In a departure from his budget proposal, the New York governor agreed to changes to extend the tax credits for New York’s Brownfield Cleanup Program (BCP) with relatively modest changes to the BCP’s eligibility requirements. See L. 2015, ch. 56, pt. BB. The enacted bill, among other things, amends the BCP, Environmental Conservation Law Article 27, title 14, and the provisions of the Tax Law related to tax credits available under the program. The governor’s budget proposed limiting the lucrative “tangible property” tax credit, which is the credit based on a percentage of the cost of constructing a new development on a brownfield site, to (i) properties located in an environmental zone, (ii) properties to be used for affordable housing, or (iii) “upside down” properties—where the remediation of the property is projected to cost more than the value of the remediated property. Under the enacted bill, however, those limits (with modifications) will apply only to properties located in New York City. See pt. BB, § 3 (adding subdivision (1-a) to N.Y. Envtl. Conserv. Law § 27-1407). In other words, outside New York City, eligibility for the tangible property tax credit will remain available to all developers that otherwise qualify under the BCP, per existing law.
The news for New York City–based developments is also not all bad. Besides affordable housing projects and properties located in environmental zones, which will help some New York City–based projects, the final bill adds a fourth category of properties eligible for the tangible property tax credit for “underutilized” properties—to be defined by regulation. In addition, the criteria for upside down properties were loosened so that a property can qualify if the remediation is projected to cost over 75 percent of the value of the remediated property. See pt. BB, § 2 (adding subdivisions (30) and (31) to N.Y. Envtl. Conserv. Law § 27-1405). Thus, despite the revisions, the New York BCP will continue to provide significant tax incentives to developers seeking to clean up and redevelop contaminated sites, and the extension will resolve the uncertainty over the future of the program that existed for several years.
Other changes include the following:
- “Grandfathering” of Existing Tax Credits: Amendments to the law as they relate to all eligible tax credits are tied to the dates by which a brownfield site is accepted into the BCP and obtains a Certificate of Completion (COC) from the Department of Environmental Conservation (DEC).
- Existing provisions related to the tax credits would remain applicable to those sites that either (i) were admitted into BCP prior to June 23, 2008 and obtained their COC by December 31, 2017, or (ii) were admitted into the BCP between June 23, 2008 and July 1, 2015 (or the date by which DEC proposes regulations defining “underutilized,” whichever is later) and obtained a COC by December 31, 2019. See pt. BB, § 33. Pre-June 23, 2008, projects that are not completed by the end of 2017 will only be able to proceed under the rules applicable to the new program.
- Amendments related to the tax credits are applicable to those sites that are accepted into the BCP between July 1, 2015 (or the date by which DEC proposes regulations defining “underutilized,” whichever is later) and December 31, 2022, so long as they obtain a COC on or before March 31, 2026. Id., § 31.
- Programs that participate in the New York City brownfield program would no longer be responsible for paying the New York State hazardous waste generator fee. Previously only New York State brownfield projects and other projects being cleaned up pursuant to state law were eligible for an exemption from that fee.
- Definition of “Brownfield Site”: The amendments redefine “brownfield site” to mean “any real property where a contaminant is present at levels exceeding the soil cleanup objectives or other health-based or environmental standards, criteria or guidance adopted by [DEC] that are applicable based on the reasonably anticipated use of the property.” Id., § 2 (amending N.Y. Envtl. Conserv. Law § 27-1405(2)). This is a welcome change that ties eligibility to cleanup objectives and moves away from the prior definition that tied eligibility to a mere showing that the “redevelopment or reuse” of the site “may be complicated by the presence or potential presence of a contaminant.” The prior definition resulted in significant litigation, culminating in Matter of Lighthouse Pointe Property Assocs. LLC v. DEC, 14 N.Y.3d 161 (2010), in which the Court of Appeals held that a site is eligible for tax credits “so long as the presence or potential presence of a contaminant . . . makes redevelopment or reuse more complex, involved, or difficult in some way.” Id. at 177. In so ruling, the court characterized entry into the program as a “low eligibility threshold.” Id. The New York State Comptroller’s Office and others have argued for many years that this easy-to-meet threshold has resulted in a windfall for developers. See, e.g., id. at 167 (citing 2008 Comptrollers’ Report).
