Governor and Legislature Closing Gap on Brownfield Reform

[NOTE: Updated to reflect Assembly bill ]

With only a week remaining for New York to adopt its 2014-15 budget, extension of the Brownfield Cleanup Program (BCP) remains on the table. It appears that a consensus is emerging on the shape of the brownfield amendments or at least the number of key outstanding issues has been narrowed.

As we have previously discussed, Governor Cuomo proposed sweeping reforms to the BCP in January. Click here and here for prior posts about the Governor’s bill. While the impetus for BCP reform was the looming expiration of the BCP tax credits, the Executive Branch was also concerned about the costs of the BCP.  As a result, the Governor’s bill proposed limiting that the Tangible Property Tax (TPC) to certain categories of brownfield projects and proposed to restrict the kinds of costs that would be eligible for the Site Preparation Tax Credit so that so-called “soft costs” could not be included. . It was unclear from the Governor’s bill if the definitional changes to the costs eligible for the Site Preparation Cost would apply only to BCP applications accepted after the proposed July 1st effective date or would extend to costs incurred by existing applicants after the effective date. Another significant feature of the Governor’s bill was automatic termination for BCP projects that did not receive Certificates of Completion (COCs) by 12/31/15 if they were accepted into the BCP prior to 6/23/08, or by 12/31/17 for sites accepted after that date but before 7/1/14.

The Senate proposed its own reform legislation that would have retain the current “as of right” tax credit structure. To accommodate the Governor’s concerns about the costs BCP costs by refining the definition of brownfield site to incorporate more refined concepts of underutilization, functionally obsolescence, affordable housing or qualify as a priority economic development site. The Senate also declined to narrow the scope of the costs eligible for the Site Preparation Tax Credit, contained a broader exemption for applications for Class 2 submitted volunteers and omitted the automatic termination dates.

The Assembly finally released its brownfield reform proposal on March 24th. The Assembly bill mirrors the approach proposed by the Governor that BCP sites would have to satisfy a second test to  qualify for the tangible property tax credit but largely adopts the test advanced by the Senate. The change would take effect on January 1, 2016. The Assembly does not attempt to change the site preparation definition, does not include any automatic termination dates, does not exempt applications for Class 2 sites submitted by volunteers and does not provide for an exemption from the hazardous waste fee for projects enrolled in the NYC VCP or under a federal cleanup order.

Based on legislative drafts exchanged between Legislative and Executive Branches, it appears that the parties are drawer closer on the following key issues:

  • The Governor may get his separate test for the tangible property tax credit but with the broader tests suggested by the Senate; 
  • Existing BCP applicants will be “grandfathered” so that changes to the Site Prep Eligible costs will not apply to costs incurred by those applicants after the effective date of the legislation;
  • Changes to the Tangible Property Tax Credit applicable percentages would become effective for applications accepted after July 1, 2014;
  • The Governor may be willing to include some “soft costs” into the Site Preparation Tax Credit calculation but that these costs would be limited to those incurred to qualify for a COC (so-called Bucket A site prep costs) but not those costs incurred to put the property into service (so-called Bucket B site prep costs);
  • The fate of eligibility for Class 2 sites and sites subject to an enforcement order remains unclear. The Governor proposed only Class 2 sites could be eligible where there was no viable responsible party and the applicant was a volunteer. Current proposed language would extend this exemption to sites under enforcement orders but would limit the site preparation costs “only the incremental costs exceeding those necessary to satisfy the closure requirements of the permit or order”;
  • The automatic termination provisions would be extended to 12/31/19 and 12/31/21.

Given the way business is conducted in Albany, it is often a fool’s errant to predict the outcome of legislation. It is usually easier to forecast the local weather than final legislative language. However, it does seem like progress is being made and that BCP reform remains possible as part of a budget agreement.

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