The Permitting Process for the Next Phase of “Shovel Ready” Projects Funding of Projects Under the Stimulus Bill

Grappling with environmental regulations may be the next hurdle facing many of the projects the federal government seeks to fund in its effort to stimulate the economy out of its doldrums. On February 17, 2009, President Obama signed into law the ambitious American Recovery and Reinvestment Act of 2009 (“Bill”). The Bill authorizes the investment of approximately $787 billion in federal funding and tax cuts to preserve and create jobs and promote economic recovery. Among the Bill’s stated “general principles concerning use of funds” is expending such funds so as to achieve the Bill’s purposes “as quickly as possible consistent with prudent management.”

The appropriations provisions of the Bill contemplate the expenditure of $520 billion and set aside these funds in many buckets for appropriation to federal agencies with subsequent distribution to state and local agencies. Of this, $150 billion will be allocated to funding the Nation’s ailing infrastructure, including roadways, transit and high speed rail projects, flood control, community support to recover from real estate foreclosures, and broadband technology. Eleven billion dollars will be directed toward renewable energy and a smart energy grid.

Just how fast will the money be spent? Federal agencies had until March 3, 2009, to begin reporting on the use of the funds they receive under the Bill. It is anticipated that for many states and local agencies the money has already been spent. In the meantime, the distribution and expenditure of all funds will be subject to considerable transparency and oversight under the Bill.

While federal agencies, state and local governments, and private parties grapple to fully grasp the scope and extent of the Stimulus Bill, the Bill itself, with its heightened oversight and transparency provisions, highlights the challenges yet to be faced in this world of ever-evolving greater regulation.

Importantly, to be “shovel ready,” or ready to begin construction in 6 months, eligible projects must have completed all necessary design work, the environmental review process, and many permitting steps. While many projects likely already satisfied their California Environmental Quality Act (“CEQA”) and National Environmental Policy Act (“NEPA”) requirements in order to be shovel ready, for those that have not yet completed NEPA review, satisfying NEPA generally will be required in order to preserve funding eligibility. As with CEQA, the NEPA process can be lengthy and for many projects would require expedited completion to obtain federal funding either through applicable categorical exclusions or a streamlined process of preparing an environmental assessment/finding of no significant impact (“EA/FONSI”) rather than an environmental impact statement (“EIS”). The same holds true for right-of-way agreements and property-related transactions such as those that could be necessary for many of the highway, transit and flood control agreements.

Apart from a NEPA exception for a handful of major transportation projects, and notwithstanding the requests from numerous Governors, Congress has not included any NEPA exceptions or other streamlining provisions in the omnibus bill, so these projects will be subjected to the “normal” NEPA process–meaning at least several months (if not the better part of a year) of processing via an EA/FONSI or a year or two or more via an EIS/Record of Decision. Significantly, NEPA does include provisions authorizing deviations from the normal process in emergency situations, and at least one federal court has held that the impending expiration of a funding deadline qualifies as such an emergency. Tucked into the Stimulus Bill is one item that may actually lead to removal of a measure of streamlining recently embodied in regulations adopted by the United States Fish & Wildlife Service last year revising its consultation rules under the federal Endangered Species Act to dispense with consultations when the prospect of adverse effects on listed species is remote. The Stimulus Bill authorizes the Administration to rescind those regulations without undergoing a new rulemaking process as would otherwise be required. Thus, any streamlining that may have been afforded by those regulations may now be eliminated. In the future, opportunities for NEPA waivers or exemptions through other organic acts may need to be considered. For example, NEPA waivers or categorical exclusions could be built into the SAFETEA-LU Reauthorization for transit projects or transportation enhancement activities, or perhaps for levee and other flood protection projects through future reauthorizations of the Water Resources Development Act. For now, the jury is out as to whether it will even be feasible to spend the money before it disappears.

In the meantime, the Stimulus Bill provides an “unprecedented level of transparency and accountability so Americans know where their tax dollars are going and how they are being spent,” according to the White House.1 The Bill states that before a state or local agency can receive any infrastructure investment funding, that agency must first certify that the investment is an appropriate use of taxpayer dollars. The Bill also establishes a “Recovery Act Accountability and Transparency Board” to coordinate and conduct oversight of covered funds to prevent fraud, waste, and abuse. The Board’s functions will include conducting audits and reviews relating to covered funds, holding public hearings, and reviewing whether the reporting of contracts and grants using covered funds meet applicable standards.

President Obama has identified five objectives for Federal agencies to meet in ensuring this unprecedented level of transparency:

1. recovery funds are awarded and distributed in a prompt, fair, and reasonable manner;
2. the recipients and uses of all recovery funds are transparent to the public, and the public benefits of these funds are reported clearly, accurately, and in a timely manner;
3. recovery funds are used for authorized purposes, and every step is taken to prevent instances of fraud, waste, error, and abuse;
4. projects funded under the recovery legislation avoid unnecessary delays and cost overruns; and
5. programs meet specific goals and targets, and contribute to improved performance on broad economic indicators. To help meet these objectives, the White House issued an initial implementation memorandum dated February 9 and a detailed guidance memorandum dated February 18. The latter memorandum states that additional guidance will be issued within 30-60 days of February 18. It also outlines eight different levels of reporting necessary to meet the foregoing objectives, including the following: major communications, formula block grant allocation reports, initial weekly reports to help populate early phases of recovery.gov, monthly financial reports, reporting consistent with the requirements of USAspending.gov, agency-wide Recovery Act plans, program-specific Recovery Act plans, and recipient reporting.

It will be interesting to see just how the Act’s provisions for greater transparency will fit with the Freedom of Information Act, the Federal Advisory Committee Act, the Administrative Procedure Act and a host of federal laws that were once used to withhold information and now may be used to disseminate information through a more sophisticated broadband technology and “smart” grid. In the meantime, agencies and local project sponsors must focus on completing the environmental review and permitting processes according to the Stimulus Bill deadlines so that the money will start to flow back into the economy.

[1] February 9, 2009 Memorandum for the Heads of Departments and Agencies from Rahm Emanuel, Chief of Staff, and Peter R. Orszag, Director, Office of Management and Budget.”

Alicia Guerra and Anne Arnold
Briscoe Ivester & Bazel LLP
155 Sansome Street, 7th Floor
San Francisco, CA 94104
Telephone: (415) 402-2700
Fax: (415) 398-5630