency has determined do not individually or cumulatively have a significant effect on the quality of the human environment. Categorical exclusions might apply automatically to a type of action or might apply through a case-specific determination. Also, some federal actions taken under the Clean Water Act and Clean Air Act are exempted by statute from NEPA review requirements.  However, in passing the ARRA, Congress decided not to exempt from NEPA review requirements those federal funding activities authorized by the ARRA. The Senate considered and rejected an amendment by Senator John Barrasso (R-WY) to require NEPA reviews for stimulus projects to be completed no later than 270 days after the ARRA was signed into law. Instead, the ARRA includes an amendment offered by Senator Barbara Boxer (D-CA) to require sufficient resources in the stimulus package to ensure that NEPA reviews "are completed on an expeditious basis and that the shortest existing applicable process" under NEPA be used.

In theory, then, one might assume that the ARRA would encourage agencies to apply a categorical exclusion or issue an EA and a FONSI, rather than undertake an EIS in its NEPA review. EAs typically are substantially shorter documents than EISs and take less time to prepare. But in practice, the ARRA generally should not alter an agency’s decision to issue an EA rather than an EIS because NEPA requirements for when an EIS is necessary remain unchanged. Thus, if an agency issues an EA rather than an EIS, a project opponent may decide as part of a court challenge to claim that the project will have a substantial impact on the quality of the human environment and should have been subject to EIS review.

2. The Endangered Species Act

Projects initiated in response to the ARRA also may implicate two provisions of the ESA. First, the ESA requires a federal agency that funds, authorizes, or carries out an action to ensure that the action is not likely to jeopardize the continued existence of any endangered or threatened species or result in the destruction or adverse modification of habitat of such species. The ESA and implementing regulations provide a mechanism of agency cooperation and consultation to meet this requirement. When a federal agency determines that an action may affect listed species or critical habitat, it must consult with the scientific agency that has responsibility for protecting the endangered or threatened species – either the U.S. Fish and Wildlife Service or the National Marine Fisheries Service (referred to interchangeably as the "Service").  In response, the Service issues a biological opinion, which sets out whether or not the action will jeopardize listed species or critical habitat.  If the action will result in jeopardy, then the federal agency may undertake its action only if reasonable and prudent measures delineated in the biological opinion can eliminate the jeopardy.

The ESA also prohibits the "taking" of any member of an endangered or threatened species. This prohibition applies to both federal actors and non-federal actors, including private developers. "Taking" includes harm to a species and may include significant habitat modification or degradation. If a federal agency intends to undertake an action that will result in a "take" of a member of a listed species, the Service may authorize the limited take through an incidental take statement included in the biological opinion, so long as the taking will not jeopardize the listed species. An incidental take statement will establish the conditions under which the harm is authorized and will set reasonable and prudent measures to minimize impacts. If private activity will result in a “take,” then the activity may not go forward unless the actor obtains an incidental take permit from the Service to authorize the "take." These permits typically are difficult to obtain, are subject to legal challenge, and may not be issued if the taking will jeopardize the species.

3. The National Historic Preservation Act

Like NEPA and the ESA, the NHPA may apply to federal agency actions relating to projects stemming from the ARRA. Section 106 of the NHPA requires that a federal agency, before financially assisting an undertaking or issuing a license, take into account the effects of a federal or federally licensed undertaking on any property that is included in or eligible for inclusion in the National Register of Historic Places. The federal agency must provide the Advisory Council on Historic Preservation (ACHP) an opportunity to comment on any such federal undertakings. This requirement often is referred to as Section 106 consultation.

As for the ESA consultation process, federal regulations set out the process for Section 106 consultation. First, the action agency official determines whether the proposed federal action is an undertaking as defined by the regulations and, if so, "whether it is a type of activity that has the potential to cause effects on historic properties." A historic property is a "prehistoric or historic district, site, building, structure, or object included in or eligible for inclusion in, the National Register of Historic Places maintained by the Secretary of the Interior."  The federal agency must consult with appropriate federal, state, local, and tribal officials (including State Historic Preservation Officers) and members of the public to ascertain and to mitigate the effects of an action on historic sites. The federal undertaking may proceed if the activity "does not have the potential to cause effects on historic properties, assuming such historic properties were present."  But if the federal undertaking may affect historic properties and the consultation process does not resolve how best to avoid those effects, the ACHP may advise the agency on how to proceed.

4. Environmental Permitting Requirements

Proposed projects supported by the ARRA also may implicate other existing federal, state, and local permitting or approval requirements. For example, a project that involves construction in a waterway or wetlands may require a permit from the Army Corps of Engineers under section 404 of the Clean Water Act. Those projects also may trigger state permitting requirements. In Pennsylvania, for example, construction in a waterway or wetlands might require a permit under the Pennsylvania Dam Safety and Encroachments Act, the Pennsylvania Flood Plain Management Act, or the Pennsylvania Clean Streams Law. Moreover, construction projects may require state approvals for stormwater management or erosion and sedimentation controls, pursuant to the Clean Water Act or relevant state statutes.

