With the tax credits for the New York State Brownfield Cleanup Program (BCP) scheduled to expire at the end of December 2015, the New York State Department of Environmental Conservation (NYSDEC) has been inudated with applications. Indeed, according to informal betting pool among NYSDEC brownfield employees, the agency anticipates receiving 100 applications by July 1st –the date when the sweeping reforms proposed by Governor Cuomo are slated to take effect. These applications are in addition to the estimated 180 Certificate of Completion that NYSDEC estimates it will issue in 2014 and 2015.
Although the proposed changes are not to take effect until July 1st, anecdotal accounts circulating within the environmental consulting community and the environmental law blog is that NYSDEC is already using the “new” definition to deny applications or modify the boundary of the sites that are accepted into the BCP.
The definition of brownfield site has had a tortured history in New York. The BCP broadly defines the term “brownfield site” as “any real property, the redevelopment or reuse of which may be complicated by the presence or potential presence of a contaminant” (ECL 27-1405). When the head of the BCP program was repeatedly asked to clarify the meaning of the definition during a series of conferences for the rollout of the BCP in early 2004, he repeatedly said that “any amount of contamination” was enough to qualify for the program”.
Developers and their attorneys took his statements at face value and it soon became apparent the BCP was attracting large development projects that would generate tax credits substantially disproportionate to the amount of cleanup costs, that certain projects generating tax credits would have proceeded regardless of participation in the BCP, and that the BCP was going to generate tax credits far in excess of what the legislature had originally contemplated.
As a result, NYSDEC was apparently unfairly tasked with the mission to restrict entry into the BCP. The agency issued a draft BCP Eligibility Guidance Manual (“BCP Guide”) which was finalized in March 2005. The principal feature of the BCP Guide was a list of factors that essentially narrowed the statutory definition of ‘‘brownfield site.” Under the BCP Guide, an applicant would have the burden of establishing two elements: (1) there must be confirmed contamination on the property or a reasonable basis to believe that contamination is likely to be present on the property; and (2) there must be a reasonable basis to believe that contamination or potential presence of contamination may be complicating the development or re-use of the property.
The BCP Guide listed five factors that NYSDEC would consider in “determining if there is confirmed contamination or a reasonable basis to believe that contamination is likely to be present on the property” and four factors that DEC would consider to determine if there was “a reasonable basis to believe that the contamination or potential contamination may be complicating the development, use or re-use of the property”.
In determining if there was confirmed contamination or a reasonable basis to believe that contamination is likely to be present on the property, NYSDEC indicated it would consider the following factors:
- The nature and extent of known or suspected contamination.
- Whether contaminants are present at levels that exceed standards, criteria or guidance.
- Whether contamination on the proposed site is historic fill material or exceeds background levels.
- Whether there are or were industrial or commercial operations at the proposed site which may have resulted in environmental contamination.
- Whether the proposed site has previously been subject to closure, a removal action, an interim or final remedial action, corrective action or any other cleanup activities performed by or under the oversight of the State or Federal government.
Some of the site eligibility criteria involved issues that would be more appropriately addressed during the BCP work plan process and not during the BCP enrollment process. Information relating to the extent and level of contamination often is not available during the application phase of the BCP process, and the statute does not contemplate an intrusive site investigation as a prerequisite to enrollment into the BCP.
The most troublesome criteria for potential brownfield applicants were the third and fourth factors. Many urban properties throughout the state have contaminated fill material that was placed onto the property and that has to be managed as a hazardous waste because it exhibits a hazardous characteristic for metals. Under NYSDEC interpretation, unless a developer can show that the historic fill material was contaminated from an on-site source, the site was not eligible for the BCP even though the developer would incur additional costs to dispose of the hazardous fill materials off-site, a significant hazardous waste program fee and a hazardous waste generation tax.
In determining if there is a “reasonable basis” to believe that contamination or the potential presence of contamination might be complicating the redevelopment or re-use of the property, NYSDEC indicated it would look at the factors such as:
- Whether the proposed site is idled, abandoned or underutilized;
- Whether the proposed site is unattractive for redevelopment or reuse due to the presence or reasonable perception of contamination;
- Whether properties in the immediate vicinity of the proposed site show indicators of economic distress such a high commercial vacancy rates or depressed property values.
