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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D C 20460

MEMORANDUM
SUBJECT: Transmittal of Interim Ciuidanceon Financial Responsibility lor Facilities Subjcetto
This memorandum transmits the attached document entitled "Interim Guidance on Financial
Responsibility tor Facilities Subject to RCRA Corrective Action." Financial assurance is an
important aspect of ihe corrective action program. This document provides decision makers
guidance in the implementation of financial responsibility requirements to ensure thai owners and
operators provide evidence of financial responsibility for corrective action that may become
necessary in tlie fillure. This guidance will also assist the states that are authorized for corrective
action in the implenientaiioriol'financial assurance requirements, so please share it with shem as
appropriate.
In some cases there may be some facility owners and operators that tire unable or fail to
provide financial assurance. Prompt enforcement action against non-compliam. financially viable
entities is generally appropriate. We recognize that facility owners and operators that arc bankrupt, or
have oilier financial problems may have difficulty securing financial assurance. We encourage
innovative and site-specific approaches to address the difficulties financially stressed companies
have in meeting financial assurance requirements. This guidance docs not prescribe the use ofanv
particular approach. Decision makers have the discretion to use approaches described here, or on a
case-by case basis adopt a different, approach as appropriate.
FROM:
Susan Hi. Brotnm
Direct}^ Office of/Site Remediation Enforcement
Robert Springer j I	o
Director. Office ot Solid Waste
TO:
RCRA Senior Policy Advisors. Regions I - X
RCRA Enforcement Managers, Regions I - X
RCRA Key Contacts, Regions I - X
PRihrrea on Recvo.ec/
RECYLT-ABLC PftOtR

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We appreciate the input we received from the Regional and State representatives
who helped shape this document. Thank you to those of you who allowed members of
your staffs to work on it. Some of them participated on the workgroup, and some
reviewed drafts of the guidance and provided comments. We received input from all 10
Regions as well as from ASTSWMO's Corrective Action and Permitting Task Force and
the States of Arkansas, California, Florida, Illinois, Michigan, New York, Ohio, Virginia,
and Washington.
Our offices are working on several projects in the area of financial assurance. We
are forming work groups with your staffs and interested states to facilitate
communication by sharing case studies and best practices. In addition, financial
assurance training modules and courses are under development, as arc efforts to include
financial assurance data in RCRAlnfo. For more information regarding financial
assurance for corrective action, please contact Mary Bell at (202) 564-2256 or Dale
Ruhterat (703) 30S-S192.
Attachment
cc:
Regional Counsels (Regions I - X)
Paul Connor, 0 EC A/OS RE
Neilima Senjalia, OECA/OSRE
Sandra Connors, OECA/OSRE
Monica Gardner, OECA/OSRE
Bruce Kulpan, OECA/OSRE
Peter Neves, OECA/OSRE
Mary Bell, OECA/OSRE
Tracy Gipson, OECA/OSRE
Matthew Hale, OSWER/OSW
Bob Hall, OSWER/OSW
Desi Crouther, OSWER/OSW
Tom Rinehart, OSWER/OSW
Betsy Devlin, OSWER/OSW
Dale Ruhter, OSWER/OSW
Brian Grant, OGC
Mary Beth Gleaves, OGC
Rosemarie lCellcy, OECA/ORE
Lynn Holloway, OECA/ORE
Tom Kennedy, ASTSWMO

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Interim Guidance on Financial Responsibility for Facilities
Subject to RCRA Corrective Action
Table of Contents
Page
2
Section I: Introduction
Section 2: Statutory and Regulatory Requirements for Providing
Financial Assurance for Corrective Action at Hazardous
Waste Treatment, Storage and Disposal Facilities
Section 3: Implementation of Financial Assurance Requirements for Corrective Action 5
3.1	Timing and Cost Estimating
3.2	Mechanisms
Section 4: Responding to Facilities that Claim an inability to Provide
Financial Assurance for Corrective Action
4.1	Evaluating the Financial Health of a Facility Where the
Owner/Operator Claims a Limited Ability to Provide
Sufficient Financial Assurance
4.2	Environmental Claims in Bankruptcy Filings
Section 5: Conclusion
Section 6: Use and Purpose of this Document
6
8
10
12
14
14
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Section I: Introduction
The purpose of this document is to provide guidance to EPA Regions and States authorized for
corrective action ("authorized states") regarding corrective action financial responsibility
requirements at hazardous waste facilities subject to the Resource Conservation and Recovery
Act (RCRA). This guidance addresses RCRA corrective action financial responsibility
provisions at hazardous waste treatment, storage and disposal facilities (TSDFs) that are
permitted or subject to RCRA § 3008(h) orders. 1
This document does not address financial responsibility requirements for closure, post-closure
care or third-party liability.2 In addition, this document does not address every available option
or approach; and some of the ideas suggested in this document may not be appropriate for all
facilities. Finally, regulators should be aware that state laws and regulations may differ from
federal requirements and may affect how the regulatory agency handles financial responsibility
requirements.
