Archive for the ‘NYC OER’ Category
Sunday, February 18th, 2018
The New York City Office of Environmental Remediation (OER) recently adopted revisions to its regulations governing the E-Designation program that will make it easier for property owners to remove the hazardous materials E-Designation (Haz Mat E). We previously discussed the E-designation program in a Post covering the tools available for developing contaminated sites.
Pursuant to Section 11-15 of the New York City Zoning Resolution (“ZR”), E- Designations are assigned to tax lots during proposed zoning actions to satisfy the City Environmental Quality Review (CEQR). A copy of ZR 11-15 is available Here.
E-Designations may be assigned for noise, air quality or hazardous materials. The E-Designation provides notice to developers that certain environmental requirements must be satisfied before the property can be redeveloped. OER has promulgated regulations that establish the procedures for complying with and removing E-Designations. The types of actions triggering E-Designation are discussed in a DOB Memo
The Department of Buildings (DOB) will not approve permit applications or issue a building permit for certain types of work for tax lots subject to an E-Designation until OER issues either a Notice of No Objection or a Notice to Proceed (NTP). OER will issue an NTP after it approves remedial action plan for the tax lot(s) subject to the Haz Mat E. When the cleanup is completed, OER will issue a Notice of Satisfaction (NOS). DOB will not issue a Certificate of Occupancy for sites subject to a Haz Mat E until OER issues the NOS.
ZR 11-15 provides that where the OER NOS indicates that a tax lot that has an (E) designation requires ongoing site management, OER may require that a declaration of covenants and restrictions governing the ongoing site management requirements be recorded against the tax lot(s). The E-Designation will remain on the tax lot so that future work may be subject to the E-Designation
There may be situations where a property owner or developer can permanently remove a Haz Mat E as opposed to simply complying or satisfying the Haz Mat E requirements. A Haz Mat E can be removed from the tax lot(s) by the Department of City Planning when OER has issued what is known a final NOS. In the past, OER would issue a final NOS when the remediation achieved a Track 1 cleanup. The recent amendments to 15 RCNY §24-08 now authorize OER to issue a final NOS when the remediation allows the tax lot to be put to any use allowed on the site that does not require engineering and institutional controls. OER will send the final NOS to DOB and DCP within ten (10) days.
The amendment also applies to noise and air quality “E” designations. The rule clarifies that where a development project with an E-Designation for noise and/or air quality has been built out to its full development potential according to zoning, and installation reports demonstrate that the noise or air quality requirements have been fully completed, the E- Designations for air quality and noise can be removed from a tax lot consistent with Section 11-15 (d)(1) of the Zoning Resolution of the City of New York.
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.
Monday, December 28th, 2015
The NYC Board of Standards and Appeals (Board) granted a variance to facilitate construction of a four-story residential building in Marine Park, Brooklyn because of the costs to remediate soil contamination associated with historic uses at the development parcel. (BSA Bulletin No. 15, Vol. 100, BSA calendar no. 254-13-BZ, CEQR #14BSA032K)
The Department of Buildings (DOB) had denied the applicant’s request for a building permit because the proposed floor area exceeded the maximum permitted for building, the initially-proposed twenty-six dwelling units exceeded the maximum permitted for the zoning lot, the proposed building exceeded the maximum aggregate street width of one hundred and twenty-five feet, did not have a required front or side yard, and exceeded the maximum permitted height. The applicant then requested a variance to permit the building but the community board recommended disapproval of the variance.
As part of the variance application, the applicant prepared an Environmental Assessment Statement (EAS) pursuant to the City Environmental Quality. The EAS revealed that the development site had been used for auto repair in the past and now housed a car wash with an oil change repair bay that extended into the basement. A phase 2 found VOCs, SVOCs and metals to a depth of 12 feet but no impacts to groundwater. The Board held a public meeting that extended over six sessions. The applicant’s counsel contended that the costs to excavate and dispose contaminated soil was approximately $1,.4MM and that the applicant would lose money if it was only allowed to construct the building that was allowed as-of-right.
The Board unanimously approved the variance, finding the hardship was not caused by the applicant or a predecessor in title, but years of industrial use as an auto repair and car wash. The Board concluded that there was no reasonable possibility that development in strict compliance with applicable zoning requirements will provide a reasonable return and that proposed variance was the minimum necessary to offset the hardship caused by the unique physical conditions of the site. The Board’s resolution provided that the applicant comply the Remedial Action Report (RAP) and Construction Health and Safety Plan (CHASP) prepared in conjunction with the proposed development and submit Remedial Closure Report to the NYC Department of Environmental Protection (DEP) upon the completion of the project confirming that all remedial requirements as set forth in the RAP and CHASP had been properly implemented.
The record does not indicate if the applicant considered applying to the state Brownfield Cleanup Program (BCP) or the NYC Office of Environmental Remediation (OER) voluntary cleanup program or that the Board was even aware of these options. Under either the BCP or the VCP, the applicant could have pursued a track 4 cleanup and would not necessarily have had to excavate all of the contaminated soil which would have eliminated the rationale for the granting of the variance.
Developers with cleanup obligations imposed as a result of the CEQR process should consider enrolling in the OER VCP rather than simply complying with NYCDEP-approved RAPs. In addition to satisfying their CEQR obligations, parties enrolled in the VCP will also be able to receive covenant not to sue as well as be exempt from any fees or taxes that might be imposed if the excavated soil has to be managed as a hazardous waste.
The decision is available Here
Monday, July 6th, 2015
The amendments to the New York State Brownfield Cleanup Program (BCP) became effective on July 1st—that is except for two key tax credit eligibility criteria for properties located in New York City. Moreover, the rollout of an important alternative to the BCP will be delayed until 2016.
As regular readers of this blog are aware, Governor Andrew Cuomo and the State Legislature agreed to sweeping changes to the BCP as part of the 2015-16 budget agreement. Among the key changes was that sites located in NYC would not be eligible for the Tangible Property Cost tax credit (TPC) unless they satisfied one of four tests commonly referred to as the TPC “gates”. Another important change was a curtailment of the costs that would be eligible for the Site Preparation Cost tax credit (SPC). The changes to the SPC apply state-wide.
The 2015 BCP Amendments provided that the changes would take effect on July 1st provided the New York State Department of Environmental Conservation (NYSDEC) published a draft rule providing definitions of the “Affordable Housing” and “Underutilized” TPC gates. NYSDEC published its draft rule in the June 10th New York State Register. While the proposed “Affordable Housing” gate is very broad, the “Underutilized” gate is very narrow. Click HERE for our blog post discussing the proposed rule .
Not surprising, NYSDEC was swamped with applications seeking to enroll in the BCP before the TPC and SPC changes went into effect. Following the publication of the May 27th Environmental Notice Bulletin (ENB), NYSDEC ceased accepting BCP applications so that the agency could revise its forms and procedures. On July 1st, NYSDEC unveiled its new BCP application form on its website along with some additional guidance on how the agency will process and handle the applications. The new application which requests significantly more detailed information can be accessed HERE. Look for our forthcoming blog post that will discuss the new application requirements and procedures .
