Jeff Montgomery

The News Journal

Gov. Jack Markell's plan to clean up the state's waterways involves spending $120 million a year for five years, supported by a new tax.

Critics question the multi-million plan to help private industry pay for water treatment because it comes on the back of taxpayers

The state says support could speed pollution cuts at sites like Delaware City Refinery, proposed Allen Harim poultry plant, NRG Indian River.

The Delaware City Refinery has offered new hope and jobs for a state that has limped out of an economic downturn. But it has come at a cost, as refinery owner PBF Energy continues to face violation notices and pressure over its outdated wastewater permit and problems with its treatment plant.

Gov. Jack Markell wants to offer the refinery and other industries a potential helping hand as part of his plan to clean up dirty water across Delaware.

Until recently, however, few details have emerged about his proposal for a property tax surcharge to pay for stormwater, wastewater and drinking water improvements and to help companies finance plant upgrades or meet tightened discharge requirements.

The private projects have been identified only as "industrial upgrades" in Markell's public presentations. They have been among the least understood and most controversial part of his proposal to spend $120 million a year on a range of water projects over the next five years, supported by a new tax on landowners.

Some of the grumbling has focused on possible taxpayer support for the refinery, which has been paying shareholder dividends regularly amid management predictions of a profitable future. A closely held spinoff of its crude-by-rail operation is in the works, with new subsidiaries expected to enjoy sizeable tax advantages.

"Why am I paying for that? It's an eminently reasonable question," said Senate Minority Whip Gregory F. Lavelle, R-Sharpley. "They talk about cleanups and stormwater and wastewater, and suddenly it's an economic development fund for the governor, his supporters and special interests."

On Friday, Department of Natural Resources and Environmental Control Secretary Collin O'Mara painted an entirely different picture as the administration worked at a furious pace to finalize a draft of the full bill while simultaneously briefing lawmakers and business and environmental groups.

The industrial part of the plan, involving about 5 percent of total revenues from the proposal, would only help company projects that exceed or accelerate spending for environmental upgrades and compliance, O'Mara said.

"It's low-cost financing. We're not proposing grants," O'Mara said, noting that one approach could involve creation of loan-loss reserves for a company project, similar to an initiative in New York. A company could secure lower rates that would allow work to start sooner, or with greater environmental benefit, without ever actually drawing on public funds.

"I understand the complaints of some folks who are concerned about it being a giveaway," O'Mara said, noting that a relatively small state incentive could spur major environmental improvements.

"If there's a way of going further, faster because we're lowering their cost of capital, that would be a good thing," O'Mara said. "It's much cheaper to do a project comprehensively instead of a bunch of add-ons."

It may come as no surprise that two of the companies that could benefit from Markell's program are two that he regards among his biggest economic development successes.

O'Mara has included PBF's refinery and a shuttered Pinnacle Foods processing plant south of Millsboro among potential sites where Markell's proposed "Clean Water" tax could support environmental improvements, along with NRG's Indian River power plant.

Pinnacle, targeted by Allen Harim Foods LLC for conversion into a large poultry processing plant, would need a major, and costly, overhaul and expansion to handle the shift from vegetable processing and pickling to slaughter and cooked food production and packaging.

Until late last week, when the administration stepped up talks on drafts of the bill, it was unclear how the new program would work or how businesses will benefit from taxpayer money.

"As it stands right now, everybody is up in arms and in limbo because they don't know exactly what it's going to do. They haven't seen a bill," said House Speaker Peter C. Schwartzkopf, D-Rehoboth.

Administration officials have pointed to a long, grim list of water quality concerns to support Markell's proposal for the tax.

Only 6 percent of state rivers are rated as having healthy fish and aquatic life, and only 14 percent are safe for swimming. State regulators and county governments have struggled for years to improve stormwater management requirements and curb flood damage. Drinking water supplies remained threatened, including some of the state's largest.

Markell's broad outline for the five-year spending plan includes about $75 million in state assistance for plants working to reduce factory and power plant water use or clean up discharges. Another $75 million would go to "toxics removals" and stream restorations, including spending to help Amtrak clean up its badly contaminated heavy locomotive yard in Wilmington.

