Archive for the ‘New York Brownfield Cleanup Program’ Category

NY Governor Proposes Another BCP Tax Credit Deferral

Thursday, January 18th, 2018

[Editors’ Note- The final Budget that was approved at the end of March did not include the BCP Tax Credit Deferral ].

In his recent budget proposal, Governor Cuomo proposed a three-year BCP tax credit deferral. The proposed deferral which is located in Part S of Revenue Article VIII is similar to that enacted in 2010 during the depth of the Great Recession.  Taxpayers claiming BCP tax credits in 2018-2020 would be limited to $2MM each year. Taxpayers will be able to begin claiming the deferred nonrefundable credits in full starting in 2021. 50 percent of the refundable credits would be able to be claimed in 2021, 75 percent of the remainder in 2022, and the remainder in 2023.

The 2010 deferral had been the subject of a takings claim in Empire Gen Holdings, Inc. v. Governor of New York, 967 N.Y.S.2d 919 (Sup. Ct-Albany Cty. June 25, 2013).  Plaintiff had  constructed a 65 megawatt natural gas fired electric generating plant that received a Certificate of Completion (COC) in 2008. The plaintiff claimed and received the site prep tax credit. After the property was placed into service in September 2010, plaintiff claimed tangible property tax credit of $86,951,916  for 2010. However, because the Tax Credit Deferral Provisions became effective on August 11, 2010 and plaintiff did not place its property into service until September 2010, plaintiffs’ 2010 BCP tax credit was reduced to $1,663,633 with the balance of the full redevelopment tax credit deferred until 2013 and thereafter.

Plaintiff alleged the Tax Credit Deferral Provisions amount to an unconstitutional taking and was a violation of the Due Process, Equal Protection and Contract Clauses of the State Constitution.  The Supreme Court of Albany County granted the State’s motion to dismiss on grounds that the plaintiff had no cognizable injury. The court ruled the plainiff”s rights to claim the BRTC did not vest until the property was put into service. On the Contracts Clause cause of action, the court said that the New York Constitution provides that tax exemptions are freely repealable and found no legislative intent in the brownfield statute  (ECL, art 27, tit 14) and the related Tax Law sections that the State was bound to paying the full BRTC  without deferral.

Earlier, the plaintiff sought a permanent injunction in federal court seeking to bar New York from enforcing the deferral  provision and a ruling that they were unconstitutional. However, the United States District Court for the Northern District of New York ruled the challenge was was barred by the Tax Injunction Act and the principle of comity because the plaintiff sought a federal-court ruling on a local tax matter because the relief plaintiffs sought (i.i.e., money damages and a judgment declaring the statutes unconstitutional and enjoining their enforcement) would have interfered with New York’s assessment and collection of tax revenue, and thus with New York State’s administration of its fiscal operations.  Empire Gen Holdings, Inc. v. Governor of New York, 2012 U.S. Dist. LEXIS 96023 (N.D.N.Y. July 11, 2012)

If the Governor’s proposal is enacted into law as currently drafted, BCP projects that received Certificates of Completion but have not placed the property into service (e.g., received a certificate of occupancy)will be subject to the deferral. Sites that are under a deadline to obtain a COC by December 31, 2019 would probably want to delay putting their project into service until after the deferral period expires.

 

NYSDEC Clarifies COC Deadline for 38 BCP Sites

Tuesday, August 8th, 2017

As regular readers of this blog are aware, the the 2015 amendments to the New York State Brownfield Cleanup Program (BCP) created three deadlines for applicants to obtain Certificates of Completions (COCs) depending when the site was accepted into the BCP.

  • Generation 1 (Gen1): sites accepted on or before June 22, 2008 have to obtain COC by December 31, 2017;
  • Generation 2 (Gen2): Sites accepted into the BCP between June 23, 2008 and June 30, 2015 have to obtain a COC by December 31, 2019; and,
  • Generation 3 (Gen3): Sites accepted between July 1, 2015 through December 31, 2022 have to obtain COCs by Mach 31, 2026..

The acceptance dates has generally been thought to refer to the date of the acceptance letter issued by the New York State Department of Environmental Conservation (NYSDEC). However, the statutory language provides that sites have a brownfield cleanup agreement executed after July 1, 2015 will have until the March 31, 2026 to obtain their COCs.

Because of the rush of BCP applications that were filed before the July 1, 2015 effective date of the 2015 amendments, 38 sites received acceptance letters before July 1, 2015  but have executed BCAs AFTER that date. NYSDEC recently clarified that this subset of Gen 2 sites are not subject to the 2019 COC deadline but instead will have until March 31, 2026 to obtain their COCs.