Program Not Fully Operational Yet for NYC Sites
Although NYSDEC is once again accepting BCP applications, the program is not fully operational for some NYC sites. This is because the “Affordable Housing” and “Underutilized” definitions will not be finalized until October. While NYSDEC may now make ELIGIBILITY determinations for NYC sites, the agency cannot yet make any determination on if the project qualifies for the “Affordable Housing” or “Underutilized” gates since these regulation establishing these definitions is not yet effective. In other words, an applicant may be accepted into BCP during the summer but it will not learn if it qualifies for the “Affordable Housing” or “Underutilized” gate until the middle of the Fall. This raises an interesting conundrum for applicants seeking to confirm that the site is eligible for the “Underutilized” TPC. gate since according to the instructions for the new BCP application, the “Underuitilized” determination can only be made at the time of the application.
One of the TPC gates that are immediately effective in NYC is that a site be at least 50% is in an Environmental Zone (En-Zone). The En-Zones consist of census tracts with a poverty rate of at least 20% and an unemployment rate of at least 125% of the New York State unemployment rate, or a poverty rate of at least double the rate for the county in which the tract is located. The NYS Department of Labor has developed En-Zones based on the 2009-2013 American Community Survey. To help applicants determine if their sites are located in an En-Zone, NYSDEC now has a webpage providing downloadable En-Zone maps .
BCP-EZ Program Delayed
In addition to the delayed implementation of the two TPC gates, NYSDEC announced that it does not expect to promulgate proposed rules for the BCP-EZ until early 2016. As a result, the agency said it is unlikely the BCP-EZ program will become available until the summer of 2016.
For sites in NYC, the voluntary cleanup program administered by the Mayor’s Office of Environmental Remediation (OER) remains a viable BCP alternative for parties with moderately contaminated sites who are not interested in tax credits. Look for a forthcoming blog on some of the new initiatives that OER will be implementing to jump start brownfield projects in NYC.
One Last Set of Bills for BCP Volunteers
Finally, the 2015 BCP amendments provide that parties accepted into the BCP as a Volunteer will no longer have to pay state oversight costs beginning July 1, 2015. However, this change did not remove the obligation to pay state costs incurred up to that date. Accordingly, applicants should expect to receive final invoices from NYSDEC for oversight cost incurred up to the July 1st effective date.
Thursday, February 12th, 2015
Following the failure of the Legislature and Governor to reach agreement on comprehensive reform of the Brownfield Cleanup Program (BCP), the Brownfield Task Force (BTF) of the New York State Bar Association, which I co-chair with David Freeman, convened a cross-section of stakeholders to study the BCP. After a series of meetings and conference calls, the BTF issued a set of recommendations for reforming the BCP based on the valuable input of these participants. The executive committee of the Environmental Law Section unanimously approved the recommendations. A report discussing the BTF recommendations was issued in January and has been shared with the Governor and the Legislature.
Following is a summary of the BTF recommendations and how they compare with the BCP reforms that Governor Andrew Cuomo proposed in his 2015-20 budget. A copy of the report is available at the Environmental Law Section website.
Definition of Brownfield Site
The current statutory definition of a brownfield site is “any real property, the redevelopment or reuse of which may be complicated by the presence or potential presence of a hazardous waste….” This definition has proved to be problematic since there is no objective way to determine when contamination “may complicate” development. Indeed, despite the sweeping and broad language of the definition, NYSDEC adopted an unnaturally narrow interpretation of the definition shortly after the BCP became effective in an attempt to control the costs of the BCP. This interpretation was eventually overturned by the Court of Appeals in Lighthouse Pointe Property Associates LLC v. New York State Department of Environmental Conservation (14 N.Y.3d 161 2010).
The Governor’s proposal would simplify the definition so that a site would be considered a “brownfield” if it is contaminated at levels that exceed health-based or applicable environmental standards applicable based on the site’s expected use. The Governor also proposes that applicants “shall” submit an investigation report sufficient to demonstrate that the site requires remediation”. In other words, it appears that applicants would have to perform and enclose phase 2 reports with their applications. This could be a problem when the applicant does not own the property and does not have access to collect samples at the time of the application.
The proposed definition would also allow sites impacted from off-site contamination (e.g, groundwater plumes that might require installation of vapor mitigation systems or treatment during dewatering) to be accepted into the BCP. However, sites whose only contamination is due to off-site source would not be eligible for the brownfield tax credits.
The major difference between the BTF and the Governor’s proposal is that the determination of anticipated site use would be made by the BCP applicant rather than the New York State Department of Environmental Conservation (“DEC”).
Extending the Deadline for Obtaining COCs
The BCP tax credits (BTCs) are currently scheduled to sunset on December 31, 2015. Applicants will have to obtain a Certificate of Completion (COC) prior to that date to be able to claim the BTCs. The Governor’s proposal would extend the tax credits to December 31, 2022 though sites accepted prior to December 31, 2022 would have until December 31, 2025 to obtain a COC. Moreover, sites that have been accepted into the program as of April 1, 2015 and have a brownfield cleanup agreement (BCA) executed prior to that date would have only until December 31, 2017 to obtain COCs to maintain eligibility for the current tax credit framework. Such applicants that fail to obtain a COC by December 31, 2017 would remain in the BCP but would be treated as though they were accepted into the BCP after April 1, 2015 and would be subject to the new BTC limits on tax credits (discussed below).
The BTF recommends that the deadline for obtaining COCs for sites already in the BCP be extended until the earlier of ten years after admission to the BCP (as long as that date is no earlier than December 31, 2015) or December 31, 2025. It further recommends that (a) all sites in the BCP as of the effective date of the amendments would be grandfathered, and (b) on a going-forward basis, eligibility for BTCs would be based on the date the application is accepted into the BCP and not the date of issuance of the COC.
Changes to the Tangible Property Tax Credit–
Currently, BCP applicants may claim up to $35MM in tangible property tax credits (TPCC) for non-industrial projects (“hard cap”) or three times their Site Preparation costs (“soft cap”)whichever is less. The TPCC caps were added in 2008 to address concerns about the costs of the BCP. Despite two independent studies that suggested the TPCC costs had achieved the desired goal, the Governor’s has once again has proposed removing the TPCC as an “as of right” benefit for all applicants but instead, required applicants to satisfy a second test or “gate” to be able to claim the TPCC.
The three gates would be that the 50% of more of the site is located in an Environmental Zones, the project meets the definition of an affordable housing project or the site is “upside-down” (i.e., the projected cost of the investigation and remediation which is protective for the anticipated use of the site exceeds the certified appraised value of the property absent contamination).In addition, if a site is located within a Brownfield Opportunity Area (“BOA”), the project would have to conform to the plan for that BOA. NYSDEC would notify the applicant upon acceptance into the BCP if the project meets the criteria for qualifying for the TPCC.
