Environmental Compliance Review Required for Projects Funded Under the American Recovery and Reinvestment Act of 2009

May 7, 2009

In February, President Obama signed into law the American Recovery and Reinvestment Act of 2009 ("ARRA"), a $787 billion economic stimulus package that provides funding for investments in infrastructure, energy efficiency, health care, education, science, and other sectors. With billions of dollars in federal stimulus funds available, the ARRA presents private firms with opportunities for financing eligible projects and related infrastructure. For example, federal stimulus funds are available for certain affordable housing projects. Stimulus funds are also available for transportation infrastructure, including highway, bridge, road, transit, and rail improvements that may be associated with a development project. Stimulus funds are also available for wastewater and drinking water projects, as well as environmental clean up and remediation. For more information on infrastructure funding under ARRA, see our February 25, 2009 update Financial Markets in Crisis: Stimulus Act Provides More than $100 Billion to Fund Infrastructure.

The catch is that a federal agency cannot commit federal stimulus funds to a project without first complying with the National Environmental Policy Act ("NEPA"), the federal environmental review statute. NEPA compliance will be required for projects involving federal funds even if the project has already completed environmental review under a statewide program such as the California Environmental Quality Act ("CEQA"). Depending on the scope of the project, NEPA compliance could delay construction of the project and potentially subject the federal action to litigation challenging the adequacy of environmental review. Because one of the primary goals of ARRA is to inject federal stimulus funds into the economy as quickly as possible, Congress considered exempting ARRA projects from NEPA compliance. The final bill, however, does not contain a NEPA exemption. Instead, Section 1609(b) of ARRA requires that federal agencies devote "adequate resources" to ensure that NEPA review of ARRA projects is "completed on an expeditious basis" using the "shortest existing applicable process."

The requirement that environmental review be "expeditious" and use the "shortest" applicable process is a clear signal to federal agencies to favor the use of Categorical Exclusions ("CEs") and Environmental Assessments ("EAs") with Findings of No Significant Impact ("FONSI") rather than full blown environmental impact statements ("EIS"), which can take multiple years and hundreds of thousands of dollars to complete. Furthermore, to ensure that NEPA review does not unduly delay the expenditure of federal stimulus funds and hold up projects, ARRA section 1609(c) requires the President to report to Congress on a quarterly basis on the status of NEPA review of projects funded by ARRA.

What all this means for private firms is that it is worthwhile to investigate whether any planned or pending projects may be eligible for federal stimulus funds. In addition, firms seeking to obtain federal stimulus funding should plan for and begin NEPA review as soon as possible. The sooner the process is started, the sooner the federal agency dispensing the stimulus funds can determine that a project is categorically excluded from NEPA or issue a Finding of No Significant Impact ("FONSI").

Given that ARRA favors "shovel-ready" projects while still requiring NEPA compliance, the projects most likely to qualify for ARRA funding are fully entitled projects that already have a federal approval and have therefore already complied with NEPA, or else projects that are more likely to be exempt from NEPA review. Each federal agency maintains its own list of exempt projects, so a project applicant must refer to the NEPA regulations of the agency from which the applicant will receive federal stimulus funds to determine whether the project is categorically excluded from NEPA review.

For example, the Federal Highway Administration’s list of categorically excluded projects includes the construction of bicycle and pedestrian lanes, paths, and facilities, 23 C.F.R. § 771.117(c)(3), landscaping, § 771.117(c)(7), and modernization of a highway by resurfacing, restoration, rehabilitation, reconstruction, adding shoulders, or adding auxiliary lanes. § 771.117(d)(1). The Department of Housing and Urban Development list of categorically exempted projects includes the rehabilitation of multifamily residential buildings when the unit density is not changed more than 20 percent, the project does not involve changes in land use from residential to non-residential, and the estimated cost of rehabilitation is less than 75 percent of the total estimated cost of replacement after rehabilitation. 24 C.F.R. § 58.35(a)(3)(ii). 

Gibson, Dunn & Crutcher LLP 

Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these developments.  If you have any questions, please contact the Gibson Dunn attorney with whom you work or any of the following:

Michael Bopp – Washington, D.C. (202-955-8256, [email protected])
Amy R. Forbes – Los Angeles (213-229-7151, [email protected])
Mary G. Murphy - San Francisco (415-393-8257, [email protected])
Michael Murphy – Washington, D.C. (202-955-8238, [email protected])

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