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Memo - Justus Lumber Property-Enviromental Investigation . . . Administrative Services Department Office of the City Manager Memorandum To: From: Date: Subject: Honorable Mayor and Members of the City Council Steven C. Mielke, City Manager March 9, 2001 Justus Lumber Property-Environmental Investigation For a period of time, the staff has been in discussions with the owners of Justus Lumber concerning the environmental conditions at the Justus Lumber site. The purpose of the discussion at the Work Session is to update the City Council on the current status of discussions between Justus Lumber and the city, and to obtain consent from the Council to continue researching alternatives into an investigation of the property. Backaround Over the past year or so, staff has learned of two potential pollution issues on the Justus property. Bl!t prior to describing those, it must be understood that the majority of the Justus property was at one point occupied by a manufactured gas plant, and subsequently by a municipal solid waste landfill operated by the city. After those uses had concluded, the city sold the property to Justus Lumber for the current use. There are two primary issues of environmental concern that are being discussed, a dilapidated storm sewer pipe on a city easement that is draining into Nine Mile Creek with a low level of pollutants, and a potential pollution source due to the previous manufactured gas plant coal tar residues. Storm Sewer Pipe The storm sewer pipe is in a condition where the city has not been able to fully examine the pipe. It is an old corrugated metal pipe that has deteriorated and collapsed to such a point that it is beyond repair. There appears to be perched water surrounding the pipe with subsurface drainage flowing out of the pipe and into Nine Mile Creek. The staff and Justus Lumber both agree that the appropriate solution is to abandon the existing pipe and easement, and to reconstruct the private sewer connections to a new storm sewer pipe constructed with the Excelsior Boulevard project. Justus Lumber is working with a consulting firm to determine the cost of such a relocation. Under normal city policy, the abandonment of pipes such as these would be a city cost with . . . reconnections from their current position to the new pipe being a city-borne expense. It is hoped that this project can be constructed in 2001. Manufactured Gas Plant The manufactured gas plant investigation is a much more costly and complicated venture. The coal tar residue was found under the site while Justus Lumber was doing some investigatory work necessary for financing purposes of their property. With the finding of this residue, it is likely that the Minnesota Pollution Control Agency would require an investigation of the property to determine if there are environmental impacts associated with this finding. Should there be impacts, it could lead to a remediation project. I have attached two documents for the Council's review. The first is a proposed Phase II investigation of the former manufactured gas plant site by Bob Kaiser of American Engineering and Testing (AET). I have also attached a letter from Mr. Jon ScoII, of Linquist and Venum, outlining potential revenue sources to carry out the Phase II investigation. In the simplest terms, it would appear that an investigation is a necessary response. At the outside, this investigation could cost $250,000. Prior to proceeding, staff would recommend that we obtain additional comments and opinions regarding the best way to proceed. Secondly, staff would suggest that revenue sources for the investigation and potential remediation be identified prior to beginning. The Justus property owners, Jim Justus and Peter Throdahl will be in attendance at the meeting. They wish to keep the property a viable site for future owners and uses. In order to do so, the site will need to be identified and investigated for possible business disruptions and remedial actions, if any are necessary. Staff will provide additional background at the Work Session. Mayorccjususlumberenvironment . . . Former Manufactured Gas Plant Hopkins, Minnesota Phase II Investigation Scope of Work The subject property, located in Hopkins, Minnesota, is bounded by 11 th Avenue South on the east, Nine Mile Creek on the west, Excelsior Boulevard (COlmty Road No.3) on the north, and railroad tracks on the south. The site was occupied by a manufactured gas plant from the turn of the century to sometime in the late 1920's or 1930's. After the gas plant was sold, the site was used as a Public Works Department storage area and at least in pali a solid waste landfill in the 1960's. The site is presently the location of the Justus Lumber Company and a gas station. This scope of work is designed to evaluate the former manufactured gas plant only. The information developed will be helpful in evaluating the impacts ofthe landfill also but a full assessment of the former manufactured gas plant al1d the lal1dfill would require a more extensive evaluation. Also, this scope of work is the initial evaluation of the former manufactured gas plant site. Further investigations may be necessary before a response action plan can be prepared. It is assumed that prior to proceeding with any investigation, the site would be enrolled into the Minnesota Pollution Control Agency (MPCA) Voluntary Investigation and Cleanup (VI C) Program. Scope of Work . Prepare a Work Plan pUrsuant to the VIC Program for submission to the MPCAfor approval. . Prepare a Site Safety Plan. . Advance 18 hollow stem auger, standard penetration borings to a depth of 35 feet below grade. Theborings will be located in and around the area of the former manufactured gas plant site, which is generally the location of the present Justus Lumber building and to the north of the building. Most of these borings will be located in the area formerly occupied by the landfill and will likely encounter landfill debris and methane gas. Soil samples will be collected at two foot intervals from 5 feet below grade to 35 feet below grade. Soil samples will be field screened for volatile organics with a photo-ionization detector (PID). One soil sample will be collected every 5 feet, from 5 feet to 35 feet, for Diesel Range Organics (DRO) analysis. In addition, three samples per boring will be collected for volatile organic compounds (VOC's), semi-volatile organic compounds (SVOC's), RCRA metals, and cyanide. These samples will generally be collected at the fill/natural soil interface, the endofthe boring (33 to 35 feet), and one other location based on field observations and screening results. . . Complete six of the above described borings as water table monitoring wells in accordance with the Minnesota Department of Health (MDH) Well Code and develop these wells. These wells will be constructed with 10 foot PVC screens and PVC riser pipe to intersect the water table at about 20 feet below grade. . Install