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.
January 20th, 2014
In 2012, New York legislature failed to meaningfully extend the sunset date for the brownfield cleanup program (BCP) tax credits. In that session, the legislature, only extended the expiration date from March 31, 2015 to December 31, 2015. Because BCP applicants must obtain certificates of completion (COC) from the NYS Department of Environmental Conservation (NYSDEC) by the BCP tax credit tax sunset date and because the average BCP remediation takes 2 1/2 years from application to COC, NYSDEC received an influx of BCP applications in 2012 and 2013. As a result, the NYSDEC is anticipating a record number of cleanup completions in 2014.
According to current projected completion dates, the NYSDEC anticipates that it will issue 92 COCs in 2014. In contrast, the NYSDEC issued an average of 20 COCs annually between 2011 and 2013. Indeed, the estimated total of COCs for 2014 would equal the total COCs issued by NYSDEC from 2005-2010. Issuing 92 COCs in one year would be a remarkable achievement for the BCP and is evidence of how powerful a tool the BCP tax credits are for incentivizing cleanups of brownfield sites. We suspect no other state remedial program in the country has issued 92 no further action letters in a year. Indeed, EPA has been averaging only 22 cleanup completions annually under the Superfund program since 2001.
The BCP has the most generous tax credits in the country. The BCP tax credits are refundable so to the extent that the brownfield tax credits exceeds the applicant’s tax liability, the tax credit is treated as a tax overpayment and the state cuts a check. Only those entities named on the brownfield cleanup agreement (BCA)may claim the brownfield tax credits so it is important that the correct entities are named on the BCA. See our blog post for examples of common BCP mistakes.
Applicants can claim three types of tax credits. The first tax credit is known as the Site Preparation Cost (Site Prep). It includes all costs necessary incurred to make the property ready for development. The Site Prep credit includes not only cleanup costs but also costs of demolition, excavation, soil disposal, sheeting, shoring and dewatering. The amount of the Site Prep tax credit that may be claimed depends on the level of cleanup and ranges from 28% to 50% of the costs. The Site Prep tax credit may be claimed in the tax year following the issuance of the COC. The buildings on BCP sites do not have to be constructed or occupied to claim the Site Prep tax credit. Instead, only the remedy has to be completed and a COC issued to be able to claim the Site Prep tax credit.
The second tax credit is available for post-COC groundwater monitoring costs at the same percentage of the Site Prep tax credit. This credit may be claimed annually for the five year period following the issuance of the COC.
The third (and most valuable) BCP tax credit that is available is the qualified tangible property (QTP) tax credit which ranges from 10% to 24% of the value of the improvements constructed on the brownfield site subject to a cap of $35MM or 3 times the Site Prep costs (whichever is less). BCP applicants have ten years from the issuance of the COC to put the building into service and claim the tangible property tax credit. For example, a $200MM project with $10MM in Site Prep costs (mainly from excavation) could be eligible for $5MM in Site Prep costs for a track 1 (unrestricted) cleanup and $30MM in tangible property tax credit (3x $10MM) for a total of $35MM in BCP tax credits.
New York Governor Cuomo is expected to unveil BCP tax reform legislation when he introduces his budget later in January. It is anticipated his proposal will retain the Site Prep tax credit in its present formulation but that he would propose that new BCP projects would not automatically be entitled to the QTP. Instead, the QTP would only be available for projects satisfy certain criteria that would be more targeted to low-income communities. Any such amendments would likely become effective upon enactment. Thus, time is running out for developers to enroll in the BCP under its current tax credit structure. See our post on the likely key application deadlinesapplication deadlines.
January 10th, 2014
The New York State Brownfield Cleanup Program (BCP) may offer lucrative tax credits but to paraphrase the old John Houseman commercial, BCP applicants earn their tax credits the hard way. The BCP is demanding program with rigorous cleanup procedures, robust public participation and lots of documentation requirements.
