CP-37: Environmental Benefit Projects Policy

NYS DEPARTMENT OF ENVIRONMENTAL CONSERVATION

DEC POLICY

Issuing Authority: Denise Sheehan, Acting Commissioner

Date Policy Issued: August 3, 1995

Latest Date Revised: November 14, 2005

I. SUMMARY

An Environmental Benefit Project (EBP) is a project that a respondent agrees to undertake in partial settlement of an enforcement action. The EBP must improve, restore, protect, and/or reduce risks to public health and/or the environment beyond that achieved by respondent's compliance with applicable laws and regulations. An EBP may also be used to:

conserve, improve, and/or protect the State's natural resources and environment;
control or reduce water, land and air pollution; and/or
enhance the health, safety and welfare of the people of the State of New York and their overall economic and social well being.

When enforcing environmental laws and regulations, the Department has the authority to utilize an EBP as part of an overall settlement agreement with a respondent. Any EBP contained in a settlement agreement must be in addition to actions correcting the violation. The respondent may receive some penalty offset for conducting an EBP. EBPs can only be part of a settlement set forth in an Administrative Consent Order or a Judicial Consent Decree (settlement documents). This policy supercedes Program Policy DEE-21, dated May 27, 1997.

II. POLICY

Authority
The Department has the responsibility to prevent and abate pollution, promote restoration and reclamation of despoiled areas and natural resources, and consider the impact upon all natural resources in making a determination in connection with any license, order, permit, certification, or similar action. Courts have determined that the Department's broad authority allows the Commissioner to impose special conditions not expressly required by law upon facilities where such conditions are rationally related to protecting the environment and are based upon the nondiscriminatory application of established criteria. In circumstances where the Commissioner lacks the authority to unilaterally order the implementation of certain measures which would advance the state's environmental policy, the broad powers conferred by section 3-0301, inter alia, of the Environmental Conservation Law provide the authority to approve such measures as settlement conditions in lieu of a portion of authorized penalties.
Penalty Mitigation
In accordance with its statutory mandate, the Department's policy in enforcement actions is to order the cessation of environmentally harmful acts and remediation of environmental damage while imposing civil penalties to deter future violations and ensure that those who violate environmental laws do not gain an unfair advantage over those that comply with the law. Monetary penalties are imposed to remove the economic benefit of noncompliance (benefit component) and address the gravity of the violation (gravity component).

For purposes of this Policy, an acceptable EBP is a project undertaken in partial settlement of an enforcement action that the respondent cannot otherwise be required to undertake pursuant to law, regulation or other Departmental authority and which satisfies the criteria described in this Policy.

In furtherance of the Department's mission and the State's environmental policy of protecting and improving the environment and the public health, safety and welfare, Department staff may consider the implementation of an approved EBP as a mitigating factor during the calculation of the monetary penalty in an enforcement action. However, the Department ultimately retains sole discretion over whether to approve or deny a proposed EBP as part of a final settlement and may reject the use of a project as the basis for partial penalty mitigation even though it satisfies the criteria of this Policy.
Criteria for an Acceptable Project
In accordance with the Division of Environmental Enforcement's Civil Penalty Policy (DEE-1), the following conditions must generally be met before an EBP will be accepted in partial mitigation of a penalty:
1. Projects must be initiated in addition to all regulatory or other applicable compliance obligations of the respondent, and must be designed to provide an environmental benefit beyond the benefit of full compliance;
2. All violations must be promptly corrected to ensure compliance with applicable environmental laws and regulations. Respondents shall not be given additional time to correct violations in order to complete an EBP;
3. Projects must be designed to provide a discernible benefit to the environment and/or the public health, and/or reduce risks to the environment and/or public health. Project implementation should benefit the respondent only incidentally, if at all;
4. Projects must have a potential to yield significant benefits and be within the capability of the Department or a Department-approved third party to review and oversee;
5. The project must have a geographic nexus to the area or community adversely affected by the violation(s). In order to meet this requirement, the project must be undertaken in the immediate geographic area or community, or within the same ecosystem, watershed, or airshed, in which the violation(s) occurred. Preference will be given to projects that have a direct programmatic nexus to the violation(s) and that are undertaken in the immediate geographic area or community where the violation(s) occurred. Preference will also be given to projects that benefit a potential Environmental Justice area as defined by Commissioner's Policy "CP-29 Environmental Justice and Permitting" when such an area exists within the impacted area.
6. Education projects must be implemented by a third party that is not affiliated with the respondent. The education project must be directed at understanding and preventing adverse environmental impacts to the affected resource, or be designed to assist members of the affected community in understanding and preventing negative impacts to the environment
Unacceptable Projects