The NYSDEC recently issued a memo discussing this clarification and listing the 38 Gen 2 sites that will be subject to the Gen 3 COC deadline. The memo is available here

NYSDEC To Finally End Voluntary Cleanup Program

Tuesday, May 30th, 2017

In 1994, the New York State Department of Environmental Conservation (NYSDEC) established an administrative voluntary cleanup program (VCP) in which landowners, prospective purchasers and other parties could investigate and/or remediate sites that are contaminated with hazardous substances and petroleum under the supervision of the NYSDEC (See “Organization and Delegation Memorandum #94-32, Policy: Voluntary Cleanup Program”). When the cleanup was completed, the VCP applicant would receive a release from liability from NYSDEC. The VCP was administered pursuant to the NYSDEC Voluntary Cleanup Program Guide.

The Brownfield Cleanup Program (BCP) was intended to supersede the VCP. The NYSDEC stopped accepting VCP applications on October 31, 2003. Existing VCP applicants had the option of transitioning into the BCP by June 1, 2004 or to complete the remediation under the VCP. Indeed, at one point the NYSDEC would not allow purchasers of VCP sites to enroll in the BCP.

Back in 2015, the Town of Brookhaven filed a combined Article 78 petition and complaint to challenge a waste consolidation and capping remedy approved by NYSDEC under the VCP. The town argued, inter alia,  the remedy was arbitrary and capricious, that NYSDEC lacked authority to require the cleanup of the Site under the VCP, and that NYSDEC violated the State Environmental Quality Review Act (“SEQRA”) because the agency did  not  take  into  consideration the  proximity   of the  contaminated landfilled materials  to  the Carman River,  a New  York  State-designated Wild  and Scenic River that derived 95% of its flow from surrounding groundwater. The town sought an order requiring the Metropolitan Transportation Authority (“MTA”) and the Long Island Railroad (LIRR) to undertake a full remediation and removal of all contaminated soils and hazardous materials that had been disposed near the LIRR Yaphank station.

The state supreme court judge ruled that the NYSDEC lacked authority to create the administrative VCP. As a result, the court barred the agency from requiring the VCP volunteers from implementing the remedy approved in the NYSDEC a decision document. Town of Brookhaven vs Metropolitan Transportation Authority, No. Index No. 2015-04273 (Sup Ct.-Suffolk Cty)

The court said NYSDEC created the VCP “out of whole cloth” without enabling legislation. Moreover, the court noted:

“The DEC has not promulgated any Rules in the New York Code Rules and Regulations described or remotely resembling a Voluntary Cleanup Program. There are no Rules or statutes governing or guiding admission into the program, there are no Rules or statutes governing the obligations of a volunteer, and there are no Rule or statutes governing or guiding what benefits volunteers are to receive upon completion of the program. Without enabling legislation or Rules, the DEC has, in effect, written on a “clean slate” to create an entirely new program based solely on what DEC administrators may personally believe is good public policy, without guidance, instructions, or authority from the Legislature.

As a result, the court found NYSDEC violated the constitutional separation of powers/non-delegation doctrine and that its VCP was illegal, ultra vires, and contrary to law.

Rather than appealing this decision, the NYSDEC has decided to finally wind down the VCP.  The agency recently sent letters to the approximately 150 existing VCP projects informing them that they have until March 31, 2018 to complete a remedial program and receive a Release or No Further Action Letter. After that date, all Voluntary Cleanup Agreements (VCAs) will be terminated.  Volunteers who cannot complete their projects by that date may apply to BCP or enter into an Order on Consent under the state superfund program.  Projects that are currently subject to a multi-site VCA that cannot be completed by March 31, 2018 may pursue entry into the BCP on an individual site basis, or may be the subject of a multi-site Order on Consent.

We think the court erred that NYSDEC did not have the authority to create the VCP. Afterall, the NYSDEC has broad authority to abate pollution under ECL § 03-301 and to arrange for private parties to respond to petroleum discharges under Navigation Law § 176(7)(c). See also Consolidated Edison Co. of New York, Inc. v. Department of Environmental Conservation, 71 N.Y.2d  186, 192-93{1988). Nevertheless, 14 years after the BCP was enacted, we think NYSDEC is right to terminate the VCP.

NYSDEC Adopts Final Definition of “Underutilized” for NYC Brownfield Sites

Wednesday, August 3rd, 2016

Over a year after the 2015 amendments to the state Brownfield Cleanup Program (BCP) went into effect and eight months after the legislative deadline, the New York State Department of Environmental Conservation (NYSDEC) announced it was adopting amendments to its Part 375 regulations defining what constitutes  “underutilized” and “affordable housing”.  The definitions are important because they establish two of the four criteria  for qualifying NYC brownfield sites for the qualified tangible property (QTP) tax credit. The definitions become effective  on August 12th.

NYSDEC had  proposed revised definitions in March 2016. There is not much to say about these final definitions beyond what we discussed in our prior post because the agency made virtually no changes to the definition of “underutilized”. No changes were made to the “affordable housing project” or “brownfield site” definitions which remain as published in the  March 9, 2016 State Register.