and develop three monitoring wells designed to monitor the ground water at an interval of 45 to 50 feet below grade. Due to the potential contaminant sources in the area (landfill and former manufactured gas plant) these wells will be constructed with a double casing. The oversized steel casing will be installed to a depth of 3 5 feet below grade. This casing is designed to prevent cross contamination when installing the monitoring well and will be sealed to prevent the creation of a pathway for vertical migration of contamination. After the casing is set, the boring will be continued using hollow stem, standard penetration boring techniques from 35 to 50 feet below grade. Soil samples will be field screened with a PID. Soil samples will be collected every 5 feet for DRO analysis and one additional soil sample per boring will be collected for VOC, SY~C, RCRA metals, and cyanide analysis. These three borings will be completed as monitoring wells utilizing stainless steel screens and black steel riser pipe. One of these wells will be located near the present monitoring well MW - H. The other two will be co-located near two of the water table monitoring wells described above. . Soil cuttings and drilling mud generated by soil borings will be containerized and disposed at a sanitary landfill. Water from developing and purging the wells will be containerized for disposal in the sanitary sevver, . · Two rounds of groundwater sampling will be collected from the twelve monitoring wells which include: the three existing water table weHs,the six new water table wells and the three fifty-foot monitoring wells. Sampling will be conducted according to MPCA's low flow sampling techniques. The first round of sampling will include analysis for VOC's, SVOC's(8270), RCRA metals, and cyanide. The second round of samples will also be analyzed for the above described parameters however, the second round samples may be analyzed using more sensitive methods such as; MDH rv1ethod 465 for VOC's and 8270 SIM for selected SVOC's if, after evaluating the first round results, the more sensitive methods are deemed appropriate. Depth to groundwater measurements will be conducted at each sampling event to allow evaluation of groundwater flow direction in both the vertical and horizontal directions. · Two rounds of surface water sampling will be conducted from Nine Mile Creek. The sampling locations will include: an upstream location, near the south end of the box culvert at County Road No.3; at a downstream location, near the southern property line; and the storm sewer outlet (if there is flow in the storm sewer). Creek and storm sewer samples will be analyzed for VOC's and SVOC's (8270). Second rOlmd creek sample SVOC analyses may be performed by Method 8270 SIM, if appropriate. . . A written report will be prepared upon completion offield work and chemical analysis. The Remedial Investigation Report will include logs of soil borings, monitoring well construction . . . details, results of soil screening and chemical analyses, cross sections, and opinions/recommendations regarding further environmental work/remediation, as necessary, As this is an initial investigation, the above scope of work will likely generate additional questions and issues requiring further assessment in order to allow an understanding of the environmental impacts of the former manufactured gas plant. The following is a list of some of the additional investigations that may be recommended: . Additional ground water monitoring wells including; water table wells, intermediate depth wells (50 feet deep), top of bedrock wells (screened at the soil bedrock interface at about 100 feet deep), and bedrock monitoring wells. · Additional monitoring well sampling rounds · Hydraulic conductivity tests and pumping tests to evaluate hydrogeologic conditions for ground water analysis, · Additional creek water sampling locations and evaluation of creek sediments. Additional soil borings to determine degree, extent, and depth of ' contamination. . Test pits to further characterize subsurface conditions. . 1. 2. 3. 4. 5. 6. . . Former Manufactured Gas Plant Hopkins, Minnesota Phase II Investigation Estimated Cost Preparation of Work Plan and Site Safety Plan. . . . . . . . . . . . . . . . . . . . . . . . . . .. $2,500 Soil Borings and Well Installation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $43,000 Soil Screening and Sampling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $6,800 Gromldwater and Surface Water Sampling. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $15,200 Analytical Chemistry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., $64,500 Report Preparation and Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., $15,000 Total .................................................... $147,000 Additional investigation will likely be necessary after completing the above scope of work. It is advised to budget an additional $100,000 to be used for such investigations. LINDQUIST & VENNUM P.L.L.P. . ATTORNEYSATLAW IN DENVER 4200 IDS CENTER liNDQUIST, VENNUM & CHRISTENSEN P.L.L.P. 80 SOUTH EIGHTH STREET 600 17TH STREET, SUITE 2125 MINNEAPOLIS, MINNESOTA 55402-2205 DENVER, COLORADO 80202-5401 TELEPHONE: 612-371-3211 TELEPHONE: 303-573-5900 Jonathan P. Scoll (612) 371-3546 jscoll@lindquist.com February 27, 2001 Steven Mielke City Manager City of Hopkins 1010 First Street South Hopkins, MN 55343 Re: Former Manufactured Gas Plant 3301 ph Avenue South Hopkins, MN Dear Mr. Mielke: . The following responds to your request for a discussion of the legal implications and financing options for contamination apparently associated with a manufactured gas plant ("MGP") on property located at 330 11th Avenue South in the City of Hopkins ("Justus Lumber Site"). This letter provides: (i) a brief synopsis of the ownership and operational history of the Justus Lumber Site; (ii) a summary of recent environmental investigations; (iii) an analysis of possible legal liability ofthe City; (iv) analysis ofthe use of indemnity or environmental insurance to address this problem and the feasibility of doing so; (v) a synopsis of available third party funding sources for investigation and cleanup; and (vi) suggestions regarding possible legislative assistance. 