March 31st, 2014
EPA issued a unilateral administrative order (UAO) under section 106 of CERCLA to implement a remedial design (RD) for the Gowanus Canal. EPA took this action after negotiations with responsible parties bogged down. The agency wants the RD fieldwork to commence this spring.
Back in September 2013, EPA issued a Notice for the Commencement of Remedial Design Negotiations and Demand for Past Costs (“Notice and Demand”) to a group of responsible parties. The Notice and Demand sought $5 million in partial past costs and execution of an RD consent order by the responsible parties. EPA then convened a meeting of the PRPs November 2013 with the intent that a consent order be executed in December. The agency subsequently extended the deadline to January 31, 2014 and then later to February 14, 2014.
In the meantime, National Grid and EPA entered into a settlement agreement where National Grid developed and submitted for EPA for approval Pre-RD and RD Work Plans. National Grid also paid EPA $1 million in partial reimbursement of EPA’s outstanding past response costs.
According to the UAO, EPA is currently conducting separate consent order negotiations with New York City for the portion of the RD that involves the siting and design of Combined Sewer Overflow (CSO) retention tanks and the design for the cleanup and restoration of the former 1st Street turning basin. EPA is also negotiating an administrative order for a removal action with a number of other responsible parties which would require implementation of bulkhead upgrades as well as the coordination and cooperation with the responsible parties implementing the RD.
A copy of the UAO is available here.
March 27th, 2014
[updated March 31st]
In January, Governor Cuomo proposed sweeping reforms to the Brownfield Cleanup Program (BCP). The proposed changes rattled the real estate industry and caused a surge of BCP applications filed by developers who wanted to enroll in the BCP before the proposed tax changes too effect.
On Wednesday morning, though, stakeholders involved in the BCP reform negotiations began receiving messages from the Governor’s office that he had changed his mind and that BCP reform would not be part of the final budget agreement. One stakeholder was told that the brownfield tax credits (BTCs) and the refinancing of the Superfund refinancing were not viewed as issue for 2014/15 fiscal year and therefore it was not urgent to deal with BCP reform in the waning days of the budget negotiations.
This was an interesting statement since it seems to undercut the very rationale that was at the heart of the Governor’s BCP proposal-namely that the BCP was too expensive. If the BCP is not impacting the state budget, the logical conclusion would seem to be that the tax credits structure does not have to be overhauled and all that is required is a mere extension of the BTCs.
With the budget now finalized, BCP reform could be addressed before the Legislative adjourns in the middle of June. However, without the pressure of the budget deadline, many stakeholders are concerned that the Legislature will not be sufficiently motivated to address BCP reform because the BTCs will not expire until 12/31/15 and 18 months is an eternity in the life of a politician.
Such inaction would essentially amount to a de facto freeze of the BCP because there are very few projects that could be accepted this year and obtain a COC by the end of 2015. This would also put many current projects in limbo if they cannot obtain a COC by the end 12/31/15. Under the Governor’s proposal, these projects would have had until 12/31/17 to complete their cleanups and obtain a COC.
If the Governor sticks with his position to punt BCP reform to the post-budget period, it is imperative that the Legislature and the Executive make BCP reform a priority….or simply extend the BTCs given their apparent lack of significant impact on the state budget.
March 24th, 2014
[NOTE: Updated to reflect Assembly bill ]
With only a week remaining for New York to adopt its 2014-15 budget, extension of the Brownfield Cleanup Program (BCP) remains on the table. It appears that a consensus is emerging on the shape of the brownfield amendments or at least the number of key outstanding issues has been narrowed.
As we have previously discussed, Governor Cuomo proposed sweeping reforms to the BCP in January. Click here and here for prior posts about the Governor’s bill. While the impetus for BCP reform was the looming expiration of the BCP tax credits, the Executive Branch was also concerned about the costs of the BCP. As a result, the Governor’s bill proposed limiting that the Tangible Property Tax (TPC) to certain categories of brownfield projects and proposed to restrict the kinds of costs that would be eligible for the Site Preparation Tax Credit so that so-called “soft costs” could not be included. . It was unclear from the Governor’s bill if the definitional changes to the costs eligible for the Site Preparation Cost would apply only to BCP applications accepted after the proposed July 1st effective date or would extend to costs incurred by existing applicants after the effective date. Another significant feature of the Governor’s bill was automatic termination for BCP projects that did not receive Certificates of Completion (COCs) by 12/31/15 if they were accepted into the BCP prior to 6/23/08, or by 12/31/17 for sites accepted after that date but before 7/1/14.
The Senate proposed its own reform legislation that would have retain the current “as of right” tax credit structure. To accommodate the Governor’s concerns about the costs BCP costs by refining the definition of brownfield site to incorporate more refined concepts of underutilization, functionally obsolescence, affordable housing or qualify as a priority economic development site. The Senate also declined to narrow the scope of the costs eligible for the Site Preparation Tax Credit, contained a broader exemption for applications for Class 2 submitted volunteers and omitted the automatic termination dates.
The Assembly finally released its brownfield reform proposal on March 24th. The Assembly bill mirrors the approach proposed by the Governor that BCP sites would have to satisfy a second test to qualify for the tangible property tax credit but largely adopts the test advanced by the Senate. The change would take effect on January 1, 2016. The Assembly does not attempt to change the site preparation definition, does not include any automatic termination dates, does not exempt applications for Class 2 sites submitted by volunteers and does not provide for an exemption from the hazardous waste fee for projects enrolled in the NYC VCP or under a federal cleanup order.
Based on legislative drafts exchanged between Legislative and Executive Branches, it appears that the parties are drawer closer on the following key issues:
- The Governor may get his separate test for the tangible property tax credit but with the broader tests suggested by the Senate;
- Existing BCP applicants will be “grandfathered” so that changes to the Site Prep Eligible costs will not apply to costs incurred by those applicants after the effective date of the legislation;
- Changes to the Tangible Property Tax Credit applicable percentages would become effective for applications accepted after July 1, 2014;
- The Governor may be willing to include some “soft costs” into the Site Preparation Tax Credit calculation but that these costs would be limited to those incurred to qualify for a COC (so-called Bucket A site prep costs) but not those costs incurred to put the property into service (so-called Bucket B site prep costs);
- The fate of eligibility for Class 2 sites and sites subject to an enforcement order remains unclear. The Governor proposed only Class 2 sites could be eligible where there was no viable responsible party and the applicant was a volunteer. Current proposed language would extend this exemption to sites under enforcement orders but would limit the site preparation costs “only the incremental costs exceeding those necessary to satisfy the closure requirements of the permit or order”;
- The automatic termination provisions would be extended to 12/31/19 and 12/31/21.
Given the way business is conducted in Albany, it is often a fool’s errant to predict the outcome of legislation. It is usually easier to forecast the local weather than final legislative language. However, it does seem like progress is being made and that BCP reform remains possible as part of a budget agreement.
March 19th, 2014
A month after Governor Cuomo proposed sweeping reforms to the Brownfield Cleanup Program, the New York State Senate proposed its own BCP amendments. The bill (S. 6359—C) is available at here.
The legislation includes a number of the changes proposed by the Governor’s bill including extending the BCP tax credits to 2025, extending the hazardous waste program fee exemption to cleanups performed under EPA or approved local government programs, allowing sites with groundwater Operation and Maintenance systems or sub-slab depressurization systems to qualify for track 1 (unrestricted) cleanups and eliminating oversight costs for BCP volunteers.
However, the Senate proposal departs from the signature feature of the Governor’s bill-changing eligibility for the tangible property credit (TPC) and redefining what costs qualify for the site preparation credit (SPC). The Governor’s bill proposes to limit eligibility for the TPC to three types of brownfield projects and would preclude so-called “soft costs” from qualifying for the SPC treatment. The feeling within the Executive Branch is that the BCP is paying for lots of excavation costs that would have been incurred in the absence of contamination and only wants to incur tax credit liability for costs required by the approved remedial action plan. The Executive Branch also thought that some applicants with captive contracting firms were “padding” SPC costs. To minimize this practice, the Governor’s bill proposed to bar costs paid to “Related Parties”. Yet another refining of the SPC definition would be to require applicants to capitalize certain costs such costs as property taxes, loan interest paid during the cleanup, etc. Since the so-called TPC “soft cap” is 3x the total SPC, reducing the eligible SPC costs would have the effect of reducing the TPC’s generated by the BCP.