Corrective action entails conducting cleanup activities to address all unacceptable risks to human
health or the environment from the release of hazardous waste or hazardous constituents at
TSDFs.3 The corrective action process generally includes the following elements: initial site
assessment, site characterization, environmental indicators, selection and implementation of the
remedy.4
If corrective action, when necessary, cannot be completed prior to the issuance of a permit to an
owner or operator of a TSDF by the Administrator or an authorized State, the permit must
contain a schedule of compliance for completing such corrective action and assurances of
financial responsibility.5 Thus, both EPA and authorized States must include assurance of
financial responsibility for corrective action in permits that require corrective action. EPA is
1	Advance Notice of Proposed Rulemaking, Scope and Definitions, 61 Fed. Reg. 19432,
at 19441 (May 1, 1996) (hereinafter "the 1996 AN PR").
2	Regulations for closure, post-closure care and third-party liability are found in 40 CFR
Part 264, Subpart H for owners and operators of permitted hazardous waste facilities, and 40
CFR. Part 265, Subpart H for owners and operators of facilities operating under interim status,
3See, e^., discussion of corrective action authority in the context of permitting and
Section 3008(h) orders in the 1996 ANPR at 19442-43 and 19453-54 (discussion of the
definitions of "release" and "solid waste management unit").
4	The 1996 ANPR at 19436 and 19443; Environmental Indicators for Corrective Action
and Corrective Action Process. RCRA Cleanup Reforms (www, en a.gov/correctiveactiorO.
5	RCRA § 3004(u), 42 U.S.C. § 6924(u).
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authorized to issue administrative orders or file civil judicial actions that impose corrective
action financial responsibility requirements on facilities subject to 3008(h) orders. 6
The primary purpose of the financial responsibility requirements for corrective action is to assure
that funds will be available when needed to conduct necessary corrective action measures.7 The
intent of the RCRA financial responsibility requirements is, in part, to reduce the number of
TSDFs that are insolvent or abandoned by their owners and operators, leaving the costs of
corrective action to be borne by the public.x
Congress intended that facility owners and operators ensure that adequate funds would be
available to complete the required corrective action so contaminated TSDFs do not become the
responsibility of the federal Superfund or State cleanup programs.'' It is important for regulators
to require facility owners and operators to obtain financial assurance when the companies are
financially healthy, so that resources are set aside in the event a company hits a financial decline.
The Agency recognizes that there may be some facility owners and operators that are unable or
fail to provide financial assurance. Prompt enforcement action against non-compliant,
financially viable entities is generally appropriate. In cases where the owner or operator is
insolvent or bankrupt and is having difficulty securing financial assurance, regulators could
consider requiring the owner or operator on a case-by-case basis to provide financial assurance
pursuant to a compliance schedule as part of an enforcement action, while also performing the
necessary corrective action. Regulators are encouraged to work with financially distressed
facility owners and operators to develop practical facility-specific cleanup goals that protect
human health and the environment, and to assure, using all appropriate tools, that the regulated
community complies with financial assurance requirements.
EPA has not promulgated detailed regulations for financial assurance for corrective action. EPA
codified the statutory requirements for owners and operators of permitted facilities, but did not
codify requirements for owners and operators of facilities operating under interim status.
Regions and authorized States have discretion in determining how to address the corrective
action financial assurance requirements at each RCRA TSDF to meet the regulatory and
statutory requirements in light of the specific circumstances at that facility.
EPA recognizes that the main goal of regulators in implementing the corrective action
6	RCRA § 3008(h), 42 U.S.C. § 6928(h); see e^, 63 Fed. Reg. 56710, at 56716 (Oct. 22,
1998) and 65 Fed. Reg. 70954, at 70966 (Nov. 28, 2000).
7	Interim final rule with request for comments, Future Regulatory Activity, 47 Fed Reg.
32274, at 32279 (July 26, 1982).
8	The 1996 ANPR at 19434, Statutory and Regulatory Requirements.
y The 1996 ANPR at 19434, Statutory and Regulatory Requirements.
