The U.S. Department of Justice (U.S. DOJ) recently issued a memorandum stating that settlements, including consent decrees, entered by the Environmental Protection Agency (EPA) and other federal agencies can no longer include a Supplemental Environmental Project (SEP), unless the SEP is expressly authorized by Congress. Companies and individuals accused of violating environmental laws and permits, like Clean Air Act and Clean Water Act permits, commonly agree to perform SEPs to fund projects that go beyond compliance instead of paying a higher cash penalty to the U.S. Treasury. Going forward, companies, individuals, and local governments will no longer have SEPs as a settlement option.

To support this policy reversal after more than 30 years, U.S. DOJ cites to the Miscellaneous Receipts Act, which grants only Congress the authority to decide how to appropriate federal funds. The U.S. DOJ views SEPs as federal funds, and, in U.S. DOJ’s opinion, the EPA and other federal agencies lack the authority to divert those funds to third party recipients and to select the projects that should receive the funds. The power of the purse rests squarely with Congress. “[W]ith SEPs, money otherwise destined for the Treasury finds its way to another destination, not at the insistence of Congress, where the Constitution puts that authority, but instead at the insistence of an administrative agency, or a non-federal entity, or some combination thereof.”

The exceptions to the new prohibition on SEPs will be SEPs expressly authorized by Congress, payments to mitigation banks, and projects that “mitigate the actual harm caused by the underlying . . . violation.” The U.S. DOJ supports the new policy by referring to a number of opinions from Comptrollers General and the Attorney General regarding SEPs but fails to cite to any court cases that have disapproved of SEPs, despite federal court oversight of all U.S. DOJ consent decrees. The new policy is another step in the current administration’s series of memos regarding settlement and SEP policy and Executive Order Nos. 13,891 and 13,892 regarding agency transparency in guidance documents and adjudications.

The policy is not retroactive, so settlement agreements that have been approved, including those already being implemented, will not be affected by the new policy. The policy does, however, leave unanswered whether SEPs can be included in settlements of EPA administrative actions and whether U.S. DOJ will continue to approve SEPs in citizen suit consent decrees. Stay tuned – as the federal government continues its comprehensive review of SEPs, we will keep you updated.