In contrast, the Senate legislation retains the current framework that all BCP projects are eligible to claim the TPC and does not narrow the types of costs eligible for the SPC. (Recall that there are actually two types of SPC costs: Costs to qualify the site for the COC and other costs to prepare the site for construction of a building or structural building components.) The Senate would cap the total SPC available for any BCP project to $15MM.
Following are some highlights of the Senate’s legislation.
Senate Proposed Brownfield Site Definition-
The Senate bill not only retains the current subjective definition of brownfield site but double downs on its complexity. Currently, a brownfield site is defined as real property where the presence or potential presence of contamination complicates reuse. The Senate adds additional indicia of contamination and underutilization. The result is an incredibly convoluted definition that could produce as many lawsuits as applications.
The Senate bill proposes that the “contaminant or contaminants, do not overwhelmingly consist of historical fill, and exceed at more than minimal levels the soil cleanup objectives….that are applicable based on the reasonably anticipated use of the property, as determined by the applicant. “ The term “overwhelmingly” and phrase “at more than minimal levels” are a recipe for lawsuits.
Them the definition goes on to state that the contamination is to be established “by completion and submission of an ASTM Phase II environmental assessment report.” Why the bill drafters settled on ASTM E1903 as the methodology is nothing short of baffling. E1903 is a standard guide that established procedural framework for collecting soil and groundwater samples. However, the NYSDEC has already promulgated extensive regulations at 6 NYCRR Part375 and published its DER-10 Technical Guidance for Site Investigation and Remediation that sets forth a comprehensive list of standards, guidance and criteria (SGCs) for performing site investigations. One has to wonder if the drafters of this bill are familiar with NYSDEC’s remedial programs.
Under the Senate bill, applicants could have the option of submitting the ASTM phase with their application or up to 90 days after filing the application to demonstrate that the site meets the contamination criteria in the brownfield site definition of this title. For applicants that do not submit an ASTM Phase II investigation report with their application, the start of the 45-day period for NYSDEC to render a decision on the application will be deferred until the filing of the ASTM phase 2 but no later than 90 days after submission of the application.
The definition then goes on to state that sites with the requisite level of contamination must also exhibit one of more of the following characteristics (known as the “Brownfield Site Characterization Criteria”).
(i) a current legacy of vacancy or abandonment from previous industrial or commercial activity or tax delinquency for at least one year prior to the date of application; or
(ii) a current and historical legacy of severe economic or functional underutilization including use of such site as a hazardous waste or solid waste facility; or
(iii) in the case of a site characterized primarily by former industrial activity, functional obsolescence; or
(iv) the projected cost of the investigation and remediation based on the reasonably anticipated use of the property as determined by the applicant exceeds fifty percent of the certified appraised value of the property absent contamination; or (v) the site has been certified by the municipality in which the site is located as meeting any of the conditions set forth in this opening paragraph.
The phrase “severe economic or functional underutilization” is defined as a brownfield site and any improvements: (a) on which a building or buildings containing no more than fifty percent of the permissible floor area under applicable zoning is being utilized; or (b) has a value of equal to or less than seventy percent of the floor area of the average valuation of land in the county or city in which the land is located, except in a city having a population of one million or more inhabitants where the average valuation shall be based on the county in which the land is located.
The phrase “functional obsolescence” shall mean the brownfield site and any improvements thereon that:
(a) can no longer be functionally or economically utilized in the capacity in which it was formerly utilized because of the configuration of the building or substantial structural defects not brought about by deferred maintenance practices or intentional conduct; or
(b) The entire site or a significant portion thereof, with or without improvements is used irregularly or intermittently; or
(c) The functionality of the equipment inside the building or buildings is obsolete for a modern day application; or
(d) Has been certified by the municipality in which the site is located as underutilized pursuant to the criteria in this subdivision.
The Senate bill would allow the applicant to invoke dispute resolution if the NYSDC determines that it has not met the Brownfield Site Characterization Criteria.
The foregoing criteria would seem to be good starting point for modifying the Governor’s proposal for what sites/projects should qualify for the TPC. However, as part of the brownfield site definition, they they inject too much uncertainty into the BCP. We believe the Governor’s Brownfield Site definition is far superior approach than the Senate’s version. The Governor’s bill provides clear and objective criteria for determining if a site is contaminated (e.g., contaminants exceed applicable standards). The Governor’s definition provides more clarity to potential applicants and would likely result in less litigation over what is a brownfield site.
Of course, the Governor’s brownfield site definition is “cleaner” because it does not try to define factors that describe under what circumstances redevelopment is complicated by contamination as part of BCP eligibility. Instead, the Governor’s proposal focuses on those factors for determining what sites are eligible for the TPC. The NYSDEC became embroiled in lawsuits and the BCP virtually ground to a halt when the agency was unfairly tasked with limiting the costs of the BCP and had to adopt an unnaturally narrow interpretation of what was a brownfield site. The Senate’s proposal with its abundance of subjective criteria is more likely than not to bring us back to the bad old days where NYSDEC limited resources will be consumed defending administrative and legal challenges to its eligibility determinations. It seems far better to have an objective test for accepting sites into the program. Under the Governor’s proposal, these sites would be eligible to claim the SPC for their cleanup costs. With the issues narrowed, we Legislature and the Governor could the focus the time remaining refining the test on what types of projects should be eligible for the TPC.
New Applicant Ineligibility Criterion-
Like the Governor’s bill, the Senate proposal provides that an applicant may be denied enrollment in the BCP if it the applicant has been terminated from another NYSDEC remedial program by the agency or a court for failure to substantially comply with an agreement or order. However, unlike the Governor’s bill, the Senate would only extend this debarment to the preceding forty-two months.
Class 2 Eligibility-
There appears to be widespread agreement with the concept that volunteers (i.e., non-responsible parties) who are willing to redevelop class 2 sites on the state superfund list which is formally known as the Registry of Inactive Hazardous Wastes Sites (Registry) should be able to enroll the site in the BCP. The dispute is over what circumstances such sites should be eligible for the BCP. The Governor proposed that volunteers should be eligible where there is no viable responsible party. This was partially out of concern that recalcitrant parties who refused to remediate sites could not profit by selling sites that were now more valuable because of the potential tax credits available under the BCP. In our prior discussion, we said that this test might be too stringent and suggested some alternative formulation.
The Senate bill rejects any limitations on class 2 eligibility or for that matter any of the other statutory exclusions where the applicant is a volunteer. Specifically, the Senate legislation provides that if a volunteer submits a request for participation for real property that would otherwise be deemed excluded from classification as a brownfield site, such real property shall not be excluded. The bill goes on to state that any on-going state remedial program, enforcement action or order with regard to the site shall be stayed by the execution of a brownfield cleanup agreement (BCA) and shall terminate when the volunteer receives a certificate of completion (COC). Upon issuance of the COC, the site would be delisted from the Registry, unless the COC is later revoked for good cause. However, the stay would not apply where the NYSDEC is seeking to require an owner of the site at the time of the disposal, or other responsible party to address an imminent and substantial threat to public health or the environment, or is seeking penalties or reimbursement of response costs. Moreover, if the BCA is terminated, or the volunteer or subsequent site owner or operator fails to comply with the terms of an environmental easement, any state remedial program, action or order may resume or be recommenced after timely notice to all concerned parties.
While we agree that sites should not be “punished” where there is a volunteer willing to perform a cleanup and invest in redeveloping or re-positioning the property. On the other hand, there are legtimate policy concerns about why New York should incur tax credit liability when there is a responsible party on the hook or creating too broad an exeption that could create moral hazards that incentivize recalcitrant owners of developable property to simply sit back and wait until a volunteer appears who willing to pay a higher price reflecting the increased value of the land due to its potential to generate significant tax credits.