The complexity of the BCP is further exacerbated by the fact that the tax credits are linked to the issuance of Certificates of Completion (COC). Applicants must obtain a COC by December 31st to be able to claim the site preparation tax credit in the following year. To help applicants obtain COCs, the New York State Department of Environmental Conservation (NYSDEC) conducts periodic calendar calls beginning in early spring with applicants who are seeking COCs by the end of the year. Despite these calendar calls, BCP applicants often find themselves in a stressful and frenetic year-end mad dash to ensure they have satisfied the NYSDEC documentation requirements.
Indeed, eight of the 23 projects that were scheduled to obtain COCs by the end of 2013 were unable to complete their paperwork in time and their COCs have been pushed back to 2014. This means the developers of those projects will not be able to claim their tax credits until 2015.
While some of the delays are associated with finalization of technical documents such as Site Management Plans (SMPs) and Final Engineering Reports (FERs), the more common recurring errors that delay NYSDEC approval usually involve legal documentation. Some of these errors are because clients do not inform their attorneys of changes in project structure with others related to counsel not being familiar with the legal documents required by NYSDEC. And yes, sometimes the delays have been because environmental lawyers tried to complete real estate documents that probably should have been prepared by real estate lawyers.
Following are the most common legal documentation mistakes that have been identified by NYSDEC staff.
- Incorrect Legal Name of Entity- only those parties on the brownfield cleanup agreement will be named on the COC and only those entities on the COC will be able to claim tax credits. Parties/investors who become involved with a BCP project after execution of the BCA can be added to the BCA through a BCA amendment application. However, once the COC is issued, parties may not be added though the COC could be transferred to a new entity.
- Legally Formed Applicant- NYSDEC will check with the Department of State to make sure that the applicant has been duly formed under New York law. If the applicant is an LLC but it has not yet completed the publication requirements, the LLC is not yet legally formed and cannot execute the BCP. In such cases, another entity should be used and the LLC added by way of BCA amendment or the application should not be submitted until the LLC has been duly formed.
- Dissolved Corporation- This should be obvious but a dissolved corporation cannot sign the BCA. Applicants and their counsel should ensure the applicant entity is in good standing.
- Applicant Name Change or Misspelled Applicant Name-The correct name must appear on the BCA and COC to claim a tax credit. Name changes can be handled by a BCA amendment.
- Authority to Sign- NYSDEC requires proof that the person signing the BCP application and a BCA amendment can execute documents on behalf of the applicant. Acceptable evidence includes: resolutions/unanimous written consent of board of directors/bylaws for corporations; resolutions/unanimous written consent of members/operating agreement for LLCs; resolutions/unanimous written consent of partners/partnership agreement for partnerships; resolutions for municipalities.
- New Parties- Some applicants have tried to add or remove parties by sending emails to NYSDEC staff. Such changes may only be made by submitting a BCP amendment application and executing a BCA amendment.
- Failure to Include Property Owner- A BCP applicant does not have to own the BCP site. However, if the owner wants to benefit from the limitation of liability conferred by the COC or otherwise share in the tax credits generated by the project on its property, it would have to be a named party on the BCA and the COC.
- Access Agreement- If the applicant is not the property owner and will not be purchasing the BCP site, the applicant must obtain an access agreement from the owner stating that the applicant has access to implement the requirements of the BCP.
- Property Description- Sometimes the legal description of the property (block and lot) varies between the BCP application, the BCA and what the description in the deed. A related error is a change in address.
- Change in Property Description- The BCP site sometimes may be subdivided or lots may be merged. Any such changes need to be reflected in an amended BCA.
- Property Size Errors- This error can be related to an improper legal description or could be related to a change in the size of the BCP project. If the size of the BCP site changes because of change in the project footprint, a BCA amendment needs to be submitted to NYSDEC.
- Change in Ownership- If title changes hands after the BCP application but before the COC is issued, a change in use form must be submitted to NYSDEC. Note this change in use filing is different from the change in use notification required after the COC is issued.
