NY Expects Record Number of Brownfield Cleanup Completions in 2014

In 2012, New York legislature failed to meaningfully extend the sunset date for the brownfield cleanup program (BCP) tax credits. In that session, the legislature, only extended the expiration date from March 31, 2015 to December 31, 2015. Because BCP applicants must obtain certificates of completion (COC) from the NYS Department of Environmental Conservation (NYSDEC) by the BCP tax credit tax sunset date and because the average BCP remediation takes 2 1/2 years from application to COC, NYSDEC received an influx of BCP applications in 2012 and 2013. As a result, the NYSDEC is anticipating a record number of cleanup completions in 2014.

According to current projected completion dates, the NYSDEC anticipates that it will issue 92 COCs in 2014. In contrast, the NYSDEC issued an average of 20 COCs annually between 2011 and 2013. Indeed, the estimated total of COCs for 2014 would equal the total COCs issued by NYSDEC from 2005-2010. Issuing 92 COCs in one year would be a remarkable achievement for the BCP and is evidence of how powerful a tool the BCP tax credits are for incentivizing cleanups of brownfield sites. We suspect no other state remedial program in the country has issued 92 no further action letters in a year. Indeed, EPA has been averaging only 22 cleanup completions annually under the Superfund program since 2001.

The BCP has the most generous tax credits in the country.  The BCP tax credits are refundable so to the extent that the brownfield tax credits exceeds the applicant’s tax liability, the tax credit is treated as a tax overpayment and the state cuts a check. Only those entities named on the brownfield cleanup agreement (BCA)may claim the brownfield tax credits so it is important that the correct entities are named on the BCA. See our blog post for examples of common BCP mistakes.

Applicants can claim three types of tax credits. The first tax credit is known as the Site Preparation Cost (Site Prep). It includes all costs necessary incurred to make the property ready for development. The Site Prep credit includes not only cleanup costs but also costs of demolition, excavation, soil disposal, sheeting, shoring and dewatering. The amount of the Site Prep tax credit that may be claimed depends on the level of cleanup and ranges from 28% to 50% of the costs. The Site Prep tax credit may be claimed in the tax year following the issuance of the COC. The buildings on BCP sites do not have to be constructed or occupied to claim the Site Prep tax credit. Instead, only the remedy has to be completed and a COC issued to be able to claim the Site Prep tax credit.

The second tax credit is available for post-COC groundwater monitoring costs at the same percentage of the Site Prep tax credit. This credit may be claimed annually for the five year period following the issuance of the COC.

The third (and most valuable) BCP tax credit that is available is the qualified tangible property (QTP) tax credit which ranges from 10% to 24% of the value of the improvements constructed on the brownfield site subject to a cap of $35MM or 3 times the Site Prep costs (whichever is less).  BCP applicants have ten years from the issuance of the COC to put the building into service and claim the tangible property tax credit. For example, a $200MM project with $10MM in Site Prep costs (mainly from excavation) could be eligible for $5MM in Site Prep costs for a track 1 (unrestricted) cleanup and $30MM in tangible property tax credit (3x $10MM) for a total of $35MM in BCP tax credits.

New York Governor Cuomo is expected to unveil BCP tax reform legislation when he introduces his budget later in January. It is anticipated his proposal will retain the Site Prep tax credit in its present formulation but that he would propose that new BCP projects would not automatically be entitled to the QTP. Instead, the QTP would only be available for projects satisfy certain criteria that would be more targeted to low-income communities. Any such amendments would likely become effective upon enactment. Thus, time is running out for developers to enroll in the BCP under its current tax credit structure.  See our post on the likely key application deadlines.

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