In addition, the governor’s proposal would reduce the base percentage for all applicants to 10% but would award an extra 5% up to a total of 24% for meeting. Another restriction would be that sites are not eligible for the TPCC where the contamination is SOLELY from an off-site source or the on-site contamination was previously remediated and the cleanup is suitable for the proposed development.
This so-called two-gate approach generated considerable controversy when the Governor first proposed it in his 2014 budget. Developers are not only concerned about the particular criteria but also fear this approach would inject more complication, delays and uncertainty for sites that already fraught with challenges. Moreover, the subjectivity of the proposed criteria seemed likely to result in a repeat of litigation and confusion that occurred after NYSDEC adopted a narrow definition of what constituted a brownfield site.
The BTF determined that the goals of the Governor’s two-gate approach to reduce the costs of the BCP while better targeting the tax credits could be achieved by retaining the “as-of-right” eligibility for the TPCC credits for all projects but lowering the $35MM cap. Increased TPCC percentages would be available, though, for certain categories of project based on the benefits such projects provide to the State and the communities where the sites are located (e.g., affordable housing, projects in areas with depressed economic activity, etc.)
Changes to Definition of Eligible Site Preparation Costs
Under existing law, site preparation costs are broadly defined. The Governor’s proposal would restrict eligible costs to those costs directly tied to remediation-related construction and would further limit eligible building foundation costs to the cost of a site cover. The costs would also have to be paid within six months after the expense is first incurred. However, the Governor also proposes to allow asbestos and lead-based paint abatement costs and expenses to address PCBs within buildings to be eligible for the site preparation tax credit cost where the work is done in accordance with state requirements.
The BTF recommends retaining the current broad definition but agrees with the concept of limiting eligibility for costs associated with constructing the foundation of a building.
BTC Eligibility of Expenditures Paid To Related Parties
It is not unusual in real estate development projects for work to be performed through entities that have common ownership with the developers and contractors whose services are critical to the organization, financing, and construction of the project. However, payments for such services may be deferred long after they are “incurred” for tax credit purposes, and they are sometimes waived entirely.
Federal tax law requires all direct and indirect project costs, including any costs payable to such affiliated developers and contractors to be charged to a capital account. The three components of the brownfield redevelopment tax credit are calculated based on properly capitalized costs under federal tax law, including costs for goods and services provided by affiliates. In some circumstances, service fees (such as development fees) may be properly capitalized under federal tax law when earned, even though payment may be deferred until after construction is complete
The Governor proposed eliminating all “related party” (10% or more common ownership) payments from the calculation of the BTCs regardless if those payments were properly chargeable to a capital account under federal tax law . Because this approach would run counter to well-established federal tax law and real estate development practices, the BTF recommends that the TPCC component attributable to deferred payment obligations for services by related parties would also be deferred, and be only allowed in the taxable year payment is actually made.
Class 2 Site Eligibility for BCP
The Governor’s proposal would allow Class 2 sites to be eligible for the BCP if the sites were “under contract to be transferred to a volunteer and the department has not identified any responsible parties for that property having the ability to pay for the investigation or cleanup of the property.”
The BTF recommends that the requirement that there by no financially viable party is too restrictive and may prove too difficult to establish for a variety of reasons. Instead, it we recommend including language, that site cleanup does not extinguish the right of the volunteer or the State to pursue responsible parties for cleanup costs, or for cleanup if the site is not remediated appropriately.
Non-Tax Credit, Voluntary Cleanup Program
The Governor proposes creating a liability-release-only cleanup program that would allow parties to waive tax credits in exchange for a more expedited cleanup process. Curiously, the Governor also proposes to allow NYSDEC to accept BCP applications from parties currently enrolled in the old administrative voluntary cleanup program (VCP). However, such applicants would not be eligible for any brownfield tax credits. It is unclear why the Governor or NYSDEC believes a second non-tax credit program is required.
The BTF agrees that there is value to creating a new, streamlined program but believes that further clarity is required on what specific procedural requirements would be waived. The BTF recommends that cleanup and review timeframes be reduced, greater reliance on report templates and presumptive remedies as well as elimination of an alternative analysis. The BTF also recognized that certain types of sites―e.g. significant threat sites―should not be eligible for the streamlined program.
State Oversight Costs-
State oversight costs sometimes represent a significant proportion of BCP project expenses and are often difficult to predict. The Governor’s proposal would eliminate oversight fees incurred after the effective date of the legislation for parties not responsible for the original contamination. It also provides authority to DEC to negotiate “a reasonable flat-fee” for oversight costs for other participants.
The Task Force endorsed the Governor’s proposal.
Hazardous Waste Fee Waiver
ECL §72-0402 imposes a program fee, and ECL §27-0923 imposes a special assessment on generators of hazardous waste. Statutory exemptions are provided for hazardous wastes generated as part of remedial actions performed under an order or agreement with DEC pursuant to title 13 or title 14 of the ECL. However, these exemptions do not extend to cleanups performed under local or other regulatory authority. The Governor’s proposal would have extended the statutory exemptions to projects that remediate sites under local government programs that either have been delegated authority to implement their remedial program by DEC or that have entered into a MOA with DEC. The Task Force endorses this approach.
Clarification on Municipal Access for Environmental Investigations at Tax Foreclosure Sites
Under ECL §56-0508(1), municipalities that foreclose on tax liens may enter foreclosed sites to perform environmental investigations without incurring cleanup liability. However, some municipalities do not directly foreclose on such properties but instead sell tax liens to third parties who then foreclosing on the property.
The Task Force recommends that ECL §56-0508(1) be amended to expressly allow municipalities to enter sites subject to foreclosure or tax lien sales to perform environmental investigations on those sites.
The Brownfield Opportunity Area (BOA) has great potential but has been hampered by structural and funding issues. The Governor’s proposal did not amend the BOA Program, and the budget did not fund it. The Task Force believes that the BOA process be streamlined. Incredibly, information about brownfield sites in BOAS is not available on public databases maintained by the NYSDEC or the Department of State. The Task Force recommends creation of a BOA databases so developers can learn of locations of BOAs and the pre-development amenities for sites located within the BOAs.
Thursday, January 22nd, 2015
Governor Andrew Cuomo unveiled his 2015-16 budget on January 21st. As anticipated, the budget contains sweeping reforms to the Brownfield Cleanup Program (BCP) in Part R of the Revenue Article VII Legislation. The BCP amendments are substantially similar to the changes proposed in 2014 which some tweaking around the margins. Click here for a copy of the proposed BCP changes.
The amendments would become effective on April 1, 2014. This means that applicants would have to be accepted into the BCP prior to that date to remain eligible for the site preparation and tangible property tax credits as a matter of right. Following are some of the highlights of the proposed changes to the BCP.
