Statement of William K. Wray
Senior Vice President, Credit Policy and Reporting
Citizens Financial Group
Providence, Rhode Island
Before the Senate Environment and Public Works Subcommittee on Superfund, Waste Control and Risk Assessment
March 4, 1997

Mr. Chairman and members of the subcommittee: Thank you for the opportunity to address this important subject. My name is Bill Wray, and I am a Senior Vice President of Citizens Financial Group. Citizens is a $15 billion commercial bank holding company headquartered in Providence, Rhode Island. We have over 230 branches throughout Connecticut, Rhode Island, Massachusetts, and New Hampshire.

Please realize that I am not attempting to represent an "official" position on behalf of the banking industry or any of its trade associations. In my role as manager of Credit Administration for Citizens, I have seen first hand how environmental risk affects banking at the community level. This testimony is a reflection of my personal experience in that role.

From my review, both bills under review are similar in their approach to the brownfields issue; although 5.8 also addresses a variety of other needed reforms. Since my charter was to address the brownfields subject, however, I will confine my comments to that: Let me start by saying that we have a great deal of interest in seeing "brownfields" initiatives work.

As a secured creditor, we cannot succeed unless our borrowers succeed. This means they must be able to quantify and respond to environmental risk issues without incurring inordinate expense or disproportionate liability.

We, in turn, have direct exposure to environmental liability arising from our role as a secured creditor as well as an owner of facilities.

Finally, as members of the community, we live and work alongside our customers. We pass by abandoned industrial sites that have been locked out of consideration for productive re-use because of the chilling effects of unpredictable environmental liability. All of us want to see these sites brought back to useful life, with the economic and aesthetic benefits that will result.

We believe that these bills represent a substantive effort to address many of the issues at hand, and it is an effort we welcome. We know that this process can work - here is a real-life example:

About 18 months ago, Citizens made a presentation at a seminar which had been sponsored by the Rhode Island Department of Environmental Management. Our message was that brownfields projects were a good business opportunity. We encouraged potential borrowers in the audience to bring their deals to us for review. As a result of that presentation, the owners of a company called Display World, Inc., contacted us about financing the purchase of the 13-acre Carol Cable facility in Warren, Rhode Island, which had been idled for some time due to various contamination problems. We were part of a team involving the site owners, Display World, and state regulators. Today the facility is again in operation and over 100 jobs have returned to Warren as a result, with growth expected to continue.

So you can see that we believe in this process and we are encouraged to see the attention it is receiving from this committee. Let me address two specific provisions of S. 8:

First, I understand and appreciate the reasoning behind the "windfall lien" provisions in Section 105; however, it is unclear what precedence the proposed lien in favor of the United States would have. If the intent is to have the lien be junior to all encumbrances of record at the time the lien arises, this should be explicitly provided in the bill. If the intent is otherwise, this creates a difficulty for lenders because of the uncertainty associated with the amount involved. As a practical matter it can be difficult to quantify the increment to market value attributable to a response action, so this provision as currently drafted could insert an unknown quantity of unknown precedence into the credit underwriting equation. I recommend, then, that the bill explicitly provide that the windfall lien is junior to prior encumbrances of record. In any event, I ask that the intent of this provision be made clear to avoid this being decided on a case-by-case basis by the courts.

My second comment relates to Section 106, which provides a "safe harbor" for purchasers of real estate in certain circumstances. One of those circumstances applies when the purchaser has made "all appropriate inquiries" into the existence of environmental contamination prior to purchase. We support the bill's direction to the Administrator to provide clear standards for these inquiries. We would ask in addition that the Administrator recognize that banking regulators have also issued guidelines on appropriate inquiries for environmental contamination, and that we are examined as to our compliance with these guidelines. Our hope is that these two sets of directives could be reviewed and synchronized so that lenders do not receive direction from the Federal government which is in conflict or inconsistent on this issue.

If I may, let me close with a more general comment, again based on my front-line experience:

All parties to this subject - legislators, regulators, community groups, and private sector businesses - seem to agree that our goal is to foster responsible reaction to existing environmental problems, and to provide safeguards against future danger from contamination.

But the statutory and regulatory apparatus that has been created to foster the attainment of our common goal can be bewildering. It is especially difficult for "grass-roots" businesses - the small-scale entrepreneur, or the community bank - to afford the legal and technical analysis necessary to untangle the Gordian knot of environmental rules, and to understand the myriad of potential liabilities that may arise from them.

As a result, those grass-roots businesses must either take on these liabilities blindly (which we must all agree is an undesirable outcome); or, more commonly, forgo opportunities for desirable redevelopment. Thus, many smaller sites will remain undeveloped and unremediated, which otherwise could have been revitalized by the energies of private-sector initiative. Again, I think that we must all agree that this latter outcome is undesirable, even tragic. It is made no less tragic by the fact that none but the best intentions have underlain the legislative and regulatory initiatives in this area.

The bills we are discussing today are a laudable effort to further our common goal as have outlined it above, but they are limited to a narrow section' of the regulatory spectrum as it affects environmental matters. I would hope that this constructive approach will be continued and will be eventually broadened to cover a greater range of environmental legislation.

Please realize that we are not asking for our risks to be eliminated, or for our costs to be subsidized, or for protection against the consequences of negligence on our part. We ask only that our environmental risks be quantifiable, predictable, and reasonable.

This will allow us to evaluate environmental risk in context with other business risks, rather than having it loom as a "black hole" of liability that trumps all other issues when making a credit decision. This will help our borrowers to succeed, which is the only way that we as lenders can succeed.

Again, I applaud the tone and direction of these bills, and that of other recent legislation in this area, and I appreciate the opportunity to provide this testimony. Thank you for your attention.