Lender that Sold Contaminated Property Agrees to $1.4MM Settlement

May 6th, 2015

We have previously reported on instances where banks have incurred cleanup costs in connection with properties they have sold.  For some examples, click here, here, here, here and here

The latest installment of this saga involves Bank of America (BOA) which agreed to pay $1.4MM as part of a settlement involving a dry cleaner property that a BOA predecessor owned decades ago. A federal district court approved the settlement in Whitehurst v. Heinl, 2015 U.S. Dist. LEXIS 49147 (N.D.Ca. 4/14/15).

In this case, Charlotte A. Heinl (“Heinl”) operated a Norge Cleaners in Oakland, California from approximately 1965 to 1987. Bank of America, National Trust & Savings Association (“NTSA”) owned the property from approximately 1969 to 1987 and had leased it to Heinl. Bank of America became the successor to NT&SA when BankAmerica Corp. merged with NationsBank in 1998. As part of that merger, Bank of America, NTSA, was renamed Bank of America, NA (BOA).

NTSA sold the property to Richard and Lorraine Whitehurst (“Plaintiffs”) in 1987 for $265,000 pursuant to an “as is” agreement. The Plaintiffs had also been provided with a opportunity to investigate the property prior to the closing and had obtained a 120-day extension. The Property had been part of a larger parcel of real property that NTSA subdivided shortly before it sold the property to the Plaintiffs. The remainder of the parcel is still owned by Bank of America, NA and is potentially impacted by the former dry cleaner.

Sampling conducted September 2007 revealed elevated levels of PCE and its breakdown products in the groundwater. After the California Regional Water Quality Control Board, San Francisco Bay Region (“RWQCB”) sent an information request to the Plaintiffs, they filed a complaint against the Heinl and BOA asserting the defendants were liable under RCRA 7002,  CERCLA and various state common laws claims. The plaintiffs sought an order compelling the defendants to remediate the contamination and sought damages because they had been unable to lease or sell the property due to the presence of the contamination. The bank subsequently filed claims against both Whitehurst and Heinl alleging they were responsible for the contamination.

After several court-sponsored mediations failed to achieve a settlement, the parties reached an agreement on the eve of trial. Under the settlement, the parties agreed to establish a $2MM remediation fund. BOA agreed to contribute $1.4K with $200,000 of that amount representing a contribution from the Plaintiffs Whitehurst in the form of an interest free loan. The plaintiffs will be required to repay the loan within 6 months of receipt of a NFA letter from the RWQCB.  The Fireman’s Fund agreed to tender $600K on behalf of Heinl who passed away during the course of the litigation.

The plaintiffs and BOA entered into Fixed Price Remediation Agreement  with a consultant to implement remedial actions required by the RWQCB. BOA is required under the agreement to designate a Project Manager to supervise the cleanup and handle various administrative tasks associated with the cleanup.

A copy of the order approving the settlement is available from Google Scholar here 


Deal Reached on Sweeping BCP Reforms

March 24th, 2015

A two-year effort to extend the state Brownfield Cleanup Program (BCP) reached fruition when Governor Andrew Cuomo and both houses of the Legislature struck a deal on sweeping reforms to the BCP. The legislation may be viewed  here. The compromise addressed the concerns about the costs of the BCP but  limited some of the more draconian aspects of the Governor’s proposed legislation.  Two key definitional terms remain to be addressed so the true impact of the changes will not be known until later in the year.

The principal changes are as follows:

1. Tangible Property Tax Credit (TPCC) Gates-Governor Cuomo prevailed on his proposal that BCP applicants will only be eligible to claim the tangible property tax credit (TPCC) if their projects fall into one of the three categories: Sites that are at least 50% located within Environmental Zones, sites that meet the upside-down test or sites that qualify as affordable housing projects. However, the so-called gates  apply to sites in cities with a population of more than one million (i..e, New York City) so applicants for sites located outside New York City will still be entitled to the TPCC as of right  when they are accepted into the BCP. Applicants for NYC sites will have to submit information sufficient to demonstrate it qualifies for one of the TPCC gate criteria.

The “upside-down” gate includes an “under-utilized” TPCC gate. This term as well as the term “affordable housing” project will be defined in regulations to be issued by DEC. Thus, key terms for two of the three gates are undefined.

A site is not eligible for the TPCC if NYSDEC has determined that the property has previously been remediated pursuant to the RCRA  corrective action program, the state superfund program, the BCP, the Environmental Restoration Program  and the Navigation Law  and where the site may be developed for its then intended use.

2. TPCC Percentage Changes- The TPCC base percentage for sites accepted into the BCP on or after July 1st shall be ten percent for all eligible sites. Applicants shall be entitled to an additional 5% for sites: in the En-Zone at the date of the notice of acceptance, that achieve track 1 cleanup, that are to be used “primarily” for manufacturing activities projects,  that are developed for affordable housing project, or are located in a brownfield opportunity area (BOA) provided the project complies with the is developed in conformance with the goals and  priorities established for that applicable BOA. Applicants seeking to qualify for the BOA tax credit enhancement will have to submit a certification from the secretary of state that the development is in conformance with such brownfield opportunity area.

3.   Site Preparation Limitations- The governor also prevailed on a revised definition of site prep so that costs will only be eligible for the site preparation tax credit (SPC) if they are incurred to implement the remedy. In other words, if an applicant excavates a site to a depth of 15 feet to accomodate its building design but only the first five feet are contaminated, only those costs associated with the five feet of excavation would be eligible for the  SPC. This in turn would lower the “soft cap” for the TPCC since the soft cap is 3x the SPC.

4. Eligible Sites- Class 2 sites and RCRA sites will now be eligible for the BCP where the applicant is a volunteer and DEC has determined no financially viable party is available.