In its announcement, the NYSDEC proclaimed the rule revisions as an improvement to the BCP.  However, in adopting the final definitions, the agency  completely ignored two rounds of comments from the Brownfield Task Force of the New York State Bar Association  and other stakeholders explaining how the proposed rulemaking was too restrictive and would undermine the legislative goals of the BCP.  The comments asserted that the “underutilized” definition was unduly restrictive and would cause small, family-owned  properties located in vast swaths of   middle class  areas in Queens, Brooklyn and Staten Island from qualifying for the QTP tax credit, thereby discouraging their redevelopment into more productive use. This is because most of Queens and Staten Island and a little more than half of Brooklyn are not located in Environmental Zones (the third criteria for qualifying for the QTP tax credit), and would not qualify for ‘upside-down” test (the fourth QTP criterion) because of real estate values.  The NYSDEC simply concluded that these brownfield sites in these areas could still qualify for the  QTP by satisfying the other QTP criteria ( i.e., En-Zone,  upside-down, or affordable housing) without any meaningful analysis.

The commentators also pointed our that the tax arrears and structurally unsound tests for qualifying for the “underutilized”  definition were not valid tests because  of tax delinquency policies and procedures, and that few buildings would be deemed condemned or as having acute structural deficiencies because of building code violations. Nevertheless, NYSDEC said it believed that these criteria “are valid indicators of underutilization and the regulations provide objective tests with clear parameters” again without explaining the basis for this conclusion.

The final definition of “underutilized”is contrary to the plain meaning of the word because focuses on FUTURE use and not the current use of the property. Continuing to Include factors such as tax arrears and buildings that are condemned in the definition when confronted with evidence that these factors have little relevance to NYC would appear to be the very definition of arbitrary and capricious rulemaking.  The “underutilized” “definition will undercut the program’s goal of providing incentives for redevelopment of brownfields sites

In our opinion, this rulemaking is not only inconsistent with the Legislative intent but represents another unlawful attempt by DEC to narrow the scope of the brownfield program.  We predict  this rulemaking will spawn a wave of multi-year litigation much like what happened  when the NYSDEC adopted an unnatural definition of “brownfield site” in the mid-2000s,  and could  cause irreparable harm to the BCP since will not know if they qualify for the important tangible property tax credits until after the litigation is concluded. The BCP was just beginning to recover from the damage done by DEC’s prior illegal interpretation and this rulemaking could be the death throe of the program. At the very least, this

The definition of “underutilized”  located in 375-3.2(l)  read as follows:

(l) “Underutilized” means, as of the date of application, real property on which no more than fifty percent of the permissible floor area of the building or buildings is certified by the applicant to have been used under the applicable base zoning for at least three years prior to the application, which zoning has been in effect for at least three years; and

(1) the proposed use is at least seventy-five percent for industrial uses; or

(2) at which:

(i) the proposed use is at least seventy-five percent for commercial or commercial and industrial uses;
(ii) the proposed development could not take place without substantial government assistance, as certified by the municipality in which the site is located; and
(iii) one or more of the following conditions exists, as certified by the applicant:
(a) property tax payments have been in arrears for at least five years immediately prior to the application;
(b) a building is presently condemned, or presently exhibits documented structural deficiencies, as certified by a professional engineer, which present a public health or safety hazard; or
(c) there are no structures.

The complete text of the rulemaking as well as the NYSDEC response to comments is availableHERE

 

 

NYSDEC Proposes Revised Brownfield “Underutilized” Definition

Tuesday, March 8th, 2016

The NYSDEC’s much awaited revised definition of underutilized that was required as part of the 2015 Brownfield Cleanup Program (BCP) reforms will be published in the March 9, 2016 New York State Register (NYR). The proposed definition is currently available on the NYSDEC website

As previously  discussed, the 2015 BCP amendments replaced the ‘as of right” tangible property tax credit (TPC) for New York City brownfield sites. Instead, new applicants would qualify for the TPC if they satisfied one of four the four tests or “gates: At least half of the site is located within an Environmental Zone; The site was “upside down”, the site will be used for affordable housing or the site is underutilized. NYSDEC was required to publish a definition of “underutilized” by July 1st and to adopt the rule by October 1st. The agency met the first deadline when it published the definition in the June 10, 2015 issue of the NYR.

The proposed “underutilized” definition was widely criticized as being too narrow and essentially reading out the term from the statute. As a result, NYSDEC withdrew the definition and missed the statutory deadline to adopt the definition by October 1st.

