Court Opinion

ID: 3438460
Source: CourtListenerOpinion
Date Created: 2016-07-05 20:10:29.630618+00
Date Added: 2024-06-11T13:49:05.460313
License: Public Domain

Clyde D. Graeber, Acting Secretary Kansas Department of Health and Environment Capitol Towers 400 Southwest Eighth Avenue, Suite 203 Topeka, Kansas  66603-3930
Dear Secretary Graeber:
You request our opinion regarding financial assurance requirements for the closure of swine facilities with animal unit capacities of 3,725 or more, and associated swine waste retention lagoons or ponds.  Specifically you ask whether a third party acting in a contractual capacity with a permittee/operator may provide the required financial assurance on behalf of the permittee/operator. If the answer to that question is that a third party may provide the financial assurance, you also ask what mechanisms are appropriate to provide that assurance.
The 1998 legislative session brought forth significant changes in the permitting of swine facilities in Kansas.  K.S.A. 1998 Supp.65-1,189 requires that an applicant for a swine facility permit provide a closure plan for the facility and demonstrate financial assurance that there will be money available to carry out the plan.  K.S.A. 1998 Supp. 65-1,189(b) states:
  "The operator of each swine facility that has a capacity of 3,725 animal units or more shall demonstrate annually to the department evidence, satisfactory to the department, that the operator has financial ability to cover the cost of closure of the facility as required by the department."  (Emphasis added.)
K.S.A. 1998 Supp. 65-1,190 contains similar requirements for the closure of swine waste retention lagoons or ponds:
  "On and after July 1, 2000, the operator of each swine facility that has a capacity of 3,725 animal units or more and has a swine waste retention lagoon or pond shall demonstrate to the department, annually at a time specified by the department, evidence, satisfactory to the department, that the operator has financial ability to cover the cost of closure of the lagoon or pond as required by the department." (Emphasis added.)
The Kansas Department of Health and Environment (KDHE) recently adopted regulations that contain detailed requirements for providing financial assurance for the closure of swine facilities and swine waste retention lagoons and ponds.  K.A.R. 28-18a-23 and K.A.R. 28-18a-24 set forth several mechanisms that may be used to demonstrate financial assurance.  K.A.R. 28-18a-23(g) states:
  "Mechanisms used to demonstrate financial assurance shall ensure that the funds necessary to meet the cost to close the swine facility . . . are accessible to the department in a timely fashion when needed.  In establishing financial assurance for the facility closure, swine operators shall utilize any of the following options:
"(1) Trust fund;
"(2) surety bond guaranteeing payment or performance;
"(3) letter of credit;
"(4) insurance;
"(5) self-insurance; or
"(6) use of multiple mechanisms."
K.A.R. 28-18a-24 contains the same language for financial assurance for closure of swine waste retention lagoons and ponds. The regulations further provide detailed requirements for each financial assurance option listed.
Testimony at a public legislative committee hearing indicated that the reason for requiring financial assurance was to prevent the taxpayers of Kansas from having to pay for clean-up of a swine facility and waste lagoons or ponds if the swine facility owners do not do so. Several citizens expressed concern that companies from outside Kansas might abandon facilities and leave the State with no leverage to force the company to pay for proper closure.1
K.S.A. 1998 Supp. 65-1,189 and 65-1,190 provide that the facilityoperator demonstrate to the KDHE that the operator  has financial ability to cover the cost of closure of the facility and related lagoons or ponds.  The term "operator" is used frequently throughout the statutes dealing with confined feeding facilities for swine, however the statutes do not define "operator."  Some of the statutes indicate that the operator and owner may not be synonymous,2 while others indicate that the term "operator" may involve delegation by the operator to a third party.3
Both the statutes and the regulations concerning financial assurance give the KDHE the discretion to decide whether the mechanisms provided are satisfactory to assure that the operator has adequate finances available for closure.  The decision by the KDHE may vary depending on the particular circumstances of each facility and the parties involved.  It is our opinion that a third party acting in a contractual capacity with an operator may provide financial assurance on behalf of the operator if the operator provides evidence satisfactory to the KDHE that the closure costs will be accessible to the KDHE when needed.
You also ask what mechanisms to provide financial assurance are appropriate for a third party to provide.  Any of the mechanisms listed in the regulations may be appropriate, depending on the particular circumstances of each facility and the parties involved. Although the regulations allow for self-insurance, self-insurance by a third party should only
be allowed if the operator demonstrates to the satisfaction of the KDHE that adequate funds will legally be available and accessible to the KDHE in the event of closure.
Very truly yours,
                             CARLA J. STOVALL Attorney General of Kansas
                             Donna M. Voth Assistant Attorney General
CJS:JLM:DMV:jm
1 See Minutes, House Committee on Environment, March 5, 1998.
2 See K.S.A. 1998 Supp. 65-1,179(a)(1) and 65-1,179(d)(2).
3 See K.S.A. 1998 Supp. 65-1,181(i)(1)(B) and65-1,182(b)(1)(B).