5. Brownfield Site Definition- applicants must now show that the sites have contamination that requires remediation. In other words, some sampling data will have to accompany the application. Sites impacted by off-site contamination (e.g., vapor intrusion, groundwater) will be eligible for the BCP but the applicants of those sites will not be eligible for the TPCC. However, they will be eligible to claim the SPC.

6. COC Dates- Sites that were accepted into the BCP prior to the 2008 amendments would have to obtain a COC by 12/31/17. Sites accepted into the BCP before the effective date of the 2015 amendments will have to obtain COCs by 12/31/19. Sites accepted under the new program will have to obain COCs by 03/31/26.

7. Effective Date- The changes will become effective on July 1st though if DEC fails to publish its under-utilized definition by this date, the start date for the new program  will be pushed back to the date the proposed regulations are published. While DEC is required to publish its affordable housing project definition by June 8th, the effective date for the BCP changes will not be delayed if DEC misses this target date.

Applicants who want to be grandfathered under the current program– perhaps because their sites would not qualify for one of the new gates– will need to obtain a notice of acceptance from the DEC prior to July 1st. Since applications must undergo a 30-day public comment period and DEC usually takes one to two weeks to issue a notice of acceptance after the public comment period, an application will have to be published no later than the May 13th Environmental Notice Bulletin (ENB) to be able to be grandfathered under the current program. This, in turn, means requests to participate in the BCP will have to submitted to DEC no later than May 1st to complete the ten-day application complete determination in time for the May 13th ENB.

8. Oversight Costs- Volunteers will not be charged oversight costs after July 1st.  Participants must pay NYSDEC for past response costs incurred before the effective date of such agreement provided that such costs may be  based on a reasonable flat-fee for oversight, which shall reflect the projected future state costs incurred in negotiating and overseeing implementation of such agreement.

9.BCP-EZ-  NYSDEC is authorized to promulgate regulations to establish a BCP-EZ program for expedited investigation and remediation of sites that do not pose a significant threat. The applicant must waived its rights in writing to any tax credits and the work satisfies the technical requirements of Part 375. For parties seeking to implement a Track 4 cleanup where the soil cleanup objectives, site-specific data may be used to demonstrate that the contaminant concentrations are consistent with background levels. In such cases, the remedial objectives may be set at such levels provided the NYSDEC determines that the levels are protective of human health and the environment. Parties that comply with the BCP-EZ will be entitled to a COC;

10. Hazardous Waste Program Fee Exemption- The exemption for the program fee for remediation waste that qualifies as a hazardous waste is extended to cleanups performed pursuant to an oversight document with EPA or with a municipality that has entered into a memorandum of agreement as of August 5, 2010;

11. Miscellaneous Provisions-

  • The NYSDEC may reject an application if the person seeking to enroll in the BCP was terminated from a NYSDEC remedial program by NYSDEC or a court for failing to substantially comply with an order or NYSDEC oversight agreement;
  • The NYSDEC will now have 30 days to determine if an application is complete; 
  • Likewise, DEC will now have 45 days from receiving a complete application to notify the applicant if the request is either for participation has been accepted and if the applicant meets the criteria for the tangible property tax credit; 
  • COCs may only be transferred to subsequent legal or equitable title holders, or leasehold of all or a portion of the brownfield site but may not be transferred to a responsible party. The current law simply refers to the applicant’s successors or assigns; 
  • 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; 
  • The liability release not only applies to successors and assigns of the applicant bur now specifically extends to lenders who acquire indicia or ownership primarily to protect the lenders’ security  interest in the brownfield site after the effective date of the brownfield site cleanup agreement for the site;  
  • NYSDEC may waive local permit requirements to implement an investigation and/or remediation of contamination at or emanating from a brownfield site. Current law did not extend to off-site contamination; 
  • NYSDEC is authorized to have access to sites to ensure compliance with site management plans, verify site use and to collect samples; 
  • An applicant shall include with every report submitted to the department a schedule for the submission of any subsequent work plan  required to meet the requirements of this title; 
  • Environmental easements must be executed at least three months prior to the anticipated issuance date of the COC or within 180 days of the start of the remedial program;The Department of Labor is required to update the En-Zones within 90 days of the effective date of the law.

Expiration of BCP Tax Credits Could Lead to Surge in “Pave and Wave” Cleanups

March 18th, 2015

The New York Brownfield Cleanup Program (BCP) is known for producing robust cleanups. One reason is the stringent cleanup standards of 6 NYCRR Part 375 but another is the BCP  tax credits that reward applicants who achieve track 1 unrestricted cleanups. Applicants that achieve unrestricted (track 1) cleanups are entitled to claim 50% of their site preparation costs and an extra two percent for the tangible property tax credit (TPCC). In addition, track 1 cleanups will result in higher site preparation costs which can increase the amount of the TPCC that applicants until they hit the $35MM cap.

However, with the looming expiration of the BCP tax credits, applicants may need to implement less comprehensive cleanups to ensure that they will be able to obtain a COC by the end of the year and qualify for the BCP tax credits (BTCs). One possible approach may be to borrow from a strategy that was used during the Great Recession and simply implement track 4 cleanups that only require two feet of clean fill.

Under this strategy, applicants or their successors would be able to claim the site preparation tax credit for costs that were incurred to qualify the site to obtain a COC. They would then have five years to incur additional site prep costs such as excavation to prepare the site for development after the expiration date of the BTC. If the applicants put the building into use within five years, they would be able to use the entire site prep costs incurred for the site (i.e., those incurred to achieve the 2015 COC and those to prepare the site for vertical development) towards the cap for the tangible property tax. For example, the applicant could spend $100K to achieve a track 4 cleanup by the end of 2015. Thereafter, it incurs an additional $1MM in site prep costs for excavation, support of excavation, dewatering, etc. to prepare the site for construction of the improvements. Thus, the applicant would be able to claim 3x the total site prep costs of $1.1MM for a cap of $3.3MM. 

