Probate & Property Magazine: March/April, Volume 24, Number 2
Real Property|Trust & Estate
Jasleen K. Anand is a solo practitioner in Garden City, New York, and chair of the Affordable Housing Committee. Naeem Mia is of counsel to the Law Office of Jasleen K. Anand in Garden City, New York.
We may drive by vacant, abandoned, and neglected properties and think nothing of them, but they can cause significant harm to our communities. Sites whose owners fail to perform the fundamental duties of property ownership, such as paying taxes, utility bills, mortgages, or other liens against the property, present a threat to public safety and can easily become victims of environmental contamination.
Sites subject to environmental contamination are often referred to as brownfields. This article gives a general overview of some of the federal and state programs that encourage developers to acquire and clean up brownfields and to redevelop them into economic engines.
On January 11, 2002, President Bush signed into law the Small Business Liability Relief and Brownfields Revitalization Act, Pub. L. No. 107-118, 115 Stat. 2356, which expanded the Environmental Protection Agency's (EPA) Brownfields Program by boosting funding for assessment and cleanup, enhancing the roles of state and tribal response programs, and clarifying Superfund liability. According to the EPA, "brownfields revitalization programs provide communities with the tools to reduce environmental and health risks, reuse abandoned properties, take advantage of existing infrastructure, create a robust tax base, attract new businesses and jobs, create new recreational areas, and reduce the pressure to develop open spaces." U.S. Envtl. Prot. Agency, The New Brownfields Law, at 1 (2002), http://epa.gov/brownfields/laws/bflawbrochure.pdf.
The EPA has a primary goal of supporting sustainable development, and EPA has stated that "sustainable development means finding an approach to brownfields reuse that offers the most significant long-term benefits to the local community—using resources efficiently and reducing waste while encouraging local economic growth." U.S. Envtl. Prot. Agency, Sustainable Redevelopment of Brownfields—Fostering Economic Development and Protecting the Environment, at 1 (2003), http://epa.gov/brownfields/success/sustainable.pdf. There are many successful examples of sites formerly designated brownfields that have been reused to promote sustainable development. In Baltimore, Maryland, for example, the historic Montgomery Ward catalog distribution center, built from 1925 to 1927, and a brownfield, has been remodeled into a "green" building, offering low-energy heating, cooling, and lighting systems. Id. at 2. Another example is the Union Ship Canal/Hanna Furnace property in Buffalo, New York, which housed a pig iron manufacturing facility from 1900 to 1982. This contaminated site was closed and abandoned until the city of Buffalo acquired the site in 1990, and it remained vacant until 2003. With the help of an EPA grant, a nonprofit developer cleaned up the site within one year, rebuilt the infrastructure surrounding the site, and subsequently sold portions of the site to a light manufacturer, which also planned to use it as a distribution facility. Current plans are to build open space and trails at the site as well.
Information about the EPA's brownfields program is available on the agency's web site, http://epa.gov/browfields. This web site includes detailed information about various grants, tax incentives, and other resources that the EPA can provide to assist brownfields redevelopment. Recent comments by EPA officials indicate a growing trend toward inter- and intra-agency cooperation and a favorable attitude toward public–private partnerships.
A second way in which the federal government has encouraged brownfields redevelopment is through the U.S. Department of Housing and Urban Development, which offers financing to redevelop brownfields into affordable housing projects. Tools include Community Development Block Grants, Section 108 loan guarantees, the Brownfields Economic Development Initiative, and Empowerment Zone/Enterprise Community Initiative. See U.S. Dep't of Hous. and Urban Dev., Financing Brownfields Redevelopment (2009), www.hud.gov/offices/cpd/economicdevelopment/programs/bedi/bfieldfinance.cfm.
Many states offer their own tax credits and other incentives as a way of encouraging brownfields redevelopment. The following discussion highlights some of the benefits and requirements of tax incentive programs in three states: New York, New Jersey, and Florida.
Case Study: New York
New York is one of the more generous states in its tax credit/reimbursement scheme. Its generosity is demonstrated by the fact that, after its initial enactment in 2003, the Brownfield Cleanup Program Act, N.Y. Envtl. Conserv. Law § 27-1401, was criticized for favoring downstate projects after a number of New York City developers qualified for hundreds of millions of dollars in tax credits for large commercial and residential projects that required only minimal cleanup.
The Brownfields Remediation Tax Credit (BRTC) is a one-time tax credit based on the cleanup costs incurred. Following the 2008 amendments to the BRTC program, tax credits are now available up to either the lesser of $35 million or three times the cost of the cleanup and other site preparation costs (in the case of nonmanufacturing properties); or $45 million or six times the cost of the cleanup and other site preparation costs (in the case of industrial/manufacturing projects). The amendments also increased the tangible property tax by 2% for properties located in a designated Brownfields Opportunity Area, streamlined the Brownfields Cleanup Program, and transferred responsibility for it from the Department of Environmental Conservation to the Department of State. Reimbursements may be claimed for up to five years after the Department of Environmental Conservation issues a "Certificate of Completion" for the project. The Certificate of Completion is transferable, but only to the new owner of the cleaned up site. N.Y. State Dep't of Envtl. Conserv., 2008 Brownfields Legislation Summary (2009), www.dec.ny.gov/chemical/45734.html.
The BRTC is refundable, meaning that unused tax credits are treated as an overpayment of income tax for that taxable year, entitling the taxpayer to a tax refund from the state. Until the June 2008 amendments discussed below, the amount that could be refunded had no upper cap. This resulted in a potential $3 billion liability for the state, and at least $1 billion of this liability was attributable to the guaranteed tax credits for 54 cleanup sites already in the program.
