Key Sues To Block Storage Tank Fund Rules

0 Comments | Environmental Insider News, Nov 9, 2004

Within days after the Texas Commission on Environmental Quality adopted revisions to its rules for the beleaguered petroleum storage tank remediation program, the agency found itself facing a court challenge from a disgruntled contractor who says the revised rules constitute an unlawful attempt by the agency to justify past unlawful actions that had destroyed his business and his reputation. Key Associates principal Morris Key told EI NEWS that he wants to see his lender and subcontractors repaid according to the law.

Attorney Brent Ryan earlier this year filed suit to overturn a January 2004 TCEQ ruling that Key had to repay $686,000 in overpayments and virtually upheld the agency's refusal to pay $1.029 million in outstanding claims. Now, Ryan is poised to file a new lawsuit, claiming that the new TCEQ rules "clearly have the potential to affect payments to Key Associates in connection with its pending reimbursement applications." One provision of the new rules allows subcontractors to collect money owed to Key (and presumably payable to them) under terms of agreements signed with facility owners. Key says some of these subcontractors owe him money and several others have been paid in full.

This complicated mess is just the latest embarrassment for a program, created in 1987 to respond to a federal mandate to address groundwater contamination resulting from leaks in tanks storing gasoline, diesel, and other petroleum-based fuels. The poorly designed program quickly ran into deficits, largely because the state failed to specify maximum costs for remediation work and the Legislature expanded eligibility for the program without providing for any new revenues.

By early 1993, the fund was down to $60 million in the till, yet there were $150 million in legitimate reimbursement claims for corrective action work that had already been done - and the negative balance was continuing to grow every month. Finally, the Texas Water Commission (a TCEQ predecessor agency) adopted overpayment rules and stepped up its audit program. The Legislature in 1993 authorized a $120 million loan to bail out the program and stem the tide of bankruptcies by companies hired to perform the cleanup work at smaller, independently owned service stations. Two years later the Legislature doubled the tank registration fees, the primary revenue source for the program, and set a cutoff date (since revised forward) for filing claims.

Small stations learned early on that they needed help in complying with corrective action demands of the federal program, and Texas eventually created an ad hoc system under which owners could assign their rights to reimbursement monies to the contractors who actually performed the work (or who assigned work to subcontractors). The problem in part was that TCEQ did not adopt rules for assignment of monies to subcontractors. This created a new set of problems that left staffers with wide discretion as to how to administer funds from the program.

In the heyday of the PSTR program, Key Associates began securing contracts from station owners to provide corrective action services. Key provided technical and business management for site remediation but typically hired subcontractors to do drilling and laboratory work. The upside of Key's business was that subcontractors were partially paid up front, thanks to a deal Key worked out with a lender. The key was to ensure that actual remediation costs were at or below costs set under TCEQ's reimbursable guidelines, so as to ensure that both Key and his lender (Environmental Capital International for most of the contracts) earned some reward for the services they had rendered.

Because of the lack of certainty in the rules, Key presented the details of his financial arrangements to key staffers, notably Dan Neal, manager of the Reimbursement Section. Both Key and subcontractor attorney Bill Thompson have told EI NEWS that Neal expressed no concerns over the legality of Key's arrangements with his lenders and subcontractors. Everything went just fine, Key says, until other TCEQ staffers raised questions about the program. After learning that staffers had been speaking negatively about Key's operations to his prospective clients and subcontractors, Key sought guidance from Neal's office - to no avail. He then took the unusual step of asking for an audit of his business, expecting at the worst he would be told of any changes he needed to make to satisfy agency staff. Instead, TCEQ auditor Belinda Murphy branded Key a cheat and a fraud. Suddenly Key, his lender, and his subcontractors were in big trouble.

Murphy's report charged that Key had been wrongfully overcharging the state for remediation work performed by subcontractors. TCEQ then took the unprececented step of stopping payment on all of Key's reimbursement claims, effectively putting Key out of business by seizing his working capital. Even before the hammer came down, subcontractors had told Key that Murphy was calling him an unscrupulous businessman who never intended to pay them.