Hopefully Governor Andrew Cuomo and the State Legislature will be able to reach an agreement that extends the BTCs. In the meantime, applicants should review their cleanup plans with their consultants and attorneys to develop contingency plans for preserving their eligibility for the BTCs.

NYC Enacts New Disclosure Law for School Sites

March 16th, 2015

On February 5th, New York City Mayor Bill de Blasio signed into law Int. No. 126-A (Local Law 12) requiring the Department of Education (DOE) promptly notify parents and other community groups of sampling results identifying elevated levels of in any public school or any proposed public school owned or leased by the DOE. The law takes effect in 90 days.

The law was passed in the wake of discovery of contamination at  PS 51 in the Bronx. PS 51 was located in a building that previously been occupied by in lamp factory. It was not until the lease was up for renewal and DOE had changed its policy to conduct indoor air sampling for lease renewals that sampling was performed. The investigation found levels of VOCs in the indoor air that exceeded the state Department of Health Vapor Intrusion Guidelines for TCE. DOE learned of the contamination in January 2011 but did not communicate the sampling results to the school community until August. The school was subsequently relocatedand the school site was enrolled in the NYSDEC brownfield cleanup program. 

This was only the latest incident where buildings contaminated from prior uses had been converted to schools without adequately investigation or abating the risks posed by the contamination. The problem frequently occurred for leased school sites since School Construction Authority (SCA) was not required to perform environmental reviews under the State Environmental Quality Review Act (SEQRA). The SCA has subsequently amended its policy to require environmental due diligence for new leases and lease renewals.  It was this pursuant to this new policy that the contamination was discovered at PS 51. Due diligence results for leased school sites are now available from the SCA website 

The law applies to contaminants, pollutants and the hazardous substances appearing at 40 CFR 302.4 that exceed “maximum levels” set forth in applicable federal or state regulatory guidelines. If no applicable regulatory guidelines have been established for a particular substance, DOE or SCA are to establish acceptable levels based on current industry standards and relevant published scientific data and guidance.

The disclosure obligation does not apply to tests for asbestos, lead-based paint or polychlorinated biphenyls since the DOE is believed to have adequate sampling and notification protocols for these substances. Notification is also not required where DOE or SCA reasonably expect exceedances of the maximum levels to return to or below the maximum levels through ventilation or cleaning within twenty-four hours, provided that the results that exceed maximum levels have returned to at or below maximum levels within such twenty-hour period and have not occurred in substantially the same space within the previous year

Within ten days of receipt of an environmental report showing exceedances of the maximum levels, DOE must notify parents of current students and the current employees of any public school. If the results are received during a scheduled school vacation period exceeding five days, the notification shall within ten days after the end of such period. The DOE is also obligated to make reasonable efforts to notify the parents of former students and former employees of any school for which notification is required.

DOE is also required to notify the directors of all afterschool programs operating under its jurisdiction, local elected officials, community education councils and local community boards. DOE is also required to “conspicuously post” a link to any environmental report that triggers notification on its website within ten days of receipt of the sampling results. The reports shall be searchable by school, community school district, council district and borough.

Copy of the bill available here 

NYSBA Brownfield Task Force Issues Report Recommending Changes to Brownfield Program

February 12th, 2015

Following the failure of the Legislature and Governor to reach agreement on comprehensive reform of the Brownfield Cleanup Program (BCP), the Brownfield Task Force (BTF) of the New York State Bar Association, which I co-chair with David Freeman, convened a cross-section of stakeholders to study the BCP. After a series of meetings and conference calls, the BTF issued a set of recommendations for reforming the BCP based on the valuable input of these participants.  The executive committee of the Environmental Law Section unanimously approved the recommendations. A report discussing the BTF recommendations was issued in January and has been shared with the Governor and the Legislature.

Following is a summary of the BTF recommendations and how they compare with the BCP reforms that Governor Andrew Cuomo proposed in his 2015-20 budget. A copy of the report is available at the Environmental Law Section website.

Definition of Brownfield Site

The current statutory definition of a brownfield site is “any real property, the redevelopment or reuse of which may be complicated by the presence or potential presence of a hazardous waste….” This definition has proved to be problematic since there is no objective way to determine when contamination “may complicate” development.  Indeed, despite the sweeping and broad language of the definition,  NYSDEC adopted an unnaturally narrow interpretation of the definition shortly after the BCP became effective in an attempt to control the costs of the BCP. This interpretation was eventually overturned by the Court of Appeals in Lighthouse Pointe Property Associates LLC v. New York State Department of Environmental Conservation (14 N.Y.3d 161 2010).

The Governor’s proposal would simplify the definition so that a site would be considered a “brownfield” if it is contaminated at levels that exceed health-based or applicable environmental standards applicable based on the site’s expected use. The Governor also proposes that applicants “shall” submit an investigation report sufficient to demonstrate that the site requires remediation”. In other words, it appears that applicants would have to perform and enclose phase 2 reports with their applications. This could be a problem when the applicant  does not own the property and does not have access to collect samples at the time of the application.

The proposed definition would also allow sites impacted from off-site contamination (e.g, groundwater plumes that might require installation of vapor mitigation systems or treatment during dewatering) to be accepted into the BCP. However, sites whose only contamination is due to off-site source would not be eligible for the brownfield tax credits.

The major difference between the BTF and the Governor’s proposal is that the determination of anticipated site use would be made by the BCP applicant rather than the New York State Department of Environmental Conservation (“DEC”).