The BRTC applies to three cost categories: site preparation costs, qualified tangible property costs, and groundwater remediation costs. Each of these categories has its own caps and limits. Tax credits are permitted only for projects that are approved by the Department of Environmental Conservation and memorialized in a Brownfields Cleanup Agreement. The tax credit begins accruing as soon as the Brownfields Cleanup Agreement is executed but cannot be actually claimed on the applicant taxpayer's New York State tax return until the project is issued a Certificate of Completion. The applicant then receives either a deduction of the state tax owed or a refund, if the deduction is greater than the taxes the applicant has already paid. The taxpayer can claim the tax credit for up to five years after receiving the Certificate of Completion.
The Brownfields Cleanup Program has been criticized as a cumbersome process that requires streamlining to become truly effective. N.Y. City, PlaNYC Report: A Greener, Greater New York, at 43 (2007), http://nyc.gov/html/planyc2030/downloads/pdf/full_report.pdf. In particular, the eligibility and application acceptance procedures have shut out many small private and nonprofit developers. Responding to these concerns, Department of Environmental Conservation Commissioner Pete Grannis has proposed that a "pre-determination" of potential brownfields be included in the DEC's database for fast-track application approval. N.Y. State Dep't of Envtl. Conserv., DEC Proposes Changes to Brownfield Cleanup Process to Help Increase Community Revitalization (2009), www.dec.ny.gov/press/59614.html. In addition, the DEC plans to shorten to 45 days the time required for the execution of a cleanup agreement. Id.
Case Study: New Jersey
The brownfields remediation program in New Jersey is administered by the New Jersey Department of Environmental Protection. Currently, the Department of Environmental Protection oversees approximately 10,000 potential brownfield sites. The actual number of brownfield sites in New Jersey is likely higher because not all fall within Department of Environmental Protection review yet. Under the New Jersey Brownfield Contaminated Site Remediation Act, enacted in 1998, the state can provide reimbursement of up to 75% of eligible costs. N.J. Stat. Ann. § 58:10B-8. Eligible costs include those incurred for site assessment and remediation. Unlike New York, New Jersey does not permit a property owner to transfer credits to a new owner.
The reimbursement funds are derived from state revenues generated from the remediated brownfield site. Before a property owner can receive reimbursement, the owner must take three steps. First, the owner must meet with the Department of Environmental Protection, the Economic Development Authority, the Department of Treasury, and the Department of Taxation in a joint meeting to present its redevelopment proposal, including the type and expected amount of taxes to be generated from the site. Second, the owner must enter into a memorandum of agreement with the Department of Environmental Protection that sets forth the type and level of remediation, including preliminary assessment, work plan, and action. Finally, the owner must execute a full redevelopment agreement. N.J. Econ. Dev. Auth., Brownfield and Contaminated Site Remediation Act Information and Application for Reimbursement (2009), www.njeda.com/applications/Brownfield_Information_and_Application.pdf. Any remediation costs incurred by the property owner before it completes these steps are reimbursable after these requirements have been completed.
Case Study: Florida
Florida's Voluntary Cleanup Tax Credit, passed in 1998 and administered by the Florida Department of Environmental Protection, is yet another voluntary cleanup program using tax credits to provide incentives for brownfields redevelopment. Fla. Dep't Envtl. Prot., Voluntary Cleanup Tax Credit (2009), www.dep.state.fl.us/waste/categories/vctc/default.htm. The Florida Department of Environmental Protection has set a maximum cap of $2 million per year. Excess reimbursements are paid the following year up to this cap.
Currently, the Voluntary Cleanup Tax Credit provides reimbursements of up to 50% (but not to exceed $500,000) for site rehabilitation work and for solid waste remediation. The applicable Florida statutory provisions define site rehabilitation costs as "integral, necessary and required for site rehabilitation." Fla. Stat. §§ 376.79, 376.80, 376.301. Solid waste remediation reimbursement includes costs for solid waste removal, as provided in Fla. Admin. Code Ann. r. 62-788, from a brownfield that was never operated as a permitted solid waste disposal area or was never operated for monetary compensation.
Eligible sites are those that have a Brownfield Site Rehabilitation Agreement in place with the Department of Environmental Protection, although a Voluntary Site Rehabilitation Agreement also will suffice. The taxpayer must claim the reimbursement for site rehabilitation in the year in which the rehabilitation is performed, but solid waste removal reimbursement can be claimed in the year in which the owner paid for the work. Tax credits can be used only to offset Florida corporate income taxes. The taxpayer can transfer the credits one time to any person the claimant chooses.
Interestingly, the Florida tax credit scheme provides a bonus of up to a 25% reimbursement (again, not to exceed $500,000) for affordable housing or health-care facility construction. Fla. Dep't Envtl. Prot., Voluntary Cleanup Tax Credit (2009), www.dep.state.fl.us/waste/categories/vctc/default.htm. Legal fees also can be claimed, depending on the nature of the legal work and only to the extent that the work relates to the site remediation and not to the larger development project as a whole. Fla. Dep't of State, Voluntary Cleanup Tax Credits (VCTC) Frequently Asked Questions, www.dep.state.fl.us/waste/quick_topics/publications/wc/vctc/VCTC_FAQs_Final.pdf (last visited Dec. 23, 2009).
Governmental authorities must provide incentives for the cleanup of blighted sites in order to effectuate their policy shift toward sustainable development, including the promotion of public-private partnerships and the creation of "walkable downtowns" with green space, public transit, and mixed-use affordable housing.
Despite the challenging economic times, federal, state, and local governments must continue to work with for-profit and nonprofit organizations so that they will take advantage of these tools to develop and carry out comprehensive plans benefitting communities, economies, and the environment. This overview of remediation programs is designed to assist readers in understanding some of the mechanisms used by state agencies to provide developers with economic incentives for brownfields redevelopment.Return To Issue Index