A new tool is available in Houston to help owners of property impaired with groundwater contamination – the Municipal Settings Designation. Houston’s inner-city neighborhoods have undergone significant change and revitalization in recent years, and that trend promises to continue, despite the recent credit crunch. However, developers and their lenders trying to rebuild these inner-city neighborhoods too often find a legacy of industrial contamination that causes uncertainty, delay, and increased cost. Whether caused by former industrial facilities, dry cleaning operations, or leaking underground storage tanks, many properties in areas now considered desirable have soil and groundwater contamination that must be addressed before redevelopment can take place. These properties are called “Brownfield” properties, and it is generally accepted wisdom that it is better to put these properties back into productive use, than to site new development in previously undeveloped, so-called “Greenfield” areas. EPA defines “Brownfield” properties as under-used industrial and commercial facilities that have been abandoned, idled, or where expansion or redevelopment is complicated by real or perceived environmental contamination.1

Over the past decade, Texas has recognized the benefits of redeveloping Brownfield properties and has implemented programs to facilitate the process through its Voluntary Cleanup Program,2 Innocent Owner Protection,3 and risk-based cleanup standards.4 Yet, even with these programs, it can still take years of remediation effort and monitoring to bring contaminate levels down to regulatory standards that will allow redevelopment – particularly if the contamination involves chlorinated solvents in groundwater. In many cases, the contaminated groundwater is quite shallow (typically at depths of less than 40 feet below the surface) and generally unusable. This shallow layer of groundwater is often confined by a thick, underlayer of impermeable clay that protects the deeper drinking water aquifers from this contamination. Perhaps most important, the shallow groundwater is not used as a source of drinking water, because (1) water in the City of Houston is supplied by public utilities from surface water bodies such as Lake Houston, and (2) anyone that still wants to secure their water supply by pumping and extracting groundwater would use the much deeper, more prolific aquifers that historically have been used for that purpose. Yet, the TCEQ cleanup standards for groundwater apply to all groundwater, including the unused, shallow groundwater. Absent some restriction, TCEQ  assumes that someday, someone might use it for drinking water. Cleaning up groundwater to a level acceptable for drinking water is the most difficult standard to meet in most environmental remediation projects. It generates most of the cost and the delay in achieving final closure and a certificate of completion.

Several years ago, the Texas Legislature recognized this situation as a problem hindering the redevelopment of Brownfield properties and created a solution known as a “Municipal Settings Designation.” A Municipal Settings Designation or MSD creates an area within the corporate limits or extraterritorial jurisdiction of a municipality where current and future property owners are prohibited from using the groundwater for potable purposes such as drinking, bathing, showering, cooking, or irrigating crops. Of course, in most urban areas, this prohibition is merely a formality and a recognition of reality – urbanites do not pump their own water; they buy it from the city. Once a property is designated as being located within an MSD, the TCEQ will not require the owner to clean up the groundwater to drinking water standards,5 and in many cases that means that the cleanups at many Brownfield locations will be considered complete.

It must be remembered, however, that the MSD designation will not alleviate a property owner from further remediating the property if excess contamination remains in surface soil, in ponds, streams or similar water bodies, or if the contaminated groundwater is migrating to a surface water body, such as a bayou. The MSD designation only helps by eliminating exposure to contaminated groundwater that otherwise theoretically could be extracted and used for potable purposes. However, even with an MSD designation, the TCEQ will require property owners to address other exposure pathways. Again, the subsurface groundwater is often the most difficult and expensive part of the site remediation.

 

The Mechanics of Obtaining an MSD Designation in Houston

In 2003, the Texas Legislature created the framework for Municipal Settings Designations when it passed HB 3152 (over objections by the City of Houston), which was codified in the Texas Health & Safety Code, Chapter 361, Subchapter W (Sections 361.801, et seq.). The statute itself is relatively simple and straightforward. The stated purpose

“is to provide authorization to the executive director [of TCEQ] to certify municipal setting designations for municipal properties in order to limit the scope of or eliminate the need for investigation of or response actions addressing contaminant impacts to groundwater that has been restricted from use as potable water by ordinance or restrictive covenant.”6

To be eligible, the property must be within the corporate limits or extraterritorial jurisdiction of a municipality,7 and the property must be capable of being supplied with a public drinking water supply system.8

To apply for an MSD, a property owner must file an application with the TCEQ and must obtain approval of local governmental authorities. The TCEQ approval is relatively perfunctory if all of the requirements are met. TCEQ has not promulgated any rules, although it has provided guidance at http://www.tceq.state.tx.us/files/gi-326.pdf_4121869.pdf. The biggest obstacle is approval by the municipalities.

The statute requires the applicant to give notice of the MSD application to (1) the municipality where the designated property is located, and (2) any municipality (a) with a boundary located within one-half mile of the designated property or (b) that owns or operates a groundwater supply well within five miles of the designated property.9 The applicant must also give notice of the MSD application to every owner of a private water supply well registered with the TCEQ within five miles from the boundary of the designated property, as well as every retail public utility operating a water supply well located within the same five mile radius of the designated property.10 The notice must identify the property to be designated, the type of contamination on the property, and provide an opportunity to provide comments.

