GM gets to dump its polluted sites
August 7, 2009
GM gets to dump its polluted sites
BY TIM HIGGINS
FREE PRESS BUSINESS WRITER
When General Motors Co. emerged from bankruptcy, it was freed of obligations for polluted properties at discarded plant sites that will require millions of dollars to clean up.
GM’s unusual, government-engineered bankruptcy allowed the Detroit automaker to emerge as a new company — and to shed billions in liabilities, including claims that governments had against GM for polluting.
Environmental liabilities estimated at $530 million were left with the old GM, which has only $1.2 billion to wind down.
Administrative fees and other claims will soak up that money, and state and local officials told the Free Press they fear the cleanups will be shortchanged.
In Flint, uncertainty over cleaning up Buick City threatens a three-year redevelopment effort. “We can’t lose this opportunity to create more jobs,” said Tim Herman, chief executive officer of the Genesee Regional Chamber of Commerce.
The State of New York is concerned about 12 GM sites, including a 270-acre site along the St. Lawrence River that possesses a “significant threat to human health.” Sites in Ohio, Delaware, Indiana and Colorado also have raised concerns.
GM said the issue rested with Motors Liquidation Co. — what’s left of the old GM — which declined to comment.
Companies have gone bankrupt before, leaving behind expensive messes, but the size of the environmental liabilities shed by GM is extraordinary, said John Pottow, an expert in bankruptcy law at the University of Michigan.
Who will pay for cleanups?
MASSENA, N.Y. — The estimated cost of cleaning up years of General Motors’ dumping of toxic sludge along the St. Lawrence River in upstate New York goes as high as $225 million — perhaps the largest environmental liability among the 100 or so factory sites GM jettisoned in its bankruptcy reorganization.
Closer to home, in Flint and surrounding Genesee County, leaders say environmental liabilities the new GM was allowed to shed are threatening their efforts to redevelop Buick City, the site of a large assembly facility that closed in the late 1990s.
Local leaders around the country fear that there isn’t enough money in GM’s $1.2-billion bankruptcy wind-down budget to cover the cleanup of factory sites that are not part of the new GM, that there’s no plan for cleanup and that the bill will fall on taxpayers.
No local money for cleanups
Massena, a factory town of about 13,000 along the Canadian border, was home to a powertrain plant that used hazardous chemicals in the 1960s and ’70s that were dumped on the 270-acre site. It is in a county with an unemployment rate of 10.2%, one of the highest in New York.
"We could go 200 years, and Massena is not going to have enough money to pay for this," said Jason Clark, who heads the area’s business development corporation.
Bill Winiarski, chairman of the area authority trying to redevelop Buick City in Flint, wants the federal government to set up a system that allows communities to have a say in the redevelopment of the GM properties and for any purchaser to avoid liabilities for previous polluting.
"In my humble opinion, the environmental problems that go along with that property were purchased by the federal government when they purchased General Motors," he said. "The federal government should now own those problems and not try to pass them on to a developer."
Officials fear the practical outcome of GM’s bankruptcy on their local sites will be large chunks of land sitting unused with no way to clean them up, hindering economic-development efforts.
"It’s very, very difficult to get another company to come in and take over a property where there is a legacy contamination problem that has remained unaddressed," said Robert McCann, a spokesman for the Michigan Department of Environmental Quality.
"That would ultimately shift the likely cleanup to the state, but our cleanup program is more or less out of money at this point, so we don’t have the resources to do it, either."
New company isn’t liable
In GM’s bankruptcy, an unusual so-called 363 sale allowed the company to sell its valued assets to a new company largely owned by the U.S. government.
That new company is not legally responsible for the sites it left behind in bankruptcy, U.S. Bankruptcy Judge Robert Gerber decided last month.
The old sites are part of Motors Liquidation Co., which has $1.2 billion to sell off unwanted property and wind down operations.
Chrysler Group LLC, which underwent a similar bankruptcy sale, also left behind environmental problems with its old company, according to Chrysler’s master transaction agreement. These would include the Sterling Assembly and Detroit Axle plants, among others, but taken together, do not reach the scale of GM’s unwanted sites.
GM’s unwanted assets include 16 factories being closed and about 100 other properties, including Buick City.
Al Koch, who is overseeing the wind-down of the old GM, said during the bankruptcy hearings that the properties being left behind have an estimated environmental liability of $530 million. Motors Liquidation declined to comment.
Although other manufacturers have gone broke and left behind polluted sites, John Pottow, an expert in bankruptcy law at the University of Michigan, said GM’s case was extraordinary because of its size.
"It’s one of the largest liquidations," he said in an e-mail. "The real largest liquidation is Lehman Brothers, but investment banks don’t tend to have lots of environmental liabilities. Manufacturing companies — things that use gooey chemicals — do."
Old GM may not have funds
Lawyers working on objections to GM’s plans say bankruptcy lawyer fees alone could eat up a good portion of the GM wind-down budget, leaving little money for liabilities against the company.
GM estimated before bankruptcy that it had $1.9 billion in future liabilities for claims related to asbestos, product liability and additional litigation. In addition, the company estimated that unions other than the UAW were owed more than $3 billion in retiree health care and hundreds of millions more for retiree life insurance.
The New York Attorney General’s Office, seeking to protect environmental claims for cleanup at Massena and other sites, argued that federal and state regulatory requirements should not be eliminated by a bankruptcy sale.
"Congress very specifically placed governmental entities in a different position than other entities in a bankruptcy," Maureen Leary, a lawyer New York Attorney General’s Office, argued to the court.
But Gerber ruled otherwise.
John Privitera, a lawyer for the St. Regis Mohawk Tribe, which has land next to the Massena plant, said the U.S. government should take on the cleanup, which he estimates at $225 million. The Environmental Protection Agency puts the price at $60 million, though residents contend that is a partial cleanup.
"Our position is that the United States government, as the conductor of this orchestra where everything has been restructured and the owner of Newco, has a fiduciary obligation to the public, to the environment," he said.
The EPA is working with states to "identify any environmental cleanup requirements that existed at the time of bankruptcy, and initiated communications with Motors Liquidation," Deb Berlin, a spokeswoman, said by e-mail.
Outlook in Michigan
In Michigan, officials have expressed worry about unspecified GM sites, though much of their concern seemed to be with properties transferred to the new GM.
"The concern is that there will not be sufficient value left in the estate to deal with GM’s environmental liabilities," Celeste Gill, a lawyer the Michigan Attorney General’s Office, said in court records. "At this point, it is unknown how any proposed plan will address them."
Officials in Flint and Genesee County said the issue of environmental liability threatens to derail efforts to redevelop Buick City, which composes 220 of the roughly 1,000 acres in the county that GM shed.
The regional chamber of commerce said it has worked for three years to redevelop Buick City and has an interested investor, whom officials declined to name. The buyer envisions a $25-million project to create a logistics facility that would create up to 600 jobs.
"Our economic future is at stake," said Tim Herman, chief executive of the Genesee Regional Chamber of Commerce.
Contact TIM HIGGINS: 313-222-8784 or email@example.com