- Creation of a New EZ Program: The amendments empower DEC to adopt regulations to implement a program for “the expedited investigation and/or remediation” of brownfield sites (BCP-EZ program), provided the developer agrees to take no tax credits associated with the program. Pt. BB, § 15-a (adding N.Y. Envtl. Conserv. Law § 27-1437). The EZ Program, however, appears to provide a minimal departure from existing remediation and public notice requirements, and thus may not actually provide for an expedited investigation as advertised. One area where a more expedited process may work is for Track 4—restricted use—cleanups where the applicant would be allowed to use site-specific data to demonstrate that the concentration of the contaminant in the soils reflects background conditions. In that case, a contaminant-specific action objective for the contaminant equal to the background concentration may be established.
- Inclusion of Class 2 Sites: The amendments allow in class 2 Superfund sites that are being remediated by non-culpable volunteers. Id., § 2 (amending N.Y. Envtl. Conserv. Law § 27-1405(2)). Previously, such sites were deemed ineligible even if the party seeking to remediate the site had no role in the contamination.
- Change in DEC Oversight Costs: The amendments eliminate the payment of DEC oversight costs for volunteers and permit a flat-fee charge to participants. Id., § 7 (amending N.Y. Envtl. Conserv. Law § 27-1409(2)), § 45(c).
- Related Service Fee: The amendments address a perceived problem related to the computation of service fees charged to the brownfield applicant by a related party and the calculation of tax credits. The concern was that these service fees could be inflated as a way to increase the remediation or site preparation costs, and result in associated increases in the ceiling of eligible tangible property credits. The amendments provide that such service fees cannot be claimed as eligible site preparation or remediation costs until they are earned and actually paid, and the portion of the tax credits related to such fees cannot be claimed until the taxable year when the subject property is placed into service. Id., § 17 (amending N.Y. Tax Law § 21(a)(3)). This limits the use of such fees as a way to inflate costs that are used to calculate the ceiling for tangible property credits. That ceiling is deemed to be the lesser of $35 million for residential/commercial projects ($45 million for industrial projects) or three times the amount of eligible site preparation and onsite groundwater remediation costs. See N.Y. Tax Law § 21(a)(3-a)(A).
- Definition of Eligible Site Preparation Costs and Groundwater Remediation Costs: The definition of eligible “site preparation” and “onsite groundwater remediation” costs is critical because these costs are eligible for tax credits that range from 28 to 50 percent of such actual costs, and, as noted, those costs are often used as the basis for calculating the ceiling for a project’s tangible property tax credits. See N.Y. Envtl. Conserv. Law § 27-1419(3). The amendments provide a more specific and detailed description of eligible costs, requiring such costs to be necessary to implement a site investigation or remediation, or to qualify for a COC. Part BB, § 23 (amending N.Y. Tax Law § 21(b)(2), (4)). Eligible costs include those related to excavation, demolition, engineering and environmental consulting costs, legal costs, transportation and disposal of contaminated soil, physical support of excavation, and dewatering. Id.
- Increased Tangible Property Tax Credit Percentage and Changed Definition: The amendments limit the tangible property credit to only costs for tangible property with a useful life of at least 15 years. Id., § 17 (amending N.Y. Tax Law § 21(a)(3)). Certain projects, however, will be eligible for a higher percentage tangible property credit, which in a general sense is a tax credit calculated based on a percentage of the cost of constructing the building on the brownfield site. Under existing law, that percentage is either 10 or 12 percent. N.Y. Tax Law § 21(a)(5). Under the amendments, that percentage can be increased in 5 percent increments, and total as much as 24 percent of the development costs, with 5 percent bonuses for sites that are cleaned up to Track 1 standards (highest level of cleanup), located in En-zones or a Brownfield Opportunity Area, or developed for manufacturing or affordable housing. Id., § 21 (amending N.Y. Tax Law § 21(a)(5)).
At an April 2015 meeting of developers and consultants seeking COCs in 2015, the director of DEC’s Division of Environmental Remediation discussed the recent changes, noting that the program would continue to provide significant incentives for site cleanups. The director agreed that the changes to the definition of eligible “site preparation” costs constitutes a major change to the program, and emphasized the importance of pre-June 2008 projects to obtain COCs from DEC by the end of 2017 to ensure eligibility for tax credits provided under the pre-amendment program. The director also noted that DEC currently has plans to issue over 160 COCs in 2015, which would be a significant increase in the number of COCs ever issued in any year since the program has been in existence. Finally, the director stated that DEC expects to have a draft of revised DEC brownfield regulations issued in the fall. Those regulations are likely to provide further elaboration on the concept of “underutilized” properties—one of the categories of “brownfield sites” in New York City that would be eligible for tangible property tax credits.
Keywords: litigation, corporate counsel, New York Brownfield Cleanup Program, BCP, tangible property tax credit Force