No Automatic Termination-
The Governor’s bill proposed an automatic termination of 12/31/15 for sites admitted into the BCP prior to June 23, 2008 (effective date of the last BCP amendments) and 12/31/17 for sites accepted into the BCP after 6/23/08 and before 7/1/14. The Senate bill does not contain an automatic termination date and quite frankly, we do not see the need for such a provision. The NYSDEC already has the authority to terminate sites that are not making substantial progress towards completing the remedial program.
Some believe this provision was included for sites that were ordered into the BCP by the courts and therefore NYSDEC is concerned it might not have the authority to terminate those sites. If that is indeed the concern, then it seems the automatic terminaiton should only apply to those sites. It remains unclear why the legislature should automatically terminated sites where NYSDEC has not exercised its statutory authority.
NY RAPID program-
The Senate proposes to establish an alternative to the BCP for applicants who are not interested in tax credits but simply desire liability protection and a covenant not to sue. However, the Senate proposal is far less flexible than the EZ-BCP proposed by the Governor. As an example of how poorly-conceived this proposal is, the legislation provides that sites that received a COC from the New York City Office of Environmental Remediation (OER) under the local brownfield cleanup program would be eligible for the NY-RAPID program. NYSDEC already honors COCs issued by OER. Why would any developer want to go through two remedial programs to obtain the same liability protection? This is just plain silly. The Governor’s version is clearly superior and more nimble. It could also be used as a platform by local governments such as NYC that have their own cleanup program
Other Tax Credit Changes-
In addition to retaining the current “as of right” TPC for all projects accepted into the BCP, the Senate bill appears to alters the ten-year period for claiming the TPC. Instead of starting the ten-year clock upon issuance of the COC, it appears to that the ten-year begins with the first day of the first taxable year in which qualified tangible property is placed in service.
Like the Governor’s bill, the Senate legislation will allow the costs to be included in the SPC for purposes of calculating the 3x site “soft cap” that were not but could have been expensed and deducted under expired IRS section 198 (the federal brownfield tax credit). Likewise, the Senate would allow asbestos, lead or polychlorinated biphenyls abatement costs to be included in the SPC calculation.
Navigation Law Amendments-
Subpart B of the bill contains some interesting changes to the Navigation Law. It provides that a unit of local government will not be liable for the discharge of petroleum at a site where it involuntarily takes title pursuant to tax foreclosure and it has retained such site without participating in the development of such site.
The Senate also appears to inject some teeth into the third party defense that was added to the Navigation Law in 2003 but for some reason has not been widely adopted by the courts. Under the bill, if the party who NYSDEC has identified as a discharger and directed to implement a cleanup, the party may present evidence and request NYSDEC to determine if a third party is solely responsible for the discharge. Following such a request, the NYSDEC would have 30 days to determine in writing if the third party is a discharger. If the NYSDEC determines that the third party is solely responsible, then it would be required to direct that party to undertake the cleanup. If the NYSDEC finds the information presented insufficient to establish the responsibility of the third party by a preponderance of the evidence, the agency shall, within 30 days of such request, advise each of the parties that they are deemed dischargers subject to apportionment of liability for the discharge.
The Administrator of the Oil Spill Fund would also be extended to apportion liability for discharges where there is more than one discharger. An alleged discharger may request the administrator to determine on the preponderance of the evidence that a third party is in fact wholly or partially responsible. Within 30 days of receipt of such request, the administrator is required to determine in writing, if the third party is deemed an additional discharger to any pending or anticipated claim or if an administrative hearing as to liability is necessary to settle particular claims filed by injured persons or to apportion liability between and among dischargers.
Finally, the Senate bill would require NYSDEC to issue the same kind of liability limitations as under the BCP when dischargers completed petroleum cleanups. The proposed law provides that any person who agrees to remediate the discharge to the satisfaction of the NYSDEC would enter into a liability limitation agreement with the NYSDEC.
The conventional thinking is that the Assembly is holding out introducing legislation so it can extract concessions or maximize its leverage for the larger budget issues of importance to its members. However, time is running out. Only two weeks remaining for an agreement to be reached on the state budget. If an agreement on amending the BCP is reached as part of the budget deal, the outlook for BCP reform for this legislative session may be bleak.
March 5th, 2014
The New York City Office of Environmental Remediation (OER) has proposed rules that would amend its Brownfield Incentive Grant (BIG) Program. The proposed rule will continue the BIG Program at reduced appropriations. In addition, OER is proposing additional changes to the BIG program to increase the program’s value for developers remediating brownfields across the city.
The proposed amendments will:
- create new Brownfield Incentive Grants;
- make the first significant revisions to the list of eligible services and activities that are eligible for reimbursement with City brownfield grant funds;
- reduce the size of several City cleanup grants for future projects to reflect reduced funding;
- increase the amount of funding for BOA for community-based organizations;
- restrict the city-wide reach of the BIG program;
- eliminate the environmental insurance grant and replace it with a new eligible service; consolidate certain technical services; and
- boost reimbursement for preparation of a site management plan
New Brownfield Incentive Grants
The proposed amendments would create the following four new Brownfield Incentive Grants to encourage the redevelopment of brownfields:
- A Climate Change Resilience Bonus Cleanup Grant of up to $5,000 to accelerate cleanup of properties in coastal flood zones;
- A Brownfield Green Job Training Bonus Cleanup Grant of up to $6,000 to encourage developers to hire participants in job training programs so they can acquire work experience at sites in the City brownfield cleanup program;
- A City Pre-enrollment Grant of up $100,000 for site investigations and remedial planning activities at publicly owned sites and sites with environmental tax liens; and
- A Green Property Certification Bonus Cleanup Grant of up to $1,000 to pay for a New York City green property certification plaque for sites that complete cleanups in the City voluntary cleanup program.
New Eligible Services
The proposed amendments would make significant revisions to the list of services and activities that are eligible for reimbursement with City brownfield grant funds. These changes are referenced in § 43-1419 and set forth in Schedule B. The new services include:
- the installation of soil vapor management systems;
- the cost of field oversight of remedial activities by qualified environmental professionals;
- the production of a remedial investigation report and a remedial action report;
- reimbursement for an attorney’s due diligence on a property prior to its enrollment in the City voluntary cleanup program, and
- reimbursement for environmental insurance
Reduction in Size of Cleanup Grants
The proposed amendments would reduce the size of several City cleanup grants for future projects because of the reduced City appropriations:
- The proposed reductions would decrease the maximum grant awards by more than half for the standard cleanup grant, the cleanup grant for preferred community development projects and the track-one bonus cleanup grant.
- The E-designation and restrictive declaration remediation grants would be cut in half.
Increase in Funding of BOA Grants
The proposed amendments would increase from $25,000 to $50,000 the total amount of City funds that community-based organizations with BOA contracts could receive in the form of Local Match grants. These changes are set forth in § 43-1422 as well as Schedule A.
Restrictions on Size and Location of Eligible Sites
The proposed amendments would restrict the city-wide reach of the BIG grant program. Projects larger than 100,000 square feet and projects at or south of 96th Street in Manhattan would be ineligible for City BIG funds if they had not enrolled in the City voluntary cleanup program by April 2013.
Amendments to Environmental Insurance Grant
The proposed amendments would eliminate the environmental insurance grant and replace it with a new eligible service that would reimburse parties for the premiums they paid for environmental insurance policies for projects that are enrolled in the City voluntary cleanup program.
Consolidation of Technical Services
Additional rule amendments would consolidate certain technical services, including:
- reimbursement for the preparation of a remedial investigation document, a new service, which would cover all remediation investigation activities and reparation of a remedial action work plan;
- reimbursement for the preparation of a remedial action report, a new service, which would cover all remedial action oversight activities and preparation of a remedial action report;
- simplified reimbursement for laboratory analysis of environmental samples collected in the field by the elimination of separate payments for analysis of individual metals, volatile and semi-volatile compounds, and replacing these with reimbursement for analysis of groups of similar compounds known as Target Analyte List metals, Target Compound List SVOCs, and Target Compound List VOCs.