Some Markell supporters say unanswered questions about the plan aren't making his election-year push for the water tax, along with an increase in the gas tax, any easier.

"The problem is that the Democrats have it all on their shoulders. The Republicans know we have to pass a budget. They'll vote no and let us take all the heat, and I'm taking some of the heat now," said Sen. Robert. L. Venables, D-Laurel.

"He hasn't got all the Democrats and I don't know what he's going to be able to do to get them," Venables said. "I don't think you'll see the gas tax or the water tax this year, no matter how hard he sells it."

Rep. Debra J. Heffernan, D-Edgewood Hills, who chairs the House Natural Resources Committee, said late last week that she has yet to hear or see details about the plan.

"There's a lot of questions, and that's why we're waiting to see what the draft is going to say," Heffernan said. She added that she expected to see "differences for residential and commercial properties, differences for cities."

"I haven't heard any more about it than what we originally heard from the governor," when he announced the plan, Heffernan said.

Delaware Audubon earlier this month refused to support Markell's proposal, saying that after an "exhaustive" effort to learn more details, it appeared in some cases to be unfairly shifting polluter costs to taxpayers at a time when lapsed permits are saving companies money at the expense of the environment.

"Until the problems with DNREC's water quality permit programs are corrected, it is unlikely that we can buy our way out of our state's failure to protect clean water with a clean water tax on our citizens alone," the organization said in a position paper. "Appealing to the public support of clean water, like one would appeal to support for baseball, motherhood, and apple pie, is not enough to justify approval of this costly program. The devil is always in the details."

Sen. Karen Peterson, D-Stanton, a longtime advocate for better county and state stormwater regulations and control programs, said Markell has been meeting with small groups of lawmakers to discuss his water initiative.

Some of the discussion has focused on constituents' concerns about earmarking taxpayer money to help companies that have polluted. Some believe that the businesses that did the polluting should "pay to fix the problem they created," she said.

But it's not that simple.

"In a lot of those cases, the people are long gone and there's nobody to go back to," Peterson said.

"I think the governor's position is, whether there's somebody there or not, 94 percent of the water is contaminated," Peterson said. "We can say it's not our problem, the chicken processing plant did it. But it doesn't fix the problem, and if we don't start now, were just putting it off. We're probably 10 years away from getting things fixed."

A history of violation

The refinery and the closed pickle processing plant sites have a history of environmental problems. And state help could go along way toward resolving them, administration officials have said.

State regulators issued a multi-point violation notice against PBF Energy in late February, citing wastewater plant and stormwater runoff problems. In March, officials issued a separate deficiency notice itemizing shortcomings that included company failure to secure a stormwater permit for its huge new rail offloading yard.

EPA records show that the refinery's wastewater operation violated one or more permit terms in every quarter since January 2011, releasing more than 3.5 times its permitted level of oil and grease during the final quarter of last year.

In mid-2011, DNREC managers separately determined that the refinery's cooling water intake scheme – which dates to its opening in the mid-1950s – falls short of "best available technology" standards. In some cases, some reports have concluded, sizeable percentages of entire Delaware River and Delaware Bay species are lost to the operation.

PBF spokesman Michael C. Karlovich said that the company reduced its cooling water draw from the river by 30 percent after buying and reopening the plant, the first such reduction since Delaware City opened in 1957. Once federal regulators release new rules for intakes next month, he said, both DNREC and the company can continue working on a new permit for the Delaware plant.

Issues are equally complex at Pinnacle south of Millsboro, along an upper reach of the Indian River watershed. The plant was one of the earliest targets for pollution reductions during the first federally mandated push to control total water pollution loads reaching the inland bays, approved in 1998.

The inland bays effort set a goal of removing all wastewater discharge sources from bay tributaries. The pickle plant, owned by Vlasic at the time, was a source of fertilizers like nitrogen and phosphorus discharges as well as highly concentrated brine. It eventually secured state approval for a precedent-setting trade of farmland pollution controls and continued wastewater discharges.

Pinnacle's permit expired in 2011, with state officials issuing warning letters for excessive phosphorus releases in both 2010 and 2011. Late last year, O'Mara approved a cleanup and redevelopment plan for the site, after extensive soil and groundwater tests that nearby residents disputed.