1. SITE HISTORY AND RECENT INVESTIGATIONS. . From approximately 1910 to 1930, a manufactured gas plant operated on the Justus Lumber Site. Manufactured gas is heating and illuminating gas produced from coal, through a process called "coal gasification." Prior to the exploitation of natural gas, and beginning around 1880, almost every good sized city in America had a manufactured gas plant. It is estimated that at the industry's peak, in the 1920s and 1930s, there were more than 10,000 such gas plants in operation in North America and Europe. By the 1940s, such plants began to be replaced by lower cost natural gas delivered over a network of pipelines, and by the 1950s, coal gasification had ceased. Closed MGP plants were typically demolished, frequently before the advent of modem environmental regulations. Doc# 1366045\1 . . . LINDQUIST & VENNUM P.L.L.P. Steve Mielke February 27,2001 Page 2 Byproducts of the gas manufacturing process that could not be recycled, sold or given away were often simply disposed of on-site or buried. The waste products found at such sites are typically tars, oils, inorganic spent oxides, benzene, toluene, ethyl benzene, and xylene; volatile organic compounds ("VOCs"); semi-volatile organic compounds ("SVOCs"); phenolics; polynuclear aromatic hydrocarbons ("P AHs"); cyanides and metals. The primary waste constituent ofMGPs is coal tar, a dense, non-aqueous phase liquid ("DNAPL"), which, when present in soil, can migrate downward through groundwater until a low-permeability layer, such as clay or rock, is encountered. Thus, pools of coal tar can be encountered at the bottom of an aquifer, becoming a continuous source of ground water contamination. The toxicity ofMGP coal tars and residues is little understood and is a concern to environmental agencies, such as the MPCA. From what is known, the Hopkins MGP facility was a relatively modest operation. The extent of on-site disposal from the plant at this point is not certain, but does not appear to have been as extensive as disposal at other, higher profile, MGP sites throughout the State. (See discussion of other sites, under Section 7, "Legislation," below.) The facility was apparently constructed by the Village of West Minneapolis or Hopkins to supply gas to customers. The gas piping system from the plant was entirely local and not connected to the larger and more extensive gas piping systems of the City of Minneapolis. Real estate records show the underlying title to the plant site as of May 8, 1918, vested in the Village of West Minneapolis. On August 14, 1929, title was transferred to the Minneapolis Suburban Gas Company, and on November 30, 1935, to the Minneapolis Gas Light Company. We assume the Village is the corporate predecessor of the City of Hopkins and that Minnegasco is the corporate successor to these companies, but have not done the actual research required into the corporate history involved. Available records indicate that the Minneapolis Suburban Gas Company decommissioned the plant soon after acquisition and tore it down. The gas utility connected the Hopkins gas network to the mains of the Minneapolis network. After a series of intermediate transfers (e.g., a transfer on April 29, 1949, to the Minneapolis Moline Company, and a subsequent transfer by that company to a James Lawrence), the City of Hopkins again acquired the site in November, 1964. From available evidence, it appears at various times to have been used for sewage treatment as well as a storage/ maintenance facility for the Hopkins Public Works Department. It was acquired in September of 1970 by Justus Lumber from the City of Hopkins. Doc# 1366045\1 . . . LINDQUIST & VENNUM P.L.L.P. Steve Mielke February 27,2001 Page 3 2. RECENT ENVIRONMENTAL INVESTIGATIONS. There have been several environmental investigations ofthe Justus Lumber Site in recent years. The site was studied by Braun Intertec, which prepared a Site History Review for the City of Hopkins, dated June 12, 1991. Braun also performed an Environmental Subsurface Investigation for the City and Justus Lumber Company, dated April 2, 1992. In connection with the development ofthe Holiday Stationstore, American Engineering Testing performed a geotechnical investigation, dated May 4, 1992. Braun Intertec prepared a site investigation of waste deposits on the site for the City, Site Investigation Plan - Hopkins Municipal Waste Disposal Site, January 15, 1992. These various investigations have identified other environmental issues affecting the site, such as the use of portions of it for municipal waste disposal, and for a sewage treatment tank or pond, as well as discharge from a storm sewer culvert into Nine Mile Creek, and discharge of chlorinated solvents with a suspected off-site source observed at Nine Mile Creek. This letter does not address those other issues. The MGP plant came to light through a Phase I environmental investigation by Wenck Associates in September, 2000, which included analysis ofa 1937 photograph. Following this Phase I assessment, Wenck performed a limited subsurface investigation of the suspected area of the MGP facility. On September 25,2000, a series of borings at various depths was carried out, several of which encountered tar residue at approximately 22 to 23 feet below ground surface. Analysis ofthe residues indicated constituents associated with an MGP. The City has since retained American Engineering Testing ("AET") to prepare a formal investigative work plan and advise it on appropriate technical and regulatory procedures. AET has had experience with large scale MGP plants in Rochester, Minnesota, and elsewhere. In January, 2001, AET submitted to the City a proposed "Phase II Investigation - Scope of Work" outlining an investigative regime to fully assess and characterize the contamination resulting from the MGP plant and possible impacts therefrom. The AET work plan is necessarily tentative, since additional discovery in the course of the investigation may warrant further investigations in turn. The plan proposed entails eighteen borings to a depth of35 feet below grade to collect soil samples; six ofthese borings would be completed as ground water monitoring wells, and, in addition, three deep ground water monitoring wells would be installed at intervals of 45 to 50 feet below grade. The installation and sampling of the wells, as well as laboratory and analytical work, report preparation, etc., are estimated to cost between $147,000 and $247,000. The actual cleanup cost Doc# 1366045\1 LINDQUIST & VENNUM P.L.L.P. . Steve Mielke February 27,2001 Page 4 of the contamination itself cannot be estimated reliably at this time. AET may be able to supply some "order of magnitude" figures, based on its prior experience. The City has met with James Justus, a principal of Justus Lumber, the current owner, to explore timing and potential funding sources for the site. At the moment, Mr. Justus' own timetable appears to have some flexibility, and it appears that the VIC program enrollment does not create an immediate regulatory compulsion to address the situation. Mr. Justus has, however, indicated that at some point in the future, he will need to address the matter, if only in the context of a required mortgage refinancing. There is, therefore, a degree of latitude available to the City, both in the short term and on a longer time scale, to responsibly address the issue. 