1. Brownfield Site (§2) -The proposed legislation changes the definition of brownfield to a site where contaminants exceed “soil cleanup objectives or other health-based or environmental standards, criteria or guidance” adopted by NYSDEC for the reasonably anticipated use. It is unclear if the “reasonably anticipated use” is to be determined by current zoning or the proposed use set forth in the BCP application.
If adopted, this definition will mean that applicants will probably need to have completed phase 2 reports prior to submitting applications. Indeed, §3 of Part R provides that applicants “shall” submit an investigation report sufficient to demonstrate that the site requires remediation in order to meet the remedial requirements of this title.
The revised brownfield definition does not require the contamination to be from an on-site source which represents a significant eligibility expansion since applicants are currently required to establish an on-site source of contamination to be eligible for the BCP. Instead of excluding these sites from the BCP, the proposed bill would simply prohibit applicants of these sites from claiming tangible tax credits for addressing such contamination. For example, an applicant who would have to install an sub-slab depressurization system (SSDS) to address vapors from contaminated soil gas because of a plume that originated from an adjacent dry cleaner could enroll in the BCP and be eligible for site preparation costs tax credit but not for the tangible property tax.
2. Class 2 Sites (§2)- The original BCP legislation contained a six-month amnesty period for class 2 superfund sites to apply to the NYSDEC that expired in July 2004. Since then, class 2 sites have been ineligible for the BCP even when an innocent party sought to redevelop the property.
The proposed change would allow class 2 sites owned by parties who are determined to be “volunteers” to be enrolled in the BCP. If a volunteer is under contract to purchase a class 2 site, the site would be eligible for the BCP only if the NYSDEC has been unable to identify a PRP with the ability to pay for the investigation or cleanup of the site.
3. Tangible Property Tax Credit Eligibility Changes(§3) -Like the 2014 proposal, the Governor would limit eligibility for the tangible tax credit to three categories of sites, projects or areas of the state that are believed to need the tax credits to incentivize redevelopment. The three criteria are: (i) at least half of the site area is located in an environmental zone (En-zone); (ii) the projected costs of the investigation and cleanup based on reasonably anticipated use exceeds the certified appraised value of the property in a “clean” condition; or (iii) the project is an affordable housing project.
Note that the proposal changes the definition of an En-Zone definition. The Commissioner of the Department of Labor is to identify En-zones based on 2009-2013 American Community Surveys and is required to update the En-zones upon request of the NYSDEC. In addition, NYSDEC is to advise the applicant if the site is located in an En-Zone when the agency determines that the application is complete.
Applicants seeking to qualify for the tangible property tax credit will have to submit information sufficient to establish that the site qualifies for one of the three categories of eligible sites. An applicant may request an eligibility determination for tangible property credits at any time from application until the site receives a certificate of completion. NYSDEC will notify the applicant upon acceptance into the BCP if the project meets the criteria for qualifying for the tangible property tax
Sites are not eligible for the tangible property tax credit where the contamination is SOLELY from an off-site source or the on-site contamination was previously remediated and the cleanup is suitable for the proposed development.
Other changes to the tangible property tax credit made in other sections of Part R include:
- the base tangible tax credit now begins at 10% (current corporate tax payers may claim a base credit of 12% while individuals begin with 10% base)(§25);
- Eligible tangible property eligible costs shall not include payments made to “related” parties(§21);
- Eligible tangible property costs are limited to costs “associated with actual construction of tangible property incorporated into the physical structure and costs associated with the foundation of any buildings constructed as part of the site cover that are not properly included in the site preparation component” (§21);
- If the property was put into use prior to the issuance of the COC, the tangible property tax credit may be claimed for up to five years from start of the “redevelopment of the site provided the redevelopment starts within ten years of the issuance of the COC(§21);
- In calculating the so-called “soft cap” ( 3x site preparation costs), applicants may use on-site groundwater remediation costs and costs that would not have been ”expensed” and deducted for purposes of the IRS 198 brownfield tax credit (§22);
- Applicants seeking to qualify for the tangible property tax will be required to prepare two remedial alternatives with one being a track 1 cleanup (§9);
- An extra 5% tax credit would be available for the following projects: affordable housing (based on square footage of the total affordable housing units, sites located in En-Zones, sites located within a BOA that conform to the BOA plan, and for sites used primarily for manufacturing activities(§25);
4. Site Preparation Tax Credit Changes– This tax credit has applied to costs incurred to qualify a site for a COC and to prepare a brownfield site for redevelopment (i.e., erection of a building or portion of a building) that are “properly chargeable” to a capital account. Examples of eligible costs include demolition, excavation, dewatering, temporary wiring, scaffolding, sheeting, fencing and security.
The proposed legislation clarifies that eligible site preparation costs are limited to costs directly associated with actual site preparation-related construction, including costs associated with all requirements of site remediation and easements such as architectural and engineering fees, appraisal, surveys, soil borings/other investigations, legal fees associated with any environmental easement required, operation, maintenance and monitoring of treatment systems, testing for asbestos or lead paint, legal fees associated with construction loan closing, cost certification and insurance(§27).
Other provisions relating to the site preparation tax credit include:
- The costs must now be “charged” to a capital account and must be paid by the applicant within six months of the date the expense is incurred by the taxpayer;
- Eligible site prep costs shall not include payments made to “related” parties;
- Eligible costs would also include activities undertaken under the oversight of the Department of Labor or in accordance with standards established by the Department of Health to address asbestos, lead-paint or PCBs;
- For a building foundation, only those costs equivalent to the cost of a site cover for the area covered by the foundation shall be eligible for the site preparation costs;
5. Track 1 Cleanups With Controls(§10)– If a BCP project has to use institutional or engineering controls, it is not eligible for a track 1 cleanup which allows for a higher site preparation cost tax credit and a 2% bonus for the tangible property tax credit. Where all the contaminated soil has been removed but elevated levels of contaminants remain in groundwater, the NYSDEC has been willing to approve conditional track 1 cleanups if there has been a significant reduction in the contaminant mass and contaminant levels have reached asymptotic conditions. Under this approach, the applicant will have to record an environmental easement and continue to monitor groundwater for five years. However, if the contaminant concentrations remain above groundwater standards after five years, the cleanup would revert to a lower cleanup track that could cause recapture of tax credits.
The proposed legislation will allow sites to qualify for an unconditional track 1 status where engineering or institutional controls are required for more than five years solely for groundwater remediation where the bulk contaminant concentrations have been reduced to asymptotic levels or to address vapor intrusion.
6. Transfer of COCs (§14) – The proposed legislation clarifies that COCs may by the applicant or subsequent holder of the certificate of completion to a successor to a real property interest, including legal title, equitable title or leasehold, in all or a part of the brownfield site for which a COC was issued. However, A COC shall not be transferred to a responsible party.