Extending the Deadline for Obtaining COCs

The BCP tax credits (BTCs) are currently scheduled to sunset on December 31, 2015. Applicants will have to obtain a Certificate of Completion (COC) prior to that date to be able to claim the BTCs. The Governor’s proposal would extend the tax credits to December 31, 2022 though sites accepted prior to December 31, 2022 would have until December 31, 2025 to obtain a COC.  Moreover, sites that have been accepted into the program as of April 1, 2015 and have a brownfield cleanup agreement (BCA) executed prior to that date would have only until December 31, 2017 to obtain COCs to maintain eligibility for the current tax credit framework. Such applicants that fail to obtain a COC by December 31, 2017 would remain in the BCP but would be treated as though they were accepted into the BCP after April 1, 2015 and would be subject to the new BTC limits on tax credits (discussed below).

The BTF recommends that the deadline for obtaining COCs for sites already in the BCP be extended until the earlier of ten years after admission to the BCP (as long as that date is no earlier than December 31, 2015) or December 31, 2025.  It further recommends that (a) all sites in the BCP as of the effective date of the amendments would be grandfathered, and (b) on a going-forward basis, eligibility for BTCs would be based on the date the application is accepted into the BCP and not the date of issuance of the COC.

Changes to the Tangible Property Tax Credit-

Currently, BCP applicants may claim up to $35MM in tangible property tax credits (TPCC) for non-industrial projects (“hard cap”) or three times their Site Preparation costs (“soft cap”)whichever is less. The TPCC caps were added in 2008 to address concerns about the costs of the BCP. Despite two independent studies that suggested the TPCC costs had achieved the desired goal, the Governor’s has once again has proposed removing the TPCC as an “as of right” benefit for all applicants but instead, required applicants to satisfy a second test or “gate” to be able to claim the TPCC.  

The three gates would be that the 50% of more of the site is located in an Environmental Zones, the project meets the definition of an affordable housing project or the site is “upside-down” (i.e., the projected cost  of the  investigation  and  remediation  which is protective for the anticipated use of the site exceeds the certified  appraised  value  of  the property absent contamination).In addition, if a site is located within a Brownfield Opportunity Area (“BOA”), the project would have to conform to the plan for that BOA. NYSDEC would notify the applicant upon acceptance into the BCP if the project meets the criteria for qualifying for the TPCC.

In addition, the governor’s proposal would reduce the base percentage for all applicants to 10% but would award an extra 5% up to a total of 24% for meeting.  Another restriction would be that sites are not eligible for the TPCC 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.

This so-called two-gate approach generated considerable controversy when the Governor first proposed it in his 2014 budget. Developers are not only concerned about the particular criteria  but also fear this approach would inject more complication, delays and uncertainty for sites that already fraught with challenges. Moreover, the subjectivity of the proposed criteria seemed likely to result in a repeat of litigation and confusion that occurred after NYSDEC adopted a narrow definition of what constituted a brownfield site.

The BTF determined that the goals of the Governor’s two-gate approach to reduce the costs of the BCP while better targeting the tax credits could be achieved by retaining the “as-of-right” eligibility for the TPCC credits for all projects but lowering the $35MM cap. Increased TPCC percentages would be available, though, for certain categories of project based on the benefits such projects provide to the State and the communities where the sites are located (e.g., affordable housing, projects in areas with depressed economic activity, etc.)

Changes to Definition of Eligible Site Preparation Costs 

Under existing law, site preparation costs are broadly defined.  The Governor’s proposal would restrict eligible costs to those costs directly tied to remediation-related construction and would further limit eligible building foundation costs to the cost of a site cover. The costs would also have to be paid within six months after the expense is first incurred. However, the Governor also proposes to allow asbestos and lead-based paint abatement costs and expenses to address PCBs within buildings to be eligible for the site preparation tax credit cost where the work is done in accordance with state requirements.

The BTF recommends retaining the current broad definition but agrees with the concept of limiting eligibility for costs associated with constructing the foundation of a building.

BTC Eligibility of Expenditures Paid To Related Parties 

It is not unusual in real estate development projects for work to be performed through entities that have common ownership with the developers and contractors whose services are critical to the organization, financing, and construction of the project.  However, payments for such services may be deferred long after they are “incurred” for tax credit purposes, and they are sometimes waived entirely.

Federal tax law requires all direct and indirect project costs, including any costs payable to such affiliated developers and contractors to be charged to a capital account. The three components of the brownfield redevelopment tax credit are calculated based on properly capitalized costs under federal tax law, including costs for goods and services provided by affiliates.  In some circumstances, service fees (such as development fees) may be properly capitalized under federal tax law when earned, even though payment may be deferred until after construction is complete

The Governor proposed eliminating all “related party” (10% or more common ownership) payments from the calculation of the BTCs regardless if those payments were properly chargeable to a capital account under federal tax law . Because this approach would run counter to well-established federal tax law and real estate development practices, the BTF recommends that the TPCC component attributable to deferred payment obligations for services by related parties would also be deferred, and be only allowed  in the taxable year payment is actually made.

Class 2 Site Eligibility for BCP

The Governor’s proposal would allow Class 2 sites to be eligible for the BCP if the sites were “under contract to be transferred to a volunteer and the department has not identified any responsible parties for that property having the ability to pay for the investigation or cleanup of the property.”

The BTF recommends that the requirement that there by no financially viable party is too restrictive and may prove too difficult to establish for a variety of reasons. Instead, it we recommend including language, that site cleanup does not extinguish the right of the volunteer or the State to pursue responsible parties for cleanup costs, or for cleanup if the site is not remediated appropriately.