Despite the adverse comments, the NYSDEC declined to make significant changes to the definition of underutilized despite a plethora of adverse comments. The reason cited by NYSDEC was that only three actual examples were provided for DEC’s evaluation and agency concluded those sites would be eligible under one of the other TPC gates. The agency dismissed other “broad statements” about the effect of the proposed rule on small property owners as unpersuasive. Click here for our blog post on this issue

The revised proposed definition of underutilized provides that at the time of the application no more than 50% of the permissible floor area of the building or buildings is certified by the applicant to have been used under the applicable base zoning for at least three years prior to the application and one of following tests are satisfied.

  1. the proposed use is at least 75%  for industrial uses; or
  2. The following conditions exist

(i) the proposed use is at least seventy-five percent for commercial or commercial and industrial uses;

(ii) the proposed development could not take place without substantial government assistance, as certified by the municipality, AND

(iii) one or more of the following conditions exist:

(a). taxes are in arrears for the five years preceding the application; or

(b) a building is condemned, or exhibits structural deficiencies as certified by a professional engineer that present a public health or safety hazard; or

(c) there are no structures on the site.

Note is is unclear if 2 (i) through (iii) are all required since there was no “and” following 2(i).

It appears there is a fundamental disagreement between the NYSDEC and the real estate community as to what constitutes an underutilized property.  As it stated in its responsiveness summary, the agency believes that “ If the majority of a site is in productive use as stated in the comment, it should not be considered underutilized even if there may be some contamination present.” This view would seem to undermine the intent of rezoning and prevent properties that are by all reasonable measures obsolete from qualifying for BCP tax credits because they have tenants generating some income. Under this interpretation, an abandoned gas station with a tenant selling flowers or that is being used for parking would prevent the site being considered “underutilized”. A small, obsolete shopping center impacted by a former dry cleaner would not meet the proposed “underutilized” definition if it is more than 50% leased.

The proposed “underutilized” appears to favor industrial sites which is somewhat incongruous that this term applies to New York City sites. A mixed-use project that has more 25% residential would not satisfy for criterion 2(ii) and not qualify for the tangible property tax credit if  2(i) through 2(iii) are required to be met  to qualify for the tangible property tax credit. Unless a site with a proposed mixed-use project with market-rate residential units falls is located in an Environmental Zone or is “upside down” as defined by the statute, the project would not qualify for the tangible property credit component.

In our view, NYSDEC has arbitrarily dismissed adverse comments that the restrictive definition would exclude large swaths of small commercial properties in the middle class neighborhoods located outer boroughs of New York City from the BCP tax credits that were not the high value” sites that the legislature was targeting and would have a devastating impact on owners and developers of small contaminated properties such as dry cleaners, gas stations, and vehicle repair and maintenance shops. The agency simply disagreed with these comments and assumed these properties could qualify for the “upside-down” test  without any meaningful analysis.

DEC’s response to the comments is available here

Searchable BCP Tax Credit Database Show Who Has Received Tax Credits and How Much

Thursday, February 18th, 2016

Because of the changes and controversy surrounding the  NYSDEC Brownfield Cleanup Program (BCP), there has been some skepticism in the real estate community about the amount of  tax credits that the Department of Taxation and Finance actually approves and if those amounts are near what is supposed to be available under the BCP.

The following searchable database provides information about the amount of tax credits awarded to BCP projects.  Searches can be done by county, year and taxpayer. Each entry shows the amount of the costs claimed and the actual tax credits that were received.

Click here to access the searchable database

 

NY State Court Upholds Denial of BCP Application

Thursday, January 21st, 2016

One of the important changes of the 2015 BCP amendments was that Class 2 sites on the State Registry of Inactive Hazardous Waste Disposal Sites (the state superfund list) as well as RCRA sites may now be eligible for the BCP if the applicant is a volunteer and the NYSDEC has determined no financially viable party is available. Unfortunately, sites subject to enforcement actions continue to remain ineligible for the BCP.

The NYSDEC has interpreted this prohibition to apply to former manufactured gas plant (MGP) sites that are subject to multi-site orders on consent that several utilities previously entered into with NYSDEC. The remedial programs at these multi-site MGPs have slogged along since the utilities have little incentive to aggressively remediate these sites. Many of the sites where cleanups have been completed have long-term institutional and engineering controls because the contaminants lie beneath existing commercial structures. NYSDEC has taken the position that so long as sites are subject to site management plans (SMPs), the sites are still subject to an enforcement order and therefore not eligible for the BCP.

A New York state court recently a denial of a BCP application for a site that was subject to a multi-site MGP order on consent in In the Matter of the Application of Wythe Berry LLC, 2015 N.Y. Misc. LEXIS 3855 (Sup. Ct-Kings Cty. 10/26/15). In this case, Brooklyn Union Gas operated a manufactured gas plant (MGP) holder station known as Wythe Holder Station from 1909 to approximately 1965 when the gas holders and all the related equipment was dismantled. The Wythe Holder Station was sold off in pieces and by 2014 it was developed with one- and two-story brick or concrete warehouses as well as a paved parking lot.