The following are not allowable as EBPs:Projects that the Department could require a respondent to undertake pursuant to law, regulation, or other Departmental enforcement authority (e.g., sanctions or remedies which the Commissioner could order following a hearing);
1. Projects, in part or in whole, that respondent had planned to perform at the time the violation(s) was detected (e.g., the project is the subject of a pending grant request, State or local government budget proposal, part of respondent's ordinary business plan, etc.);
2. Projects used to cover personal or non-personal service costs of the Department (i.e., costs the Department would otherwise incur during the normal course of business) or to generate revenue for the Department;
3. Projects with the sole intent of expediting a respondent's ability to achieve compliance as required by law, regulation, or other legally binding obligation;
4. Research, studies or assessments without a commitment to implement the results;
5. The surrender of environmental "credits";
6. Projects seeking to resolve criminal violations.
Types of EBPs
1. Specified Projects
  1. An EBP may be for a specified project(s) described in the settlement document. This type of EBP will typically be funded directly by the respondent without requiring the respondent to deposit funds into a distinct EBP escrow account. Specified EBPs are the Department's preferred format.
  2. Settlement documents for specified projects that do not require the respondent to deposit funds into a distinct EBP escrow account must adhere to the requirements for specified EBPs set forth in paragraphs III. A. (1. - 5.) of this Policy and the general requirements applicable to all types of EBPs described in paragraphs III. C. (1. - 4.) of this Policy.
2. Unspecified Future Projects
  1. An EBP may also be for a future project(s) to be performed at a later date that is not fully specified in the settlement document. In this situation, the settlement document will typically require the respondent to deposit a fixed amount of money into a distinct EBP escrow account to be spent, together with any accrued interest, on a future project(s) to be approved by the Department.
  2. Settlement documents that require the respondent to deposit a fixed amount of money into a distinct EBP escrow account must adhere to the requirements for unspecified future projects set forth in paragraphs III. B. (1. - 7.) of this Policy and the general requirements applicable to all types of EBPs described in paragraphs III. C. (1. - 4.) of this Policy.
Escrow Accounts

EBP funds may be held in escrow by the respondent or by an approved independent escrow agent.
1. Respondent as Escrow Account Administrator
  If the respondent serves as escrow account administrator for EBP funds, the settlement document shall require the respondent to:
  1. deposit such funds into a distinct EBP bank account within 30 days of the Department's execution of the Administrative Order on Consent or Judicial Consent Decree;
  2. maintain the EBP account for the sole purpose of administering the EBP funds;
  3. not commingle EBP funds with any other funds;
  4. provide quarterly account statements to the Department, or such account statements as the Department may request, until all EBP funds within the distinct account are spent. Such an accounting must adhere to generally accepted accounting standards, indicate expenditures for specific EBP costs (if any) and a short narrative describing the disbursement;
  5. release EBP funds only upon Department approval; and
  6. not assess a management fee for administering the account.
2. Independent Escrow Agent
  If EBP funds will be transferred from a respondent to an independent escrow agent, (e.g., a trust or respondent's attorney), the recipient independent escrow agent must first enter into an Agreement with the Department for the creation and administration of trust accounts for EBPs. The independent escrow agent may be a non-governmental or governmental entity. The independent escrow agent must be approved by the Commissioner if $100,000.00 or more will be deposited into the EBP account. The Commissioner's designee may approve the independent escrow agent if less than $100,000.00 will be deposited into the EBP account. The Agreement shall establish the rights and obligations of the independent escrow agent toward the Department as well as the Department toward the independent escrow agent.
  