3. LIABILITY OF CITY AS OWNER! OPERATOR OF MGP PLANT. . It appears that the City, as the owner and operator of the MGP, qualifies as a "person who is responsible for a release or threatened release of a hazardous substance" on land arid could be strictly liable, jointly and severally, under the Minnesota Environmental Response and Liability Act ("MERLA"), Minnesota Statutes, Chapter 115B, for "response costs" incurred by the MPCA, as well as "reasonable and necessary removal costs" incurred by anyone, as well as damage to natural resources. Minn. Stat. ~ 115B.04, Subd. 1. In addition, the City may also be liable for economic loss, death, personal injury or disease suffered by private parties. Minn. Stat. ~ 115B.05, Subd. 1. There are two possible limitations on the liability of the City in this instance. The first arises under MERLA itself. Minn. Stat. ~ 115B.04, Subd. 6 provides that it is a "defense to a claim by a political subdivision or private person for recovery of the cost of its response actions * * * that the hazardous substance released from the facility was placed or came to be located in or on the facility before April 1, 1982, and that the response actions of the political subdivision or private person were not authorized by the [MPCA] as provided in Section 115B.17, Subd. 12." In other words, for very old contamination, the "response actions" must be authorized by the Agency pursuant to its general authority and rulemaking power to prioritize the disposal site in question and place it on the State's permanent list of priorities, under Minn. Stat. ~ 115B.17, Subd. 13. We may assume that the Hopkins MGP site is not on this list. Two things need be noted about this "defense": it applies only vis-a-vis third parties, and not against the MPCA itself. It does not provide a defense to an involuntary enforcement action, should the MPCA initiate one. Moreover, the fact that the site is not now on the State's list of priorities does not mean it could not be placed thereon in the future by administrative rulemaking. . Doc# 1366045\1 LINDQUIST & VENNUM P.L.L.P. . Steve Mielke February 27,2001 Page 5 . The second defense is found under the State's Municipal Tort Claims Act. A political subdivision, such as the City, has a statutory "cap" on liability. Under Minn. Stat. S 466.04, Subd. 1 (1), the ordinary liability of a municipality is limited to $300,000 per claimant. However, in the present instance, Minn. Stat. S 466.04, Subd. 1(3) would provide for a $1,000,000 cap "for any number of claims arising out of a single occurrence" with respect to claims "arising on or after January 1,2000." It may be assumed that any claimants would urge that their "claim arose" after January 1,2000, notwithstanding the release ofthe contaminants decades earlier. The amount of the limitation in S 466.04, Subd. 1(3) is doubled "when the claim arises out ofthe release or threatened release of a hazardous substance, whether the claim is brought under Sections Il5B.Ol to 115B.15 or under any other law." Thus, the liability ofthe City is capped. with respect to this single MGP site at $2,000,000. (For purposes ofthis letter, the contamination is assumed to arise out of a single "occurrence," as the term is used in the statute. Cf. Wesling Manufacturing Co.. Inc. v. Western National Mutual Insurance Company, 581 N.W.2d 39 (Minn. App. 1998), in which a court characterized as a single "occurrence," the release of a "slug" of solvent into groundwater, for purposes of interpreting an insurance policy.) . The "universe" of persons to whom Hopkins might be liable include the present or any future owner ofthe site, the MPCA, in the event ofan involuntary (compulsory) remediation or cleanup ofthe site, and, at least theoretically, third parties, such as persons on adjoining property, claiming injury by e.g., contaminated ground water, etc. Each of these three potential claim areas involves separate analysis, both of the risks involved, from the environmental and engineering standpoint, and the application of the statutory provisions cited. The most probable claimant is Justus Lumber, the landowner itself. This person's injury is immediate and obvious. For example, a landowner seeking to sell or finance the property will find it materially difficult to do so with the threat and stigma of the MGP contamination. Thus, an owner, such as Justus, is in the most immediate position of leverage. Second in order of probability is the possibility of a state-enforced cleanup. The probability of this needs to be weighed in light of the size and profile of the site, the extremely limited enforcement resources ofthe MPCA, the current enrollment of the property by Justus in the MPCA's Voluntary Investigation and Cleanup (VIC) program, and other factors, all of which suggest that in the short and middle term, the possibility of an "involuntary" proceeding against the City to compel a cleanup can be safely categorized as low. . The greatest unknown is the potential for claims by private third parties, such as persons claiming injury to drinking water, citizens' suits alleging damages to natural resources, etc., as Doc# 1366045\1 . . . LINDQUIST & VENNUM P.L.L.P. Steve Mielke February 27,2001 Page 6 well as, possibly, Nine Mile Creek Watershed District (should leaching from the MGP contamination into Nine Mile Creek be shown). It would be premature to speculate on the probability of any such claims. The liability ofthe City, as described (and possibly limited) above, would extend to all three classes of claimants. As noted, the liability limitation of Minn. Stat. ~ 466.04, Subd. 1(4) applies "whether the claim is brought under the Minnesota Environmental Response and Liability Act [Chapter 115B, or MERLA] or under any other law." MERLA is not, strictly speaking, a tort statute, but rather an independent basis of strict liability similar to the federal Superfund. The reference to "any other law" can be read to exclude claims based on other theories besides MERLA. One obvious theory is nuisance. Minnesota has a long line of nuisance cases, which have found liability in nuisance for pollution of private landowners' water or land, without regard for, or even consideration. of, the defense of governmental immunity. There areolder case-law statements that nuisance is not even a matter of negligence or tort law at all. Johnson v. Citv of Fairmont, 188 Minn. 451, 247 N.W. 572 (1933). However, we believe that the more modem view, particularly since the enactment of Minn. Stat. ~ 466.04, Subd. 1, would be to include all theories ofliability, including strict liability and nuisance under the provisions of the Tort Claims Act. 4. ADDRESSING/ ELIMINATING POTENTIAL LIABILITY. There are a number of ways to limit or eliminate the potential liabilities associated with the investigation or physical remediation of the site. These include an indemnification and insurance, or a combination of the two. We believe that Hopkins, as a unit of government, has statutory power to agree to the delivery of an indemnity, although any formal opinion on the matter is a subject most properly addressed by the City Attorney. There have been a fair number of instances in which cities have agreed to indemnity arrangements in excess of what would otherwise have been the