Reimbursement for Site Management Plans
The proposed amendments would boost reimbursement for preparation of a site management plan from $2,500 to $7,500.
March 4th, 2014
When Mathy Stanislaus departed New York to take the helm of EPA’s Office of Solid Waste and Emergency Response (OSWER), he told the New York brownfield community that one his primary goals was to reform the EPA Revolving Loan Fund (RLF) program so it could better support affordable housing on brownfield sites. Changing long-standing agency policy was not easy but after a lot of hard work by Mathy and the director of EPA’s Office of Brownfields and Land Revitalization, David Lloyd, EPA will soon be announcing modification to its RLF Subgrant Policy that will the RLF brownfield program to better support affordable housing projects on brownfields.
The RLF program is authorized by 42 U.S.C. 9601(k) and provides funding for a grant recipient to capitalize a revolving loan fund and to provide subgrants to carry out cleanup activities at brownfield sites. Eligible subgrant recipients include state and local governments, redevelopment agencies, land clearance authorities, other quasi-governmental entities created by state or local governments and not-for-profit organizations. A borrower or subgrantee must not be a responsible party under CERCLA and the site must be an eligible brownfield site. The maximum subgrant is $200K per site.
Not-for-profit entities applying for RLF subgrants must own the property at the time they submit their application. In its CERCLA enforcement and cost recovery litigation, EPA has adopted a broad definition of CERCLA owner and has swept in parties who held less than full title such as easement holders, licensees, long-term ground lessees and others who exercise owner-like control over a site. Yet under a interpretation that dates back to the Clinton Administration and that appears to have been inspired by the Seinfeld “Bizzaro World” episode, EPA paradoxically adopted a narrow definition of CERCLA owner for purposes of RLF eligibility. Under this long-standing interpretation, EPA’s Office of General Counsel (OGC) concluded parties had to hold full “fee simple” title to qualify as a CERCLA owner.
Law school students are taught that property ownership can be viewed as a bundle of ten sticks with each stick representing a right or benefit. These sticks can be separated so that a property might have multiple property interest holders but can also be reassembled. These rights include right to occupy or use the land, convey or lease the land, grant a mortgage, subdivide the land, create easements or covenants, etc. A party that owns all ten sticks enjoys all the rights that run with property ownership. This complete set of rights is known as a fee simple interest.
The OGC interpretation did not pose any complications for non-profits using traditional or conventional real estate financing. However, this narrow view of ownership operated to preclude affordable housing developers using certain low-income housing tax credit (LIHTC) financing from qualifying for RLF subgrants. Under the standard low-income tax credit structure used in New York, the affordable housing developer enters into a “nominee” agreement where the not-for-profit entity known as a Housing Development Finance Corporation (HDFC) retains bare title to the property to be remediated and a for-profit entity holds beneficial owner of the property and the project (The tax credit investors hold membership interests in the for-profit entity). After reviewing the standard nominee agreement used for LIHTC structures, EPA concluded that the not-for-profit entity held such limited rights that it was not the sole owner in fee simple of the real property and was therefore not an eligible entity to receive an RLF grant. Apparently, EPA OGC was concerned that the not-for-profit lacked the authority to possess or take any action with respect to the cleanup project which would be funded by the subgrant and that the funds intended for cleanup could be disbursed to the for-profit for its own engineering costs contrary to national RLF policy.
This interpretation was particularly frustrating for affordable housing developers in New York City because the Mayor’s Office of Environmental Remediation (OER) was awarded a $600K RLF grant. Affordable housing projects that enrolled in the NYC voluntary cleanup program could apply for an $80K subgrant to supplement in addition to the Brownfield Incentive Grant program. However, OER was unable to award subgrants to affordable housing developers since they were not eligible recipients by EPA.
In modifying its long-standing policy, EPA recognized that if the not-for-profit had sole ownership of title (both legal and beneficial), the project would not be eligible for LIHTC and would not be financeable. EPA also acknowledged the HDFC arguably owns the property in fee simple through its membership in the manager of the managing member of the owner so there is no question that the HDFC will use the funds to develop the project. Accordingly, EPA agreed to view the not-for-profit along with the partners that are necessary to develop affordable housing using LIHTC as having have fee simple.
Under the modified RLF policy, OGC has opined that a nominee agreement may be used as part of demonstrating ownership where the nominee agreement provides that the nominee/subgrantee (not-for-profit) retains title during the subgrant period and has the right to perform the cleanup actions. Under these circumstances, EPA will consider the recipient of the subgrant as the “owner” of the site throughout the cleanup, as required by by the statute. If the not-for-profit and its for-profit entity partner on an affordable housing project want to use an RLF subgrant instead of a loan but do not wish to vest absolute fee simple title in the non-profit entity, OGC has also agreed that the subgrant can be approved if the subgrantee can demonstrate ownership and sufficient control of the property during the pendency of the subgrant and cleanup activity.
Eligible entities must demonstrate record title, and other documents, such as a governing management or nominee agreement, e.g., that demonstrates that the non-profit entity has control of the property, and will maintain ownership and control of the property throughout the term of the grant. Record title for a nominee/trustee should be the recorded deed, which conveys title to the nominee, and contains a reference to the recorded nominee agreement. EPA would rely on those documents to evidence the status of title to the property. Any change should be recorded in the land records. If ownership changes at any point while the cleanup is underway during the term of the RLF subgrant, the EPA could declare a default and the proceeds would have to be refunded to EPA.
EPA will be making a formal announcement of this RLF policy modification in the coming weeks. In the meantime, affordable housing developers may now apply for the OER RLF subgrants.
March 2nd, 2014
With the tax credits for the New York State Brownfield Cleanup Program (BCP) scheduled to expire at the end of December 2015, the New York State Department of Environmental Conservation (NYSDEC) has been inudated with applications. Indeed, according to informal betting pool among NYSDEC brownfield employees, the agency anticipates receiving 100 applications by July 1st –the date when the sweeping reforms proposed by Governor Cuomo are slated to take effect. These applications are in addition to the estimated 180 Certificate of Completion that NYSDEC estimates it will issue in 2014 and 2015.
Although the proposed changes are not to take effect until July 1st, anecdotal accounts circulating within the environmental consulting community and the environmental law blog is that NYSDEC is already using the “new” definition to deny applications or modify the boundary of the sites that are accepted into the BCP.
The definition of brownfield site has had a tortured history in New York. The BCP broadly defines the term “brownfield site” as “any real property, the redevelopment or reuse of which may be complicated by the presence or potential presence of a contaminant” (ECL 27-1405). When the head of the BCP program was repeatedly asked to clarify the meaning of the definition during a series of conferences for the rollout of the BCP in early 2004, he repeatedly said that “any amount of contamination” was enough to qualify for the program”.
Developers and their attorneys took his statements at face value and it soon became apparent the BCP was attracting large development projects that would generate tax credits substantially disproportionate to the amount of cleanup costs, that certain projects generating tax credits would have proceeded regardless of participation in the BCP, and that the BCP was going to generate tax credits far in excess of what the legislature had originally contemplated.
As a result, NYSDEC was apparently unfairly tasked with the mission to restrict entry into the BCP. The agency issued a draft BCP Eligibility Guidance Manual (“BCP Guide”) which was finalized in March 2005. The principal feature of the BCP Guide was a list of factors that essentially narrowed the statutory definition of ‘‘brownfield site.” Under the BCP Guide, an applicant would have the burden of establishing two elements: (1) there must be confirmed contamination on the property or a reasonable basis to believe that contamination is likely to be present on the property; and (2) there must be a reasonable basis to believe that contamination or potential presence of contamination may be complicating the development or re-use of the property.
The BCP Guide listed five factors that NYSDEC would consider in “determining if there is confirmed contamination or a reasonable basis to believe that contamination is likely to be present on the property” and four factors that DEC would consider to determine if there was “a reasonable basis to believe that the contamination or potential contamination may be complicating the development, use or re-use of the property”.