  All Agreements shall:
  1. define the purposes and objectives of the parties related to the establishment of an EBP account(s);
  2. be governed by the laws of the State of New York;
  3. define any administrative charges or management fees and include a reasonable maximum limit on them;
  4. set forth the criteria for approval of payments to EBP contractors;
  5. inform third-party vendors/contractors in writing that no privity of contract exists between the Department, or the State of New York, and said vendors/contractors;
  6. require the independent escrow agent to create and maintain distinct EBP accounts for EBP funds using a name that identifies the account with the name of the contributing respondent;
  7. provide quarterly account statements to the Department, or such account statements as the Department may request, until all EBP funds within the account are spent. Such an accounting must adhere to generally accepted accounting standards, indicate the expenditures for specific EBP costs (if any), and include a short narrative describing the disbursement;
  8. provide that any amendment, modification, or waiver to the Agreement must be in writing and signed by the Department;
  9. provide that any EBPs to be funded will comply with this Policy; and
  10. include termination of Agreement conditions.
Civil Penalty Mitigation
The payable penalty should be mitigated as follows for a respondent who undertakes an EBP:

Step 1:

Determine what an appropriate payable penalty would be if there were no EBP, using applicable penalty policies.

Step 2:

If the settlement document does not require the respondent to deposit a fixed amount of money into a distinct EBP escrow account, determine the estimated cost of the EBP, including any oversight costs by third parties approved by the Department to oversee the status of a project.

Note: Staff attorneys should closely analyze the estimated cost of the EBP before mitigating a penalty based upon it and should require the respondent to provide written documentation of all estimated costs associated with the EBP.

If the settlement document requires the respondent to deposit a fixed amount of money into a distinct EBP escrow account, determine the fixed amount of money to be deposited.

Step 3:

Determine if respondent is: 1) a private business or 2) a municipality, state agency, or federal agency.

Step 4:

For private businesses, reduce the amount of the payable penalty in Step 1 by no more than 50% of the applicable amount in Step 2. For municipalities, state agencies and federal agencies, reduce the payable penalty in Step 1 by no more than 100% of the applicable amount in Step 2. Staff may decrease the percentage by which the payable penalty is reduced where warranted by the circumstances (e.g., if respondent has a history of non-compliance or the violation was egregious).

Step 5:

Determine the amount of the payable penalty with the EBP. A payable penalty of at least 20% of the amount in Step 1 must be imposed in the settlement document in addition to the EBP even if applying Step 4 would otherwise reduce the payable penalty below 20% of the amount in Step 1.