5. Assessment of and Response to Pre-Existing Contamination

Some projects supported by the ARRA may also entail acquiring or transferring ownership, occupancy, or security interests in real property. These transactions may implicate many environmental concerns, and chief among them is the potential for pre-existing contamination at the property. The federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and analogous state laws make a property owner or occupant potentially liable for releases or threatened releases of hazardous substances, even if the release or threatened release pre-dated one’s ownership. A prospective owner/occupant likely will want to understand the environmental condition of the property and to evaluate the potential liability exposure to CERCLA or other statutes before consummating a purchase.  The EPA's "Standards for Conducting All Appropriate Inquiries" (the AAI Rule) sets out the minimum investigation necessary to take advantage of certain defenses to future liability under CERCLA, as provided by that statute. For example, the AAI Rule requires an investigation by a qualified environmental professional that includes interviews of past and present owners, a visual inspection of the property, government records searches, and analysis of data gaps. The AAI Rule sets out time periods respective to closing during which aspects of the investigation must be completed to be valid. If the site investigation reveals evidence of releases or threatened releases or other environmental concerns, additional investigation and remediation may be necessary, pursuant to state or federal law or to provide the comfort that parties to the transaction decide they need to proceed.

III. Implications That Traditional Environmental Requirements Hold for Stimulus-Supported Projects

1. What is the ARRA's "Shortest Existing Applicable Process"?

As the preceding discussion illustrates, a number of projects supported by federal agency stimulus under the ARRA will need to jump through a variety of environmental hoops to receive necessary authorizations and undergo the appropriate environmental planning to proceed. Affected projects could include those with particular environmental enhancement objectives, such as renewable energy generation or transmission projects, sewer line upgrades, or building weatherization, as well as  those without, such as highway, transportation, or Internet broadband projects.

The stimulus program's objectives pose an inherent tension between completing this environmental preparation work in a credible manner and moving ahead with the project expeditiously. The ARRA focuses its funding on "shovel ready" projects so as to accelerate its hoped-for impact on jobs and the national recession. A number of federal agencies therefore are concentrating their attention on projects whose environmental preparations already are complete or near complete. Practical experience in working with federal agencies, however, suggests a number of points meriting consideration in determining whether an ARRA-supported project is ready to proceed from an environmental perspective.

A. Environmental Permits, Approvals, and Other Clearances

Regulatory permits for matters such as pollutant discharges, filling wetlands, and managing storm water during construction are required legally and clearly must be obtained before a project can begin its shovel work. The pre-existing environmental condition of the project's property may present less definitive circumstances. Though not a legal requirement, per se, standard practice calls for preparation of a Phase I environmental report (possibly supplemented to cover matters such as the presence of wetlands or hazardous materials in buildings) to identify possible environmental risks before beginning site work or even assuming occupancy at a property. Opinions may differ among project participants (e.g., the federal agency, the project developer, participating lenders) as to whether a Phase I report reveals any issues requiring further investigation or cleanup action, or whether sufficient follow-up investigation or remediation has been completed. These parties clearly will have to reach agreement on whether the relevant property is environmentally ready before a project can be treated as "shovel ready."

B. Sufficiency of the Project Impact Studies

Of course, the NEPA, ESA, and NHPA reviews of the proposed project's impact must evaluate various environmental and historical criteria (and possibly impose certain mitigation measures) to satisfy regulatory requirements to qualify as being complete. Less obvious, perhaps, are new, specific areas of environmental concern, which these reviews may have to consider as environmental science evolves. For example, only recently have federal agency environmental impact reviews begun to consider a project's possible contributions to greenhouse gas emissions. Will a project opponent claim that a NEPA review relating to federal funding of a highway project should include consideration of the possible greenhouse gas contributions from increased traffic exhaust on a new or improved roadway? Will an opponent advocate that the design for a commercial office renovation does not conform to the proper standards to qualify as a "green building"? It may be easier to conduct a broader evaluation at the outset of a project, rather than risk being ordered to interrupt a project already in motion to supplement or reconsider the environmental evaluation. Should an evaluation that does not address greenhouse gases be revisited if the project needs a near-term green light to qualify for ARRA funds? A quick but informed evaluation of the pros and cons specific to those circumstances of proceeding versus supplementing the environmental evaluations could be helpful.

C. Sufficiency of Public Participation

To qualify as complete and fully defensible, a NEPA, ESA, or NHPA evaluation must be sufficient procedurally as well as substantively. Indeed, an agency evaluation may be more susceptible to subsequent challenge for a procedural deficiency, which in some contexts can be more objectively demonstrated, than to a challenge to a substantive determination of acceptable environmental impact, which by law is very difficult to second guess. For example, federal agencies often have relatively flexible rules for providing for public notice and opportunity to comment on a project's impact, but time must be budgeted for providing that opportunity, and short-cuts (even with "shovel ready" deadlines looming) may lead to a procedural challenge. Furthermore, the record supporting the impact evaluation is strongest when it shows how the final determination considered each significant public comment, particularly if that comment was not accepted.