ENVIRONMENTAL EASEMENTS- An environmental easement (EE) must be prepared and recorded for remedies that do not achieve track 1 standards and will use institutional or engineering controls. This can include sites with residual groundwater contamination or sites that require use of sub-slab depressurization systems to control potential vapor intrusion. The EE package is complicated and includes an environmental checklist, a specialized survey, title insurance, form of environmental easement and an attorney certification. A draft EE package should be first submittal to resolve title and survey issues. The draft EE package should include a title report, proposed title insurance, and commitment letter. The title commitment must have been issued within 6 months. The survey must reflect the easement area if the easement will be less than the property footprint. The EE should also refer to the SMP. Applicants should consider retaining a real estate attorney to assist their environmental lawyer with finalizing the EE package. Key issues include the following:
- Correct property owner- All property owner must execute the environmental easement. If the applicant is not the property owner, the applicant should make sure the correct entity is signing the easement.
- Authorization- The applicant must provide evidence to NYSDEC that the person signing the easement has authority to execute on behalf of the owner.
- Verify Property Descriptions- The legal description on the BCA and EE should must match (e.g., lot and block, Tax Map, etc)
- Verify EE Description- Applicants need to confirm that the description in the environmental easement matches the description in the title policy and survey.
- Survey Issues-NYSDEC generally required an ALTA survey which is not the usual form of survey that is ordered in New York City. If the applicant orders a non‐ALTA survey, the applicant must ensure that the non‐ALTA Survey has a graphic scale and a legend with the section, block and lot and physical address along with the location/boundaries/metes & bounds of engineering controls which must be clearly labeled (area of engineering control). If the environment easement does not cover the entire property, the survey must contain the metes & bounds description of the area subject to the environmental easement. The metes and bounds description be shown on the survey must also match the description in the current deed. Schedule A to the title commitment must also contain the same description
There have been some waste management violations at BCP sites that have not only delayed projects but also resulted in fines. NYSDEC has identified the following issues that environmental consultant need to keep in mind during soil
- RCRA listed waste remains a listed waste and must be disposed as a hazardous waste even if the waste does not fail the Toxic Characteristic Leaching Procedures (TCLP). In addition, consultants cannot apply for a “ uncontained-in” determination
- Historic fill cannot be sent to Part 360-16 Registration Facility
- Soil exceeding unrestricted soil cleanup objectives (SCOs) cannot be sent to a Part 360-16 Registration facility without approval
Some BCP projects have failed to achieve the track 1 unrestricted standards despite removing all of the contaminated soil because of residual groundwater contamination. To obtain a COC, at least one round of groundwater sampling must show a downward trend in contamination concentrations. A BCP project can obtain a conditional Track 1 when groundwater standards are not met or soil vapor mitigation is required. The COC will require an environment easement and SMP. If within five years, groundwater standards are achieved, any active remedial system can be suspended and the easement/SMP may be extinguished. However, if groundwater standards are not achieved, the cleanup would have to revert to track 2 or 4 which could result in recapture of excess tax credits based on track 1 cleanup. NYSDEC recommends BCP applicants should consider aggressive treatment after year 2 and no later than year 3 after the COC to avoid this potentially unpleasant outcome.
BCP applicants should not assume that problems will be resolved during finalization of the COC. Issues that are identified during the final review of the COC package will likely result in the COC being delayed until the next year.
These issues illustrate why it is important for developers considering applying for the NY BCP to select an experienced team of environmental professionals who are familiar with the BCP requirements, who can anticipate problems before they can delay a project and also know how to use opportunities in the BCP process to save time at every stage of the BCP. For a list of the brownfield projects we have worked on, click here
December 31st, 2013
On December 30th, the federal Environmental Protection Agency (EPA) published a final rule in the Federal Register (78 FR 79319) recognizing the new ASTM E1527-13 phase 1 standard practice as an approved method for complying with the All Appropriate Inquires (AAI) rule. As explained below, while the preamble to the final rule is an improvement to the text that accompanied the August rulemaking since it attempts to address some of the concerns raised in the adverse comments, this action amounts to Band-Aid where surgery was needed to repair the ill-conceived rulemaking exercise.