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requirements is to protect human health and the environment presented by releases at RCRA
facilities, and that financial assurance involves matters with which regulators are sometimes not
familiar. By this guidance, EPA hopes to assist regulators in understanding the purpose and
importance of financial assurance for corrective action and the regulator's role in ensuring that
financial assurance is sufficient.
This guidance document does not address all issues related to financial responsibility for
facilities subject to RCRA corrective action. We expect to issue follow-up guidance to address
some of the outstanding issues, such as model language options for administrative orders.
Section 2: Statutory and Regulatory Requirements for Providing
Financial Assurance for Corrective Action at Hazardous Waste Treatment,
Storage and Disposal Facilities
RCRA TSDF owners and operators are required to demonstrate financial responsibility for
corrective action as may be necessary to protect human health and the environment primarily to
ensure adequate funds are available to undertake the necessary corrective action at the facility in
the event, for example, the facility owners and operators are unable or fail to do so. Under
RCRA § 3004(u), permits issued by the Administrator or a State "shall contain schedules of
compliance for such corrective action (where such corrective action cannot be completed prior to
issuance of the permit) and assurance of financial responsibility for completing such corrective
action."
RCRA § 3004(v) further requires that corrective action be taken beyond the facility boundary
where necessary to protect human health and the environment unless the facility owner or
operator concerned demonstrates to the satisfaction of the Administrator that, despite its best
efforts, it was unable to obtain the necessary permission to undertake off-site corrective action.
Federal regulations at 40 CFR § 264.101 codify the requirements of RCRA § 3004(u) and (v).
"The owner or operator of a facility seeking a permit for the treatment, storage or disposal of
hazardous waste must institute corrective action as necessary to protect human health and the
environment for all releases of hazardous waste or constituents from any solid waste
management unit" and "the permit will contain assurances of financial responsibility for
completing such corrective action." Further, "[t]he owner or operator must implement corrective
actions beyond the facility property boundary, where necessary . . . "; and "[ajssurances of
financial responsibility for such corrective action must be provided."
At permitted TSDFs, financial assurance requirements for corrective action are imposed through
the permit. The part of the permit that includes requirements for financial assurance for
corrective action may be issued by an authorized State, or where States are not authorized, by
EPA.
At facilities that are issued RCRA § 3008(h) orders, EPA may rely on its administrative order
authority, rather than on permits, to impose financial assurance requirements. Under RCRA §
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3008(h), EPA may issue administrative orders requiring corrective action or such other response
measures as EPA may deem necessary to protect human health or the environment. EPA's
authority under this section includes, among other things, the authority to require financial
assurance for corrective action. Most authorized States have § 3008(h)-like authority.
Regulators are encouraged to include financial responsibility requirements in corrective action
orders issued to TSDF owners and operators.
RCRA regulations authorize the use of various mechanisms to provide financial assurance for
closure, post- closure, and third-party liability including any one, or a combination of, if
appropriate, trust fund, surety bond, letter of credit, insurance, corporate guarantee, or
qualification as a self-insurer by means of a financial test. EPA may allow these financial
mechanisms to establish financial assurance for corrective action under either permits or
administrative orders. EPA may allow other financial mechanisms as well if the facility owner
or operator demonstrates to the satisfaction of the Agency, that such mechanisms provide an
acceptable level of financial assurance, and the mechanism is otherwise consistent with federal
law. 10 Authorized States may allow these or other financial assurance mechanisms that are
consistent with the requirements of their own laws and provide adequate assurance. n
Section 3: Implementation of Financial Assurance Requirements for Corrective Action:
Timing, Cost Estimating and Mechanisms
In the legislative history of RCRA § 3004(u), Congress expressed concern that unless all
hazardous constituents released from solid waste management units at permitted facilities are
addressed and cleaned up more sites will be added to the Superfund program in the future, with
little prospect for control or cleanup. 12 Although detailed regulations to govern financial
assurance for corrective action were proposed by the Agency, they were not finalized. Instead,
EPA codified the statutory requirements for owners and operators of permitted facilities. The
Agency has emphasized that regulators should ensure that financial assurance requirements are
applied appropriately to ensure remedies proceed expeditiously and facility owners and operators
have the necessary funds to implement corrective action. 13
3.1 Timing and Cost Estimating
10	For further discussion of this subject, see preamble to the Proposed Rule, Allowable
Mechanisms, 55 Fed. Reg. 30799, at 30856 (July 27, 1990), and RCRA § 3004(a) & (t), 42
U.S.C. § 6924(a) & (t); 40 CFR. Parts 264, Subpart H & 265, Subpart H.
