NY Senate Introduces It Own BCP Reform Package

[Updated]

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.

Contamination Criteria-

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.

Characterization Criteria- 

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.