Non-Tax Credit, Voluntary Cleanup Program

The Governor proposes creating a liability-release-only cleanup program that would allow parties to waive tax credits in exchange for a more expedited cleanup process. Curiously, the Governor also proposes to allow NYSDEC to accept BCP applications from parties currently enrolled in the old administrative voluntary cleanup program (VCP). However, such applicants would not be eligible for any brownfield tax credits. It is unclear why the Governor or NYSDEC believes a second non-tax credit program is required.

The BTF agrees that there is value to creating a new, streamlined program but believes that further clarity is required on what specific procedural requirements would be waived. The BTF recommends that cleanup and review timeframes be reduced, greater reliance on report templates and presumptive remedies as well as elimination of an alternative analysis. The BTF also recognized that certain types of sites―e.g. significant threat sites―should not be eligible for the streamlined program.

State Oversight Costs-

State oversight costs sometimes represent a significant proportion of BCP project expenses and are often difficult to predict. The Governor’s proposal would eliminate oversight fees incurred after the effective date of the legislation for parties not responsible for the original contamination.  It also provides authority to DEC to negotiate “a reasonable flat-fee” for oversight costs for other participants.

The Task Force endorsed the Governor’s proposal.

Hazardous Waste Fee Waiver

ECL §72-0402 imposes a program fee, and ECL §27-0923 imposes a special assessment on generators of hazardous waste. Statutory exemptions are provided for hazardous wastes generated as part of remedial actions performed under an order or agreement with DEC pursuant to title 13 or title 14 of the ECL. However, these exemptions do not extend to cleanups performed under local or other regulatory authority. The Governor’s proposal would have extended the statutory exemptions to projects that remediate sites under local government programs that either have been delegated authority to implement their remedial program by DEC or that have entered into a MOA with DEC. The Task Force endorses this approach.

Clarification on Municipal Access for Environmental Investigations at Tax Foreclosure Sites

Under ECL §56-0508(1), municipalities that foreclose on tax liens may enter foreclosed sites to perform environmental investigations without incurring cleanup liability. However, some municipalities do not directly foreclose on such properties but instead sell tax liens to third parties who then foreclosing on the property.

The Task Force recommends that ECL §56-0508(1) be amended to expressly allow municipalities to enter sites subject to foreclosure or tax lien sales to perform environmental investigations on those sites.

BOA Reform-

The Brownfield Opportunity Area (BOA) has great potential but has been hampered by structural and funding issues. The Governor’s proposal did not amend the BOA Program, and the budget did not fund it. The Task Force believes that the BOA process be streamlined. Incredibly, information about brownfield sites in BOAS is not available on public databases maintained by the NYSDEC or the Department of State. The Task Force recommends creation of a BOA databases so developers can learn of locations of BOAs and the pre-development amenities for sites located within the BOAs.  

NYSDEC Proposes Amendments to Haz Waste Rules

February 10th, 2015

The New York State Department of Environmental Conservation is proposing significant changes to its hazardous waste management regulations (6 NYCRR Parts 370-374 and 376). The proposed amendments are available here.

The proposed changes will incorporate thirty-seven (37) amendments to the federal Resource Conservation and Recovery (RCRA) regulations that have been adopted by the federal Environmental Protection Agency (EPA) from January 2002 through April 2012. The June 26, 2014 Cathode Ray Tube Export rule is also included in this rule making. The list of federal rules along with brief descriptions is available here 

Specifically, NYSDEC is seeking comments on the following EPA rules:

  • Solvent Contaminated Wipes Rule - EPA’s July 31, 2013 rule revises the definition of solid waste to conditionally exclude solvent-contaminated wipes that are cleaned and reused and revises the definition of hazardous waste to conditionally exclude solvent-contaminated wipes that are disposed.
  • Carbon Dioxide Sequestration Rule - EPA’s January 3, 2014 Carbon Dioxide Sequestration Rule provides a conditional exclusion for carbon dioxide (CO2) streams in geological sequestration activities. This rule would conditionally exclude CO2 streams that are hazardous waste from the definition of hazardous waste, if they are captured from emission sources and are injected into Class VI Underground Injection Control wells for geological sequestration, provided that certain requirements are met.
  • Hazardous Waste Electronic Manifest (e-Manifest) Rule - EPA’s e-Manifest Rule provides the legal and policy framework to authorize th use of electronic manifests. The e-Manifest system will go into effect through out the United States at the same time, whether or not authorized states have amended their regulations.
  • EPA’s 2008 Definition of Solid Waste Rule, as amended in January 2015 redefines “hazardous secondary materials.” It streamlines regulation of hazardous secondary material to encourage beneficial recycling and help conserve resources. By removing unnecessary regulatory controls, it is expected to make it easier and more cost-effective to safely recycle hazardous secondary materials. EPA published substantial revisions to this rule on January 13, 2015. As amended, the rule provides greater safeguards from mismanagement. Certain parts of the 2015 Final Rule are more stringent than current DEC regulations. DEC must adopt these provisions, which include a revised definition of “legitimate recycling,” a prohibition on sham recycling, and new recordkeeping requirements related to speculative accumulation provisions.
  • Amendments to DEC’s Used Oil Management regulations (6 NYCRR Subpart 374-2). DEC is considering whether or not to continue to require Petroleum Bulk Storage (PBS) registration for certain small used oil tanks for which PBS registration is not otherwise required; whether to amend the used oil collection center requirements to allow entities collecting used oil in small volumes to obtain a Part 360 registration and more closely follow EPA requirements in lieu of obtaining a Part 360 permit. Changes in record retention time requirements to more closely follow EPA requirements are also being considered.

In addition, NYSDEC is proposing approximately 80 changes to clarify regulatory language and to correct errors. This list of so-called state-initiated changes can be accessed here

DEC will host a live webinar on February 25, 2015, 10:00am-12:00pm. To register for the webinar, click here 

Governor Cuomo Proposes BCP Reform: Déjà vu all over again?