7. BCP-EZ program (§18)– The proposed amendments would create a streamlined remedial program that would be called the BCP-EZ program. Applicants that qualify as “volunteers” under the BCP would be exempt from certain procedural requirements for implementing remedial investigations and remedial actions for sites where the contamination does not pose a significant threat provided the applicant waives rights to any tax credits and the work satisfies the technical requirements of Part 375. The applicant would be eligible to receive a COC after the NYSDC accepts a certification by the applicant that the remediation requirements of this title have been achieved and an environmental easement, if necessary, has been created and recorded. NYSDEC would have to promulgate regulations implementing the BCP-EZ program.
8. VCP Applicants– The bill contains a curious provision that authorizes NYSDEC to accept BCP applications from parties currently enrolled in the old administrative voluntary cleanup program (VCP). However, such applicants would not be eligible for any brownfield tax credits. It is unclear why the Governor or NYSDEC believes a second non-tax credit program is required.
9. Oversight Costs (§47)– Because both the NYSDEC and the New York State Department of Health (NYSDOH) play a role in the state remedial programs, oversight costs can be significant especially for larger projects. Under the proposed bill, volunteers will no longer be required to pay oversight costs on or after April 1, 2015. This exemption applies both to applications submitted after April 1, 2015 as well as sites accepted into the BCP prior to April 1, 2015.
Parties that are accepted into the BCP as “participants” will be required to pay the NYSDEC for past costs incurred prior to the effective date of the brownfield cleanup agreement. However, the proposed amendment provides that NYSDEC could negotiate a “reasonable” flat rate fee for future oversight costs. (§7)
10. New COC Deadlines (§31)- Under existing law, BCP sites have to obtain their COCs by 12/31/15 to qualify for the brownfield tax credits (BTCs). The Governor’s proposal would allow applicants accepted before 4/1/15 to have an extra two years to obtain their COC (12/31/17) to remain eligible for the BTCs. If an applicant accepted prior to 4/1/15 does not obtain a COC by 12/31/17, it would only be able to be eligible for tangible tax credits if it qualifies for the post 4/1/15 criteria. Sites accepted into the BCP before 12/31/22 will have until 12/31/25 to obtain their COCs and qualify for BTCs.
11. .Hazardous Waste Generation Fee Exemption (§§ 38 & 39)- Urban sites often contain significant swaths of fill material that may contain constituents such as heavy metals, semi-volatile organic compounds (SVOCs), petroleum and lead-based paint from demolished buildings. As a result, construction projects in urban areas can generate large quantities of excavated soil that may have to be managed as hazardous waste. Having to dispose soils and building debris as hazardous waste not only significantly increases disposal costs but can also trigger two types of state hazardous waste fees: a hazardous waste program fee and a special tax assessments. Depending on the size of the site or the depth of the excavation, the hazardous waste fees can approach or even exceed the total remediation costs.
Under current law, generators of hazardous remediation waste are exempt from paying the hazardous waste tax or program fee exempt if the remediation is performed under the state superfund program or BCP. However, projects enrolled in the Voluntary Cleanup Program (VCP) administered by the New York City Office of Environmental Remediation (OER) are not exempt from the tax or fee.
The proposed amendments would exempt remediation wastes from the state hazardous waste generator fee that are generated for cleanups performed under an agreement with EPA, pursuant to an order issued by a court or an agreement with a municipality such as OER that has entered into a memorandum of agreement with NYSDEC.
12. Miscellaneous Changes- Other notable changes include:
- The NYSDEC will now have 30 days to determine if an application is complete (§4). In the acceptance letters, the NYSDEC will advise the applicant if it has met the qualifying criteria for the tangible property tax credit (§6);
- The NYSDEC may reject a BCP applicant if the applicant had another site in a NYSDEC remedial program that was terminated by NYSDEC or a court for failing to substantially comply with an order or NYSDEC oversight agreement (§6);
- Applicants must implement work plans within 90 days of approval and complete the work in accordance with the schedule set forth in the document (§8);
- Applicants must execute environmental easements within 180 days of commencement of the remedial design or at least 90 days prior to the anticipated issuance of the COC (§11);
- COCs will now include the date of the brownfield cleanup agreement (BCA); the names of the parties eligible for the tax credits and the applicable percentage available as of the date of the COC(§13);
- Final Engineering Reports would have to describe any interim remedial measures (IRMs) and the costs of the IRMs(§13);
- COCs may be revoked or modified if DEC determines that the applicant made a misrepresentation of material fact concerning its status as a volunteer or its eligibility for the tangible tax credits. There was already a revocation for misrepresentation about the applicants qualification for volunteer status (§14);
- A COC may be revoked if the environmental easement no longer provides effective enforcement mechanism for ensuring performance of the remedy(§14);
- NYSDEC is exempt and authorized to grant waivers from local permits extends to investigations or remediation for contamination migrating from a brownfield site (§16);
- NYSDEC is expressly authorized to inspect sites for compliance with site management plans including evaluating operation and maintenance of remedial components, confirming site use and collecting samples (§17);
- The Brownfield Advisory Board is abolished (§29);
- The insurance remediation tax credit and the real property tax credit are repealed due to lack of interest (§31);
- Municipalities seeking to apply for funds from the Environmental Restoration Program (ERP) will now have to assist NYSDEC in identifying potentially liable parties by searching local records including property tax records. The amount of any assistance provided to the municipality would be adjusted if the payments are received by responsible parties. NYSDEC may implement an ERP project on behalf of a local government provided the municipality periodically pays its share of the costs to the state (§42).
The Governor’s budget includes a new $100 million appropriation to extend the State Superfund cleanup program for ten years. The lack of superfund funding had been a key obstacle in 2014.
The Constitution authorizes the Governor to amend the Executive Budget within 30 days of submission, allowing for technical corrections and revisions based on the latest information. However, to help achieve timely budgets, the 2007 Budget Reform Act requires the Executive, to the extent practicable, submit any necessary amendments within 21 days. After the 21 day period, the legislation will be formally submitted to the Legislature.
We will provide further updates and commentary on the 2015 BCP reform proposals
Wednesday, August 20th, 2014
The New York City Office of Environmental Remediation (OER) recently announced the creation of the NYC Affordable Housing Cleanup Fund (AHCF) to help remediate and support affordable housing projects in disadvantaged communities. Unlike the OER Brownfield Incentive Grants (BIG) program which are funded from appropriations, OER will be using $1.8MM in EPA Revolving Loan Fund (RLF) to support the AHCF. Thus, the AHCF should not experienced the funding flucuations that have plagued the BIG program.
The creation of the AHCF was made possible after EPA announced a change in its RLF eligibility earlier this year. The policy change allowed OER to award RLF money to a more spectrum of affordable housing projects that were not previously ineligible because of a financing structure commonly used in New York. We discussed the policy change earlier this year.