11	RCRA § 3009, 42 CFR § U.S.C. § 6929.
12	The 1996 ANPR. at 19434, citing H.R. Rep. No. 198, 9Slh Cong., Ist Sess., part I, 61
(1983).
13	The 1996 ANPR at 19455.
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The Agency has acknowledged the difficulties regulators face in determining when financial
assurance for corrective action should be established and the amount of financial assurance to
require. In the 1996 AN PR, EPA stated that financial assurance demonstrations have been
ordinarily required at the time of remedy selection. H The Agency has also said the degree of
investigation and subsequent corrective action necessary to protect human health and the
environment varies significantly across facilities. Since few cleanups will follow exactly the
same course, decision makers should have significant latitude to structure the corrective action
process, develop cleanup objectives, and select remedies appropriate for facility-specific
circumstances.15 Since no final rule was issued by the Agency concerning the timing of financial
assurance for corrective action, regulators have the flexibility to tailor the timing and
requirements for financial responsibility to facility-specific circumstances. 16
In determining the timing and the amount of financial assurance ai a particular site, there are
several approaches for regulators to consider. One approach is to require financial assurance for
known releases at the time of final remedy selection, and the associated cost estimates are
known. The advantage of this approach is that the regulator can use this cost to determine the
amount of financial assurance to require. However, a disadvantage to this approach is that funds
are set aside relatively late in the process, often not before major costs are incurred. 17 Since it
frequently takes several years from the time a facility becomes subject to corrective action for
the facility to reach the final corrective measures selection stage of the process, there is a risk
that a facility owner or operator's financial situation could deteriorate during that time. If the
owner or operator's financial health declines and there is not sufficient financial assurance in
place, the responsibility to fund the cleanup may shift to the regulating agency and/or taxpayers.
Another approach in determining the timing and amount of financial assurance at a particular
facility is to require owners and operators to demonstrate financial assurance once it is
determined corrective action is necessary, but before the corrective measures are selected and
corrective action costs are known. This approach would require a facility owner or operator or
the regulator to make an early estimate of the likely cost of corrective action at the facility, and
require the facility owner or operator to provide financial assurance for that cost. After the
corrective measures are determined and better cost estimates arc known, the financial assurance
could be adjusted up or down, consistent with the revised cost estimate. This approach would set
aside funds for corrective action costs at an earlier stage. However, it may be difficult to
14 The 1996 ANPR at 19454, Financial Assurance.
13 The 1996 ANPR at 19440, Program Management Philosophy.
Ifi The 1996 ANPR at 19454, Financial Assurance.
17 The 1986 ANPR at 37860, Timing and Amount of Financial Assurance.
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determine a reasonable amount for some facilities.18
Regulators also should consider the nature of the cleanup involved at a particular site. Although
early implementation of the corrective action program focused on final cleanups, more recently
the trend has been towards ensuring interim measures and stabilization. 19 Since final remedy
implementation may be delayed at some facilities, based on information available at the
beginning of the corrective action process, it may make sense to require TSDF owners and
operators to demonstrate financial assurance for early stages of the corrective action process on a
site-specific basis. For example, where it is known that the costs of the investigation are certain
to be quite substantial and/or when the facility is in poor financial condition, regulators may wish
to consider requiring financial assurance to cover the estimated cost of the investigation. At
other facilities, regulators may determine it is necessary and appropriate to require financial
assurance for significant interim measures as well. An example of such an interim measure is
installing and maintaining a groundwater well system to stop a plume of contamination from
further migration.
Initially, the financial assurance required could be limited to those activities, such as the
investigation and interim measures, that are deemed necessary at the beginning of the process.
Later, if it is determined that additional corrective measures are required and what those
corrective measures will be, regulators could require financial assurance to be established for
those corrective measures. Regulators could structure the financial assurance requirements in
the permit or administrative order so that the facility owner or operator could demonstrate
financial assurance incrementally. The financial assurance could be adjusted as the work is
conducted, and as the costs of subsequent stages become known. Some financial assurance
mechanisms might be better suited to this approach than others.