Despite receiving adverse comments to the botched August rulemaking, EPA declined to delete the reference to the now obsolete E1527-05 from the AAI rule. Instead, agency included language in the explanatory text (the “preamble”) encouraging property owners and consultants to use ASTM E1527-13. In responding to some of the adverse comments it received, EPA may have opened the door to retroactive liability to consultants and their clients for previously completed phase 1 reports that did not evaluate the vapor intrusion pathway.
In response to concerns that the continuing reference to E1527-05 could cause confusion in the marketplace, EPA first said-unconvincingly to this observer-that because it did not propose to remove the reference to E1527-05 in the August rulemaking, such action was “well beyond the scope of today’s action”. However, to address the concerns that the parties may be confused about the level of due diligence required because of the continuing reference to a historic ASTM standard, EPA said it planned on issuing a future proposal to delete the obsolete ASTM standard from the AAI rule. The agency said it felt that these concerns would be best done through a separate rulemaking process to give the public an opportunity to review and comment on that proposed action. EPA did go on to say that it intends “to monitor the uptake of the new ASTM E1527-13 across the commercial and industrial real estate sector to see if these expectations are borne out.”
In announcing this decision, EPA reminded the regulated community that while E1527 may be used to comply with AAI, “ASTM standards do not comprise a federal regulation or standard, nor are they incorporated by reference into the federal regulation. Parties may use industry standards to comply with Part 312, but the standard for compliance is the AAI rule itself.” In its specific responses to comments the agency reviewed key due diligence case law that EPA said stood for the proposition that courts look to the “quality of the investigation and reasonableness of the conclusions reached as a result of the investigation” in determining the adequacy of a particular phase 1 report. EPA said it believed “that site-specific circumstances and conditions would continue to inform the courts’ review of the strength and satisfactoriness of parties’ conduct of all appropriate inquiries, under both the ASTM standard and the all appropriate inquiries rule.”
Because of the caselaw and the fact that parties seeking to asset one of the CERCLA landowner liability protections have the burden of establishing that they qualify for those defenses, EPA said it believed that parties conducting AAI for this purpose have a strong incentive to ensure that the investigation is done thoroughly and properly. As a result, the agency indicated that it “anticipates that those conducting or relying on the ASTM International standard for the conduct of All Appropriate Inquiries will generally adjust to using the updated standard, particularly in light of the fact that ASTM International will label the ASTM E1527-05 Standard a historical standard and establish that the revised standard, the E1527-13 standard, is the only standard reflecting the current consensus of the responsible ASTM International technical committee.” EPA’s responses to the comments are set forth in a new document that has been added to the regulatory docket and is available here:
In recognizing the new ASTM standard, EPA said it believed that ASTM E1527-13 “improved upon the previous standard” and “reflected the evolving best practices” that would provide prospective purchasers with the necessary and essential information that is required to satisfy AAI as well as meet their “continuing obligations” under the CERCLA liability protections. This statement is another indication of how even though phase 1 reports are usually ordered to satisfy AAI, the reports may have implications for satisfying post-acquisition appropriate care/continuing obligations (think Ashley and Voggenthaler).
From a purely legal standpoint, all a consultant needs to do to complete its contractual obligations to its clients under an E1527-13 phase 1 assignment is to determine if there are RECs, CRECs or HRECs at a property. To satisfy AAI and therefore qualify for the bona fide prospective purchaser liability protection, a property owner simply has to identify current and prior releases of hazardous substances at a site using an investigation that complies with AAI. While no further investigation is generally required to comply with AAI and therefore qualify for the BFPP, a property owner/ purchaser may need to do further investigation about the releases (or RECs/CRECs using ASTM parlance) to be able to comply with its appropriate care/continuing obligations. Depending on specific site factors, such an investigation may be more comprehensive than a phase 1 investigation. Users should discuss with their environmental consultants and lawyers if it makes sense to do this more comprehensive all at once prior to acquisition so the user can develop an appropriate care/continuing obligations plan or to do additional investigation soon after acquisition to be able satisfy those obligations.