The AHCF will award grants of $80K to affordable housing projects that enroll in the OER Voluntary Cleanup Program (VCP) that can be used to cover engineering costs at sites that do not pay prevailing wage. Loans of $150k will also be available for supportive and affordable projects in the VCP that comply with Davis Bacon. The RLF loans can be used at Davis-Bacon sites for asbestos abatement, demolition and any element of an approved remedy. The loan terms will be zero percent interest but repayment can be delayed for 15 years with full repayment by year 30.
In addition to the new funding, OER launched its New York City Clean Soil Bank in December 19, 2013 for sites enrolled in the VCP. The Clean Soil Bank can reduce development costs since VCP applicants can reuse clean native soil excavated at other brownfield properties in the or donate qualified soil to the Clean Soil Bank. OER estimates that brownfield developers could save up to $5 million in soil purchase and disposal costs each year. The clean soil can be used to elevate properties and build protective barriers to protect against storm surges.Affordan
Friday, July 18th, 2014
The NYC Office of Environmental Remediation just announced that it has a little over $100K to award for petroleum assessments this summer. The source of the grant money is the brownfield revolving loan fund that was awarded by EPA to OER under section 104(k) of CERCLA. The federally-funded grant may be used for phase 1 or phase 2 investigations. There is no requirement that the applicant enroll in the OER voluntary cleanup program (VCP) to receive the federally funded assessment.
OER hopes the money will be used to fund assessments at former gas station sites or other sites impacted by petroleum USTs that will be redeveloped for affordable housing. However, the funding is no specifically limited to affordable housing projects.
Because the petroleum assessments will be federally-funded, there are fairly stringent eligibility requirements. First, the current owner of the property and immediate prior owner of parcel cannot have caused or be responsible for the petroleum contamination. However, if the immediate prior owner was responsible for the spill, the applicant could be still apply for the grant if the applicant can show that the immediate prior owner is insolvent at the time of the application. In addition, the property could not have been previously owned by the City.
Second, the applicant will also have to have performed an all appropriate inquiry at the eligible site.
Third, the work (phase I or Phase II) must be performed by one of OER’s retainer contractors and not by a site owner’s or a developer’s environmental consultant.
Finally, the work itself must be completed by Sept 30. What this means, given the time required for EPA approval of a Phase II workplan and QAAP, the work needs to be done very fast to have field work and lab analysis completed by Sept 30.
Thursday, July 3rd, 2014
In June, the NYC Department of Buildings (DOB) completed uploading into its Buildings Information System (BIS) approximately 200 Restrictive Declarations (RD) that can impose certain environmental obligations relating to hazardous materials. This action means that parties seeking building permits and certificates of occupancy for sites subject to RDs will have to demonstrate they have satisfied the conditions set forth in the RD using the same procedures of the (E) Designation Program.
As many readers may be aware, an (E) Designation may be assigned to property lots as part of a zoning action under the City Environmental Quality Review (CEQR) Act. If the CEQR review process indicates that development on a property may be adversely affected by noise, air emissions, or hazardous materials, then the Lead Agency may assign an (E) Designation on the property lot to ensure that the (E) Designation requirements are satisfied prior to or during a new development or new use of the property. An (E) Designation may be assigned for a variety of reasons including that the property:
- Was used as or is in close proximity to a gas station or some other underground fuel oil tank;
- Is located in or contiguous to a manufacturing district;
- Has a history of manufacturing uses;
- Is located next to a building with a history of manufacturing uses;
- Is located on a heavily trafficked street or highway;
- Is located next to a railroad; or
- Has some other environmental condition on the property or nearby that is a cause for concern
DOB began including populating the (E) Designations in its BIS in 2002. If a BIS indicates that a property lot has an (E) Designation, the DOB examiner cannot issue a building permit for new development, changes of use, enlargements or certain other alternations to existing structures until DOB receives either a Notice to Proceed (NTP) or Notice of No Objection (NNO) from the NYC Office of Environmental Remediation (OER). To obtain an NTP from OER, the applicant has to submit an acceptable investigation and remedial plan to OER. OER may issue NNOs for actions that do not raise potential exposure to hazardous materials, or air quality or noise impacts. Indeed, approximately 50% of the (E) Designation projects OER reviews result in NNOs.
When the applicant wants to obtain a Certificate of Occupancy from DOB, it must obtain a Notice of Satisfaction (NOS) from OER demonstrating that the applicant has complied with OER requirements. If an applicant wants to remove the E-designation from the property, it would have to implement a track 1 (unrestricted) cleanup. Parties can also comply or remove the (E) Designation by enrolling the site in the state Brownfield Cleanup Program (BCP) as well as the NYC voluntary cleanup program (f/k/a Local Brownfield Program). It is important to note that when lots with an (E) Designation are merged or subdivided, the (E) Designation will apply to all portions of the merged lot or to each subdivided lot. For more information on the (E) Designation program, click here.
An RD is a form of institutional control that is recorded against a property that is designed to ensure that environmental mitigation or requirements that were imposed as a condition of a land use approval are implemented. The RD which runs with the land so that it binds current and future owners to comply with certain investigate and remedial requirements that may be required be OER.
Historically, RDs were used when private applicants who owned or controlled a property sought a rezoning or other action under section 11-15 of the Zoning Resolution of the City of New York. This proved to be a cumbersome process because all parties with a property interest in property including lenders had to execute an RD. Moreover, the NYC Department of Environmental Protection (DEP) and a city agency approving the discretionary action had to expend resources reviewing the RD. In 2012, the City Council adopted an amendments to the Zoning Resolution authorized lead agencies to assign E-Designations for any actions including those sought by private applicants such as rezoning, special permits or variances. Because of the zoning resolution amendments, RDs will no longer be used to impose environmental conditions on properties. However, owners and developers will have to comply with existing RDs.
DOB has implemented a number of changes to the BIS to reflect RDs. For example, BIS Property Profile label “Little ‘e’ Restricted” will now appear as “Environmental Restrictions.” The field will display the associated Hazmat, Air and/or Noise restriction. On the BIS Web Application Details page, the checkbox in section 9 has been changed from Little “e” Hazmat Site to Environmental Restrictions (Little “e” or RD). The eFiling, Data Entry and Research Unit (DEAR) and Post-Approval Amendments (PAA) screens which formerly asked “Is the site or building a “Little ‘e’ ” Hazmat site?” now inquire “Are there Environmental Restrictions (Little ‘e’ or RD) on this site or building?”. Likewise, on the auto-generated Plan / Work Application (PW1), the “Little ‘e’ Hazmat site” label will be changed to “Little ‘e’” or RD Site.
It should be noted that paper PW1 application will still refer to the little “e” Hazmat site. Changes to the paper PW1 will be implemented along with other PW1 changes later this year, coordinated with implementation of the 2014 Building Code.