municipal "cap" on damages under the Municipal Tort Claims Act. For example, in the case ofKellev v. City ofSt. Paul, 285 N.W.2d 671 (Minn. 1979), the Minnesota Supreme Court held that the City of St. Paul could voluntarily agree to indemnify an employee for a tort judgment against him in excess of the statutory limits on municipal liability. Any indemnity would entail the following variables, which would have to be carefully negotiated with the prospective indemnitee: Doc# 1366045\1 . . . LINDQUIST & VENNUM P.L.L.P. Steve Mielke February 27,2001 Page 7 (a) The parties to be benefitted. For example, would the indemnity be assignable or pass to a subsequent purchaser from the original indemnitee? Would it cover a lender? (b) The time limit: an indemnity should expire by its terms after a fixed period (e.g., five years) and specifically provide that only claims received within the indemnity period would be covered. (c) What "damages" would the indemnification cover? As noted above, there are three potential classes of claimants, and the damages asserted by each could be different. Thus, the indemnity could be limited to defense of an MPCA enforcement action, but specifically exclude or limit private toxic torts or private claims for resource damages. In all events, the indemnity should permit the City to defend outside actions using its own counsel (rather than to reimburse the indemnitee's own defense expenditures, including attorneys). (d) What "deductible" should apply? That is, should the indemnitee be required to expend its own funds for the first (specified) dollar cost, with the indemnity covering exposures in excess of that amount? And, as a further cost control, a cost sharing on any indemnity funding should be considered, i.e., that the indemnity only cover a specific percentage of the indemnitee's exposure, thereby providing an incentive to the indemnified party for cost control. ( e) The indemnity should be considered in the context of any environmental insurance (see Section 5, below, on insurance). (f) Whose consultant will be used? Normally, the indemnitor, as the one "paying the piper," gets to select it. The indemnitee may want (and should have) a reasonable right of approval. (g) What constitutes complete performance, i.e., against what benchmark is the liability of the indemnitor measured? On the governmental enforcement side, it should be a "no-action! no-association" letter covering the constituents of concern (or, in the case of an enforcement action, a stipulation of settlement and covenant not to sue). On the private side (assuming the indemnity covers private toxic torts, or other civil liability), it would be the payment of a damage award and expenses oftrial and appeal. Doc# 1366045\1 . . . LINDQUIST & VENNUM P.L.L.P. Steve Mielke February 27, 2001 Page 8 5. INSURANCE. The purpose of insurance in this instance would be to provide an owner (and cover as many as possible successors) with coverage for claims by any third party for on-site or off-site property damage or bodily injury from the contamination, as well as third-party claims for off-site cleanup of any pre-existing conditions. Once a Certificate of Completion is obtained from the MPCA, additional coverages could be provided for cleanup of unknown, pre-existing conditions and for third party claims for on-site cleanup necessitated by future, more restrictive regulatory standards or regulations. Thus, an environmental insurance policy would relieve the owner of some of the risks associated with the current MGP contamination, but would not provide a source of funding per se. While additional coverage ("cleanup cap cost insurance") indemnifying for unexpected cleanup costs or overrun conditions is available, we have been advised by an independent insurance broker, VeNita Schnebele, of Acordia Insurance Brokers of Bloomington, Minnesota, that such a coverage is often expensive.and unnecessary. Information obtained from Ms. Schnebele indicates that premiums in the middle five-figure range would provide coverage for as long as ten years (see summary of Ms. Schnebele's information attached hereto as Appendix A). The coverage would be on a "claims made" basis, that is, a claim would have to be made within the policy period itself and not afterwards, as with "occurrence coverage." Ms. Schnebele has indicated that renewals are available and that at present, renewal options and renewal premiums are priced competitively, on the theory that once the contamination has been fully characterized, during the initial coverage, the insurer's risk is reduced. It is apparent that any insurance solution would be undertaken not as a substitute, but in conjunction with a resolution of the ultimate remedy of the site, and a complete settlement of all liability issues, including a complete release and covenant not to sue in favor ofthe City. It would be appropriate to consider an insurance solution only after the site is adequately characterized, remedial costs have been established, and complete sources of funding have been identified and! or committed. 6. SOURCES OF FUNDING FOR INVESTIGATION AND CLEANUP. Before any remedy can designed and implemented, the City should identify funding assistance needed for the investigation and characterization of the site, as well as, over a longer term, funds available to implement the remedy itself. In addition, funding should be explored for collateral Doc# 1366045\1 LINDQUIST & VENNUM P.L.L.P. . Steve Mielke February 27, 2001 Page 9 expenses, such as insurance premiums, consultant fees, attorney's fees and the like. The following is a general discussion of certain funding sources which we have identified: (a) State or Metropolitan Council Grants. In general, grant monies available through the Minnesota Department of Trade and Economic Development ("DTED") for environmental study/ remediation are not likely to be available unless and until a new development on the site is proposed, since the purpose of the DTED program grants is to spur new private redevelopment of contaminated commercial/ industrial property. Metropolitan Council funds, e.g., through the Tax Base Revitalization Account, are likewise keyed to creation of new tax base an~ jobs. . (b) Hennepin County. Hennepin County is, at present, the only realistically-available source of funds which could be tapped for the environmental tasks described in this letter. The County has a fund with a balance of approximately $6,000,000, derived from a surtax on the state mortgage registry and deed taxes, authorized by statute, Minn. Stat. SS 383B.80 and 383B.81. The legislation (copy attached as Appendix C) was initially targeted to the remediation of the National Lead site in St. Louis Park, but, in the opinion of senior Hennepin County staff, might possibly be available for other uses, including Hopkins. The County is in the process of formulating guidelines for the use of the funds, and an approach to the County, and possible participation in this