III. ADMINISTRATIVE CONSENT ORDER OR JUDICIAL DECREE LANGUAGE

Requirements for Specified EBPs: Administrative Consent Orders and Judicial Consent Decrees for specified EBPs must contain:
1. a provision stating that it is a violation of the settlement document if any aspect of the EBP is not satisfactorily completed in a timely manner regardless of the ultimate cost of the EBP and regardless of whether the EBP is performed by the respondent and/or a third party contractor;
2. a provision stating that if the actual cost of the EBP is ultimately greater than the estimated cost of the EBP, the respondent is obligated to pay the additional amount and ensure that the EBP is completed;
3. provisions that describe the type of EBP, the scope of the EBP, and the time frame during which the EBP must be performed;
4. a provision requiring respondent to file a final report with the Department describing whether or not the project has been fully completed in a timely manner. The settlement document should direct the respondent to file this final report within a specified number of days (typically not more than 30 days) from the date that respondent claims the project was fully completed. The Department retains sole discretion to determine whether or not an EBP has been satisfactorily completed in a timely manner regardless of the content of the final report; and
5. a provision explaining whether the EBP will be performed by the respondent and/or a third party contractor(s) and describing any third party contractor(s) that will be performing the EBP.
Requirements for Unspecified Future EBPs: Administrative Consent Orders and Judicial Consent Decrees for unspecified future EBPs must contain:
1. a provision requiring that respondent deposit a fixed amount of money into a distinct EBP escrow account to be spent, together with any accrued interest, on an EBP(s) approved by the Department;
2. a provision stating that it is a violation of the settlement document if respondent fails to deposit any of the specified funds into the distinct EBP escrow account in a timely manner or if respondent fails to release any EBP funds, or accrued interest, that respondent or its agent is holding when directed to do so by the Department;
3. a provision that requires future EBP(s) to be performed in accordance with the terms of this Policy;
4. a provision that requires future EBP(s) to satisfy the nexus requirement of this Policy;
5. a provision that generally describes the type(s) of EBP(s) to be performed;
6. a provision that sets forth a specific date by which all EBP funds, including any accrued interest, will be spent, applied to another EBP that is approved by the Department and that satisfies the criteria in this Policy, or converted to a penalty and forfeited to the State; and
7. if respondent is serving as the escrow account administrator, the Administrative Consent Order or Judicial Consent Decree must contain provisions ensuring that all of the requirements described in paragraphs II. F. 1. (a. - f.) of this Policy are implemented. If an independent escrow agent is managing the EBP funds, the Agreement between the Department and the independent escrow agent must contain provisions ensuring that all of the requirements described in paragraph II. F. 2. (a. - j.) of this Policy are implemented.
General Requirements for All EBPs: In addition to the requirements applicable to specified EBPs and unspecified future EBPs, all EBPs must include:
1. a provision, if applicable, requiring respondent to bear any oversight costs by third parties that have been approved by the Department to oversee the status of a project. Oversight costs by third parties must be limited to a reasonable amount. Third parties should be required to submit periodic reports, including a final report evaluating whether the EBP has been fully completed in a timely manner. The Department retains sole discretion to determine whether or not an EBP has been satisfactorily completed regardless of the content of the final report;
2. certification that:
  - respondent is not required to perform or develop the EBP by any law, regulation, or other legally binding obligation;
  - respondent is not required to perform or develop the EBP as injunctive relief in this or any other case;
  - respondent has not received, is not presently negotiating to receive, and will not seek in the future to receive credit in any other enforcement action or legal proceeding based upon undertaking the EBP;
  - respondent has not obtained and will not obtain any grant funds either to perform the project or based upon the performance of the project;
  - respondent had not planned to perform the project(s), or any element thereof, at the time the violation(s) was detected;
  - respondent will not claim any type of tax advantage based upon undertaking the EBP;
3. a provision that any public statement, oral or written, made by the respondent (or a third party at the request of the respondent) in reference to the EBP include language stating the project was undertaken as part of the resolution of an enforcement action brought by the Department for applicable violations;
4. a provision stating that respondent agrees to indemnify and hold harmless the Department, the State of New York, and their representatives and employees for all claims, suits, actions, damages and costs of every name and description arising out of or resulting from the fulfillment or attempted fulfillment of the EBP.

IV. APPROVAL PROCESS

The case attorney has the responsibility to ensure Department staff give appropriate consideration to the merits and acceptability of an EBP proposal that meets the requirements of this Policy. To do so, the case attorney must seek approval from the Department's Central Office by submitting a complete EBP proposal package to the General Counsel, or designee, with copies to the Environmental Enforcement Director and the Regional Director in whose Region the EBP will be primarily implemented.

A complete EBP proposal package should contain the following information:

a description of the pending violations and pertinent background information;
a description of the proposed EBP;
the merits of the settlement proposal in the context of the enforcement action;
an explanation of how the EBP will be funded and performed;
a completed Certification Worksheet (Attachment A); and
a completed Civil Penalty Mitigation Worksheet (Attachment B).

EBPs valued at $100,000.00 or more may only be approved by the Commissioner, or the Commissioner's designee, in consultation with the Deputy Commissioner and General Counsel, and the Environmental Enforcement Director. EBPs valued at less than $100,000.00 may be approved by the Deputy Commissioner and General Counsel in consultation with the Environmental Enforcement Director.