Meanwhile, National Grid (NG) as a successor to BUG entered into a multi-site Order on Consent and Administrative Settlement (NG Order) with NYSDEC in February 2007 where it agreed to investigate and, if necessary, remediate the numerous MGP sites subject to NG Consent Order. NG submitted a Site Characterization (SC) Report for the Wythe Holder Station site in September 2012. The purpose of the SC was to determine the presence of holder structures, identify soil or groundwater impacts associated with former holder station operations and assess the potential human and ecological exposure pathways from these contaminants of potential concern. The SC report found residual impacts in the soils and groundwater but that exposure was limited because of the existence of structures and pavement across the site.

NYSDEC approved the SC report in August 2013 and requested NG to prepare an Interim Site Management Plan (ISMP) for managing MGP-related contamination that might be encountered during any development of the Site. The ISMP provided for institutional controls, an Excavation Work Plan (EWP) that would have to be implemented for any future redevelopment, a 60-day advance notice of any work as well as pre- and post-redevelopment monitoring to assess groundwater contamination.

Around the same time, Wythe Berry LLC (Wythe) became interested in purchasing the site to develop it into a mixed use project that would include a hotel, retail space, and a community space. In January 2014, Wythe participated in a BCP pre-application meeting where NYSDEC informed Wythe that the Site was likely ineligible for the BCP because the Site was already subject to the NG Order. Undeterred, Wythe subsequently submitted a BCP application.  While a decision on the BCP application was pending, NG submitted the draft ISMP to DEC providing, inter alia, that the petitioner would assume responsibility for the bulk of the investigation and remediation of the MGP site. The draft ISMP indicated that NG would reimburse the property owner for its incremental costs related to meeting the ISMP requirements (e.g., disposal of MGP‐impacted materials).

In February 2014, NYSDEC denied Wythe’s application on the grounds that the was subject to an ongoing enforcement action because of the existence of the Consent Order. Moreover, the NYSDEC indicated that NG was prepared to complete any remediation required as part of the proposed redevelopment of the site. As a result, the NYSDEC said public interest would not be served by granting the application.

Wythe commenced an Article 78 proceeding, arguing that the NG Order is not an “on-going state or federal environmental enforcement action” as contemplated by ECL § 27-1405(2)(e) and that DEC’s invocation of the “public interest” exclusion under ECL § 27-1409 was unreasonable.

In a well-reasoned brief, Wythe argued that the NG Order should not be construed as an ongoing enforcement action. The petitioner pointed out that the plain language of ECL Section 27-1405(2)(e) identifying the types of orders that would exclude sites from BCP eligibility was expressly limited to orders issued under the state Oil Spill Act, the Petroleum Bulk Storage Act and a “catch-all” provision for sites “subject to any other on-going state or federal environmental enforcement action related to the contamination which is at or emanating from the site subject to the present application”.

Wythe argued that NYSDEC’s interpretation was inconsistent with an appellate court decision in Destiny USA Development LLC v. New York State Dept. of Env. Conservation, 63 A.D.3d 1568 (4th Dept. 2009). There, the court held that a voluntary cleanup agreement (VCA) was not an ‘enforcement action’ within the meaning of the BCP Section 27-1405[2](e) because it served to obviate the need for the DEC to achieve remediation through litigation. The petitioner then examined the similarities between the NG order and the Destiny VCA to support its view that the NG Order should not be considered an “enforcement action”.

Turning to the “public interest” grounds for denial, Wythe pointed out that none of the enumerated “public interest” factors applied to the facts of this case. Indeed, the petitioner suggested that it would not be in the public interest to deny the application because NG had not only failed to remediate the site in the four decades since operations had ceased but had taken another half dozen years since the NG Order was executed to provide NYSDEC with a SC report.

In response, the State argued that by listing orders for cleanup and then adding the catchall “any other enforcement action” (emphasis added), the Legislature considered cleanup orders to be enforcement actions. The State also distinguished the VCA from the NG Order, noting the NG Order obligated a party to perform some investigation and/or remediation, and requires a party to waive certain rights, such as a right to a hearing to proceed with a remediation and obtain a release of liability at the conclusion of the remedial process. Moreover, if NG terminated or violated the NG Order, NYSDEC would continue to pursue the enforcement action to ensure remediation of the property, including administrative enforcement and referral to the Attorney General for enforcement in court if necessary. Based on the clear and unambiguous “any other” language, the State insisted the NG order should be considered an “enforcement action” within the meaning of the Brownfield Act.