rulemaking/ policy by the City might be helpful. Hennepin County has also applied to the U.S. Environmental Protection Agency ("EP A") for grant funds of approximately $150,000. If Excelsior turns out not to need the funding, so that its project does not go forward, and if a request by Hopkins does not create difficulties with a neighboring city, and EP A is still willing to fund, Hopkins might be substituted as grant recipient for that portion, likely to be in the order of $75,000 at most. . The County also has a "contaminated lands capital budget," containing several hundred thousand dollars, in its general fund. This fund is limited to sites that the County either owns or has had a "vested interest" in. As such, it would appear inapplicable, but there may in fact be a policy reason for extending it to the Justus Lumber Site. Hopkins and the County had a long relationship on the disposal of municipal and other wastes along Excelsior Boulevard. For example, in October of 1945, the County, as the owner of what is now the "Venturi an" site immediately west ofthe Justus Lumber Site, entered into an agreement with the City allowing the City to dispose municipal waste on this County-owned land. According to anecdotal evidence, and the earlier Braun Intertec studies, both the County and City may have used portions ofthe Venturian property, and very possibly the Justus Lumber Site itself, for waste disposal. This history, murky as it is, would provide an argument that the County would be Doc# 1366045\1 LINDQUIST & VENNUM P.L.L.P. . Steve Mielke February 27,2001 Page 10 justified in applying funds out of its "contaminated lands capital budget," to the Justus Lumber Site. (c) Minnegasco. There may be some recourse against Minnegasco itself, for certain costs of investigation and cleanup. There is authority for recovery of such costs for MGP plants from current natural gas customers of a gas utility, through the utility's rate-setting process. See Interstate Power Rates Change Request, 574 N.W.2d 408 (Minn. 1998), a Minnesota State Supreme Court decision. In Interstate Power, our Supreme Court upheld a determination by the Minnesota Public Utilities Commission ("MPUC") ordering rate recovery from current natural gas customers for investigation and cleanup costs of two former MGP sites in Rochester and Albert Lea. . Recovery ofMGP cleanup expenses from a utility involves rate making and other considerations beyond the scope of this letter; it should be noted, however, that other legal standards than those of "Superfund" may apply. For example, the question of whether a gas utility can recover costs from customers depends, in part, on whether there is evidence of "imprudence or fault" in the management sense (not the Superfund sense) on the part of the company. It is assumed inthis instance, as in Interstate Power, that the utility involved, or its predecessor, was not "imprudent" or at fault in acquiring the Hopkins MGP site and subsequently demolishing the plant. It presumably followed the standard practices of the day, by which fault in such an instance would be measured. In Interstate Power, the Court looked beyond Superfund issues to the question of whether, as between the utility's shareholders and! or the rate-paying public, the public should pay the costs for which the company, as an entity, was undeniably liable. As in Interstate Power, it appears that a corporate predecessor ofMinnegasco acquired the Hopkins MGP plant during the Depression, primarily to expand its customer base. The same equitable and policy positions can be advanced. The modem customers of the utility should bear at least some fraction of the cost of the hidden contamination associated with the utility's expansion. The fact that the property itself is no longer owned by the utility (and has not been in decades) should not be determinative. Interstate Power specifically found that for purposes of the rate making procedure, the site in question need only have been "used and useful," for rate making purposes, at the time of pollution, and not at the time of the rate making itself. . The larger issue which might be appropriately surfaced in discussions with Minnegasco, as well as with the MPCA, is the large number ofMGP sites around the state. See the discussion under legislation, Section 7, below. Cleanup ofthese old sites could, as the Court noted in Interstate Doc# 1366045\1 . . . LINDQUIST & VENNUM P.L.L.P. Steve Mielke February 27,2001 Page 11 Power, be passed on to current customers; it is likely that a legislative solution will be based on this same policy point. 7. LEGISLATION. There are three legislative alternatives which can be considered regarding the Justus Lumber Site: (a) Generic Legislation. A policy argument might be made for former MGP sites along the lines made in 1994 when the Minnesota Landfill Cleanup Program (Minn. Stat. ~~ 115B.39-115B.445) was enacted. At that time, legislators recognized that all the State's permitted sanitary landfills were an environmental problem. The landfills were typically either owned by governmental units or by business without sufficient assets to investigate and clean them up. To address the situation, the legislation adopted a "no fault" approach to cleanup, doing away with the former fault-related enforcement mechanism, and mandated a State takeover for responsibility for site cleanup and long term care. Funding for the Landfill Cleanup Program comes from the State's solid waste fee and from $90,000,000 in general obligation bonds. There is a dedicated solid waste fund in the State treasury for the program. There appear to be approximately fifteen MGP sites that could be addressed by generic legislation for site investigation and cleanup. Appendix B to this letter is a listing and description of such sites. However, unlike the landfill case, it is by no means certain that the Legislature will deem MGP sites a problem suitable for a generic legislative remedy: . MGP sites may not have the priority with the MPCA that old landfills had, at the time of the Landfill Cleanup Act legislation. . In many instances, former MGP sites have been redeveloped, so that structures now exist over the disposal areas. Investigation and cleanup at a redeveloped property could be very difficult and expensive. . The MPCA itself is, in general, not currently supporting new legislative initiatives under the Ventura administration. . Of the fifteen sites that could be covered by "generic" legislation, Hopkins is the only one that appears to have a pressing need, prompted by a private owner. The Doc# 1366045\1 . . . LINDQUIST & VENNUM P.L.L.P. Steve Mielke February 27,2001 Page 12 municipalities where the other sites are located may thus have less incentive or desire to support such legislation. The problem of paying for a statewide "MGP site cleanup program" may be soluble. The State solid waste tax, which paY$ for the Landfill Cleanup Program, generates approximately $53,000,000 per year. $22,000,000 per