As we have previously discussed, the lucrative tax credits available to parties who remediate sites under the New York State Brownfield Cleanup Program (BCP) expire on December 31, 2015. To qualify for the tax credits, BCP applicants must obtain certificates of completion (COC) from the NYS Department of Environmental Conservation (NYSDEC) by that date. The buildings on these sites do not necessarily have to be constructed or occupied by 12/31/15 but simply the remedy has to have completed.
Because of the looming tax credit expiration and the fact that the average BCP remediation takes 2 1/2 years from application to COC, there was an influx of BCP applications by developers during the last half of 2013 who wanted to make sure they obtained the COC by the end of 2015. Based on some recent political developments, the calculus for submitting BCP applications to ensure tax credit eligibility may now have significantly changed.
The generous tax credits available under the BCP have been criticized by environmental and community groups who argued the tax credits were subsidizing projects that did not need the financial assistance and were not sufficiently targeted to incentivize development in low income communities. In contrast, business groups felt the 2008 reforms that imposed caps on the maximum tax credits available under the program had accomplished their goals of reining in the costs of the BCP. Indeed, state film credit results in $400MM annually in tax credits while the BCP has averaged $125MM since the 2008 reforms–and the BCP results in permanent investments and jobs. Recently, though, these diverse stakeholders hammered out a set of recommendations and sent what can only be characterized as a historic letter to Governor Cuomo urging that he adopt their recommendations. This letter recommends that BCP projects would not automatically be entitled to the more lucrative tax credit available under the BCP- known as the tangible property tax. Instead, this tax credit would only be available for projects that mean certain criteria. While the precise criteria would have to be determined, we anticipate the criteria will be close to those advocated by community and environmental groups. This historic letter significantly enhances the odds that the Governor will include BCP reform in his January budget.
If he budget is adopted by the April 1st deadline, the BCP changes would take effect on that date. If the legislation mirrors the approach followed by the 2008 BCP amendments, projects accepted into the BCP after the effective date would be subject to the new rules while projects already enrolled in the BCP would be grandfathered. A project is considered accepted into the BCP when a brownfield cleanup agreement signed by the NYSDEC.
If this legislative approach is followed and the legislation becomes law on April 1st, that means the real deadline for developers seeking to qualify for the existing BCP tax credits would be April 1st. The normal BCP application process takes about two months Thus, developers who want to be grandfathered into the current BCP tax credit framework would have to submit applications by January 31st to have a good chance at being accepted into the BCP by the anticipated date of the BCP amendments.
It is possible that the BCP reforms might not be finalized until the legislature adjourns in mid-June which could give potential BCP applicants an additional month or so. It is also possible that NYSDEC might start to slow down the BCP approval process once it becomes clear that the Governor will be proposing BCP reforms so that all applications submitted in 2014 might not be accepted until after the new law becomes effective.
Developers whose projects might satisfy the criteria for tangible tax credit eligibility will probably not be significantly impacted by the BCP amendments. Of course, those criteria will not be known until at least when the Governor introduces his budget (Unlike other states, budget bills introduced by New York governors contain legislative language). While we have some idea what those criteria might look like based on prior conversations, developers will not know for sure until the legislation is introduced.
Thus, developers considering applying to the BCP should do so as quickly as possible. Often times, developers submit applications with completed remedial investigation reports (RIR) to eliminate one of the seven public participation periods. If a developer has not yet implemented a remedial investigation, they would probably be better served submitting a “bare” BCP application to get into the program and endure the later project delay the public participation delay for the approval of the RIR. In the real estate world, time is often equated with money. In the case of the BCP, the 30-day delays from the RIR public participation period will be outweighed by the significantly lost tax credits now could result from the delay in submitting the application.