Following passage last year of legislation (section 4.1) authorizing cities and businesses to proactively audit their environmental operations and self-report violations to regulators, the State continued to wait on federal approval of the program this month. In an update to a state legislative environment committee last week, N.C. Department of Environmental Quality (DEQ) Chief Deputy Secretary John Evans said that the agency had submitted a request to the U.S. Environmental Protection Agency (EPA) for the go-ahead on this program, but had not yet received a response. The legislation, modeled on informal self-audit policies in place for decades at both DEQ and EPA, required EPA approval before becoming effective.
The self-audit legislation would apply to any entity regulated by federal, state, and local environmental laws. Municipal operations regulated by the State and federal governments include water, wastewater, stormwater, and solid waste programs. In addition, when cities undertake redevelopment of contaminated properties, or when they seek to develop a new water supply, a host of state and federal environmental regulations apply to those activities as well. On the other hand, state and federal laws force cities to become regulators that oversee environmental compliance of private developers and other businesses that discharge wastewater into public sewer systems. Therefore, cities would be affected by this new self-audit program both as regulated entities and as regulators.
Cities as Regulated Entities
The new law would confer benefits to those undertaking a self-audit program in two ways. First, it would grant the regulated entity, such as a wastewater system, a "privilege" in legal proceedings. This privilege would prevent disclosure of the contents of the self-audit during any legal action, and it would also allow people that participated in the audit to avoid testifying during those legal actions. However, the law contained several exceptions to this privilege, including documents created to intentionally avoid compliance with environmental laws, documents related to a criminal prosecution, or documents already required to be reported to state and federal regulators.
Taking advantage of the privilege may prove difficult for cities and towns. Because cities are public entities, they must comply with all state laws related to public records. Absent a legal action under which a city could assert this privilege, it is unclear whether a city could claim the privilege and withhold the contents of an audit when subject to a public records request. Further, because state law cannot trump federal law, the privilege would not extend to any legal proceedings initiated by EPA itself or asserted by third parties under citizen lawsuit provisions in laws like the federal Clean Water Act.
The second benefit to regulated entities under this self-audit law comes with the law's immunity provisions. Broadly, these provisions would allow the regulated entity to avoid penalties such as fines and other enforcement actions, if the regulated entity complied with all aspects of the self-audit law. Chiefly, to enjoy immunity, the regulated entity must voluntarily disclose to regulators any violations of environmental laws that it discovered during the self-audit. In turn, the regulating agency must then certify that the violation was corrected within a reasonable amount of time. The law would place limits on the number of times a regulated entity could claim the benefit of immunity from enforcement.
Cities as Regulators
As regulators, cities must ensure that developers comply with environmental laws such as sedimentation and stormwater regulations, and they must also regulate the contents of industrial wastewater discharged into their sewer systems by businesses. Because the law specifically listed "units of local government responsible for the enforcement of environmental laws" as a type of regulator who must adhere to the self-audit program, any of the developers and businesses regulated by cities may assert the privilege and immunity provisions of this new law when dealing with the city.
Unlike state and federal regulators, however, cities conduct their regulatory activities because state and federal permits require them to enforce these environmental laws. If cities do not properly regulate others, under these permits, they can be subject to penalties themselves. Therefore, the immunity provision of this law in particular could pose a risk to cities whose permits require them to undertake enforcement actions that the immunity provision in turn allows regulated entities to avoid. If EPA approves North Carolina's self-audit program, cities must work with their regulators to ensure that they remain in compliance with their own permits.