An opposition group led by residents in a neighborhood near the plant accused state officials of downplaying toxic contaminants found at low levels in nearby groundwater and failing to investigate pollution burdens further downstream.

"There are numerous residential developments, many on very shallow wells near the site," nearby resident Cindy Wilton said. "You cannot find pollution in places you don't look for it."

State officials have said they have not received a full application from Allen Harim, although emails from late last year show state receipt of preliminary layouts and cost estimates. The operation would differ from Pinnacle's vegetable processing activity, with additional ammonia, oil and grease and other discharge concerns and requirements to new treatment features to remove fats and solids from water.

Although Allen Harim has said that it might process a smaller type of bird than the traditional Delmarva broiler, poultry plants typically use seven to nine gallons of water to prepare each bird for market, according to industry reports. With a 2 million bird per week capacity, broiler-style output would generate some 700 million gallons or more of wastewater annually, without taking into account cooking and packaging operations.

Emails filed with DNREC show that the company is considering use of "leeching lagoons," or possibly a kind of rapid infiltration septic system for ground disposal.

A tough sell

Venables predicts resistance to Markell's proposal to increase landowner taxes to help private companies meet environmental requirements. Markell already has his hands full, Venables said, trying to line up votes for a 10-cent gasoline tax increase and $50 million in extra annual borrowing to fund a $500 million, five-year program for more road and transit spending.

But the governor and his aides are selling the water proposal hard. The administration has estimated that the full plan would create up to 6,000 jobs over five years across Delaware while financing long-needed projects for stormwater, wastewater, drinking water and toxic cleanup.

The stakes are especially high for DNREC. Agency officials hope to increase the number of Delaware streams rated as "fishable and swimmable" with some of the money, while also working on a backlog of overdue industrial wastewater discharge permits that ranks among the worst in the country.

Paul Morrill, who directs the Committee of 100, a business and lobbying group, said he had not seen details about the plan, but was supportive of some of its broad outlines. Attention so far has focused more on aid for cleaning up contaminated properties to allow redevelopment, and on the potential costs and returns of streambed restorations.

Jen Wallace, who chairs the Green Party of Delaware coordinating committee, said her group has doubts, especially about dedicating taxpayer money to help industrial polluters.

"This certainly feels wrong, to put the burden on to residents or smaller businesses that aren't large polluters, when we know the bulk of the problem comes from larger polluters," Wallace said.

O'Mara said residents and businesses large and small contribute to the problem.

"We can talk about Allen Harim. There are significant pollution control standards that they need to meet for the inland bays. They're very tight," O'Mara said. "The irony in some ways is, some of the most significant pollution in that area is coming from the community, from those very developments that are on community systems that have failed, and from a marina."

"We're all contributing to the problem," O'Mara said. "This isn't a legacy thing. I'm not sure that folks realize the impacts of a lot of their actions."

Contact Jeff Montgomery at (302) 463-3344 or jmontgomery@delawareonline.com.

CLEAN-UP PLAN UNDER FIRE

$600M

Gov. Markell's plan to clean up the state's waterways involves spending $120 million a year for five years, supported by a new tax.

6%

Of state rivers are rated as having healthy fish and aquatic life

14%

Of state waterways are safe for swimming

CRITICS question the multi-million plan to help private industry pay for water treatment because it comes on the back of taxpayers.

THE STATE says support could speed pollution cuts at sites like Delaware City Refinery, proposed Allen Harim poultry plant, NRG Indian River.

Clean Water plan

• Property tax surcharge based on assessed value, up to $85 annually. Average $45.

• Adjusted to equalize for county variations in assessment practices

• Partial credit for residents in municipalities that already charge stormwater fee

• Protections to prevent diversion of funds away from original intent

• Allocations through existing public programs and bodies.

• Possible creation of panel to oversee industrial water proposals

30% Wastewater & Drinking water

30% Stormwater management

20% Stream restoration & toxics removal

15% Agriculture & conservation

5% Industrial upgrades

Industry backlog: $75 million-plus (Delaware City Refinery; Allen Harim; power plants)

Toxic cleanups: $75 million-plus (Brownfields, contaminated sites that pollute water; Amtrak Wilmington shops)