🔒Two years in, effort to replace burdensome Transfer Act not expected to be completed until 2024

There was a big round of applause as Department of Economic and Community Development Commissioner David Lehman assured a Nov. 9 gathering of brokers that progress is being made in a two-year-old effort to design a replacement for the much-criticized Transfer Act.

“I think the business and brokerage community is really happy this process is in motion,” said Samuel Haydock, a principal with Meriden-based engineering and environmental consulting firm BL Companies and an attendee at the event. “I think everybody is frustrated it’s taking as long as it’s taking. But that’s reality.”

State officials assure a Herculean effort is underway to design a replacement for the 37-year-old system governing environmental cleanups, which many brokers and developers say significantly stifles property transactions and redevelopment opportunities.

Learning from past setbacks, Department of Energy and Environmental Protection (DEEP) staff are working closely with a group of nearly 60 commercial brokers, licensed environmental professionals, industry attorneys, environmental activists and other stakeholders.

Graham Stevens, chief of DEEP’s Bureau of Water Protection and Land Reuse, said staff and volunteers on the Transfer Act Working Group have logged thousands of hours researching and designing a new “release-based” system governing environmental cleanup.

Stevens cautions much work remains but he is hoping to debut the new regulations in mid-to-late 2023, and see them in force by the close of 2024.

“I think this is a pretty complicated system we are building,” Stevens said. “The last system has served us since the 1980s and we want the new system to serve us for even a greater length of time.”

The system

Connecticut is one of only two states that uses property transfers as a trigger for environmental assessment and cleanup.

Under the Transfer Act, property that produced or stored more than 100 kilograms (220 pounds) of hazardous waste in any given month is subject to a lengthy and costly state review to prove the property was not a hazard.

In October 2020, as Gov. Ned Lamont signed the law requiring the Transfer Act’s eventual sunset, it was estimated Connecticut had about 4,200 properties subject to the law, and that around 1,000 had been cleared through the program’s 35-year history.

Real estate brokers and investors have long complained the system is too easy to slip into, and far too hard to exit. Detractors said this has left many property owners reluctant to sell, and prompted many investors to shy away from Connecticut.

The Connecticut Economic Resource Center (CERC) — the precursor organization to the state’s current nonprofit economic development arm AdvanceCT — published a study in 2019 that concluded the Transfer Act’s impacts were widespread, with over 470 filings under the law between 2014 and 2018.

CERC’s report concluded that dozens of property sales were either delayed or halted over that five-year period as a result of the Transfer Act, costing Connecticut at least 7,000 direct jobs and $178 million in tax revenues.

Carlos Mouta, a prolific developer in Hartford’s Parkville neighborhood, gets upset when he talks about his experience with the Transfer Act. He bought a shuttered pay-phone factory on Hartford’s Arbor Street in 2006 and then renovated the 120,000-square-foot building into loft apartments.

Only a 3,000-square-foot section of the building had a history of contamination, which has since been cleaned, Mouta said.

The seller signed off as the responsible party for cleanup to Transfer Act standards and has spent more than $250,000 on attorneys and environmental specialists, Mouta said. But the Arbor Street property has still not cleared state review, which means Mouta can’t sell it, even though it’s not something he is currently contemplating.

“It’s like your cancer never goes away, you still have cancer there,” Mouta said. “They made it for attorneys and environmental people to make money. They must have had a good lobbyist.”

Some skepticism

Tom Hill III, a Waterbury-based commercial and industrial broker, said he appreciates the monumental reform effort underway, but has heard some skepticism among the regulated community. He is personally concerned the new system could be similarly costly and difficult.

“I’m thinking that it’s not going to be hunky dory, that it’s going to be very complicated and expensive, just like it has been,” Hill said. “I’m not meaning any disrespect to DEEP, I’m just worried about my clients, many of whom were in small business and have gotten caught for a small fortune in trying to satisfy the over-testing and complications because the average cost of a Transfer Act property is $125,000 and two years’ time.”

In 2020, Connecticut lawmakers agreed to transition to a “release-based” system in which cleanups are undertaken when contamination occurs or is discovered. Essentially, that would remove the guilty-until-proven-innocent brand from properties where toxic material was stored or produced, but not necessarily spilled or mishandled.

“I think one of the frustrations has been this requirement to prove the negative,” said Haydock, who is also a volunteer on the working group.

The current system requires investigation that wouldn’t be mandated in other states, Haydock noted. Does a property where regulated materials were produced have a loading dock? If yes, then that loading dock needs to be tested to prove there hasn’t been a leak at some point.

In most other states, Haydock said, such tests would only be necessary if there was a recorded spill, or if there were observable suspicious circumstances, such as dock stains or the presence of rusted chemical barrels.

The Transfer Act may have its shortcomings, but, Haydock acknowledged, it has been responsible for the cleanup of many properties since 1985. He expects the work to replace it will carry on into 2024.

No easy fix

There have been multiple revisions to the Transfer Act over the years but prior attempts to replace it wholesale faltered because stakeholders with competing interests clashed or felt their concerns weren’t incorporated, said state Sen. Joan V. Hartley (D-Waterbury), co-chair of the General Assembly’s Commerce Committee.

Hartley praised Stevens, the DEEP official, for his diplomatic guidance of the current effort and the willingness of stakeholder volunteers to invest their time.

“It took the patience of a saint here because, if you can imagine, these groups were diametrically opposed, and justifiably so,” Hartley said. “They had tried to do this twice before and it had gone down in flames. Now, we are not finished here, but we are the closest we have ever been. These groups are working together in a way I’ve never seen before.”

Hartley said working group members and state policymakers appreciate the importance of getting it right this time. So much energy and trust have been invested that a failure would sour participants on subsequent reform attempts, she said.

“The pressure is really on them because if this goes down again, it’s over, we are never getting these people back in the room,” Hartley said.

Gary O’Connor, co-chair of law firm Pullman & Comley’s real estate, energy, environmental and land-use department, said Transfer Act Working Group subcommittees are digging into thorny issues, including whether residential property owners will be included. There is also the concern that a release-based system might create new obligations for existing businesses.

Small manufacturers could conceivably find themselves responsible for contamination cleanups that aren’t currently considered enough of a threat to warrant immediate action, said O’Connor, one of several Pullman & Comley attorneys on the working group.

“I think the subcommittees and working group are still working their way through these hot topics,” O’Connor said. “Once you find a historic release, what is your obligation in terms of notification? Investigation? How far do you have to chase it? How much do you have to remediate and are there different levels of concern?”

Given the complexity of the cleanup regime and potential consequences of change, it is understandable the replacement process is taking time, O’Connor said.

Recent progress

The past few years have seen some changes enacted already to mitigate shortcomings of the existing act.

In 2019, lawmakers adopted exemptions for properties that had seen certain “one-time releases,” such as the removal of unused chemicals or materials during a cleanout.

Also exempted were properties where soil or groundwater cleanups were undertaken.

Other changes were made to the law in 2020.

Hartley said lawmakers and stakeholders most involved in Transfer Act reforms anticipated a long process. She is hopeful proposed regulations could come before the General Assembly’s Legislative Regulations Review Committee for a final inspection by the fourth quarter of 2023.

“It’s been really uphill, but I certainly think we are three-quarters of the way up that hill,” Hartley said.