The full list of adopted (E) Designations and RDs are searchable by Tax Block and Lot Number.(E) Designation sites are designated with an “E and are listed in Appendix C to the zoning resolution available here. Restrictive Declarations are designated with a “D” on the NYC zoning maps. A list of sites with restrictive declarations is available here:
Wednesday, March 19th, 2014
A month after Governor Cuomo proposed sweeping reforms to the Brownfield Cleanup Program, the New York State Senate proposed its own BCP amendments. The bill (S. 6359—C) is available at here.
The legislation includes a number of the changes proposed by the Governor’s bill including extending the BCP tax credits to 2025, extending the hazardous waste program fee exemption to cleanups performed under EPA or approved local government programs, allowing sites with groundwater Operation and Maintenance systems or sub-slab depressurization systems to qualify for track 1 (unrestricted) cleanups and eliminating oversight costs for BCP volunteers.
However, the Senate proposal departs from the signature feature of the Governor’s bill-changing eligibility for the tangible property credit (TPC) and redefining what costs qualify for the site preparation credit (SPC). The Governor’s bill proposes to limit eligibility for the TPC to three types of brownfield projects and would preclude so-called “soft costs” from qualifying for the SPC treatment. The feeling within the Executive Branch is that the BCP is paying for lots of excavation costs that would have been incurred in the absence of contamination and only wants to incur tax credit liability for costs required by the approved remedial action plan. The Executive Branch also thought that some applicants with captive contracting firms were “padding” SPC costs. To minimize this practice, the Governor’s bill proposed to bar costs paid to “Related Parties”. Yet another refining of the SPC definition would be to require applicants to capitalize certain costs such costs as property taxes, loan interest paid during the cleanup, etc. Since the so-called TPC “soft cap” is 3x the total SPC, reducing the eligible SPC costs would have the effect of reducing the TPC’s generated by the BCP.
In contrast, the Senate legislation retains the current framework that all BCP projects are eligible to claim the TPC and does not narrow the types of costs eligible for the SPC. (Recall that there are actually two types of SPC costs: Costs to qualify the site for the COC and other costs to prepare the site for construction of a building or structural building components.) The Senate would cap the total SPC available for any BCP project to $15MM.
Following are some highlights of the Senate’s legislation.
Senate Proposed Brownfield Site Definition–
The Senate bill not only retains the current subjective definition of brownfield site but double downs on its complexity. Currently, a brownfield site is defined as real property where the presence or potential presence of contamination complicates reuse. The Senate adds additional indicia of contamination and underutilization. The result is an incredibly convoluted definition that could produce as many lawsuits as applications.
The Senate bill proposes that the “contaminant or contaminants, do not overwhelmingly consist of historical fill, and exceed at more than minimal levels the soil cleanup objectives….that are applicable based on the reasonably anticipated use of the property, as determined by the applicant. “ The term “overwhelmingly” and phrase “at more than minimal levels” are a recipe for lawsuits.
Them the definition goes on to state that the contamination is to be established “by completion and submission of an ASTM Phase II environmental assessment report.” Why the bill drafters settled on ASTM E1903 as the methodology is nothing short of baffling. E1903 is a standard guide that established procedural framework for collecting soil and groundwater samples. However, the NYSDEC has already promulgated extensive regulations at 6 NYCRR Part375 and published its DER-10 Technical Guidance for Site Investigation and Remediation that sets forth a comprehensive list of standards, guidance and criteria (SGCs) for performing site investigations. One has to wonder if the drafters of this bill are familiar with NYSDEC’s remedial programs.
Under the Senate bill, applicants could have the option of submitting the ASTM phase with their application or up to 90 days after filing the application to demonstrate that the site meets the contamination criteria in the brownfield site definition of this title. For applicants that do not submit an ASTM Phase II investigation report with their application, the start of the 45-day period for NYSDEC to render a decision on the application will be deferred until the filing of the ASTM phase 2 but no later than 90 days after submission of the application.
The definition then goes on to state that sites with the requisite level of contamination must also exhibit one of more of the following characteristics (known as the “Brownfield Site Characterization Criteria”).
(i) a current legacy of vacancy or abandonment from previous industrial or commercial activity or tax delinquency for at least one year prior to the date of application; or
(ii) a current and historical legacy of severe economic or functional underutilization including use of such site as a hazardous waste or solid waste facility; or
(iii) in the case of a site characterized primarily by former industrial activity, functional obsolescence; or
(iv) the projected cost of the investigation and remediation based on the reasonably anticipated use of the property as determined by the applicant exceeds fifty percent of the certified appraised value of the property absent contamination; or (v) the site has been certified by the municipality in which the site is located as meeting any of the conditions set forth in this opening paragraph.
The phrase “severe economic or functional underutilization” is defined as a brownfield site and any improvements: (a) on which a building or buildings containing no more than fifty percent of the permissible floor area under applicable zoning is being utilized; or (b) has a value of equal to or less than seventy percent of the floor area of the average valuation of land in the county or city in which the land is located, except in a city having a population of one million or more inhabitants where the average valuation shall be based on the county in which the land is located.
The phrase “functional obsolescence” shall mean the brownfield site and any improvements thereon that:
(a) can no longer be functionally or economically utilized in the capacity in which it was formerly utilized because of the configuration of the building or substantial structural defects not brought about by deferred maintenance practices or intentional conduct; or
(b) The entire site or a significant portion thereof, with or without improvements is used irregularly or intermittently; or
(c) The functionality of the equipment inside the building or buildings is obsolete for a modern day application; or
(d) Has been certified by the municipality in which the site is located as underutilized pursuant to the criteria in this subdivision.
The Senate bill would allow the applicant to invoke dispute resolution if the NYSDC determines that it has not met the Brownfield Site Characterization Criteria.
The foregoing criteria would seem to be good starting point for modifying the Governor’s proposal for what sites/projects should qualify for the TPC. However, as part of the brownfield site definition, they they inject too much uncertainty into the BCP. We believe the Governor’s Brownfield Site definition is far superior approach than the Senate’s version. The Governor’s bill provides clear and objective criteria for determining if a site is contaminated (e.g., contaminants exceed applicable standards). The Governor’s definition provides more clarity to potential applicants and would likely result in less litigation over what is a brownfield site.
Of course, the Governor’s brownfield site definition is “cleaner” because it does not try to define factors that describe under what circumstances redevelopment is complicated by contamination as part of BCP eligibility. Instead, the Governor’s proposal focuses on those factors for determining what sites are eligible for the TPC. The NYSDEC became embroiled in lawsuits and the BCP virtually ground to a halt when the agency was unfairly tasked with limiting the costs of the BCP and had to adopt an unnaturally narrow interpretation of what was a brownfield site. The Senate’s proposal with its abundance of subjective criteria is more likely than not to bring us back to the bad old days where NYSDEC limited resources will be consumed defending administrative and legal challenges to its eligibility determinations. It seems far better to have an objective test for accepting sites into the program. Under the Governor’s proposal, these sites would be eligible to claim the SPC for their cleanup costs. With the issues narrowed, we Legislature and the Governor could the focus the time remaining refining the test on what types of projects should be eligible for the TPC.