I!i The 1986 ANPRat 37860, Timing and Amount of Financial Assurance.
i9As the corrective action program began to mature it became clear to regulators that final
cleanups were difficult and time consuming to achieve, and an emphasis on final remedies at just
a few facilities could divert limited resources from addressing ongoing releases and
environmental threats at many other facilities. As a result, the Agency established the
Stabilization initiative in 1991 which increased the rate of corrective actions by focusing on
near-term activities to control or abate threats to human health and the environment and prevent
or minimize the further spread of contamination. In addition, in response to the Government
Performance and Results Act of 1993 (GPRA) and criticism that the agency focused too much on
administrative process rather than actual cleanups, EPA developed two specific environmental
indicators for the corrective action program: Human Exposures Controlled Determination and
Groundwater Releases Controlled Determination. The indicators are facility-wide measures that
are obtained when there are no unacceptable risks to humans due to contaminants or when
migration of contaminated groundwater is controlled. Thus, the current approach to corrective
action focuses on ensuring interim measures and stabilization actions (The 1996 ANPR at
19436).
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There are potential advantages in requiring TSDF owners and operators to demonstrate financial
assurance earlier and incrementally, rather than at final remedy selection. This approach could
assure that funding will be available for stabilization activities so that the facility does not
present an unacceptable risk in the near-term if it defaults. Demonstrating financial assurance
incrementally could increase the amount of resources available for cleanup work while reducing
the financial burden on the facility owners and operators of providing a large amount of financial
assurance for remedy implementation.
Depending on the mechanism selected, it is possible for the regulator to structure the requirement
for financial assurance so that the amount set aside is reduced or increased at specified intervals
as the corrective action work is characterized and conducted. Permits or administrative orders
would be modified accordingly. Regulators may structure the financial assurance so the amount
is reconsidered at regular intervals (e.g., annually) corresponding with completion of the various
stages of corrective action at a particular facility. The amount of financial assurance should also
account for inflation.
We recommend that estimates be based on costs that would be incurred by an independent, third-
party in order to ensure that the full costs of corrective action will be covered in the event an
owner or operator is not able to fulfill its obligations. EPA's 1986 proposed rule for financial
assurance for corrective action contains some discussion of some of the elements that may be
relevant to a cost estimate.20 Often, however, regulators will need to rely on the institutional
knowledge that exists in their Region or State to estimate the costs of some of these activities
when actual costs are not known.
The language of the permit or administrative order should be crafted carefully to ensure that the
financial assurance requirements are clearly set forth and that the amount necessary for the
particular facility is established and maintained. Regulators may also consider including a
provision in an order providing that if the facility owner or operator fails to establish and maintain
the financial assurance as required, the facility owner or operator may be subject to enforcement
action, including civil penalties. In addition, clear definitions of operative terms, such as "failure
to fulfill corrective action obligations" will help insure compliance.
3.2 Mechanisms
Since EPA has not promulgated specific regulations for financial assurance for corrective action,
regulators have the flexibility to determine which mechanism an owner or operator may use to
satisfy the financial assurance requirements. Often regulators look to other regulatory provisions
pertaining to financial assurance for guidance such as the regulations for closure and post-closure
care and third-party liability at TSDFs at 40 CFR Part 264, Subpart H. These provisions allow
owners and operators of TSDFs to demonstrate financial responsibility through a trust fund,
20 Advance Notice of Proposed Rulemaking, 51 Fed Reg, 37854, at 37862 (Oct. 24,
1986) (hereinafter "the 1986 ANPR").
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surety bond, a letter of credit, insurance, corporate guarantee, or qualification as a self-insurer by
means of a financial test. Any one, or any combination of these mechanisms may be used if
appropriate, to satisfy the financial assurance requirements for corrective action given the specific
circumstances. EPA may allow other mechanisms to provide financial assurance for corrective
action as well, if the facility owner or operator demonstrates to the satisfaction of the Agency that
such mechanisms provide an acceptable level of financial assurance, and the mechanisms are
otherwise consistent with federal law.21 States may use these or other financial assurance
mechanisms, provided they are permissible under their own laws and provide adequate levels of
assurance. Each mechanism has unique characteristics so regulators should carefully evaluate the
advantages and disadvantages of each when determining which should be used.
Regulators may also look to the regulations for municipal solid waste landfill facilities at 40 CFR
Part 258.74, Subpart H, and the regulations for underground storage tanks at 40 CFR Part 280.90,
Subpart G for guidance as well.22
EPA urges regulators to exercise caution in drafting the actual language of the mechanism to be
used for a specific facility. For example, regulators should not necessarily rely on the exact
language in the regulations because that language does not relate specifically to corrective action.
The language of the mechanism or instrument for financial assurance should be drafted for the
specific purpose of providing financial assurance for corrective action at the specific facility
being addressed in order to ensure its availability in the event that the owner or operator fails to
fulfill its obligations.