year is being used to close landfills, but the amount will almost certainly decline as landfills are cleaned up and closed. $20,000,000 per year goes to the Minnesota Office of Environmental Assessment, to assist county solid waste programs. This leaves an excess of approximately $11,000,000 per year. The Legislature is currently considering using this excess to clean up old municipal dumps and, accordingly, has directed the MPCA to assess whether there is a pressing need to clean up approximately 1800 old, unpermitted and largely undocumented dumps in the state. The MPCA staffhave finished an assessment of these sites and are recommending to the Legislature that no new programs are needed to clean up these sites, since they do not pose a pressing environmental hazard. Thus, it would be possible to argue for using some ofthese excess funds for a targeted MGP cleanup program. (b) Specific Legislative Approvriation for the Justus Lumber Site Onlv. A narrower bill, as compared to generic legislation, might be easier to pass. The City of Hopkins can convincingly argue that the cost of cleanup is well in excess of available local resources. Legislators would want a credible estimate of cleanup costs and would want assurances of alternative or supplemental funding sources, such as those discussed in this letter. As a legislative strategy, it might be worthwhile to ally with an Iron Range city, such as Hibbing or Virginia, since these municipalities, despite the use ofDTED, Community Development Block Grants and Redevelopment Grants may still have funding needs. Legislation to assist Iron Range cities often finds a sympathetic ear at the State Legislature. (c) Targeted Use of Mortgage Deed Tax. Ifthe National Lead! Golden Auto site is not going to proceed at any time in the foreseeable future, the City could seek an amendment to the legislation directing the use of the mortgage and deed tax, mentioned above, Section 6(b), for the Justus Lumber Site. There is also, as noted above, the possibility that Hennepin County could agree to pay for a portion of the Justus cleanup from the existing fund, without the need for legislative amendment. Conversation should be initiated with Hennepin County on this topic. Doc# 1366045\1 . . . LINDQUIST & VENNUM P.L.L.P. Steve Mielke February 27, 2001 Page 13 In summary, the Justus Lumber Site has the potential for a significant financial exposure on the part of the City based on MERLA liability. There are, however, a number of ways to address potential costs: (i) skillful negotiation with private sector stakeholders; (ii) creative pursuit of outside funding sources and! or insurance; and (iii) possible legislative approaches. These offer the prospect that the City can sensibly manage this risk and, at the same time advance, insofar as the blic interest is involved, the salability and ultimate redevelopment of the site. Doc# 1366045\1 . . . APPENDIX A Schnebele Memo on Environmental insurance (February 23, 2001) Insurer American International Speciality Lines Insurance Company or Gulf Insurance Company First Named Insured City of Hopkins Second Named Insured TBD Additional Insured TBD Policy Period Refer to options Coverage Coverage is written on a Claims Made basis Sudden and gradual pollution coverage Coverage Description . Third-party Claims for on-site Property Damage Third-party Claims for on-site Bodily Injury Third-party Claims for off-site cleanup of pre-existing conditions Third-party Claims for off-site Property Damage Third-party Claims for off-site Bodily Injury . . Refer to Options offered for Deductibles and Limits of Liability Coverages and Coverage Section Limits, Deductible Options and One-Time Premiums Five (5) year term $5,000,000/ $5,000,000 $10,000,000/ $10,000,000 $50-$60,000 $85-$95,000 $40-$50,000 $75-$85,000 Ten (10) year term $5,000,000/ $5,000,000 $10,000,000/ $10,000,000 $80-$95,000 $135-$150,000 $65-$80,000 $120-$135,000 Doc# 1366045\1 A-I . . . The Deductible applies per incident. However, if a single incident involves more than one coverage, the deductible will only apply once. We would also seek to cap the deductible, for the policy term at three (3) times the individual deductible. Insured Property (Insert Legal Description) Retro Active Date Not Applicable Continuity Date Policy Inception We can likely provide additional coverages, for no additional premium, to be triggered upon receipt of the Certificate of Completion. We need to meet and discuss the specifics before this can be offered. These coverages would include: · Discovery of unknown, pre-existing conditions, on-site cleanup · Third-party Claims for on-site cleanup of pre-existing conditions Clean-Up Cost Cap Coverage is available, however, it cannot be quoted until the approved Remediation Action Plan is provided. Program parameters, for discussion purposes only, would be roughly as follows: Retention = Cost to clean-up known contaminants Corridor Retention = 10% - 20% of the cost Premium Indication Est. $1,000,000 $100 - $200,000 $45 - $55,000 Policy Conditions 1. Policy Conditions will be confirmed upon request for a formal quotation. 2. Premium is 100% earned after one year. 3. Premium is subject to Minnesota Surplus Lines Tax of3%. Premium is due within thirty (30) days of the effective date of policy or fifteen (15) days from the date of binding, whichever comes later. (Premium financing is available.) The following information will be required: · Receipt of the approved response action plan - when available · Receipt of a Certificate of Completion from the MPCA - when available · Receipt of a completed, signed original application Doc# 1366045\1 A-2 . APPENDIX B INVENTORY OF MANUFACTURED GAS PLANTS IN MINNESOTA There are an estimated 34 known MGP sites in Minnesota. Ofthese, an estimated 11 have been completely cleaned up, or nearly so, I and the remaining 23 appear not yet cleaned up. Seven of the remaining 23 are actively involved in site investigations. That leave 16 sites that appear not to be, or in the process of being, cleaned up. One ofthese, Stillwater Site II, is a complete unknown, even as to location. Thus, we are left with a possible 15 sites for generic legislation (Adams, Bemidji, Crookston, Duluth (2 sites), Fergus Falls, Mankato, St. Cloud, St. Paul, Winona, Hopkins, Jasper, Renville, Slayton and West Minneapolis). Sawmill Run (a Minneapolis site owned by the Chicago, St. Paul, Minneapolis and Omaha Railroad) is the only MGP site with a Certificate of Completion. (A Certificate of Completion, issued by the MPCA when response actions have been completed, triggers the protection from MERLA (state superfund) cleanup liability, to persons who undertake and complete voluntary cleanup actions and who are not otherwise legally responsible for the contamination. (The Land Recycling Act of 1992, Minn. Stat. S 115B.175)) . MPCA staff says no one else has requested a Certificate of Completion. They believe the reason is that a Certificate of Completion is requested