In determining if there was confirmed contamination or a reasonable basis to believe that contamination is likely to be present on the property, NYSDEC indicated it would consider the following factors:
- The nature and extent of known or suspected contamination.
- Whether contaminants are present at levels that exceed standards, criteria or guidance.
- Whether contamination on the proposed site is historic fill material or exceeds background levels.
- Whether there are or were industrial or commercial operations at the proposed site which may have resulted in environmental contamination.
- Whether the proposed site has previously been subject to closure, a removal action, an interim or final remedial action, corrective action or any other cleanup activities performed by or under the oversight of the State or Federal government.
Some of the site eligibility criteria involved issues that would be more appropriately addressed during the BCP work plan process and not during the BCP enrollment process. Information relating to the extent and level of contamination often is not available during the application phase of the BCP process, and the statute does not contemplate an intrusive site investigation as a prerequisite to enrollment into the BCP.
The most troublesome criteria for potential brownfield applicants were the third and fourth factors. Many urban properties throughout the state have contaminated fill material that was placed onto the property and that has to be managed as a hazardous waste because it exhibits a hazardous characteristic for metals. Under NYSDEC interpretation, unless a developer can show that the historic fill material was contaminated from an on-site source, the site was not eligible for the BCP even though the developer would incur additional costs to dispose of the hazardous fill materials off-site, a significant hazardous waste program fee and a hazardous waste generation tax.
In determining if there is a “reasonable basis” to believe that contamination or the potential presence of contamination might be complicating the redevelopment or re-use of the property, NYSDEC indicated it would look at the factors such as:
- Whether the proposed site is idled, abandoned or underutilized;
- Whether the proposed site is unattractive for redevelopment or reuse due to the presence or reasonable perception of contamination;
- Whether properties in the immediate vicinity of the proposed site show indicators of economic distress such a high commercial vacancy rates or depressed property values.
- Whether the estimated cost of any necessary remedial program is likely to be significant in comparison to the anticipated value of the proposed site as redeveloped or reused; and
- The extent and difficulty of the remediation
Some of the eligibility factors relating to whether there is a reasonable basis to believe that contamination or the potential presence of contamination may be complicating the reuse of a site require the NYSDEC to make economic and demographic judgments for which the agency does not have the institutional expertise
Even if an applicant can get past these two hurdles, the BCP Guide provided that NYSDEC reserved the right to redefine the “brownfield site” so that only a portion of a proposed site might be enrolled in the program. Thus, if the improvements were to be constructed on the portion of the property that NYSDEC determined was not a “brownfield site”, the developer would not be to claim BCP tax credits for the improvements even though the building is part of the entire project
The NYSDEC then codified the on-site source limited when it promulgated its brownfield regulations. 6 NYCRR §375-3.3(a)(2) provided that in determining eligibility, the Department shall consider only contamination from on-site sources. In response to adverse comments received during the rulemaking process, NYSDEC said it was required to “determine what is a ‘brownfield’ based upon the statutory definition and not based upon a development project description.”
Several courts ruled that NYSDEC had improperly denied a number of applications based on the BCP Guide. See Lighthouse Pointe Prop. Assocs. LLC v NYSDEC, 14 NY3d 161, 166 (2010) and Buffalo Dev. Corp. v. NYSDEC, 889 N.Y.S.2d 504 (Sup Ct, Erie County 2009); Matter of Destiny USA Dev., LLC. V NYSDEC, 879 N.Y.S.2d 865 (4th Dept. 2009); HLP Props., LLC v New York State Dept. of Envtl. Conservation, 864 N.Y.S.2d 285 (Sup Ct, New York County 2008); East River Realty Co., LLC v NYSDEC, 866 N.Y.S.2d 537 (Sup Ct, New York County 2008).
These decisions seemed to implicitly invalidate some of the BCP Guide factors. However, there remained considerably uncertainty how much contamination had to be present for an applicant to establish that it complicated development. Moreover, questions remained over the eligibility of sites with historic fill, pesticides from former agricultural use, or sites impacted with vapors from an offsite source. It was also unclear if NYSDEC could continue to accept only portions of a proposed building or isolated hot spots at a redevelopment site.
The definition of brownfield site contained in the proposed reform would replace the subjective “complication” factor with a more objective test. The new provision requires that an applicant do sufficient sampling to establish actually contains contaminants that exceed the applicable soil cleanup objectives or other health-based environmental standards promulgated by the NYSDEC. In other words, the proposal really just conforms the definition to current NYSDEC policy since the agency was requiring applicants to demonstrate that the site was actually impacted by contamination by performing and including the results if a phase 2 in the BCP application. The revised language indicates that the applicant must submit an investigation that is sufficient to demonstrate that the site requires remediation to meet the remedial requirements of the BCP.
Interestingly, the definition does not require the contamination to be from an on-site source which the NYSDEC currently requires applicants to establish for a site to be eligible for the BCP. Instead of excluding these sites from the BCP, the proposed bill would simply prohibit applicants of these sites from claiming tangible tax credits for addressing such contamination. For example, an applicant who would have to install an sub-slab depressurization system (SSDS) to address vapors from contaminated soil gas because of a plume that originated from an adjacent dry cleaner could enroll in the BCP and be eligible for site preparation costs tax credit but not the tangible property tax.
So applicants should not be surprised if their applications for participation in the BCP are denied for failing to include data demonstrating the presence of actual contamination in the soil and/or groundwater. In some cases, NYSDEC may accept portions of the site but request additional sampling pursuant to 6 NYCRR Part 375-3.3(a)(4)(ii) to determine if the excluded parcels qualify as a brownfield site and eligible to participate in the BCP. As the old adage goes, “plus ça change, plus c’est la même chose” (“the more things change, the more they remain the same”).
February 21st, 2014
In a prior post, we discussed common mistakes made by applicants in the New York State Brownfield Cleanup Program (BCP) that can delay issuance of the Certificate of Completion (COC). Many of the errors involved the environmental easement package that must be completed for projects that do not achieve a Track 1 unrestricted cleanup.
Earlier today, the NYSDEC announced streamlined procedures for the preparation of the environmental easement package for the BCP, State Superfund (SSF), and the Environmental Restoration Program (ERP). Under the revised procedures, a title report and title insurance will no longer be required for most sites and the survey requirements have been simplified.
Changes to Title Requirements
For most sites, NYSDEC will now only require a last owner search to document ownership and authority to create an environment easement. The NYSDEC may request additional information, including possibly a full title report, when the agency determines that complexities in documenting ownership may substantially cloud title. Examples of properties that may require a full title rReport may include properties that contain “lands under water”; restricted deed transfers such as a Quit Claim deed and multiple party ownership.
When a full title report is required, a title report or an abstract of title must be provided to NYSDEC that identifies the holder of title and all others with an interest in the property. Every title report or title abstract shall include the following:
- A Certification Page indicating who has the right to convey or mortgage the property that is subject to the Environmental Easement;
- Schedule A providing the legal description of the property;
- Schedule B listing the exceptions to the title or issues which require clearance or amplification before the title company is willing to issue its policy. The attorney preparing the easement package must ensure that the title report includes a copy of every encumbrance that affects title (i.e. mortgages, judgments, easements, leases, subleases, assigned leases); and,
- A copy of the tax map must be included in the report.
