How surety bonds expand post-remediation care options to meet financial assurance requirements

Earlier in 2019, the New Jersey legislature approved updates to the 2009 Site Recovery Reform Act (SRRA), a suite of improvements known collectively as SRRA 2.0. Introduced a decade after the original SRRA, this legislation sought out to improve upon the original set of regulations. One such tweak was to the list of acceptable remedial funding source and financial assurance mechanisms required by the original SRRA to meet post-Response Action Outcome (RAO) obligations. Now, the responsible party has the option to can use a surety bond to meet this NJDEP requirement.

While a seemingly small adjustment, adding surety bonds provides a better option for many, freeing up valuable cash for other uses while still meeting the property owner’s obligations. To better understand the significance of this change to property owners or developers, it’s important to understand the surety bond financial mechanism and how a surety bond is a more cost effective means to fulfill this post-RAO obligation.

What is a surety bond?

A surety bond is an agreement which commits the party responsible for the site to its post- RAO obligations for operation, maintenance, monitoring and LSRP certification of engineering control (i.e. a cap or other physical barrier to contamination). The person responsible for remediation, often, but not always the property owner, will need to obtain a surety bond for the costs to operate, maintain, monitor and certify the engineering control for however long the control is in place. This agreement provides assurance to the state — if the owner does not comply, neglects the site, or otherwise falls behind on remedial action permit obligations – that the necessary post RAO requirements will be funded by the surety bond.

Advantages of a surety bond

Originally, state authorities were resistant to adding surety bonds as a funding option, because it can be difficult to secure bond payments for lack of performance. However, surety bonds provide a more affordable alternative and a more stable one in some cases. With a surety bond in place, the New Jersey Department of Environmental Protection (NJDEP) knows with confidence that the funding is in place.

Surety bonds are regarded as a more accessible and reliable option for owners or developers. Unlike a line of credit that comes with high fees or a trust that ties up more fluid cash resources, surety bonds are easier to maintain in the long term. Surety bonds are regarded as more stable than a line of credit; they cannot easily be revoked. Additionally, surety bonds may be more affordable, at only 1 to 3 percent of the total cost of operation, maintenance, monitoring and certification of institutional and engineering controls.

Additionally, the responsible party has an opportunity to review the surety bond annually and adjust as necessary. A Licensed Site Remediation Professional (LSRP) files a letter annually, which reflects the costs for post-RAO work. If this letter reflects a decrease in costs, the bond can be changed to reflect the new cost, reducing fees overall.

Why does New Jersey require financial assurance on a cleanup?

The first iteration of SRRA established that property owners must have a financial assurance mechanism in place when an engineered control is used as part of a cleanup. These controls, which involve physical items such as engineering caps or other physical barriers, need to be checked regularly to ensure they are still working, and no damage or other deterioration has made a negative impact. If a site is not being maintained to the state’s satisfaction and/or the owner is not responsive, these funds are then used to make the necessary repairs. The funds must be made available for the life of the engineering control, often in perpetuity, after the remediation is deemed complete, and a Response Action Outcome (RAO) is issued. To facilitate a cost basis for the surety bond, LSRP’s will estimate the 30 year maximum costs for operation, maintenance, monitoring, certification and governmental fees, as required by the NJDEP

Surety bonds with EWMA

Surety bonds are a financial guarantee that an individual or organization is left standing in the event of default or nonresponse. This guarantee ensures long term post-RAO obligations are fulfilled with a funding mechanism. If the property owner defaults, the surety bond guarantees that EWMA will continue and to perform on-going operation, maintenance, monitoring and certification services. If EWMA defaults, the property owner is the beneficiary of the surety bond.

Surety bonds: a lower-risk, lower-fee way to meet obligations

Considering the burden of a decades-long (or even an infinite!) timeline, it can seem impossible to properly predict what may need to be done years into the future, or what these fixes and associated monitoring activities may cost. Thankfully, property owners can utilize two important tools to help cap the costs: insurance and financial assurance.

Property owners have a responsibility to care for their site for years or even decades after a cleanup is deemed complete and a RAO is issued with conditions requiring post RAO operation, maintenance, monitoring and certification of institutional and engineering controls. The updates included in SRRA 2.0 expand a property owner’s financing options, incorporating surety bonds as another, less expensive, and a lower-risk way to finance these options in the event of default.

When it comes time to consider your post-remediation care options, EWMA is here to guide you through the multitude of options available to obtain and maintain compliance. Contact EWMA to schedule a consultation for your next project.