only if the property owner needs it for a real estate transaction or ifit is needed for some other specific transaction (e.g. obtaining environmental insurance). Information for this inventory came from: · "Survey of Town Gas and By-Product Production and Locations in the U.S. (1880- 1950)", a USEP A Feb., 1985 report which surveyed Brown's Directory of American Gas Companies (an annual publication which, since 1887, lists statistics for the U.S. gas industry.) · MPCA's Master Indices System (delisted superfund sites; RCRA sites; hazardous waste generators; solid waste permits; current state and federal superfund sites; Minnesota "No Further Action" sites; state dump inventory; RCRA TSD (treatment, storage and disposal) sites; closed sanitary landfills; VIC sites; NFRAP (sites which were on CERCLIS (federal superfund) list, then delisted and given back to the state, "no further action" issued, slim potential of danger)). I *Brainerd, Dayton's Bluff Yard, Excelsior, FMC, Fairmont, Minneapolis Gas Works, Red Wing, Rochester, Sawmill Run, Stillwater Site I, and Willmar. (Stillwater, Red Wing and . possibly Brainerd are still doing some groundwater monitoring as part of cleanup.) Doc# 1362665\1 B-1 . . . . USEPA's CERCLIS (superfund list) · USEP A's archives ofNFRAP sites · Interview of a number of environmental consultants who have done MGP work in Minnesota. · Discussion with numerous PCA staff · Review of PC A files on VIC-MGP sites Doc# 1362665\1 B-2 . 'Z ?is 0 ...... ...... ~~ ~~ E-'-<O ~~ . r./) ~ t-; - r./) 0..< dt-; :;;EO r./) ~~ O~ ~- O:;;E t-;25 ffi :> z - ~ '-' ~ ...... E-'-< ~ ~ P-. o ~ o CZl ~ ~ >- ~ P-. ~ o u . >- E-'-< ...... 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"0 0'1...... m Q) S Q)...... en "0 .. ._.~ Q) ~"...... m ~ l-< cd :> U Q) 00 S:;::::::::::;::' . ~"o"O..... 0 -d 'C;:i N....UcdQ)o'C;:iQ):;::::$:IS-c ~~~:>Su.fi~~8~ta.s,g + o l(') 0'1 ...... I 00 N 0'1 ...... o U m cd d ~ S - ~ o l(') 0'1 ...... I o 0'1 00 ...... N ...... I o::l o U fo ~ ~ m ~ d cd $:I o c ~ ~ cd S $:I 0 ;r; - $:I - \0 ...... .- \0 . ~ ~ ~ N \0 ~ <') - M ~ 'Ij, U M M u 0 0 Minnesota Statutes 2000, 383B.80 APPENDIX C http://www.revisor.leg.state.mn.us/stats/3 83B/80 .html Minnesota Statutes 2000, Table of Chapters . Table of contents for Chapter 383B 383B.80 Hennepin county deed and mortgage tax. Subdivision 1. Authority to impose; rate. (a) The governing body of Hennepin county may impose a mortgage registry and deed tax. (b) The rate of the mortgage registry tax equals one cent for each $100 or fraction of the principal. (c) The rate of the deed tax equals five cents for each $500 or fraction of the amount. Subd. 2. General law provisions apply. The taxes under this section apply to the same base and must be imposed, collected, administered, and enforced in the same manner as provided under chapter 287 for the state mortgage registry and deed taxes. All the provisions of chapter 287 apply to these taxes, except the rate is as specified in subdivision 1, the term "Hennepin county" must be substituted for the "state," and the revenue must be deposited as provided in subdivision 3. Subd. 3. Deposit of revenues. All revenues from the tax are for the use of the Hennepin county board of commissioners and must be deposited in the county's environmental response fund under section 383B.81. . Subd. 4. Expiration. The authority to impose the tax under this section expires January 1, 2003. HIST: 1997 c 231 art 16 s 15 Copyright 2000 by the Office of Revisor of Statutes, State of Minnesota. . 10fl 02/27/2001 12:44 PM Minnesota Statutes 2000, 383B.81 http://www.revisor.1eg.state.mn.us/stats/3 83B/81.html Minnesota Statutes 2000, Table of Chapters . Table of contents for Chapter 383B 383B.81 Environmental response fund. Subdivision 1. Creation. An environmental response fund is created for the purposes specified in this section. The taxes imposed by section 383B.80 must be deposited in the fund. The board of county commissioners shall administer the fund either as a county board, a housing and redevelopment authority, or a regional rail authority. Subd. 2. Uses of fund. The fund created in subdivision 1 must be used for the following purposes: (1) acquisition through purchase or condemnation of lands or property which are polluted or contaminated with hazardous substances; (2) paying the costs associated with indemnifying or holding harmless the entity taking title to lands or property from any liability arising out of the ownership, remediation, or use of the land or property; (3) paying for the costs of remediating the acquired land or property; (4) paying the costs associated with remediating lands or property which are polluted or contaminated with hazardous substances; or . (5) paying for the costs associated with improving the property for economic development, recreational, housing, transportation or rail traffic. Subd. 3. Matching funds. In expending funds under this section the county shall seek matching funds from contamination cleanup funds administered by the commissioners of the department of trade and economic development, the metropolitan council, the federal government, the private sector and any other source. Subd. 4. City approval. The county may not expend funds under this section unless the governing body of the city in which the site is located approves the project. Subd. 5. Bonds. The county may pledge the proceeds from the taxes imposed by section 383B.80 to bonds issued under this chapter and chapters 398A, 462, 469, and 475. Subd. 6. priorities. The first priority for the use of the the environmental response fund created in this section is to clean up the site located in the city of St. Louis Park known as NL Industries/Tara Corporation/Golden Auto, EPA I.D. No. MND097891634 and to provide adequate right-of-way for a portion of the rail line to replace the 29th street line in the city of Minneapolis, including making rail improvements, changing the curve of the railroad track and eliminating a switching facility, and improving the land for economic development. No money from the environmental response fund may be expended for remediating the site until the site has been acquired through purchase or condemnation. . Subd. 7. Land sales. Land or property acquired under this section may be resold at fair market value. Proceeds from the sale of the land must be deposited in the environmental lof2 02/27/2001 12:44 PM Minnesota Statutes 2000, 383B.81 . . . 20f2 http://www.revisor.leg.state.mn.us/stats/383B/81.html response fund. Subd. 8. DOT assistance. with respect to the site described in subdivision 6, the commissioner of transportation shall collaborate with the county and any affected municipality by providing technical assistance and support in facilitating the railroad improvement and testing at that portion of the site to be used for the railroad improvement. HIST: 1997 c 231 art 16 s 16 Copyright 2000 by the Office of Revisor of Statutes, State of Minnesota. 02/27/2001 12:44 PM