Changes to Survey Map
Among the eased requirements for the survey map, NYSDEC will no longer require an an ALTA survey, other easements will not have to be marked, the survey will not have to be certified to NYSDEC, an existing survey may be used; and the survey showing the environmental easement will no longer have to be filed with the County Clerk
Note that the survey will have to include the following information:
- The survey must bear the name, address, telephone number, signature and certification of the professional land surveyor who performed the survey, his or her official seal and registration number, the date the survey was completed, the dates of all of the surveyor’s revisions;
- The survey boundaries must be drawn to a convenient scale, with that scale clearly indicated. A graphic scale, shown in feet and meters, must be included;
- The symbols and abbreviations that are used on the survey must be identified by the use of a legend;
- Diagrams must be accurately presented;
- The point of beginning of the legal description must be shown;
- The legal description must be correct;
- The legal description must state the acreage;
- If the deed(s) description differs from the measured bearings/angles/distances, both must be indicated on the survey;
- The survey must show the location of all buildings/monuments/overlaps/encroachments upon the surveyed property with their locations defined by measurement perpendicular to the nearest perimeter boundaries;
- The survey must depict the location of visible improvements within five feet of each side of boundary lines;
- The survey must show ponds, lakes, springs, rivers or a natural water boundary bordering on or running through the surveyed property; the survey must measure the location of the natural water boundary and note on the survey the date of the measurement;
- The survey must correctly depict the environmental easement area with corresponding metes & bounds description and acreage;
- If the survey consists of more than one sheet, sheets must be numbered and the total number of sheets must be indicated on each sheet;
- The survey must depict the area affected by engineering controls with corresponding metes and bounds with acreage, measurements with description of the engineering control. For example OU 1, OU 2 or Soil Management Plan Area, Sub-Slab Methane/VOC system, site cap, clean fill, concrete, demarcation layer, area not under environmental control, asphalt or building structures, footprint of future buildings (where known), etc.
The documents required for a complete Environmental Easement package will include the following:
- Copy of current deed(s);
- Copy of Tax map;
- Two original easements and an electronic version submitted to both the project manager and project attorney;
- Proof of authority to obligate owner of property as set forth in “Verification of ownership of property” on the Easement checklist;
- Legal description of the easement area in a Department approved electronic form (i.e., Word);
- Signed Survey, two full size copies and an electronic survey for review to both the project manager and project attorney;
- A draft Notice to Municipality, with appropriate site-specific provisions;
- Attorney Checklist with certification signed by attorney and owner.
Attached is a revised environmental easement checklist marked against the old checklist showing the deletions and changes to the environmental easement package requirements.
The NYSDEC announcement of its streamlined environmental rules is available here
February 15th, 2014
Earlier this week, Governor Cuomo sent his sweeping BCP reforms to the State Legislature. Under the state Constitution, the Governor has 30 days to make technical amendments to his budget legislation without involving the legislature.
Despite vociferous complaints by brownfield developers, environmental lawyers and affordable housing advocates about the severe curtailments to the categories of projects that would be eligible for brownfield tax credits, the Governor made only modest revisions to the original bill. However, the Governor submitted his legislation under a self-imposed 21-day amendment process so it is possible that there will be additional tweaking to the BCP portion of the bill. Once the 30-day period has expired, changes to the BCP would be subject to the usual legislative process.
Notwithstanding the cacophony of critical voices to the proposed BCP changes, there is much to like about the proposed revisions. In this post, we will cover the positive changes. In a second post, we will then discuss the changes that need to be tweaked and then close the series with a review of the changes that threaten to transform the BCP into a zombie program.
The changes listed below are not in order of importance but simply track the changes in the legislation.
1. Extension of BCP- Obviously, the most important change is that the legislation would extend the brownfield tax credits (BTCs) to December 31, 2022. The fact that the Governor agreed to extend the BTCs was a victory for brownfield developers since there was considerable sentiment within the budget office to allow the BTCs to expire because of their costs. Sites accepted into the BCP after December 31, 2022 would not be eligible for brownfield tax credits.
2. New COC Deadlines- Under the existing BCP, all sites had to obtain their COCs by 12/31/15 to be able to qualify for the tax credits. The proposed amendments retain the 12/31/15 COC deadline for sites that were accepted into the BCP prior to the 6/23/08 amendments. Projects that were accepted after 6/23/08 but before 7/1/14 will have an extra two years to obtain their COC (12/31/17) to remain eligible for the BTCs. Sites accepted into the BCP after 7/1/14 will have until 12/31/25 to obtain their COCs and qualify for BTCs.
3. Revised Brownfield Site Definition- The new definition requires that an applicant do sufficient sampling to establish actually contains contaminants that exceed the applicable soil cleanup objectives or other health-based environmental standards promulgated by the NYSDEC. This change brings more clarity to what constitutes a brownfield site but really just conforms the definition to current NYSDEC policy since the agency was requiring applicants to demonstrate that the site was actually impacted by contamination by performing and including the results if a phase 2 in the BCP application. The revised language indicates that the applicant must submit an investigation that is sufficient to demonstrate that the site requires remediation to meet the remedial requirements of the BCP.
Significantly, the revised brownfield definition does not require the contamination to be from an on-site source which represents a significant eligibility expansion since applicants are currently required to establish an on-site source of contamination to be eligible for the BCP. Instead of excluding these sites from the BCP, the proposed bill would simply prohibit applicants of these sites from claiming tangible tax credits for addressing such contamination. For example, an applicant who would have to install an sub-slab depressurization system (SSDS) to address vapors from contaminated soil gas because of a plume that originated from an adjacent dry cleaner could enroll in the BCP and be eligible for site preparation costs tax credit but not the tangible property tax.
4. Eligibility Extended to Class 2 Sites- The original BCP legislation contained a six month amnesty period for class 2 sites to apply to the NYSDEC that expired in July 2004. Since then, class 2 sites have been ineligible for the BCP even when innocent parties seek to redevelop the properties or the site may simply sit above a regional plume.
The proposed changes would allow state superfund sites (class 2 sites) to be eligible for the BCP where the applicant is a volunteer who owns the site or where the applicant is a volunteer who is under contract to purchase a class 2 site and the NYSDEC has been unable to identify a PRP with the ability to pay for the cleanup. [emphasis added]. It is unclear if the clause containing the limiting language following the “and” only modifies the clause pertaining to volunteers under contract to purchase a class 2 site or if the clause applies to sites already owned by the volunteer.
The explanation for the “viability” test is that the State of New York does not want to incur BTC liability when there is a financially responsible party who could pay for the cleanup. A responsible party is likely only to remediate a site to its current or reasonably anticipated use but in the absence of a development plan, the reasonably antiicipated use of a property with obsolete or deteriorating buildings may not be obvious. In contrast, a brownfield developer will be enhancing the property and likely doing a more robust cleanup in a shorter period of time. While there is a legitimate concern for requiring class 2 sites that are under contract to be eligible only if there is not a financially viable responsible party, it may be worthwhile to consider other tests for determining when a class 2 site should be eligible for the BCP such as the responsible party does not currently own or has not owned the site since the expiration of the original amnesty period.
While pondering the conditions for allowing class 2 sites to be eligible for the BCP, the legislature should also consider allowing sites that are under enforcement orders to be eligible for the BCP. This would particularly make sense for sites that are covered by multi-site manufactured gas plant (MGP) orders on consent that several utilities have entered into with NYSDEC. Many of these sites will have cleanups that require long-term institutional and engineering controls because the contaminants lie beneath existing commercial structures. So long as these sites are subject to site management plans (SMPs), the NYSDEC considers these sites to be still subject to an enforcement order and therefore not eligible for the BCP. It seems that the same rationale for allowing class 2 sites to be eligible for the BCP should apply to sites subject to enforcement orders. Indeed, there is precedent for this suggestion. In 2004, the legislature amended the BCP law to allow sites that were subject to petroleum stipulations agreement issued under the Oil Spill Program of the Navigation Law to be eligible for the BCP. If an innocent party is willing to remediate and redevelop a contaminated site, it should be able to enroll in the BCP subject to reasonable conditions such as ensuring that NYSDEC is reimbursed for past costs and the volunteer has not indemnified the responsible party.
5. Expansion of Track 1 Cleanups- If a BCP project has to use institutional or engineering controls, it is not eligible for a track 1 cleanup which allows for a higher site preparation cost tax credit and a 2% bonus for the tangible property tax credit. Where all the contaminated soil has been removed but elevated levels of contaminants remain in groundwater, the NYSDEC has been willing to approve conditional track 1 cleanups if there has been a significant reduction in the contaminant mass and contaminant levels have reached asymptotic conditions. Under this approach, the applicant will have to record an environmental easement and continue to monitor groundwater for five years. However, if the contaminant concentrations remain above groundwater standards after five years, the cleanup would revert to a lower cleanup track that could cause recapture of tax credits.