On the public interest argument, the State contended that allowing the site to enroll in the BCP would reward both the petitioner and the immediate prior owner for what the state characterized as unlawful and “inequitable conduct”. The State claimed that the property owner had thwarted and hindered NG from remediating the site in the hope of attracting a potential purchaser who would be willing to pay more for the property because of the availability of tax credits. Specifically, the State asserted that prior owner had denied NG to access the site to collect soil and groundwater sampling a few weeks before the petitioner submitted its application but had allowed the petitioner to collect samples in the same areas NG Grid was barred from accessing to support the BCP application.

In addition, the State alleged that the petitioner failed to provide a change in use notice to NYSDEC after it took title to the property ownership, conducted asbestos abatement and collected geo-tech soil borings without prior notice to NYSDEC, and not only had failed to submit a pre-excavation plan for NYSDEC approval but began excavating the site without informing NYSDEC and obtaining agency approval of plans for soil handling, dewatering, air monitoring, odor and dust control, and transportation and disposal of contaminated soils.

While Wythe removed 18,000 tons of contaminated soil and approximately 90,000 gallons of contaminated water, the NYSDEC asserted that the work failed to comply with NYSDEC procedures. Moreover, the State said numerous citizen complaints about odors had been lodged with New York City’s 311 hotline and several 911 calls while the work was being performed. Indeed, air monitoring data showed that levels of volatile organic compounds exceeded safe thresholds on many occasions.  The State alleged the NYSDEC inspected the site several times and tried to work with the petitioner to address the issues but that petitioner was uncooperative. As a result, the court was informed that the NYSDEC was pursuing an enforcement action against petitioner for numerous violations of the hazardous waste regulations.

Finally, the State argued the petition was moot because the petitioner had completed the remedy and the work had been done without NYSDEC oversight in violation of the Environmental Conservation Law and various NYSDEC regulations.

The court dodged the mootness and statutory interpretation arguments. Instead said NYSDEC’s denial of Wythe’s BCP application based “public interest” exclusion should be given judicial deference and was not arbitrary, capricious or an abuse of discretion. The court noted that NYSDEC and NG had already entered into an agreement that created a framework for investigating and remediating the property that made NG financially responsible for all remediation without providing any additional financial benefits to NG. Thus, the court concluded, NYSDEC reasonably determined that the public interest would not have been served by permitting Wythe to enter the BCP program and trigger unnecessary financial obligations that would not serve the economic well-being of the people of the state. Wythe Berry has appealed the decision.

We think NYSDEC’s policy is shortsighted. Where there is an innocent party be willing to remediate (or perform a more comprehensive cleanup) as part of a redevelopment of a contaminated site, it would seem to be in the public interest to allow these sites 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.

 

Principal New York State Environmental Laws Impacting Commercial Leasing Transactions

Saturday, January 16th, 2016

Parties to commercial leasing transactions frequently overlook environmental issues because they believe that tenants who do not use large quantities of hazardous chemicals will not be exposed to significant environmental liability. Consequently, the parties may do little to no environmental due diligence and use obsolete or boilerplate lease provision that do not specifically allocate environmental risks. Even when a lessee examines environmental conditions of a site, the investigation is often limited to ensuring that there are no environmental conditions that would impair its ability to operate at the site or that the property is adequate for the intended use.

What these parties do not realize that owners and operators of commercial property can be liable for contamination associated with historic uses. This means that landlords can be liable for contamination caused by their tenants and tenants may be responsible for contamination that preceded its tenancy.

In the second installment of a series that I am publishing in the venerable New York State Bar Journal, I review the key New York State Laws that can impact commercial leasing transactions. The article is available here. The next installment in this series will cover NYC environmental laws. The first article discussing federal environmental laws impacting commercial leasing transactions is available from our publications page here.

OER’s Suite of Tools To Facilitate Brownfield Development

Friday, January 8th, 2016

Back in mid-November, the New York City Office of Environmental Remediation (OER) participated in a brownfield conference sponsored by the Environmental Law Section of the New York State Bar Association.  In a series of presentations, OER provided an update on the various initiatives it has created to help facilitate the redevelopment of contaminated properties in New York City. This post reviews this impressive suite of tools that are now available to property owners, transacting parties and lenders.

Voluntary Cleanup Program (VCP)  The flagship program of OER is the VCP which can be used to address minimally-contaminated sites such as contaminated fill sites, the “e” program (discussed below) and oil spills that are confined to the property. OER has entered into a Memorandum of Understanding with the New York State Department of Environmental Conservation (NYSDEC) whereby NYSDEC has agreed to honor cleanups completed by OER under its VCP.

The NYC VCP is a popular tool for moderately contaminated sites because of the OER’s streamlined approach that allows sites to complete remediation fairly quickly. The NYCVCP is perhaps the nimblest remedial program in the country. OER staff is particularly responsive to the needs of applicants and will work hard to find a way to accommodate the construction schedule of an applicant.