January 22nd, 2015

Governor Andrew Cuomo  unveiled his 2015-16 budget on January 21st. As anticipated, the budget contains sweeping reforms to the Brownfield Cleanup Program (BCP) in Part R of the Revenue Article VII Legislation. The BCP amendments are substantially similar to the changes proposed in 2014 which some tweaking around the margins.  Click here for a copy of the proposed BCP changes. 

The amendments would become effective on April 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. Following are some of the highlights of the proposed changes to the BCP. 

1. Brownfield Site (§2) -The proposed legislation changes the definition of brownfield to a site where contaminants exceed “soil cleanup objectives or other health-based or environmental standards, criteria or guidance” adopted by NYSDEC for the reasonably anticipated use. It is unclear if the “reasonably anticipated use” is to be determined by current zoning or the proposed use set forth in the BCP application.

If adopted, this definition will mean that applicants will probably need to have completed phase 2 reports prior to submitting applications. Indeed, §3 of Part R provides that applicants “shall” submit an investigation report sufficient to demonstrate that the site requires remediation in order to meet the remedial requirements of this title.

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 for the tangible property tax.

 2. Class 2 Sites (§2)- The original BCP legislation contained a six-month amnesty period for class 2 superfund sites to apply to the NYSDEC that expired in July 2004.  Since then, class 2 sites have been ineligible for the BCP even when an innocent party sought to redevelop the property.

The proposed change would allow class 2 sites owned by parties who are determined to be “volunteers” to be enrolled in the BCP. If a volunteer is under contract to purchase a class 2 site, the site would be eligible for the BCP only if the NYSDEC has been unable to identify a PRP with the ability to pay for the investigation or cleanup of the site.

3. Tangible Property Tax Credit Eligibility Changes(§3) -Like the 2014 proposal, the Governor would limit eligibility for the tangible tax credit to three categories of sites, projects or areas of the state that are believed to need the tax credits to incentivize redevelopment. The three criteria are: (i) at least half of the site area is located in an environmental zone (En-zone); (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 is an affordable housing project.

Note that the proposal changes the definition of an En-Zone definition. The Commissioner of the Department of Labor is to identify En-zones based on 2009-2013 American Community Surveys and is required to update the En-zones upon request of the NYSDEC. In addition, NYSDEC is to advise the applicant if the site is located in an En-Zone when the agency determines that the application is complete.

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. An applicant may request an eligibility determination for tangible property credits at any time from application until the site receives a certificate of completion. NYSDEC will notify the applicant upon acceptance into the BCP if the project meets the criteria for qualifying for the tangible property tax

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.

Other changes to the tangible property tax credit made in other sections of Part R 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);
  • 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 foundation of any buildings constructed as part of the site cover that are not properly included in the site preparation component” (§21);
  • 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);
  • 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);
  • 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);
  • An extra 5% tax credit would be available for the following projects: affordable housing (based on square footage of the total affordable housing units, sites located in En-Zones, sites located within a BOA that conform to the BOA plan, and for sites used primarily for manufacturing activities(§25);

4. Site Preparation Tax Credit Changes- This tax credit has applied to costs incurred to qualify a site for a COC and to prepare a brownfield site for redevelopment (i.e., erection of a building or portion of a building) that are “properly chargeable” to a capital account. Examples of eligible costs include demolition, excavation, dewatering, temporary wiring, scaffolding, sheeting, fencing and security.

The proposed legislation clarifies that eligible site preparation costs are limited to costs directly associated with actual site preparation-related construction, including costs associated with all requirements of site remediation and easements such as architectural and engineering fees, appraisal, surveys, soil borings/other investigations, legal fees associated with any environmental easement required, operation, maintenance and monitoring of treatment systems, testing for asbestos or lead paint, legal fees associated with construction loan closing, cost certification and insurance(§27).

Other provisions relating to the site preparation tax credit include:

  • The costs must now be “charged” to a capital account and must be paid by the applicant within six months of the date the expense is incurred by the taxpayer;
  • Eligible site prep costs shall not include payments made to “related” parties;
  • Eligible costs would also include activities undertaken under the oversight of the Department of Labor or in accordance with standards established by the Department of Health to address asbestos, lead-paint or PCBs;
  • For a building foundation, only those costs equivalent to the cost of a site cover for the area covered by the foundation shall be eligible for the site preparation costs;

 5. Track 1 Cleanups With Controls(§10)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 for groundwater remediation where the bulk contaminant concentrations have been reduced to asymptotic levels or to address vapor intrusion.

6. Transfer of COCs (§14) - The proposed legislation clarifies that COCs may by the applicant or subsequent holder of the certificate of completion to a successor to a real property interest, including legal title, equitable title or leasehold, in all or a part of the brownfield site for which a COC was issued. However, A COC shall not be transferred to a responsible party.

 7. BCP-EZ program (§18)- The proposed amendments would create a streamlined remedial program that would be called the BCP-EZ program. Applicants that qualify as “volunteers” under the BCP 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. The applicant would be eligible to receive a COC after the NYSDC accepts a certification by the applicant that the remediation requirements of this title have been achieved and an environmental easement, if necessary, has been created and recorded. NYSDEC would have to promulgate regulations implementing the BCP-EZ program.

8. VCP Applicants- The bill contains a curious provision that authorizes NYSDEC to accept BCP applications from parties currently enrolled in the old administrative voluntary cleanup program (VCP). However, such applicants would not be eligible for any brownfield tax credits. It is unclear why the Governor or NYSDEC believes a second non-tax credit program is required.

 9. Oversight Costs (§47)- 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 April 1, 2015. This exemption applies both to applications submitted after April 1, 2015 as well as sites accepted into the BCP prior to April 1, 2015.