The permit or administrative order can be drafted to include provisions to help ensure the
adequacy of the financial assurance mechanism. For example, the document could be drafted to
include the specific mechanism the facility owner or operator must provide or a specific range of
options that would be acceptable to the regulating agency. For administrative orders, the selected
mechanism would require approval by the regulating agency. In addition, the administrative
order could set forth consequences in the event the owner or operator fails to establish and
maintain the financial assurance as required.
Use of each mechanism implicates a specialized area of law and finance. Regulators should work
with experts in those fields in reviewing the mechanisms proposed prior to approval to ensure
sufficiency. Once a mechanism is selected, there are various techniques to ensure the mechanism
remains effective. In the regulations mentioned above, for example, mechanisms such as the
financial test are monitored to ensure the company continues to meet both the financial and the
record keeping and reporting requirements. Monitoring of third-party mechanisms, such as surety
21	Proposed Rule, Allowable Mechanisms, 55 Fed. Reg. 30799, at 30856 (July 27, 1990).
22	The financial assurance regulations referenced above are available electronically at
www.epa.gov/eDahome/cfr40 (Title 40, Chapter 1, Subchapter 1 Solid Wastes (Parts 239-299),
Part 264 p.64; Parts 258.74 p.47; Parts 280.90 p.36).
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bonds also ensures the surety remains financially viable. This can be done, for example, by
confirming that the surety continues to be included in the U.S. Treasury's Circular 570.
Monitoring by regulators can be facilitated by, for example, imposing regular reporting
requirements on the owner or operator.
As important as regular monitoring are requirements for reporting any termination or cancellation
of the financial assurance instrument. The regulatory authority could require notice of the intent
to cancel, terminate or fail to renew an instrument. This notice could provide sufficient time for
the owner or operator to obtain a replacement or, if one is not available, allow the regulator
enough time to call in the instrument and ensure that funds will be available for the work. In
addition, when a corporate guarantee is used, the corporate guarantor could be required to provide
immediate notice whenever it no longer meets the financial test. When this occurs, the facility
owner or operator could be required to provide an alternative financial assurance mechanism.
The financial assurance regulations referenced above provide examples of how this can be
structured.
In sum, regulators have considerable discretion in determining how to address financial assurance
requirements that are protective of human health and the environment. The Agency suggests
using the approach that is best suited to the particular facility being addressed. Practical cleanup
requirements should be developed that enhance timely, efficient and protective cleanups based on
facility-specific circumstances.
Section 4: Responding to Facilities that Claim an Inability to Provide Financial
Assurance for Corrective Action
4.1 Evaluating the Financial Health of a Facility Where the Owner/Operator
Claims a Limited Ability to Provide Sufficient Financial Assurance
Where financial assurance for corrective action has not yet been provided by the owner or
operator of a TSDF, an owner or operator could claim, at the time the financial assurance must be
provided, that it cannot afford the required financial assurance or claim that no one is willing to
provide it for them. Where corrective action cannot be completed prior to issuance of the permit
RCRA and current federal regulations explicitly mandate permits issued to owners and operators
of TSDFs must contain schedules of compliance for corrective action and assurances of financial
responsibility for completing such corrective action.23 Likewise, owners and operators of
facilities subject to RCllA 3008(h) administrative orders are typically required to provide
financial assurance. In cases where the facility owner or operator claims it is unable to afford the
required financial assurance, EPA recommends that regulators evaluate the financial health of the
owner or operator to determine whether the claim is valid. Regulators should obtain the expertise
of a financial analyst when making this determination.
23 RCRA § 3004(h), 40 CFR § 6924(u); 40 CFR § 264.101
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A good starting point for reviewing the financial condition of an owner or operator would be the
individual or company's financial statements and tax returns. Generally, reviewing a company's
records from the last five years will be sufficient. The facility owner or operator should not have
any difficulty voluntarily providing such information to document a legitimate claim.
Regulators should keep in mind that the value of an entity's financial statements and tax returns is
limited because these documents generally reflect past financial performance from which future
performance may only be predicted. They do not provide certainty about an owner or operator's
future financial situation.
Regulators should also keep in mind that an owner or operator that submits financial information
generally will have the expectation that such information will be retained as confidential and not
released to the public. EPA has specific procedures that must be followed in the event that an
entity that submits financial information claims that the information is confidential.24 Each State
regulator is encouraged to review his or her State's rules regarding such information.
Besides financial information provided by the owner or operator, regulators may also find useful
information from other sources, such as Dun & Bradstreet (D&B), the Securities and Exchange
Commission (SEC), and LEXIS-NEXIS. In addition, both Moody's and Standard & Poor's
provide bond ratings. These services may have information that may be helpful in predicting a
company's future performance, and therefore, its ability to provide financial assurance.
