NYSDEC Adopts Final Definition of “Underutilized” for NYC Brownfield Sites

Over a year after the 2015 amendments to the state Brownfield Cleanup Program (BCP) went into effect and eight months after the legislative deadline, the New York State Department of Environmental Conservation (NYSDEC) announced it was adopting amendments to its Part 375 regulations defining what constitutes  “underutilized” and “affordable housing”.  The definitions are important because they establish two of the four criteria  for qualifying NYC brownfield sites for the qualified tangible property (QTP) tax credit. The definitions become effective  on August 12th.

NYSDEC had  proposed revised definitions in March 2016. There is not much to say about these final definitions beyond what we discussed in our prior post because the agency made virtually no changes to the definition of “underutilized”. No changes were made to the “affordable housing project” or “brownfield site” definitions which remain as published in the  March 9, 2016 State Register.

In its announcement, the NYSDEC proclaimed the rule revisions as an improvement to the BCP.  However, in adopting the final definitions, the agency  completely ignored two rounds of comments from the Brownfield Task Force of the New York State Bar Association  and other stakeholders explaining how the proposed rulemaking was too restrictive and would undermine the legislative goals of the BCP.  The comments asserted that the “underutilized” definition was unduly restrictive and would cause small, family-owned  properties located in vast swaths of   middle class  areas in Queens, Brooklyn and Staten Island from qualifying for the QTP tax credit, thereby discouraging their redevelopment into more productive use. This is because most of Queens and Staten Island and a little more than half of Brooklyn are not located in Environmental Zones (the third criteria for qualifying for the QTP tax credit), and would not qualify for ‘upside-down” test (the fourth QTP criterion) because of real estate values.  The NYSDEC simply concluded that these brownfield sites in these areas could still qualify for the  QTP by satisfying the other QTP criteria ( i.e., En-Zone,  upside-down, or affordable housing) without any meaningful analysis.

The commentators also pointed our that the tax arrears and structurally unsound tests for qualifying for the “underutilized”  definition were not valid tests because  of tax delinquency policies and procedures, and that few buildings would be deemed condemned or as having acute structural deficiencies because of building code violations. Nevertheless, NYSDEC said it believed that these criteria “are valid indicators of underutilization and the regulations provide objective tests with clear parameters” again without explaining the basis for this conclusion.

The final definition of “underutilized”is contrary to the plain meaning of the word because focuses on FUTURE use and not the current use of the property. Continuing to Include factors such as tax arrears and buildings that are condemned in the definition when confronted with evidence that these factors have little relevance to NYC would appear to be the very definition of arbitrary and capricious rulemaking.  The “underutilized” “definition will undercut the program’s goal of providing incentives for redevelopment of brownfields sites

In our opinion, this rulemaking is not only inconsistent with the Legislative intent but represents another unlawful attempt by DEC to narrow the scope of the brownfield program.  We predict  this rulemaking will spawn a wave of multi-year litigation much like what happened  when the NYSDEC adopted an unnatural definition of “brownfield site” in the mid-2000s,  and could  cause irreparable harm to the BCP since will not know if they qualify for the important tangible property tax credits until after the litigation is concluded. The BCP was just beginning to recover from the damage done by DEC’s prior illegal interpretation and this rulemaking could be the death throe of the program. At the very least, this

The definition of “underutilized”  located in 375-3.2(l)  read as follows:

(l) “Underutilized” means, as of the date of application, real property on which no more than fifty percent of the permissible floor area of the building or buildings is certified by the applicant to have been used under the applicable base zoning for at least three years prior to the application, which zoning has been in effect for at least three years; and

(1) the proposed use is at least seventy-five percent for industrial uses; or

(2) at which:

(i) the proposed use is at least seventy-five percent for commercial or commercial and industrial uses;
(ii) the proposed development could not take place without substantial government assistance, as certified by the municipality in which the site is located; and
(iii) one or more of the following conditions exists, as certified by the applicant:
(a) property tax payments have been in arrears for at least five years immediately prior to the application;
(b) a building is presently condemned, or presently exhibits documented structural deficiencies, as certified by a professional engineer, which present a public health or safety hazard; or
(c) there are no structures.

The complete text of the rulemaking as well as the NYSDEC response to comments is availableHERE