- Whether the estimated cost of any necessary remedial program is likely to be significant in comparison to the anticipated value of the proposed site as redeveloped or reused; and
- The extent and difficulty of the remediation
Some of the eligibility factors relating to whether there is a reasonable basis to believe that contamination or the potential presence of contamination may be complicating the reuse of a site require the NYSDEC to make economic and demographic judgments for which the agency does not have the institutional expertise
Even if an applicant can get past these two hurdles, the BCP Guide provided that NYSDEC reserved the right to redefine the “brownfield site” so that only a portion of a proposed site might be enrolled in the program. Thus, if the improvements were to be constructed on the portion of the property that NYSDEC determined was not a “brownfield site”, the developer would not be to claim BCP tax credits for the improvements even though the building is part of the entire project
The NYSDEC then codified the on-site source limited when it promulgated its brownfield regulations. 6 NYCRR §375-3.3(a)(2) provided that in determining eligibility, the Department shall consider only contamination from on-site sources. In response to adverse comments received during the rulemaking process, NYSDEC said it was required to “determine what is a ‘brownfield’ based upon the statutory definition and not based upon a development project description.”
Several courts ruled that NYSDEC had improperly denied a number of applications based on the BCP Guide. See Lighthouse Pointe Prop. Assocs. LLC v NYSDEC, 14 NY3d 161, 166 (2010) and Buffalo Dev. Corp. v. NYSDEC, 889 N.Y.S.2d 504 (Sup Ct, Erie County 2009); Matter of Destiny USA Dev., LLC. V NYSDEC, 879 N.Y.S.2d 865 (4th Dept. 2009); HLP Props., LLC v New York State Dept. of Envtl. Conservation, 864 N.Y.S.2d 285 (Sup Ct, New York County 2008); East River Realty Co., LLC v NYSDEC, 866 N.Y.S.2d 537 (Sup Ct, New York County 2008).
These decisions seemed to implicitly invalidate some of the BCP Guide factors. However, there remained considerably uncertainty how much contamination had to be present for an applicant to establish that it complicated development. Moreover, questions remained over the eligibility of sites with historic fill, pesticides from former agricultural use, or sites impacted with vapors from an offsite source. It was also unclear if NYSDEC could continue to accept only portions of a proposed building or isolated hot spots at a redevelopment site.
The definition of brownfield site contained in the proposed reform would replace the subjective “complication” factor with a more objective test. The new provision requires that an applicant do sufficient sampling to establish actually contains contaminants that exceed the applicable soil cleanup objectives or other health-based environmental standards promulgated by the NYSDEC. In other words, the proposal really just conforms the definition to current NYSDEC policy since the agency was requiring applicants to demonstrate that the site was actually impacted by contamination by performing and including the results if a phase 2 in the BCP application. The revised language indicates that the applicant must submit an investigation that is sufficient to demonstrate that the site requires remediation to meet the remedial requirements of the BCP.
Interestingly, the definition does not require the contamination to be from an on-site source which the NYSDEC currently requires applicants to establish for a site to be eligible for the BCP. Instead of excluding these sites from the BCP, the proposed bill would simply prohibit applicants of these sites from claiming tangible tax credits for addressing such contamination. For example, an applicant who would have to install an sub-slab depressurization system (SSDS) to address vapors from contaminated soil gas because of a plume that originated from an adjacent dry cleaner could enroll in the BCP and be eligible for site preparation costs tax credit but not the tangible property tax.
So applicants should not be surprised if their applications for participation in the BCP are denied for failing to include data demonstrating the presence of actual contamination in the soil and/or groundwater. In some cases, NYSDEC may accept portions of the site but request additional sampling pursuant to 6 NYCRR Part 375-3.3(a)(4)(ii) to determine if the excluded parcels qualify as a brownfield site and eligible to participate in the BCP. As the old adage goes, “plus ça change, plus c’est la même chose” (“the more things change, the more they remain the same”).