Notice is just the first step. Each municipality and the governing body of each public utility that is entitled to notice must pass a resolution supporting the MSD and an ordinance that prohibits use of the designated groundwater from under the designated area for potable purposes.11 Alternatively, the property can be subject to a restrictive covenant enforceable by the city.12 The purpose of this requirement is to ensure that there is a governing body that will enforce the restriction on groundwater use.

A number of Texas municipalities have endorsed the MSD program and have passed ordinances approving specific MSDs, including Dallas, Irving, Euless, Beaumont, Orange, Brownsville, and others. There has been general recognition that it makes sense to encourage redevelopment of urban property and put that property back on the tax rolls. There is recognition that cities themselves have liabilities for contaminated property, and cities also can benefit from MSDs. It makes no sense to spend money cleaning up groundwater that poses no threat to anyone.

In most cases, once the ordinance is passed, TCEQ will issue a final certificate of completion for the cleanup of the site. MSDs have been useful tools in facilitating real estate transactions and related financing and in resolving disputes among neighboring property owners. In the right case, they can shorten the remediation process and save significant sums of money.

The City of Houston was initially reluctant to participate in the program, but by the Fall of 2007, city officials decided to permit applications for MSDs so long as those applications met certain criteria, which are narrower than those permitted by the state statute. Specifically, in August 2007, the City adopted an ordinance, effective November 1, 2007, setting forth the eligibility requirements and procedures for consideration by the city of an MSD. Houston requires property owners to complete its own application and have it certified by a licensed professional engineer or geologist. The Houston application must include a legal description of the site, a site map, and a description of all current and future uses of all property within 500 feet of the designated property. In addition, the application must describe the subsurface conditions, as well as the extent of the contamination, including “the ingestion protective concentration level exceedence zone and the non-ingestion protective concentration level exceedence zone, including a specification of the horizontal area and the minimum and maximum depth below ground surface.”13  The applicant must also list the names and addresses of all property owners within 2,500 feet of the MSD boundary, all water wells within a radius of five miles, and all municipalities within one-half mile.14 Although unwritten, the city also has a requirement that the contaminant plume be stable or declining, and it must be fully delineated.

The property owner must hold a public meeting within 60 days after the City of Houston deems the application to be complete.15 The purpose of this meeting is to educate the public and provide a forum for questions, comments, and opposition. Notice of this meeting must be given to every property owner within 2,500 feet of the MSD site boundary, along with nearby well owners and municipalities, but also to subsidence districts, civic organizations, property owner associations, and TCEQ. The applicant and its engineer or geologist must be present at the meeting.

After the public hearing process is completed the application is eligible to come before City Council for final approval.16 The Director of Public Works makes a recommendation as to whether to approve or disapprove the MSD, and again, the applicant and its engineer or geologist must be present at the meeting and available to answer questions.

As a practical matter, the City of Houston requirements limit MSDs to mature sites that have been under investigation for some time, where the potential cost savings are significant enough to justify the added costs imposed by the Houston requirements. A handful of applications have been filed so far, and both the city and the regulated community are feeling their way through the process. At the first public meetings, the public displayed a certain level of confusion about the dangers, risks, and purposes of an MSD, but generally were satisfied once they learned more about the issues.

It is likely that as more applications for MSDs are processed, they will become more routine, and the costs and time to process them will decrease. The ultimate goal is returning urban property to productive use while at the same time protecting human health and the environment.

 

David Bates is a partner at Gardere Wynne Sewell who advises clients on environmental matters, including MSDs in the Greater Houston area.

 

Endnotes

1. Glossary of Terms, EPA Office of Solid Waste and Emergency Response, (Sept. 30, 1997) (defining Brownfields).   2. Tex. Health & Safety Code §§361.601, et seq.   3. Tex. Health & Safety Code §§361.751, et seq.   4. See Texas Risk Reduction Program (TRRP), 30 TAC Chapter 350.   5. Technically, the MSD eliminates consideration of the ingestion exposure pathway, often the most stringent standard to meet.   6. Tex. Health & Safety Code §361.802.   7. Tex. Health & Safety Code §361.803.   8. The public water supply system must also be able to supply all properties within one-half mile of the designated property as well.  Tex. Health & Safety Code §361.803(2)(B).     9. Tex. Health & Safety Code §361.805(1).   10. Tex. Health & Safety Code §361.803(2)-(3).   11. Tex. Health & Safety Code §361.8065.   12. Tex. Health & Safety Code §361.8065(2)(B).   13. Chapter 47, City of Houston Code of Ordinances, section 47-762(7)(a).   14. Id. at section 47-762.   15. Houston Ordinances, Section 47-764.   16. Houston Ordinances, Section 47-765.