D. Agency Diligence in Conducting or Approving Impact Reviews

Experience demonstrates that some federal agencies are more experienced or diligent than others in discharging their responsibilities for impact reviews, whether they are performing the reviews themselves, or adopting and approving reviews performed by other participating parties. Prudent participants will pay mind to whether, for example, the agency has documented substantive conclusions and responses to public comments in reviews conducted by the agency or has included information in the record indicating that it applied some identifiable thought before adopting the conclusions of impact evaluations performed by project participants.  Real-life experiences in which an agency has failed to evaluate identified, relevant environmental studies, or has even failed to complete standard agency forms embodying the conclusions of a NEPA review, are best avoided.

2. Are the Environmental Reviews Defensible as Well as Approvable?

Of course, the sufficiency of these environmental impact evaluations fundamentally turns on whether the participating federal agency, either based on its own work or the work of a project participant, is convinced that the evaluation has properly considered the merits of a proposed project from an environmental or historic resources standpoint. That should not be the only concern of a project proponent, however, because these federal agency determinations are subject to further appeal and review.

More specifically, a federal agency's NEPA, NHPA, or ESA determination typically can be appealed to federal district court because, for example, it failed to follow proper procedures or because there is no evidence in the record supporting the agency's final decision. Such an appeal typically must come from a party affected by the project's impact rather than, for example, a disappointed project bidder or philosophical opponent. The appeal could explore any number of claims relating to how the federal agency exercised its judgment in evaluating known or possible impacts on environmental or historic resources as part of a project opponent's effort to impede progress on the opposed project.

From a legal standpoint, the filing of such an appeal does not, per se, mean the project (or the federal agency role) has to stop while the appeal is resolved. Arguably, it will be outside the scope of a NEPA, an ESA or an NHPA appeal to obtain a court order enjoining the entire project pending an appeal; however, an opponent might seek an order to enjoin the federal participation in the project, such as through issuance of a permit or grant, until an alleged deficiency in the environmental review and project design are corrected. To prevail on a motion for such an injunction, the project opponent would largely have to meet the substantial burden of proving that its case would likely succeed on the merits, meaning that the agency had no substantial evidence to support its impact determinations.

Whether the prospect of an appeal would have any effect on the thoroughness of an impact analysis already initially undertaken by the participating agency or project proponent could turn on several factors. Are the impact findings and supporting evidence documented thoroughly enough? Have project opponents taken an active role in providing objections in the project as a part of public comment? Will all project participants, including lenders, be prepared to proceed even while the litigation is pending? Answers to these questions can help project participants judge whether the project could withstand an appeal if participants decided to forego more thorough evaluation in the interest of commencing in time to qualify for ARRA support.

A federal agency also may have the option of curing any NEPA/ESA/NHPA deficiencies raised in litigation while the litigation is pending. For example, a new round of public comment could be provided, or more recent impact studies could be evaluated and those conclusions documented in supplemental agency determinations. Because NEPA and its statutory brethren are basically procedural statutes, those procedural deficiencies may very well be fixable in parallel with litigation proceedings to meet some or all claims even before the district court reaches those problematic claims on the merits.

IV. Conclusion: Protecting Against Litigation, as Well as Ensuring Compliance

There will be an inherent tension between  moving an otherwise eligible project forward to qualify for and receive ARRA financing and ensuring that the project has been sufficiently analyzed and designed, with respect to its environmental and/or historic resource implications, to meet both legal and prudential considerations. From a legal perspective, sufficient analysis and design will be determined not only by participating federal agencies, who will be facing pressures to declare projects sufficiently ready to proceed, but by federal courts called on to apply traditional standards of environmental law in reviewing the propriety of decisions by these agencies to proceed under these nontraditional circumstances.

Both federal agencies and ARRA-financed project participants will need to be mindful of this inherent tension in deciding, from an environmental perspective, when projects are ready to proceed. These parties will need to exercise case-by-case judgment about when the record of necessary environmental analysis is sufficient for the project to succeed by balancing considerations such as the immediacy of ARRA-based deadlines, the presence of environmental considerations that could be amenable to further analysis or public participation, the likelihood of third-party opposition lending to litigation, and even the prospects of buttressing the supporting environmental record while the project begins moving forward. The ultimate success of an infrastructure or renewable energy project benefiting from stimulus package financing may very well turn on how successfully the project participants exercise this case-by-case judgment.


Copyright © 2009 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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This newsletter is a periodic publication of Ballard Spahr LLP and is intended to alert the recipients to new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and specific legal questions you have.