In touting the virtues of ASTM E1527-13, EPA focused on one of the hottest issues in environmental law-vapor intrusion. The agency said that one of the important revisions contained in ASTM E1527-13 was clarifying that “all appropriate inquires and phase I environmental site assessments must include, within the scope of the investigation, an assessment of the real or potential occurrence of vapor migration and vapor releases on, at, in or to the subject property.” The more potentially troubling statement for consultants and property owners was the statement that “In the case of vapor releases, or the potential presence or migration of vapors associated with hazardous substances or petroleum products, EPA notes that both the All Appropriate Inquiries Rule and the ASTM E1527-05 standard already call for the identification of potential vapor releases or vapor migration at a property, to the extent they are indicative of a release or threatened release of hazardous substances.”[Emphasis added]
In the response document that is in the regulatory docket, EPA said that “Some users of the ASTM E1527-05 standard and some who submitted comments in response to EPA’s August 15, 2013, proposed rule raised concerns that potential vapor releases on, at, in or to a property are often not considered or may be overlooked by many practitioners when conducting all appropriate inquiries. EPA wishes to be clear that, in its view, vapor migration has always been a relevant potential source of release or threatened release that, depending on site-specific conditions, may warrant identification when conducting all appropriate inquiries.…” [Emphasis added]
The agency then went on to say “ In the case of the ASTM E1527-05 standard, users and environmental professionals are required to identify recognized environmental conditions that include the presence or likely presence of hazardous substances or petroleum products under conditions that indicate an existing release, a past release, or a material threat of a release. Neither the All Appropriate Inquiries Rule nor the ASTM E 1527-05 standard excludes the identification of vapor releases as a possible type of release.”
These statements seem to reinforce the fears that many lawyers expressed to me as chair of the legal sub-committee that was working on the ASTM revision process. There was consensus that the role of vapor intrusion had to be clarified in the E1527 revisions but not in a way that could call into question the adequacy of phase 1 reports prepared prior to the ASTM revisions. The principal concerns were if such evaluation required sampling and if the evaluation of the vapor pathway would be a prospective obligation so that it only applied to transactions that closed after the publication of E1527.
The ASTM task force satisfactorily addressed the first concern by explaining that vapor intrusion was like any other exposure pathway and that sampling to confirm that the pathway was completed was typically outside the scope of a phase 1 and more properly addressed as part of a phase 2 investigation.
Unfortunately, EPA’s statements that the vapor pathway should have been considered all along raises the very risk that many lawyers and property owners feared-namely that parties who thought they had qualified for the CERCLA landowner liability protections because they had performed an AAI-compliant investigation may now suddenly not qualify as a BFPP because they did not consider the vapor intrusion pathway. Of course, this concern would only be for sites where vapor intrusion is or becomes a problem. However, the uncertainty created by EPA’s statements in the preamble and response document is going to be unsettling to some property owners. It will also provide ammunition to plaintiffs’ counsel who could use these statements as evidence that the defendant property owner breach a duty it owned to plaintiffs and was therefore negligent by failing to comply with a regulatory requirement. In some states, failure to comply with a regulatory standard is considered negligence per se while in others can be used as evidence of a duty.
Moreover, EPA’s statements in the preamble and response document could be used by clients in malpractice or breach of contract against consultants who failed to evaluate the vapor pathway in a prior phase 1. Of course, each situation will be highly fact dependent. Vapor intrusion will have to be a concern at the site and the plaintiff will have to show some nexus between the consultant’s failure to flag the vapor pathway and the damages the client has incurred to be successful. Nevertheless, these statement do potentially expose consultants to the retroactive liability through a backwards looking lens where hindsight is always 20-20 or a classic “Monday Morning Quarterbacking” scenario (or whatever other aphorism you prefer). EPA may not have been the Grinch that stole Christmas but this certainly was not a good New Year’s Eve present for property owners and environmental professionals. .