D&B can provide a broad range of information such as bankruptcy filings, suits and liens, and
credit opinions. Regulators can use D&B to identify and group entities within an organization,
and link parents with subsidiaries. D&B also provides business deterioration and high risk alerts.
Private services, such as D&B, provide useful reference tools, but the costs of collecting and
analyzing the data from these services can be high, so regulators may not have access to them.
Access to EDGAR, SEC's online database is publicly available at no cost. EDGAR is available
at www.sec.gov/indcx/htm. However, the SEC only has financial information on publicly traded
companies, with assets of $10 million or higher. It is important to note that previous analysis by
EPA found significantly higher bankruptcy rates for owners and operators that have a net worth
less than $10 million.23
If the regulator determines that the owner or operator's claim is valid, the regulator must decide
the best course of action to try to bring the owner or operator into compliance with financial
assurance requirements during the period leading up to final remedy selection. If the facility
owner or operator concerned demonstrates that it is working toward complying with the
requirements, and that there is a reasonable prospect of providing financial assurance in the near
24	40 CFR Part 2.208, Subpart B.
25	Notice of Proposed Rulemaking, 59 Fed. Reg. 51523, at 51527 (Oct. 12, 1994).
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future, the regulator may consider requiring the owner or operator to provide the financial
assurance in accordance with a schedule, while also performing the necessary corrective action.
The compliance schedule should clearly set forth, in detail, what the owner or operator must do,
when the owner or operator must do it, and the milestones and reporting requirements. In
addition, the compliance schedule should require the owner or operator to submit updates on its
financial situation. For interim status facilities, regulators should consider including such terms
in an administrative order. For permitted facilities, the regulators may need to modify the permit
to accomplish the same result.
If the regulator determines that the facility owner or operator's claim is not valid, a variety of
options are available to the regulator to ensure that the owner or operator complies with the
financial assurance requirements. For example, depending upon the circumstance the regulator
could issue an administrative order requiring compliance with RCRA financial assurance
requirements and/or seek penalties for noncompliance, or file an action for injunctive relief in
court.
4.2 Environmental Claims in Bankruptcy Filings
When the owner or operator of a facility subject to RCRA corrective action requirements files for
bankruptcy, financial assurance issues become further complicated. While bankruptcy law is
generally favorable to the government in enforcing corrective action and financial assurance
requirements against debtors, there are often other considerations that should be evaluated
pragmatically.
Typically, a financially distressed business will continue to operate and will file a Chapter 11
bankmptcy case, which provides an opportunity for the company to restructure its debts. If the
company cannot solve its financial problems, it may seek to liquidate by filing a Chapter 7
bankruptcy case or by having its Chapter 11 case converted to Chapter 7 liquidation. Issues
relating to financial assurance vary depending upon whether the bankruptcy case is a Chapter 11
or Chapter 7 case.
In a Chapter 11 bankruptcy case, the debtor usually remains in possession and control of its
property and continues to operate its business while seeking a solution to its financial problems.
A Chapter 11 debtor is not excused from its obligation to comply with environmental laws and
regulations in the operation of its business, including financial assurance requirements.26 The
regulating agency may take appropriate enforcement action to compel compliance or to assess a
26 In Safetv-Kleen, Inc. (Pinewood) v. Wvche. 274 F.3d 846 (4lh Cir. 2001), the court held
that in a Chapter 1 1 case a state administrative order requiring compliance with RCRA financial
assurance requirements remains in effect, notwithstanding the filing of a Chapter 11 petition by
the debtor because the primary purpose of financial assurance requirements is to deter
environmental misconduct.
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civil penalty.27 Environmental enforcement actions brought by the government against companies
in bankruptcy are generally excepted from the bankruptcy automatic stay pursuant to the "police
power" exemption in 11 U.S.C. §362 (b)(4).
The regulating agency's response to a Chapter 11 bankruptcy may differ depending on the
situation. For example, if the facility owner or operator has established and is maintaining
adequate financial assurance at the time that it declares bankruptcy, then the regulating agency
could act to secure that financial assurance by whatever means is appropriate given the particular
financial assurance mechanism. It is possible that, upon notice of bankruptcy, the issuer may
attempt to terminate an instrument established for financial assurance. In such a case, the
regulating agency will have to act swiftly to decide whether to make a demand for payment to
secure the funds before the termination of the specific financial assurance instrument occurs.