New Applicant Ineligibility Criterion–
Like the Governor’s bill, the Senate proposal provides that an applicant may be denied enrollment in the BCP if it the applicant has been terminated from another NYSDEC remedial program by the agency or a court for failure to substantially comply with an agreement or order. However, unlike the Governor’s bill, the Senate would only extend this debarment to the preceding forty-two months.
Class 2 Eligibility-
There appears to be widespread agreement with the concept that volunteers (i.e., non-responsible parties) who are willing to redevelop class 2 sites on the state superfund list which is formally known as the Registry of Inactive Hazardous Wastes Sites (Registry) should be able to enroll the site in the BCP. The dispute is over what circumstances such sites should be eligible for the BCP. The Governor proposed that volunteers should be eligible where there is no viable responsible party. This was partially out of concern that recalcitrant parties who refused to remediate sites could not profit by selling sites that were now more valuable because of the potential tax credits available under the BCP. In our prior discussion, we said that this test might be too stringent and suggested some alternative formulation.
The Senate bill rejects any limitations on class 2 eligibility or for that matter any of the other statutory exclusions where the applicant is a volunteer. Specifically, the Senate legislation provides that if a volunteer submits a request for participation for real property that would otherwise be deemed excluded from classification as a brownfield site, such real property shall not be excluded. The bill goes on to state that any on-going state remedial program, enforcement action or order with regard to the site shall be stayed by the execution of a brownfield cleanup agreement (BCA) and shall terminate when the volunteer receives a certificate of completion (COC). Upon issuance of the COC, the site would be delisted from the Registry, unless the COC is later revoked for good cause. However, the stay would not apply where the NYSDEC is seeking to require an owner of the site at the time of the disposal, or other responsible party to address an imminent and substantial threat to public health or the environment, or is seeking penalties or reimbursement of response costs. Moreover, if the BCA is terminated, or the volunteer or subsequent site owner or operator fails to comply with the terms of an environmental easement, any state remedial program, action or order may resume or be recommenced after timely notice to all concerned parties.
While we agree that sites should not be “punished” where there is a volunteer willing to perform a cleanup and invest in redeveloping or re-positioning the property. On the other hand, there are legtimate policy concerns about why New York should incur tax credit liability when there is a responsible party on the hook or creating too broad an exeption that could create moral hazards that incentivize recalcitrant owners of developable property to simply sit back and wait until a volunteer appears who willing to pay a higher price reflecting the increased value of the land due to its potential to generate significant tax credits.
No Automatic Termination-
The Governor’s bill proposed an automatic termination of 12/31/15 for sites admitted into the BCP prior to June 23, 2008 (effective date of the last BCP amendments) and 12/31/17 for sites accepted into the BCP after 6/23/08 and before 7/1/14. The Senate bill does not contain an automatic termination date and quite frankly, we do not see the need for such a provision. The NYSDEC already has the authority to terminate sites that are not making substantial progress towards completing the remedial program.
Some believe this provision was included for sites that were ordered into the BCP by the courts and therefore NYSDEC is concerned it might not have the authority to terminate those sites. If that is indeed the concern, then it seems the automatic terminaiton should only apply to those sites. It remains unclear why the legislature should automatically terminated sites where NYSDEC has not exercised its statutory authority.
NY RAPID program-
The Senate proposes to establish an alternative to the BCP for applicants who are not interested in tax credits but simply desire liability protection and a covenant not to sue. However, the Senate proposal is far less flexible than the EZ-BCP proposed by the Governor. As an example of how poorly-conceived this proposal is, the legislation provides that sites that received a COC from the New York City Office of Environmental Remediation (OER) under the local brownfield cleanup program would be eligible for the NY-RAPID program. NYSDEC already honors COCs issued by OER. Why would any developer want to go through two remedial programs to obtain the same liability protection? This is just plain silly. The Governor’s version is clearly superior and more nimble. It could also be used as a platform by local governments such as NYC that have their own cleanup program
Other Tax Credit Changes-
In addition to retaining the current “as of right” TPC for all projects accepted into the BCP, the Senate bill appears to alters the ten-year period for claiming the TPC. Instead of starting the ten-year clock upon issuance of the COC, it appears to that the ten-year begins with the first day of the first taxable year in which qualified tangible property is placed in service.
Like the Governor’s bill, the Senate legislation will allow the costs to be included in the SPC for purposes of calculating the 3x site “soft cap” that were not but could have been expensed and deducted under expired IRS section 198 (the federal brownfield tax credit). Likewise, the Senate would allow asbestos, lead or polychlorinated biphenyls abatement costs to be included in the SPC calculation.
Navigation Law Amendments-
Subpart B of the bill contains some interesting changes to the Navigation Law. It provides that a unit of local government will not be liable for the discharge of petroleum at a site where it involuntarily takes title pursuant to tax foreclosure and it has retained such site without participating in the development of such site.
The Senate also appears to inject some teeth into the third party defense that was added to the Navigation Law in 2003 but for some reason has not been widely adopted by the courts. Under the bill, if the party who NYSDEC has identified as a discharger and directed to implement a cleanup, the party may present evidence and request NYSDEC to determine if a third party is solely responsible for the discharge. Following such a request, the NYSDEC would have 30 days to determine in writing if the third party is a discharger. If the NYSDEC determines that the third party is solely responsible, then it would be required to direct that party to undertake the cleanup. If the NYSDEC finds the information presented insufficient to establish the responsibility of the third party by a preponderance of the evidence, the agency shall, within 30 days of such request, advise each of the parties that they are deemed dischargers subject to apportionment of liability for the discharge.
The Administrator of the Oil Spill Fund would also be extended to apportion liability for discharges where there is more than one discharger. An alleged discharger may request the administrator to determine on the preponderance of the evidence that a third party is in fact wholly or partially responsible. Within 30 days of receipt of such request, the administrator is required to determine in writing, if the third party is deemed an additional discharger to any pending or anticipated claim or if an administrative hearing as to liability is necessary to settle particular claims filed by injured persons or to apportion liability between and among dischargers.
Finally, the Senate bill would require NYSDEC to issue the same kind of liability limitations as under the BCP when dischargers completed petroleum cleanups. The proposed law provides that any person who agrees to remediate the discharge to the satisfaction of the NYSDEC would enter into a liability limitation agreement with the NYSDEC.
The conventional thinking is that the Assembly is holding out introducing legislation so it can extract concessions or maximize its leverage for the larger budget issues of importance to its members. However, time is running out. Only two weeks remaining for an agreement to be reached on the state budget. If an agreement on amending the BCP is reached as part of the budget deal, the outlook for BCP reform for this legislative session may be bleak.