Grant Recipients Likely to Accept a 50 Percent Share of Cleanup Costs Under New Washington Grant Funding Rule

The new Department of Ecology (Ecology) grant funding rules, which are expected to go into effect in September 2014, will change the way grant recipients resolve contribution claims against other liable parties under the Model Toxics Control Act or CERCLA.  The new rule provides that grant recipients (e.g., cities, counties, Ports, etc.)  may use proceeds from insurance or a contribution claim to meet the recipients’ grant funding share requirements, provided the recipient complies with certain conditions.  This means a grant recipient does not have to repay Ecology as long as the amount it receives from other liable parties (minus its costs to pursue the claim) does not exceed the recipients’ grant funding share, which for most grant recipients is 50 percent.  And since there is no monetary incentive for grant recipients to collect more than 50 percent of what they received in grants, grant recipients should be willing to accept a 50 percent share (or more) of the liability at cleanup sites, regardless of the grant recipients’ actual liability.

Under the prior rule, grant recipients were required to repay a portion of any proceeds recovered as a result of a contribution claim.  For example, if the grant recipient received 50 percent of its remedial action costs in grant funds and recovered $80,000 from other liable parties, the grant recipient would be required to repay Ecology $40,000 (assuming the recipient also recovered its attorneys’ fees.)  Under the new rule, this same grant recipient is only required to repay Ecology if it recovers more than its 50 percent share (i.e., more than the amount funded by the grant.)  Using the same example, if the cleanup costs were $200,000 and the grant funding was $100,000, then the grant recipient repayment obligation is triggered if it recovers more than $100,000.  In other words, if the grant recipient accepts a 50 percent share and recovers the remaining remedial action costs from the other liable parties, there will be no obligation to repay any of the proceeds to Ecology.

The changes to the grant funding rules should facilitate settlements between grant recipients and other liable parties.  In some cases, the new grant funding rules will reduce a private liable party’s share by almost 50 percent.  Private liable parties should be applauding this new rule.