Such demand for payment would typically direct payment of the secured amount into an already
established standby trust, where the funds would be available to finance the ongoing corrective
action work. This approach works best where the mechanism for demanding such payment is
specified in the language of the specific instrument that established the financial assurance.
Ultimately, the party responsible for payment on the financial assurance will be forced to bring a
claim in the bankruptcy proceeding against the debtor for any payment required by the regulating
agency under a financial assurance mechanism established prior to the filing of bankruptcy (such
claims are considered "contingent claims" and are subject to bankruptcy).
Where the facility owner or operator has not established financial assurance or an appropriate
amount of financial assurance for corrective action, it is important for the regulating agency to
assert itself in the bankruptcy proceeding to ensure that the resources of the owner or operator are
available to address the necessary corrective action. Facilities that file for Chapter 11 bankruptcy
protection and plan to emerge from bankruptcy as an operating TSDF could be required as part of
the bankruptcy process, to establish and maintain financial assurance for corrective action.
Regulating agencies need to be involved in the bankruptcy proceeding to ensure that this is the
case. Where an owner or operator that has declared Chapter 11 bankruptcy does not intend to
continue operating as a TSDF and will, therefore, no longer receive hazardous waste, the
regulating agency should endeavor to ensure that sufficient resources are made available to
complete the necessary corrective action at the facility.
Regulators should also be aware that some bankruptcy courts allow Chapter 11 liquidations where
the debtor remains in possession, no trustee is appointed, and the debtor proposes and the
creditors vote on and approve a plan of liquidation. Abandonment of contaminated property may
occur in such Chapter 11 liquidations.
]n a Chapter 7 bankruptcy case, the debtor ceases operations and its business is liquidated. A
Chapter 7 trustee is appointed who sells the assets of the debtor and distributes any proceeds to
27 Once a penalty is assessed or a judgment on the penalty is obtained, the automatic stay
prohibits collection activities other than through the bankruptcy process.
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creditors in accordance with the priority scheme set forth in the Bankruptcy Code. The Chapter 7
trustee may seek to abandon contaminated property that cannot be sold. While the debtor's
obligations for cleaning up the contaminated property are not discharged by the bankruptcy, the
debtor rarely has the resources to perform such work. More often than not, the financial
assurance previously established by the debtor may be the only significant source of funding for
corrective action.
Issues that arise when a regulated entity files for bankruptcy arc complex. In some instances the
law is unsettled or may vary depending upon the jurisdiction. Regulators must consult with legal
counsel when cases involving bankruptcy arise in order to ensure that their regulating agency's
rights are preserved.
Section 5: Conclusion
RCRA requires permits issued to owners and operators of hazardous waste TSDFs to provide
assurances of financial responsibility for completing corrective action as may be necessary to
protect human health and the environment. In addition, financial assurance requirements should
generally be included in corrective action administrative orders issued under Section 3008(h) of
RCRA, 42 U.S.C. § 6928(h). Regulators have flexibility to tailor financial responsibility
requirements to facility-specific circumstances. EPA recommends structuring the governing
document, either permit or administrative order to ensure that facility owners and operators obtain
an appropriate mechanism to satisfy the financial responsibility requirements for corrective
action. The mechanism should ensure that sufficient funds are available to undertake the
necessary corrective action at the facility in the event the facility owner or operator is unable or
fails to so do. Failure of a facility owner or operator to comply with financial responsibility
requirements may put human health and the environment at risk.
Section 6: Use and Purpose of this Document
This document is not a regulation nor does it change or substitute for the statutory provisions
described in this document. Moreover, this document does not confer legal rights or impose legal
obligations upon any member of the public.
While EPA has made every effort to ensure the accuracy of the discussion in this document, the
obligations of the regulated community are determined by statutes, regulations, or other legally
binding requirements. In the event of a conflict between the discussion in this document and any
statute or regulation, this document would not be controlling. Because this document cannot
impose legally-binding requirements EPA and State decision-makers retain the discretion to adopt
approaches on a case-by-case basis that differ from this guidance where appropriate.
The general description provided here may not apply to a particular situation based upon the
circumstances. Interested parties are free to raise questions and objections about the substance of
this document and the appropriateness of the application of diis document to a particular situation.
EPA and other decision-makers retain the discretion to adopt approaches on a case-by-case basis
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that differ from those described in this document where appropriate.
This is a living document and may be revised periodically without public notice.
For additional information contact: Mary Bell at (202) 564-2256, bell.marv@epa.gov. or Dale
Ruhter at (703) 308-8192, ruhter.dale@epa.eov-
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