In a prior Post, we discussed that Governor Andrew Cuomo’s proposed executive budget for Fiscal Year 2022 provided an extra two years for owners of brownfield projects that received COCs between March 20, 2010 through January 1, 2012 to claim the qualified tangible property tax (QTP) credit.
The extension was intended to provide relief to developers who were unable to complete the redevelopment of their brownfield sites by the end of the ten-year period for placing their property into service that is required to be able to claim the QTP because of restrictions instituted as a result of the COVID-19 pandemic.
The final budget deal reached by the Governor and New York Legislature allows for an extension but it is no longer as of right. Instead, developers of qualified sites (those that obtain COCs during the relevant time) may obtain an extension of up to 24 months if the Commissioner of the Department of Taxation and Finance (DTF) determines after consulting with the Commissioner of the Department of Environmental Conservation, that the developer would have been able to place their property into service but for the restrictions imposed by Governor Cuomo’s executive orders (Covid Executive Orders) issued in response to the COVID-19 pandemic. In other words, the developer/taxpayer will have the burden that it qualifies for the extension.
It is unclear what type of documentation that the taxpayer would have to develop to avail itself of the extension. Presumably, the developer/taxpayer will have to show that construction was interrupted or delayed by the restrictions in the Covid Executive Orders because labor or materials were unavailable or regulatory oversight (inspections or permits) was not available or delayed. If the DTF denies the request or approves a shorter extension than requested, the taxpayer could seek review of that decision. However, as with other administrative challenges, the taxpayer would have to show that the DTF’s decision was arbitrary or capricious. This is a high burden.
It is also unclear how many projects will actually benefit from this extension. To support the proposed extension, the Governor’s office produced a rather curious list of 44 sites that allegedly were at risk of losing their QTP due to Covid-related construction delays. However, a close examination of the list revealed that many of the sites had already been placed into service. Some suspect that the list was cobbled together to maximize political support by including sites from all regions of the state. Other cynics think that the list was developed to mask that the extension was proposed as a favor to an important donor of a weakened Governor.
Instead of focusing on one or a handful of sites, Albany should have extended the two looming BCP sunsets that are critical for all current and future BCP projects. The first deadline is the December 31, 2022 for submitting new BCP applications while the second deadline is the March 31, 2026 date for obtaining a COC.
These deadlines may seem like a long way off to legislators but the reality is that the December 31, 2002 sunset is just around the corner for potential brownfield projects. Brownfield redevelopment is complicated. Developers face long lead times to assemble parcels, obtain land use approvals and secure financing. As a result, brownfield developers are concerned they may not secure all of their approvals by the December 31, 2002 deadline for new applications.
The March 31, 2026 COC is a concern because the average brownfield project takes 4.45 years to obtain a COC. Brownfield sites are like a box of chocolate and the full extent of the contamination is usually not known until the sites are “opened up”. Addressing previously unanticipated contamination can add to project delay as well. If the project hits any unanticipated complications, there is no assurance a new applicant can meet the march 31, 2026 deadline.
Accordingly, brownfield stakeholders will be working with the Executive and Legislature during the remaining legislative session to amend the BCP sunsets and possibly address the following issues:
- Amend of the definition of “affordable housing project- Currently, a brownfield project seeking to qualify as an “affordable housing project” for BCP tax credit purposes must execute a regulatory agreement before a COC is issued. However, under the 2017 amendments to the §421-a program, affordable housing projects in that program no longer receive a regulatory agreement before the building is fully constructed even though such projects would otherwise clearly meet the definition of “affordable housing”. Since NYSDEC has created a regulation requiring submission of a regulatory agreement before the COC is earned, these projects could lose their tangible property tax credits because they will not receive any documentation from the affordable housing agency until AFTER the COC is issued. This unintended regulatory glitch can be addressed by amending the statute to clarify that such projects qualify for tangible property credits irrespective of whether they receive a regulatory agreement prior to the issuance of a COC.
- Expansion of Environmental Zones – Sites located in Environmental zones (EN-Zones) qualify for the QTP. However, the definition of EN-Zones is linked to residential census tracts. It is heavily weighted to areas where people live but not work. The Census Bureau puts industrial areas, where brownfields are present, generally into their own census tracks. Therefore, EN-Zones are typically next to brownfield sites but the brownfield sites are not present in the EN-Zones as currently defined. Thus, former manufacturing sites that because of re-zoning may now be suitable for conversion to housing, including affordable housing, or mixed use do not qualify for this tangible property tax credit. Accordingly, the definition of EN-Zones should be expanded to include designated Brownfield Opportunity Areas (BOA) and Potential Environmental Justice zones. These expansions would further incentivize cleanup of contaminated sites and attract capital investment throughout the State to areas where they are needed the most.
- Amend the Regulatory Underutilized Definition– The 2015 BCP Amendments provided “underutilized” sites in New York City could qualify for the QTP. The Legislature did not provide a definition for that term but rather instructed the NYSDEC to propose a definition “after consultation with the business community and the city of New York, [taking] into consideration the existing use of a property relative to allowable development under zoning, the need for substantial government assistance to redevelop and other relevant factors.”
NYSDEC subsequently engaged in the required rulemaking, but the agency’s definition departed from the intent expressed by the Legislature. Many commenters including this writer to the proposed rule cautioned that the definition was unduly restrictive and inconsistent with both the spirit and the plain language of the BCP Amendments. They also predicted that NYSDEC’s definition would make it virtually impossible for contaminated sites in New York City to qualify as “underutilized”.
Unfortunately, that prediction has proven accurate. In the nearly six years since the 2015 amendments became effective, just three sites have been accepted into the BCP as “underutilized”. The major casualties of NYSDEC’s proposed definition are the many small properties in New York City’s outer boroughs, owned by individuals or small family corporations, that have been contaminated by prior uses such as dry cleaners, filling stations and light manufacturing operations. These are by no means the “high value” sites that NYSDEC was targeting by its restrictive definition. The tax credits that would be generated by having these properties qualify for tangible property credits would be modest. But without them, these sites are likely to remain contaminated and undeveloped for the foreseeable future. This was not the intent of the Legislature. Accordingly, the Legislature should amend the regulatory definition so that qualification as such is realistically possible for sites that are truly underutilized.
In addition, many retail buildings and hotels will need to be re-purposed because of work changes resulting from Covid. To facilitate this necessary work, the “underutilized’ definition should be amended to include buildings that are “functionally obsolete.” Other state brownfield programs include the obsolete sites in their definition of brownfields. The Legislature may want to consider the Michigan definition of “functionally obsolete” which applies to “property is unable to be used to adequately perform the function for which it was intended due to a substantial loss in value resulting from factors such as overcapacity, changes in technology, deficiencies or super-adequacies in design, or other similar factors that affect the property itself or the property’s relationship with other surrounding property.”
The BCP plays a vital role in addressing the legacy of contaminated sites in New York. Here’s hoping Albany finds a dose of realism and enacts comprehensive BCP reforms to ensure the viability of the brownfield program.