The proposed legislation will allow sites to qualify for an unconditional track 1 status where engineering or institutional controls are required for more than five years solely to address vapor intrusion as well as for groundwater remediation where the bulk contaminant concentrations have been reduced to asymptotic levels. However, there would no longer be a 2% tangible tax credit bonus for achieving track 1 cleanup;
6. Transfer of COCs- The legislation clarifies that COCs may only be transferred to subsequent legal or equitable title holders of all or a portion of the brownfield site. It had been unclear if the COC could be transferred without title changing hands.
7. BCP-EZ program- The proposed amendment would create a streamlined remedial program that would be called the BCP-EZ program. Applicants that qualify as volunteers would be exempt from certain procedural requirements for implementing remedial investigations and remedial actions for sites where the contamination does not pose a significant threat provided the applicant waives rights to any tax credits and the work satisfies the technical requirements of Part 375.
8. Oversight Costs- Because both the NYSDEC and the New York State Department of Health (NYSDOH) play a role in the state remedial programs, oversight costs can be significant especially for larger projects. Under the proposed bill, volunteers will no longer be required to pay oversight costs on or after July 1, 2014. This exemption applies both to applications submitted after July 1, 2014 as well as sites accepted into the BCP prior to July 1, 2014. However, parties that are accepted into the BCP as “Participants” will be required to pay the NYSDEC for past costs incurred prior to the effective date of the brownfield cleanup agreement but the NYSDEC may negotiate a “reasonable” flat rate fee for future oversight costs.
9. Extra Tangible Tax Credits For Certain Projects- The Governor’s bill would allow certain categories of projects to be eligible for extra tangible property tax credits above the base of 10%. A bonus of 5% would be available for projects with affordable housing (based on square footage of the total affordable housing units(§25), an extra 10% could be claimed by projects on sites located Environmental Zones and a bonus of 5% would be available for “strategic sites” located in and conforming with a Brownfield Opportunity Area (BOA) plan.
10. Clarifies Treatment of Costs for Expired Federal Brownfield Tax Credit- BCP applicants are currently allowed to claim up to $35MM ($45MM for manufacturing sites) in tangible property tax credits (known as the “hard cap”) or 3x the site preparation costs (6x for manufacturing ), whichever is less. The 3x or 6x times site preparation calculation is known as the “soft cap.” The proposed legislation clarifies that on-site groundwater remediation costs and costs that could have been ”expensed” and deducted for purposes of the IRS 198 brownfield tax credit but were not given such treatment may be used in calculating the “soft cap.”
11. Clarifies Treatment of Costs To Address Treatment of Contaminated Groundwater From Off-Site Source- Based on the way the qualifier in section 3 of the proposed legislation excluding tangible property tax credits for off-site contamination migrating onto property, it appears that site preparation tax credits will be available for costs to address contamination migrating onto site if required in the approved remedial action plan.
12. Abatement and Disposal of Hazardous Building Materials- The proposed amendment would allow applicants to include abatement costs for removing and disposing asbestos-containing materials, lead-based paint or PCB caulking in their site preparation costs provided the work is done under supervision of the Department of Labor or Department of Health would be eligible.
13. Hazardous Waste Generation Fee Exemption- Urban sites often contain significant swaths of fill material that may contain constituents such as heavy metals, semi-volatile organic compounds (SVOCs), petroleum and lead-based paint from demolished buildings. As a result, construction projects in urban areas can generate large quantities of excavated soil that may have to be managed as hazardous waste. Having to dispose soils and building debris as hazardous waste not only significantly increases disposal costs but can also trigger two types of state hazardous waste tax assessments or fees that can significantly add to the total project costs.
If the remediation is performed under the state superfund program or BCP, the generator of the waste does not have to pay the hazardous waste tax or fee. However, projects enrolled in the Voluntary Cleanup Program (VCP) administered by the New York City Office of Environmental Remediation (OER) are not exempt from the tax or fee. Depending on the size of the site or the depth of the excavation, the hazardous waste taxes could approach or even exceed the total remediation costs. Click here for more information about the hazardous waste fee and tax
The bill would also exempt remediation wastes from the state hazardous waste generator fee that are generated for cleanups are done under an agreement with EPA, pursuant to an order issued by a court or an agreement with a municipality such as OER that has entered into a memorandum of agreement with NYSDEC.
The legislation also includes some new submission deadlines and grounds for revoking COCs that have been criticized by some business groups but seem to fall into the into the “Meh” category (for readers who are not fans of the TV show “The Simpsons”, the term is like a verbal shrug of the shoulders that expresses indifference or lack of enthusiasm). At the very least, the provisions do not seem to be worth expending political capital and advocates would probably be better served keeping their powder dry for other more important issues raised by the bill.
- An applicant will not be eligible for the BCP if it has failed to substantially comply with an agreement or order under another NYSDEC remedial program and the applicants participation in that other remedial program has been terminated by the NYSDEC or a court;
- NYSDEC will now have 30 days to advise an applicant if its application is complete;
- Applicants must implement work plans within 90 days of approval and complete the work in accordance with the schedule set forth in the document;
- Every report required to be submitted under the BCP must include a schedule for submitting subsequent work plans required under the BCP;
- Applicants must execute environmental easements within 180 days of commencement of the remedial design or at least 90 days prior to the anticipated issuance of the COC;
- The period of time for recording an environmental easement by an owner of an inactive hazardous waste site or the person responsible for implementing the remedial program is extended from 60 days to 180 days of commencement of the remedial design;
- Applicants seeking tangible property tax credits must evaluate two alternative remedies, with one alternative being a track 1 cleanup;
- Where the NYSDEC approves an alternative remedy (cleanup tracks 2,3 or 4) at a site that has been determined not to pose a significant threat, the public comment period notice shall apply to both the selected remedy and the approval of the alternative analysis by the NYSDEC;
- Final Engineering Reports now have to describe any interim remedial measures (IRMs) and the costs of the IRMs;
- COCs will now include the date of the brownfield cleanup agreement (BCA); the names of the parties eligible for the tax credits and the applicable percentage available as of the date of the COC;
- A COC may be revoked if the applicant makes a misrepresentation of a material fact concerning its eligibility for the tangible property tax credit. There was already a revocation for misrepresentation about the applicants qualification for volunteer status;
- A COC may be revoked if the environmental easement is not effective or enforceable. This was revocation condition was added as part of the streamlining of the environmental easement process to highlight the consequences of not properly preparing and recording the environmental easement;
- NYSDEC authority to grant waivers from local permits extends to investigations or remediation for contamination migrating from a brownfield site;
- NYSDEC is expressly authorized to inspect sites for compliance with site management plans including evaluating operation and maintenance of remedial components, confirming site use and collecting samples;
- The Department of State has responsibility for not only certifying Brownfield Opportunity Areas (BOA) but also confirming conformance with BOA plans for purpose of qualifying for the tangible property tax credit;
- Elimination of the environmental insurance tax credit for sites admitted after July 1, 2014;
- A municipality seeking to apply for funds from the Environmental Restoration Program (ERP) must assist in identifying responsible parties for the site by searching local records including property tax records;
- NYSDEC may implement an ERP project on behalf of a local government provided the municipality periodically pays its share of the costs to the state.
January 21st, 2014
[Note: This post will be periodically updated as new information becomes available about the proposed legislative changes ]
Governor Andrew Cuomo unveiled his budget legislation today. As expected, the legislation proposed sweeping changes to the state Brownfield Cleanup Program (BCP). The proposed legislation adopts the recommendations of the New York State Tax Reform and Fairness Commission to limit the availability of BCP tax credits to sites and areas of the State that need incentives for redevelopment. It also establishes a so-called fast-track cleanup program similar to the old voluntary cleanup program that would provide liability relief but no tax credits.
