Advocates leery as Minnesota legislators seek role in VW settlement

As Minnesota lawmakers seek more oversight over how $47 million in Volkswagen settlement funds are spent, advocates warn bills in the legislature could cause the state to lose the money altogether.

Attorney Leili Fatehi, owner and principal of the public benefit corporation Apparatus, says the consent decree requires that states follow a certain process in distributing money from the settlement and several proposed bills could negate the settlement.

“It’s pretty reckless legislation,” said Fatehi, who would like to see some of the money spent on environmental justice initiatives to help clean up disadvantaged neighborhoods.

The debate over who gets to hold the purse strings of the settlement money pits the governor’s office and executive branch against legislators who firmly believe they should – and will – have a say in which projects receive money.

Fatehi said the tussle is being watched closely by the Great Plains Institute, Fresh Energy (which publishes Midwest Energy News) and other organizations in the energy field.

“The big concern is making sure that there aren’t bills that prevent Minnesota getting funding,” said Brendan Jordan, who helps lead the Great Plain Institute’s Drive Electric Minnesota initiative.

“The settlement is very specific how the money can be spent and what it can be spent on in a very specific time frame. There are things the Legislature could do on appropriating the money that could result in the state not getting anything.”

‘Who decides’

Volkswagen Group of America’s settlement with federal regulators and the state of California creates three pots of money, one providing $2.7 billion to states to fund programs for reducing nitrogen oxide (NOx) emissions.

Minnesota’s $47 million share – based on the state having roughly 11,500 VW cars with emission cheating software – will come out this fund.

In addition, VW also agreed to spend $10.3 billion to buy diesel cheater vehicles back or to retrofit them and another $2 billion to build out an electric vehicle infrastructure, starting in 11 cities, among them Chicago.

Key to the 225-page consent decree is that a government agency with full legal authority must be appointed to receive payments that will then be directed to projects, Fatehi said.

The money is being managed by the Wilmington Trust and it will approve every project submitted by every state. The process of certifying states to receive settlement funds is expected to begin in May.

In Minnesota, Gov. Mark Dayton selected the Minnesota Pollution Control Agency, which already has had three public meetings focused on the settlement money and plans for four or five more around the state.

Lawmakers, however, wants a say in what the MPCA uses the consent decree money for. They want to have the power to appropriate the money that will go for projects, rather than the MPCA.

And members have already earmarked what the money should be used for, with bills in the House and Senate setting aside $1.5 million for propane school bus retrofits and a propane infrastructure.

Lawmakers in a handful of other states have introduced laws to direct the settlement money to initiatives, among them New Jersey, Oregon, Maine and Kentucky.

Most states, however, are allowing an agency to have the authority to manage the settlement money, as the consent decree outlines.

Republican Rep. Pat Garofalo, chair of the Job Growth and Energy Affordability Policy and Finance committee, believes the legislature has a role.

“Everyone wants to make sure we receive these funds for our state,” he said in an email. “The only dispute is over who decides. My strong preference is that both the legislature and executive branch work together, rather than one branch of government taking unilateral action.”

Senate minority leader Tom Bakk, a Democrat, is sponsoring a bill that seeks to allow lawmakers “legislative oversight” of the settlement fund.

When asked if the state should refuse the money if the legislature is not allowed to appropriate the funds, Bakk said he didn’t believe the trustee would make that restriction.

The consent decree, Fatehi said, is clear that the money should be considered a gift or a grant from a private organization and should be treated as such by the state government.

The legislature does not traditionally weigh in on every grant the state receives from the federal government or other funders, she said, and often cannot do so because of legal restrictions.

Representatives from Wilmington Trust have not responded to requests for comment.

Competing visions

Garofalo argues his bill simply makes the executive and legislative branches “sign off” on how the money will be spent. While in theory that sounds potentially agreeable, in practice that’s not in line with the consent decree’s language.

“The one thing that is lost in this debate is that this is privately settled, it’s not like other kinds of money that come into our state,” said attorney and Democratic Rep. Jamie Becker-Finn. “This is part of a settlement that has very specific, delineated purposes the funds can be used for.”

In fact, the Wilmington Trust could decide to refuse to certify the settlement in Minnesota if the legislature demands to appropriate the money instead of the agency, she said.

The legislature “should stay out of it until we’re certified,” Becker-Finn said. “At least in that way we’re not losing out on the money forever.”

Andrew Twite, senior policy associate for energy markets at Fresh Energy, does not totally discount the legislature’s potential role.

The legislation calling for the lawmakers to appropriate settlement money “is not necessarily a deal breaker because theoretically the legislature could submit the same projects the MPCA would pick anyway,” he said. “But the concern is the MPCA has specialized knowledge and they are in a position to pick the best projects that will get approved by the trustee.”

Legislators answer to constituents, Twite pointed out, and that could cause some selections to be based less on science and statewide goals and more on serving local interests.

For his part, Jordan wants electric vehicle options to have a fair shot at receiving project money. While he believes there may be a “creative” way for the legislature to have input, “the idea of having the legislature pick projects and appropriate money does not seem a good way to go.”

The MPCA’s Brian Timerson, unit supervisor in the environment assistance program, works on the agency’s VW settlement team. The consent decree allows for investment in 10 categories, nine of those focused on funding programs to replace diesel engines, he said.

The other category offers support for electric vehicle infrastructure, an effort parallel to VW’s much larger $2.7 billion effort that is in the consent decree.

Though some legislators have worried that all of the money could be used for EV-related programs, the settlement restricts those expenditures to 15 percent of the total.

The MPCA has years of experience dealing with diesel engines. The agency has offered grants from the federal government’s Diesel Emission Reduction Act since 2008. Every project will be vetted through an extensive, technical cost-benefit analysis.

The agency helps operate Minnesota’s Project Green Fleet, which retrofitted more than 3,200 school buses (and roughly 1,400 diesel trucks), according to the Environmental Initiative, a partner in the project.

Rick Patraw, manager of the PCA’s environmental assistance section, believes the idea of retrofitting buses for propane, as one bill proposes, may not work because so many of them have already been through the Green Fleet program.

Propane retrofits would have to decrease NOx pollution even more than the Green Fleet program has already achieved, he said. Moreover, a school district would have to come forward which wants to move to propane buses, Patraw said.

The settlement only allows for adding a propane switch to buses but will not pay for a propane infrastructure. The school district would have to pay for that itself, he pointed out.

The settlement’s focus is “projects that will reduce nitrogen oxide emissions,” Patraw said. “That’s what we’ll be required to do.”

If the MPCA veers off that course to satisfy legislators, the trustee has the right to reject those projects unless they directly relate to the goals of the consent decree.

One definite component of the settlement deals with environmental justice, according to Patraw, and that speaks to Fatehi’s mission. She’s hoping the PCA will fund projects to reduce emissions in minority communities suffering the health effects of poor air quality.

The argument of Garofalo and others who see the Legislature as having any say in the dispersion of settlement money as “legally suspect” and believes if Minnesota loses out on the settlement money other states will have more in their coffers to improve air quality.

“It’s not a question of what the money should be used for now,” she said. “It’s a question of what do we need to do to get the money in the first place.”

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