2001 Legislative Package

SB 232 (Environmental Quality Committee)

Environmental Insurance Program
Sponsor: California Environmental Protection Agency
Department of Toxic Substances Control

Summary:

This bill would establish the California Environmental Insurance Program for Land Recycling, with the aim of making environmental insurance for brownfields redevelopment more affordable. The bill would establish the California Environmental Insurance Trust Fund as a continuously appropriated funding mechanism for subsidizing the premiums of insurance policies. The bill would appropriate $40,000,000 from the General Fund to Cal/EPA for the implementation of the bill.

Background:

Blighted and contaminated lands are a significant problem facing many communities in California. Research indicates there may be as many as 90,000 such sites, also called “brownfields.” Private developers, local government and schools have been reluctant to redevelop brownfields due to a myriad of issues related to hazardous contamination. But even when developers are willing to take on these projects, private investors and lending institutions have been hesitant to fund site investigations and remediation activities, due to legal liability issues and the potential for escalating site cleanup costs. As a result, one of the biggest roadblocks to redevelopment of blighted properties has been the lack of private sector financing.

Legislation enacted in 2000 (Chapter 912, Statutes of 2000) took an important step to help meet the challenge of brownfields redevelopment in California. The bill created the Cleanup Loans and Environmental Assistance to Neighborhoods (CLEAN) Program, an $85 million low-interest state loan program to investigate and clean up polluted properties in urban neighborhoods. These loans will speed the economic reuse of sites for new job-creating businesses, housing, schools and urban parks. The Department of Toxic Substances Control (DTSC) is implementing this program.

Problem:

While the CLEAN program provides badly needed financial resources for the actual site investigation and cleanup activities at brownfields sites, fears of potential open-ended liability for existing contamination and cleanup cost overruns remain. Environmental insurance can effectively address these problems by protecting against cost overruns, unanticipated environmental costs and third party lawsuits due to environmental issues, as well as, ensuring protection for lenders against loss on loans for development projects involving contaminated properties. Although environmental insurance is available from many private companies, these insurance premiums often exceed what developers are able to pay, especially on small properties.

Analysis:

Under this program California would negotiate a complete set of volume discounted environmental insurance policies through a single insurance carrier. Then, state funds would partially subsidize the insurance premiums to further its affordability, and pay a portion of the policy’s deductible, also known as the stop loss amount. Recipients of CLEAN loans would be required to purchase the insurance. Other property owners and developers would have the option of purchasing this insurance. This bill would make environmental insurance more affordable and more widely available, thereby stimulating the redevelopment of brownfields.

Contact:

Alan Gordon, Legislative Director
Department of Toxic Substances Control
(916) 324-0912

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