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. However, the proposed amendment provides that NYSDEC could negotiate a “reasonable” flat rate fee for future oversight costs. (§7)

10.  New COC Deadlines (§31)- Under existing law, BCP sites have to obtain their COCs by 12/31/15 to qualify for the brownfield tax credits (BTCs). The Governor’s proposal would allow applicants accepted before 4/1/15 to have an extra two years to obtain their COC (12/31/17)  to remain eligible for the BTCs.  If an applicant accepted prior to 4/1/15 does not obtain a COC by 12/31/17, it would only be able to be eligible for tangible tax credits if it qualifies for the post 4/1/15 criteria. Sites accepted into the BCP before 12/31/22 will have until 12/31/25 to obtain their COCs and qualify for BTCs.

11. .Hazardous Waste Generation Fee Exemption (§§ 38 & 39)- 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 fees: a hazardous waste program fee and a special tax assessments. Depending on the size of the site or the depth of the excavation, the hazardous waste fees can approach or even exceed the total remediation costs.

Under current law, generators of hazardous remediation waste are exempt from paying the hazardous waste tax or program fee exempt if the remediation is performed under the state superfund program or BCP. 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.

The proposed amendments would exempt remediation wastes from the state hazardous waste generator fee that are generated for cleanups performed 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.

12. Miscellaneous Changes- Other notable changes include:

  •  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 (§6);
  • The NYSDEC may reject a BCP applicant if the applicant 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);
  • Applicants must implement work plans within 90 days of approval and complete the work in accordance with the schedule set forth in the document (§8);
  • 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 (§11);
  • 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(§13);
  • Final Engineering Reports would have to describe any interim remedial measures (IRMs) and the costs of the IRMs(§13);
  • 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. There was already a revocation for misrepresentation about the applicants qualification for volunteer status (§14);
  • A COC may be revoked if the environmental easement no longer provides effective enforcement mechanism for ensuring performance of the remedy(§14);
  • NYSDEC is exempt and authorized to grant waivers from local permits extends to investigations or remediation for contamination migrating from a brownfield site (§16);
  • 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 (§17);
  • The Brownfield Advisory Board is abolished (§29);
  • The insurance remediation tax credit and the real property tax credit are repealed due to lack of interest (§31);
  • Municipalities seeking to apply for funds from the Environmental Restoration Program (ERP) 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. 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 (§42).

The Governor’s budget includes a new $100 million appropriation to extend the State Superfund cleanup program for ten years. The lack of  superfund funding had been a key obstacle in 2014.

The Constitution authorizes the Governor to amend the Executive Budget within 30 days of submission, allowing for technical corrections and revisions based on the latest information. However, to help achieve timely budgets, the 2007 Budget Reform Act requires the Executive, to the extent practicable, submit any necessary amendments within 21 days. After the 21 day period, the legislation will be formally submitted to the Legislature.

We will provide further updates and commentary on the 2015 BCP reform proposals

Governor Cuomo Vetoes BCP Extension Bill

December 30th, 2014

We reported two weeks ago that the bill to extend the brownfield cleanup program (BCP) that had been passed back in June had finally been sent to the governor. The BCP tax credits are scheduled to expire at the end of 2015 and the legislation would have extended the tax credits to March 31, 2017 to give the Governor and Legislature time to reach agreement on a reform proposal. More information about the history of the BCP negotiations is available here.

The governor had until December 29th to sign or veto the bill. Since the bill would have died if not signed by the end of the year, the conventional wisdom was that the governor would sign the bill. However, war gaming this governor is a fool’s errand. Late in the evening of December 29th, he vetoed the bill The memo explaining the veto is available here.

The governor will be introducing another set of BCP reforms with his legislative proposals in January. Early indications were that the proposal would be structually similar to his 2014 proposal that called for a so-called two-gate approach for the tax credits with some changes on the margins. However, the NYSBA brownfield task (which I co-chair with David Freeman) assembled a group of  stakeholders during the fall and this group reached a consensus on framework that would preserve the tangible tax credits  as-of-right concept for all applicants. To address the concerns over the costs of the program and to better target the tax credits, the framework calls for lowering the $35MM cap but then providing bump ups for certain types of projects.

The NYSBA  Brownfield Task Force prepared a report that memorialized the key elements of this framework into a report that was approved by the NYSBA Environmental Law Section. The NYSBA then sent the report to the Governor and legislature before the holidays. A copy of the report is available here. Hopefully, the Governor will consider these recommendations as he finalizes his BCP reform bill.

BCP Extension Bill Sent to Governor For Signature

December 17th, 2014

Under New York’s unique form of democracy,  bills that are passed by the legislature are held at the Assembly until the Governor calls for the bill.  Once the Governor receives a bill, he has ten days to sign the bill.

As we previously posted, the legislature passed a bill back in June that would have extended the Brownfield Cleanup Program (BCP) tax credits to March 31, 2017. The tax credits are currently set to expire on December 31, 2015. Applicants would need to obtain a Certificate of Completion by that date to qualify for the tax credits if the law is not extended.

We learned today that the Govenor finally called the bill. He has until December 29th to sign the extension

Do Clients Have To Complete Consultant Questionnaires To Comply With AAI?

December 10th, 2014

The short answer is no.

Environmental consultants routinely submit environmental questionnaires to property owners and their clients as part of the phase 1 process. Some consultants tell their clients that they are obligated to complete the questionnaire to be able to comply with EPA’s All Appropriate Inquires (“AAI”) rule. A few go as far as saying they cannot issue a phase 1 report unless the client completes the questionnaire.  However, this is flat out wrong.

EPA’s AAI rule does not require users  to complete the questionnaire. Indeed, the AAI Rule does not even require purchasers, brownfield grantee or lender (collectively the “user”) to provide the results of their “additional inquiries” to the environmental professional much less complete a questionnaire to satisfy with AAI. All the user needs to do is demonstrate that it performed those “additional inquiries” We will now break down the user obligations.