Sites that are eligible for VCP are those where real property in NYC, redevelopment of which is complicated by presence or potential presence of detectable levels of contamination. Properties that are remediated through the NYC VCP receive a Notice of Completion, which includes New York City liability release, a statement from the NYSDEC has no further interest and does not plan to take enforcement or require remedial action for the property. Applicants also receive a NYC Green Property Certification that symbolizes the city’s confidence that the property is protective of public health and the environment.

In addition, applicants may be able to tap a modest suite of investigation/cleanup grant programs offered by OER that can help plug the funding gap caused by the need to perform remedial actions. Sites enrolled in the NYC VCP are eligible for the Brownfield Incentive Grants (BIG) Program which funds four types of grants including pre-enrollment investigation costs, remediation, technical assistance to non-profit developers of Preferred Community Development Projects and purchase of pollution liability insurance or cleanup cost cap insurance. BIG grants may also be used for the Hazardous Materials E-Designation and Restrictive Declaration Remediation programs.

Developers of properties that are have been assigned an “e” designation for hazardous materials should consider enrolling in the VCP to satisfy their “e” obligations. While the VCP has more robust public participation requirements than the “e” program, enrolling in the VCP will enable the applicant to be exempted from any hazardous waste program fees that could be assessed if soils or fill material excavated from the site have to be managed as hazardous wastes. These fees can be quite significant depending on the volume of hazardous waste that is generated and could actually rival the disposal costs in some instances.

Brownfield Jump Start Program– OER also recently embarked on a brownfield “jump start” program for affordable housing and certain industrial site expansion projects that were contemplating applying to the NYSDEC Brownfield Cleanup Program (BCP). For qualifying sites, OER will provide upfront refundable grants of up to $125,000 for investigation and $125,00 for site remediation costs.  The funds are repaid to OER after a project receives BCP tax credits.

Environmental Review and Assessment (ERA) Letters– One of the key challenges facing purchasers of contaminated property is that the landowner liability protections under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) and similar state laws are self-implementing.  While EPA may occasionally enter into a prospective purchaser agreement or issue a comfort letter, EPA and state environmental agencies do not have the resources to routinely review the thousands of phase 1 reports generated annually in commercial real estate or financing transactions. Thus, a purchaser will not know if it has qualified for one of these defenses until the purchaser has been sued or a defendant files a counterclaim in a contribution claim filed by the purchaser, and a court issues a final ruling.

To facilitate redevelopment, OER willing to issue several types of letters. The first known as ERA letters may be used where the presence contamination may complicate at real estate or financing transaction. OER will issue ERA letter where it determines that existing conditions at a property are protective of public health. OER does not anticipate issuing where contamination requires further action beyond that contemplated under the transaction to render a property protective for its intended use. To obtain an ERA letter, a party will meet with OER to discuss the nature of the transaction, prior and current site uses and operational history of the property, the proposed development, known site contamination, and how the ERA letter will facilitate the transaction.  As part of the process, OER will review available data on the property, including a Phase I and all Phase II reports, and compare the identified contamination against the state cleanup standards 6 NYCRR § 375 to determine if the existing or proposed property conditions are protective of the property’s future use. If as a result of this review OER determines further environmental investigation or remedial action is warranted, OER will consider issuing an ERA letter to identify those additional studies and remedial actions if requested by both parties

Acceptance Letters This type of letter is particularly useful when a phase 2 identifies contaminants above the NYSDEC standards but there are not any completed pathways because of the existence of a building foundation, paved surfaces, etc. OER will review phase 2 reports and if it agrees that no further action is required, OER will issue a letter indicating it accepts or agrees with the conclusions of the report.

Pre-Enrollment Comfort Letters– OER will also issue a pre-VCP enrollment “comfort letter.” Frequently, when a consultant recommends further sampling or cleanup, lenders may require a borrower to enroll in a voluntary cleanup program prior to the closing and require borrower to covenant to obtain a no further action letter from the appropriate regulatory agency. Unlike other remedial programs, the OER voluntary cleanup program does not accept applicants until after a site has been characterized and documented in a remedial investigation report. Thus, a borrower may not be able to actually enroll in the NYC VCP until after the closing.

To provide assurance to a lender, OER will issue a pre-enrollment letter indicating that the borrower is making progress towards acceptance into the OER VCP. OER interprets this sentence very broadly and will write letters to satisfy concern of lenders

Standstill Letters– OER has also developed a “standstill letter” which can be used when a seller seeks to sell property but environmental issues have complicated a transaction. In such a case, the seller can investigate site and develop a generic remedy with OER. The site would then be enrolled in VCP but would be “standstill” mode with no requirement to proceed with the remedy. It is hoped the existence of an approved remedy will provide comfort to a prospective purchaser and its lender since the buyer will be able to estimate the cleanup costs. After the purchaser acquires title, it can then implement the pre-approved remedy—provided the proposed reuse is consistent with the approved remedy.