Following are some of the highlights of the proposed changes to the BCP. If adopted by the legislature, the amendments would become effective on July 1, 2014. This means that applicants would have to be accepted into the BCP prior to that date to remain eligible for the site preparation and tangible property tax credits as a matter of right.
1. Brownfield Site-The proposed legislation changes the definition of brownfield to a site where contaminants exceed applicable soil cleanup objectives for the reasonably anticipated use. This means that applicants will probably need to have completed phase 2 reports prior to submitting applications. The proposed changes would allow class 2 superfund sites owned by parties determined to be volunteers to be enrolled in the BCP. If a volunteer is under contract to purchase a class 2 site, the site will be eligible for the BCP only if the NYSDEC has been unable to identify a PRP with the ability to pay for the cleanup (§2 of Part Q of the Revenue Article VII Legislation).
2. Tangible Property Tax Credit Eligibility Changes-After July 1, 2014, applications will only be eligible for the tangible tax credit if the site qualifies for one of the following: (i) it is vacant for at least 15 years or vacant and tax delinquent for 10 years or more; (ii) the projected costs of the investigation and cleanup based on reasonably anticipated use exceeds the certified appraised value of the property in a “clean” condition; or (iii)the project has been identified as a “priority economic development” (PED) project. To qualify as a PED, a project must make a “significant capital investment” as determined by the Department of Economic Development (DED) (§3) and fall within one of the following categories:
- manufacturers, agribusiness, scientific R&D, or corporate HQs creating 100 or more net new jobs in NYS;
- financial service, distribution, or back office operations creating 300+ net new jobs in NYS;
- software development or new media businesses creating 50+ net new jobs in NYS, and,
- other businesses creating 300+ net new jobs in NYS and determined by DED to be a PED Project.
The reference to creating jobs in New York State suggests that the new jobs may not necessarily have to be created solely at the brownfield site but might include jobs as part of an state-wide expansion. It will be interesting to see if this requirement is clarified by the legislature of the DED.
Applicants seeking to qualify for the tangible property tax credit will have to submit information sufficient to establish that the site qualifies for one of the three categories of eligible sites. DEC will notify the applicant upon acceptance into the BCP if the project meets the criteria for qualifying for the tangible property tax (§ 13).
Notwithstanding the foregoing, sites are not eligible for the tangible property tax credit where the contamination is SOLELY from an off-site source or the on-site contamination was previously remediated and the cleanup is suitable for the proposed development (§3).
Other changes to the tangible property tax credit include:
- the base tangible tax credit now begins at 10% (current corporate tax payers may claim a base credit of 12% while individuals begin with 10% base)(§25);
- For purposes of calculating the tangible property tax, applicants could use costs typically used for site prep (see below) if those costs are not used for the so-called “soft cap” calculation (i.e., no double dipping)(§21);
- Eligible tangible property eligible costs shall not include payments made to “related” parties(§21);
- Eligible tangible property costs are limited to costs associated with actual construction of tangible property incorporated into the physical structure and costs associated with the preparation of the site for erection of building or part of building that are not included in the site preparation cost bucket(§21);
- In calculating the so-called “soft cap” ( 3x site preparation costs), applicants may use on-site groundwater remediation costs and costs that would not have been ”expensed” and deducted for purposes of the IRS 198 brownfield tax credit (§22);
- Only applicants seeking to qualify for the tangible property tax will be required to prepare two remedial alternatives with one being a track 1 cleanup (§9);
- If the property was put into use prior to the issuance of the COC, the tangible property tax credit may be claimed for up to five years from start of the “redevelopment of the site provided the redevelopment starts within ten years of the issuance of the COC(§21);
- An extra 5% tax credit would be available for projects with affordable housing (based on square footage of the total affordable housing units(§25);
- An extra 10% for sites location in an Environmental Zone(§25), and
- A bonus of 5% for strategic sites located in and conforming with a Brownfield Opportunity Area (BOA) plan(§25);
3. Site Preparation Tax Credit Changes- This tax credit has applied to costs incurred to prepare a brownfield site for redevelopment (i.e., erection of a building or portion of a building) and properly charged to a capital account . It includes demolition, excavation, dewatering, temporary wiring, scaffolding, sheeting, fencing and security. The definition was tightened to address perceived excess claims for site prep cost so that the costs must be paid by the applicant (not simply incurred) and relate to those activities set forth in an approved remediation plan and costs directly associated with actual site preparation-related construction. Site prep costs exclude payments paid to “related parties”. (§27). Other site prep changes include:
4. Hazardous Waste Generation Fee Exemption- The bill would also exempts from the state hazardous waste generator fee remediation wastes generated from sites where the cleanups are done under an agreement with EPA, pursuant to an order issued by a court or an agreement with a municipality that has entered into a memorandum of agreement with NYSDEC such as New York City(§34).
- costs to address asbestos, lead-paint or PCBs performed under supervision of the Department of Labor or Department of Health would be eligible(§27);
- based on the way the qualifier excluding tangible property tax credits for off-site contamination migrating onto property (§3), it appears site prep tax credit will be available for costs to address contamination migrating onto site;
5. Oversight Costs- Volunteers will no longer be required to pay oversight costs for such costs incurred by NYSDEC or the NYSDOH on or after July 1, 2014. This exemption applies both to applications submitted after July 1, 2014 as well as sites accepted into the BCP prior to July 1, 2014. (§44). Participants will be required to pay the NYSDEC for past costs incurred prior to the effective date of the brownfield cleanup agreement but the NYSDEC may negotiate a “reasonable” flat rate fee for future oversight costs (§7);
6. Miscellaneous Changes- Other notable changes include:
- The NYSDEC may reject an application if the person seeking to enroll in the BCP if that person had another site in a NYSDEC remedial program that was terminated by NYSDEC or a court for failing to substantially comply with an order or NYSDEC oversight agreement (§6);
- The NYSDEC will now have 30 days to determine if an application is complete (§4). In the acceptance letters, the NYSDEC will advise the applicant if it has met the qualifying criteria for the tangible property tax credit (§5);
- Track 1 cleanups may now include sites that are required to use engineering or institutional controls for more than five years solely to address vapor intrusion as well as for groundwater remediation where the bulk contaminant concentrations have been reduced to asymptotic levels(§10);
- COCs may only be transferred to subsequent legal or equitable title holders of all or a portion of the brownfield site. The current law simply refers to the applicant’s successors or assigns (§ 14);
- NYSDEC shall terminate sites that have been in the program since before June 2008 and have not completed cleanup by December 31, 2015, and sites in the program from June 2008 through July 1, 2014 that do not complete cleanup by December 31, 2017 (§33).;
- The tax credits are extended to December 31, 2022. For sites accepted prior to that date, they must obtain a COC by December 31, 2025 to remain eligible to claim the tax credits(§31 but should be §32).;
- The insurance remediation tax credit and the real property tax credit are repealed due to lack of interest (§31);
- The BCP-EZ program will exempt volunteers from certain procedural requirements for implementing remedial investigations and remedial actions for sites where the contamination does not pose a significant threat, the applicant has waived rights to any tax credits and the work satisfies the technical requirements of Part 375 (§ 18);
- COCs may be revoked or modified if DEC determines that the applicant made a misrepresentation of material fact concerning its status as a volunteer or its eligibility for the tangible tax credits as well as if the environmental easement no longer provides effective enforcement mechanism for ensuring performance of the remedy(§14);
- Applicants must commence workplans within 90 days of approval and implement the activities in accordance with the approved schedule(§8);
- Environmental easements must be executed at least three months prior to the anticipated issuance date of the COC (§11);
- The Brownfield Advisory Board is abolished (§17-a);
- Municipalities seeking to apply for funds from the Environmental Restoration Program will now have to assist NYSDEC in identifying potentially liable parties by searching local records including property tax records. The amount of any assistance provided to the municipality would be adjusted if the payments are received by responsible parties (§39).
The BCP proposed legislation is located in Part Q of the Revenue Article VII Legislation bill. The budget legislation is available here.