The AAI rule identified what elements of the investigation were the responsibility of the environmental professional and which criteria were the responsibility of the prospective purchaser or brownfield grantee. The information that has to be obtained by the user are known as “additional inquiries” and set forth in 40 C.F.R. 312.22. The “additional inquiries” include: specialized knowledge or experience of the prospective landowner (or grantee); the relationship of the purchase price to the fair market value of the property, if the property was not contaminated; and commonly known or reasonably ascertainable information.

In the preamble summarizing the changes from the proposed rule to the final rule that was published in the November 1, 2005 federal register, EPA stated at page 66076:

“The final rule does not require the prospective landowner (or grantee) to provide the information collected as part of the “additional inquiries” to the environmental professional. Although we expect that most prospective landowners and grantees will furnish available information or knowledge about a property to an environmental professional he or she hired when such information could assist the environmental professional in ascertaining the environmental conditions at a property, we affirm that compliance with the statutory criteria does not require that such information be disclosed. [emphasis added]. 

 Since it ultimately is up to the owner or operator of a property to defend his or herself against any claims to liability, we agree with commenters that asserted that the regulations should not require that prospective landowners (or grantees) provide information collected to comply with the “additional inquiries” provisions to the environmental professional. Should the required information not be provided to the environmental professional, the environmental professional should assess the impact that the lack of such information may have on his or her ability to render an opinion with regard to conditions indicative of releases or threatened releases of hazardous substances on, at, in or to the property. If the lack of information does impact the ability of the environmental professional to render an opinion with regard to the environmental conditions of the property, the environmental professional should note the missing information as a data gap in the written report.” [Emphasis added]

 Beginning on page 66082 of the preamble to the AAI rule in the discussion captioned “H. Who Is Responsible for Conducting the All Appropriate Inquiries?” EPA stated as follows [note we have broken out large block paragraph into smaller paragraphs for ease of reading]:

 “Several commenters asserted that the mandatory nature of the proposed provision requiring the prospective landowner to provide information regarding the four criteria listed above to the environmental professional is problematic. Particularly with regard to the requirement to provide “specialized knowledge or experience of the defendant,” commenters pointed out difficulties in a prospective landowner being able to document such knowledge and experience sufficiently. Also, with regard to the information related to the “relationship of the purchase price to the fair market value of the property, if the property was not contaminated,” many commenters pointed out that prospective landowners may not want to divulge information regarding the price paid for a property. Commenters pointed out that the requirement to consider “commonly known or reasonably ascertainable information” about a property is implicit to all aspects of the all appropriate inquiries requirements. In addition, commenters stated that CERCLA liability lies solely with the owners and operators of a vessel or property. A decision on the part of a prospective landowner to not furnish an environmental professional with certain information related to any of the statutory criteria can only affect the property owner’s ability to claim a liability protection provided under the statute. In addition, the statute does not mandate that information deemed to be the responsibility of the prospective landowner and not part of the “inquiry of the environment professional” be provided to the environmental professional or even be part of the inquiry of the environmental professional. Some of the statutory criteria are inherently the responsibility of the prospective landowner.

We agree with the commenters who asserted that the results and  information related to the criteria identified as being the responsibility of the prospective landowner should not, as a matter of law, have to be provided to the environmental professional. The statute does not mandate that a prospective landowner provide all information to an environmental professional. Given that the burden of potential CERCLA liability ultimately falls upon the property owner or operator, a prospective landowner’s decision not to provide the results of an inquiry or related information to an environmental professional he or she hired to undertake other aspects of the all appropriate inquiries investigation can only affect the liability of the property owner.

In addition, we believe that the environmental professional may be able to develop an opinion with regard to conditions indicative of releases or threatened releases on, at, in, or to a property based upon the results of the criteria identified to be part of the “inquiry of an environmental professional.” Any information not furnished to the environmental professional by the prospective landowner that may affect the environmental professional’s ability to render such an opinion may be identified by the environmental professional as a “data gap.”

The provisions of the final rule (as did the proposed rule) then require that the environmental professional comment on the significance of the data gap or missing information on his or her ability to render such an opinion, in light of all other information collected and all other data sources consulted.

As a result of our consideration of the issues raised by commenters, today’s final rule modifies the requirements of Sec. 312.22 “additional inquiries” by stating (in paragraph (a)) that “persons * * * may provide the information associated with such inquiries [i.e., the information for which the prospective landowner or brownfields grantee is responsible] to the environmental professional * * *.” The proposed rule provided that such information “must be provided” to the environmental professional.” [Emphasis Added]

AAI is a performance-based regulation. Failure to provide the information in 40 CFR 312.22 does not cause a prospective purchaser or party seeking the landowner liability protection to automatically lose its liability protection. The user may lose its ability to claim the protections IF the absence of that information prevents the EP from reaching a conclusion about the presence or absence of RECs or a release.  At the end of the day, the EP has to decide if the failure to respond certain information is a significant data gap that prevents the EP from rendering a conclusion if there is a release (or REC).  

The questionnaire is just the starting point for the due diligence since the environmental consultant will perform its own site inspection and historical records review. It will be a rare occasion when a purchaser or lender will have material information about the property that the consultant will not be able to obtain or that will result in a data gap that will prevent the consultant from determining if there is a recognized environmental condition (REC) on the property. The absence of an uncompleted questionnaire will not be significant in the overwhelming number of transactions where the client is a purchaser or lender. If the consultant still feels obligated to identify failure to prepare the questionnaire as data gap in such a situation, the consultant should be required to indicate that the data gap is not significant and does not alter the conclusions of the report.