After appropriate Central Office review, the Environmental Enforcement Director will inform the case attorney whether to incorporate the proposed EBP into the enforcement action.

V. RESPONSIBILITY

The responsibility for interpretation and update of this document shall reside with the Division of Environmental Enforcement.

The policies and procedures described in this Policy are intended solely for the use and guidance of the New York State Department of Environmental Conservation (DEC) personnel and are not intended to create any substantive or procedural rights, enforceable by any party in administrative and judicial litigation with the State of New York. Any penalty or Environmental Benefit Project calculations undertaken hereunder by DEC in anticipation of litigation are exempt from disclosure under the Freedom of Information Law. Pursuant to §4547 of the Civil Practice Law and Rules of the State of New York, all evidence or conduct of negotiations or settlement are inadmissible as evidence as proof of liability for or invalidity of the claim which is disputed as to either validity or amount of damages. The Department reserves the right to act at variance from the guidelines set forth in this Policy. Whether the Department will approve a project proposal that is at variance with this Policy will be evaluated on a case by case basis by the Commissioner or the Commissioner's designee and will only be considered where the beneficial impact of the project is exceptional.

ATTACHMENT A

CERTIFICATION WORKSHEET
- Confidential and FOIL Exempt when completed -

SCREENING CRITERIA

Based upon available information, staff have determined the following (check box if true):

The proposed EBP will be initiated in addition to all regulatory or other compliance obligations of respondent and is designed to provide an environmental benefit beyond the benefit of full compliance;
All violations will be promptly corrected to ensure compliance with applicable environmental laws and regulations. Respondent will not be given additional time to correct such violations in order to complete the proposed EBP;
The proposed EBP is designed to provide a discernible benefit to the environment and/or public health, and/or reduces risks to the environment or public health with no benefit, or only an incidental benefit, to the respondent;
The proposed EBP has a potential to yield significant benefits and is within the capability of the Department or a Department-approved third party to review and oversee;
The proposed EBP will be undertaken in the immediate geographic area or community, or within the same ecosystem, watershed, or airshed, in which the violation(s) occurred; or, if the project is an education project, it satisfies the requirements set forth in paragraph II. C. 6. of this Policy;
The proposed EBP does not include activities the Department could require respondent to undertake pursuant to law, regulation, or other Departmental enforcement authority (e.g., sanctions or remedies which the Commissioner could order following a hearing);
The Respondent had not planned to perform the project(s), in part or in whole, at the time the violation(s) was detected;
The proposed EBP will not be used to cover personal or non-personal service costs of the Department (i.e., costs the Department would otherwise incur during the normal course of business) nor as a revenue generating mechanism for the Department;
The violation was not criminal in nature;
The proposed settlement includes an appropriate payable penalty in addition to the EBP (the payable penalty is at least 20% of the payable penalty calculated without the EBP).
Respondent will not claim any type of tax advantage based upon undertaking the EBP.

ATTACHMENT B

CIVIL PENALTY MITIGATION WORKSHEET
- Confidential and FOIL Exempt when completed -

Step 1:

If there were no EBP and applicable penalty policies were applied, an appropriate payable penalty would be: $_____

Step 2:

The estimated cost of the EBP is: $__________
or
The fixed amount of money to be deposited into a distinct EBP escrow account is $_________

Step 3:

Respondent is (check one):
_____ a private business
_____ a municipality, state agency, or federal agency

Step 4:

The payable penalty in Step 1 has been reduced by _____% of the applicable amount in Step 2.

(For private businesses, this percentage must be no more than 50% of the applicable amount in Step 2. For municipalities, state agencies, and federal agencies, this percentage must be no more than 100% of the applicable amount in Step 2.)

Step 5:

A payable penalty of at least 20% of the amount in Step 1 is imposed in the settlement document in addition to the EBP. The amount of the payable penalty in the settlement document is: $_____