December 28th, 2013
As we have previously discussed, the lucrative tax credits available to parties who remediate sites under the New York State Brownfield Cleanup Program (BCP) expire on December 31, 2015. To qualify for the tax credits, BCP applicants must obtain certificates of completion (COC) from the NYS Department of Environmental Conservation (NYSDEC) by that date. The buildings on these sites do not necessarily have to be constructed or occupied by 12/31/15 but simply the remedy has to have completed.
Because of the looming tax credit expiration and the fact that the average BCP remediation takes 2 1/2 years from application to COC, there was an influx of BCP applications by developers during the last half of 2013 who wanted to make sure they obtained the COC by the end of 2015. Based on some recent political developments, the calculus for submitting BCP applications to ensure tax credit eligibility may now have significantly changed.
The generous tax credits available under the BCP have been criticized by environmental and community groups who argued the tax credits were subsidizing projects that did not need the financial assistance and were not sufficiently targeted to incentivize development in low income communities. In contrast, business groups felt the 2008 reforms that imposed caps on the maximum tax credits available under the program had accomplished their goals of reining in the costs of the BCP. Indeed, state film credit results in $400MM annually in tax credits while the BCP has averaged $125MM since the 2008 reforms–and the BCP results in permanent investments and jobs. Recently, though, these diverse stakeholders hammered out a set of recommendations and sent what can only be characterized as a historic letter to Governor Cuomo urging that he adopt their recommendations. This letter recommends that BCP projects would not automatically be entitled to the more lucrative tax credit available under the BCP- known as the tangible property tax. Instead, this tax credit would only be available for projects that mean certain criteria. While the precise criteria would have to be determined, we anticipate the criteria will be close to those advocated by community and environmental groups. This historic letter significantly enhances the odds that the Governor will include BCP reform in his January budget.
If he budget is adopted by the April 1st deadline, the BCP changes would take effect on that date. If the legislation mirrors the approach followed by the 2008 BCP amendments, projects accepted into the BCP after the effective date would be subject to the new rules while projects already enrolled in the BCP would be grandfathered. A project is considered accepted into the BCP when a brownfield cleanup agreement signed by the NYSDEC.
If this legislative approach is followed and the legislation becomes law on April 1st, that means the real deadline for developers seeking to qualify for the existing BCP tax credits would be April 1st. The normal BCP application process takes about two months Thus, developers who want to be grandfathered into the current BCP tax credit framework would have to submit applications by January 31st to have a good chance at being accepted into the BCP by the anticipated date of the BCP amendments.
It is possible that the BCP reforms might not be finalized until the legislature adjourns in mid-June which could give potential BCP applicants an additional month or so. It is also possible that NYSDEC might start to slow down the BCP approval process once it becomes clear that the Governor will be proposing BCP reforms so that all applications submitted in 2014 might not be accepted until after the new law becomes effective.
Developers whose projects might satisfy the criteria for tangible tax credit eligibility will probably not be significantly impacted by the BCP amendments. Of course, those criteria will not be known until at least when the Governor introduces his budget (Unlike other states, budget bills introduced by New York governors contain legislative language). While we have some idea what those criteria might look like based on prior conversations, developers will not know for sure until the legislation is introduced.
Thus, developers considering applying to the BCP should do so as quickly as possible. Often times, developers submit applications with completed remedial investigation reports (RIR) to eliminate one of the seven public participation periods. If a developer has not yet implemented a remedial investigation, they would probably be better served submitting a “bare” BCP application to get into the program and endure the later project delay the public participation delay for the approval of the RIR. In the real estate world, time is often equated with money. In the case of the BCP, the 30-day delays from the RIR public participation period will be outweighed by the significantly lost tax credits now could result from the delay in submitting the application.