Look-Back Letters All is not lost if you have learned about the NYCBCP after construction has started or is significantly completed. OER has developed a “look back” track where projects may be able to obtain liability protection if the remedial action conforms to the OER program requirements. However, “look back” applicants will not be eligible for the NYCBCP funding incentives.

Satisfying Environmental Review Haz Mat Requirements The OER VCP may also be used to satisfy requirements of the National Environmental Policy Act (NEPA), the State Environmental Quality Review Act (SEQRA), and City Environmental Review Quality Act (CEQRA) for projects being funded by the New York City Department of Housing Preservation and Development (HPD). The federal Department of Housing and Urban Development (HUD) has established regulations implementing NEPA  when HUD staff performs environmental reviews and when local governments assume HUD responsibility . In New York City, HPD has assumed responsibility for environmental review that would normally be performed by HUD.

All property proposed for use in HUD programs must be free of hazardous materials, contamination, toxic chemicals and gases, and radioactive substances where the hazard could affect the health and safety of occupants or conflict with the intended use of the property.   As a result, developers of affordable projects receiving funding from HUD or HPD often have to perform environmental reviews for the presence of hazardous materials to comply with NEPA

HPD must have an Environmental Assessment (EA) prepared to identify all potential environmental impacts, whether beneficial or adverse, and the conditions that would change as a result of the project.  Environmental reviews are generally conducted for new construction, major rehabilitation, leasing, acquisition and change in use under a range of HUD programs. The most common programs for which HPD performs environmental reviews are HUD’s HOME Investment Partnership Program (HOME). HPD utilizes federal HOME funds to finance the construction of new and rehabilitation of existing housing including vacant and occupied single room occupancy buildings (SRO), small homes (buildings with fewer than 12 units) and multi-family buildings. The reviews must be completed before the release of funds and acquisition of property.

As condition of the funding, the developer will be required to conduct a phase 1. If the phase 1 identifies Recognized Environmental Conditions (RECs), the developer will have to propose a phase 2 work plan for approval by New York City Department of Environmental Protection (DEP). Note that sometimes HUD or HPD may disagree with the phase 1 findings and require a Phase II even if the phase 1 did not identify RECs. If the investigation confirms the presence of contamination above applicable levels, the developer will have to prepare a remedial action plan (RAP) for review and approval by the DEP.

The existence of an approved the RAP enables HPD to issue a Notice of Finding of No Significant Impact (FONSI) certifying that the project will not have a significant impact on the environment and therefore will not require preparation of an Environmental Impact Statement (EIS). HPD will then also issue Notice of Intent to Request a Release of Funds (NOI/RROF). The developer would normally implement the RAP and submit a remedial action report to DEP for final approval.

The DEP approval will simply confirm that the developer has satisfactorily completed the RAP. The certification will not confer any liability protection under CERCLA or the state Environmental Conservation Law (ECL) nor provide contribution protection. Moreover, the HPD funding often does not cover remediation costs which can create a funding gap for a project that already has very tight margins.

When facing the prospect of implementing a remedial action, developers should consider enrolling the project in the NYCVCP. Developers can enter the NYCVCP even after DEP has approved a RAP. Often times, all that a developer will have to do is to convert the DEP-approved RAP into the template form used by OER. This is because both DEP and OER follow the NYSDEC remedial program requirements set forth at 6 NYCRR Part 375.

DEC Misses Deadline for Finalizing Underutilized Definition

Thursday, October 1st, 2015

As we have previously discussed, the 2015 Brownfield Cleanup Program (BCP) reforms that removed the tangible property cost (TPC) tax credit as an “as of right” benefit for NYC brownfield sites required NYSDEC to issue proposed definitions of “underutilized” and “affordable housing” by mid-June and to  finalize the definitions by October 1st. The agency met the first deadline but failed to issue final definitions by the October 1st deadline.

Indeed, sources tell us that the NYSDEC plans to issue a revised definition of “underutilized” within a month that will be subject to another round of public comments. On the one hand, this is good news since it means that NYSDEC has realized that the proposed definition was unreasonably narrow. All of the speakers at the public hearing criticized the proposed definition but there was concern that NYSDEC was going to publish the rule on the grounds that it would be able to withstand any legal challenges. Hopefully, the agency’s revised rule will be more reasonable.

However, what this means for new applicants is unclear.  Under the 2015 BCP reforms, applicants seeking to qualify for the TPCs must indicate at the time of their applications that they are seeking TPC determinations.  Will NYSDEC process applications seeking a TPC determination and accept them  without the applicant knowing it is entitled to TPC? Will  NYSDEC put a freeze on applications seeking TPC determination? Will NYSDEC allow the applicants to seek a determination after acceptance. Having missed the deadline, can new applicants claim the TPCC changes are not in effective so that they should be entitled to the TPCC as of right? stay tuned.