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PO Box 1070, Frankfort, KY 40602  Phone 502.875.2428, Fax 502.875.2845

KRC Recommends Improvements In Meth Lab Property Cleanup Program  Posted: December 6, 2007
Statement of Tom FitzGerald, Director
Before the House Committee On Seniors, Military Affairs and Public Safety
Regarding Implementation of House Bill 94
December 4, 2007

Madame Chair, I appreciate the invitation to participate in today’s discussion concerning the implementation of House Bill 94. As I did at the time of enactment of the bill, let me again express my appreciation to you for your leadership on this law, which filled an important gap in providing standards and a mechanism for rehabilitation of properties utilized for methamphetamine production.

Let me begin by making an apology to Kim Leingang and Tim Hubbard. At the time that both I and the bill’s sponsor first became aware that there was a problem, which was when we were both contacted by a Courier Journal reporter, I was correctly quoted as stating that it was ‘regrettable that the agency had not made an active effort to go out there and recruit the contractors to get this program up and running the way it was intended.”

In reviewing documentation that was provided by the agency in response to an open records request in September, it is apparent that there was an effort to do so at the staff level, and I should have been more precise in expressing my disappointment.

Let me be more precise now, as we move forward in attempting to identify problems and to assure better implementation of this important law.

There was an active staff effort to inform contractors, though not what I would characterize as an aggressive effort. Unfortunately, however, certain agency policy decisions appear to have played a role in the lack of initial availability of contractors.

At the staff level, there were efforts to communicate with contractors – 38 were apparently contacted in late July by email, largely appearing to have been drawn from existing meth lab contracting firms from other states, according to the list and documentation provided to me. It was not until the time that the Courier Journal reporter began investigating the story in mid-September, that communication of the program was made with 200 additional contacts that had not been initially contacted, those being largely contractors engaged in asbestos removal and decontamination.

It is unclear from the record why those 200 contractors were not initially contacted in July when the smaller list of 38 were notified of the program, as it is unclear why the agency did not initiate the first round of contacts until July 23rd when the law was signed on March 23rd. An aggressive effort would have certainly have at the onset included notification of those firms already engaged in Kentucky in the remediation of contaminants from structural interiors, including mold, asbestos and hazmat firms, and it is good to see that it has now been broadened to include notification to some of those contractors.

Looking ahead, there are a number of issues that would benefit from further evaluation by this Committee and the sponsor, and would be appropriate for legislative or agency action:

1. A statutory requirement for an annual proposed work plan and year-end report to the committee of jurisdiction would be appropriate and would assure more timely communication to the General Assembly of any implementation issues or perceived areas of agency uncertainty regarding the scope or requirements of the program. The bill sponsor should certainly be the first, not the last, to find out that there are implementation problems and uncertainties.

2. The question of what forms of financial assurance are acceptable is one that merits clarification either administratively or by legislative amendment. The use of the phrase “financial assurance” was intended, I believe, to include the full array of financial assurance mechanisms, including use of a corporate guarantee, financial test-based self-insurance, collateral bond, and performance insurance, but has been construed narrowly by the agency to require a performance bond or guarantee in all cases in addition to a surety bond or irrevocable letter of credit. This more narrow reading was in no small part responsible for the certification problem earlier this year, since there are mechanisms accepted in other regulatory programs that do not require payment of premiums at the level of the surety bonds.

3. The amount of the bond or financial assurance may need adjustment, and a lower amount could be appropriate under certain circumstances.

It should be recalled that the use of financial assurance as a surrogate for a contractor certification program was not the preference of the sponsor, who had instead wanted to create a certification program that would test and certify the minimum levels of competence among contractors undertaking this work. It is my understanding, and the sponsor can clarify, that it was agency reluctance to take on another certification program that resulted in the use of a bond or other financial assurance mechanism as a surrogate for such testing. The purpose of the financial assurance is to insure performance by dissuading the contractor from defaulting because they have a bond at risk, and also providing an assurance that can be drawn on by the state for completion of the work in the case of contractor default.

There is not a widely available market of companies willing to write performance bonds for environmental pollution, including contamination of properties from meth production. There were two companies identified that are willing to write such a bond, at a cost of around $30 per thousand dollars of coverage, with fairly rigorous underwriting requirements. With an average cost of remediation of $2 – 10,000 and a profit margin of 15 – 25%, a firm would need to do several sites each year to justify obtaining a surety bond with an annual premium of around $15,000.

The interim remedy provided by the agency, which was to spend down the surety requirements by posting $450,000 in agency funding and lowering the funded liability to the contractor to a level of $50,000, was creative but is facially inconsistent with the language and the intent of the legislation, and has the effect of shifting the majority of the risk and financial burden of non-performance to the agency and putting public dollars rather than contractor capital at risk. The $50,000 isn’t sufficient if multiple sites are defaulted on by a contractor.

4. An alternative that will better balance the goals of attracting competent contractors and assuring that the public (including those owning rental properties and neighborhoods interested in avoiding abandoned and blighted vacant properties) will not bear the costs of non-performance by contractors, would be to modify the certification program to provide for administering of a test and training for qualifying contractors for basic competence in meth site remediation and clearance testing should be adopted. EPPC has had discretionary authority to adopt standards for contractor testing and certification but has declined to do so to date. Such a certification would lower the risk of nonperformance and allow a lowering of the required financial assurance.

5. The adoption of a guidance document by the EPPC for conducting remediation of meth lab structures is a step in the right direction, but it is doubtful that the agency could require compliance by a meth lab contractor with the guidance, nor revoke the contractor certificate for failure to adhere to such guidance, due to constraints imposed under K.R.S. Chapter 13A. The guidance should be codified as an emergency regulation and compliance with the guidance made an explicit regulatory requirement for performance by a certified contractor.

6. A responsible agency should conduct an inspection at the time of conclusion of remediation in order to verify completion of the remediation, and issue a closure letter upon successful completion. This step will both increase public confidence by providing an independent check on performance, and will lower the market risk by providing some closure to the performance that has been “assured” through the financial assurance mechanism.

7. It should be clarified that any person involved in performing either a remediation task or clearance testing for such a task is considered a contractor under this program. The EPPC correspondence indicated a degree of uncertainty that a person or firm performing clearance testing and sampling was considered a contractor. Clearly, the sampling activity should be considered as falling within the ambit of the law since not including those doing clearance sampling could result in the situation where there would be no funded accountability for sampling improperly or incompetently conducted by an independent contractor. The goal is to blend training and financial assurance to provide a reasonably high degree of confidence in results, both as a matter of public health and of consumer protection (including landlords and tenants both).

8. It may be appropriate to consolidate the training, certification, clearance inspections and closure provisions within one agency.

9. It may be appropriate (and this could be done without regulatory change through a MOA)for the initial posting of the notice to be done by the peace officer as an automatic step rather than by the local health department official, who is not trained or compensated as a hazardous duty official.

10. To the point raised by Representative Riner, there should be some form of record notice for property transfers, and obligation of landlords, to notify purchasers or renters that the property had been subject to remediation in the past and an opportunity to receive a copy of any records relating to the clearance of the property by the responsible agency for habitation. There is an implied warranty of habitability of such properties, and the past use as a meth lab and subsequent remediation ought to be disclosed at the onset in order to minimize problems arising later from discovery of that information from collateral sources.

In conclusion, I look forward to continuing to work with the sponsor, this Committee and the agencies to assure full implementation of this important environmental, health and consumer protection measure.


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