On June 24, 2008, the New York State Legislature passed a bill to revise the 2003 Brownfield Cleanup Program (BCP) Act. This bill is expected to be signed into law by Governor Patterson in July 2008. The new legislation restructures the available tax credits and amends the BCP reporting requirements and administration. These changes will enable the New York State Department of Environmental Conservation (NYSDEC) to resume the review and implementation of the BCP after a self-imposed moratorium on admitting new sites into the Program.
BCP Background
The New York State BCP was established in 2003 to provide financial incentives via tax credits, as well as limit liability, for the cleanup of environmentally impaired brownfield sites. A brownfield is defined by NYSDEC as “any real property, the redevelopment or reuse of which may be complicated by the presence or potential presence of a hazardous waste, petroleum, pollutant, or contaminant”.
The 2003 BCP Act resulted in some unintended consequences due to the structuring of tax credit awards. BCP tax credit incentives were awarded based upon a percentage of the total redevelopment cost and remediation cost. There was no limit or cap to the total dollar amount awarded via tax credits. As a result, a few large projects, which could have bankrupted the BCP, limited NYSDEC’s ability to evenly distribute the tax credit incentives among a variety of BCP-eligible sites. Recognizing this unintended consequence, NYSDEC posed a 90-day moratorium on admitting new sites into the BCP effective April 23, 2008 and worked with the Legislature to revise the BCP. The moratorium will expire on July 24, 2008.
BCP Revisions
The Bill passed by the New York State Senate and Assembly is intended to:
- Promote more and better cleanups;
- Reward sound development (provide increased tax credits to more protective cleanup remedies);
- Foster urban revitalization; and
- Target limited State resources more efficiently.
These goals will be achieved by changing the tax credit structure.
The Brownfield Redevelopment Credit still consists of three types of tax credits for site preparation costs, tangible property costs, and on-site groundwater costs. Site preparation costs are expenses related to the site's qualification for the certificate of completion and other costs or expenses paid or incurred in connection with preparing the site for development. Site preparation costs may include those associated with development and implementation of an investigation work plan, submission of an investigation report, consideration and selection of the remedial action, development of a remedial work plan, and cleanup of soil, surface water, or sediment, among other tasks. Tangible property costs (i.e., development costs) include those associated with the buildings and their structural components that are constructed on the property. On-site groundwater costs are those associated with any necessary on-site remediation of groundwater contamination.
The principal changes to the tax structure in the Bill include the following:1.) An increase in the available site preparation tax credits based upon the degree of cleanup to:
- 50% of site preparation cost for Track 1 Unrestricted Cleanups;
- 40% of site preparation cost for Residential Track 2 and 3 Cleanups and 28% for Residential Track 4 Cleanups;
- 33% of site preparation cost for Commercial Track 2 and 3 Cleanups and 25% for Commercial Track 4 Cleanups;
- 27% of site preparation cost for Industrial Track 2 and 3 Cleanups and 22% for Industrial Track 4 Cleanups.
Previously, site preparation tax credits ranged from 10% to 22% of site preparation costs. An explanation of the various cleanup Tracks can be found in 6 NYCRR §375-3.8(e) at http://www.dec.ny.gov/regs/4372.html#15096.
2.) A cap on the tangible property tax credits to three times the site preparation costs or $35 million, whichever is less, for non-manufacturing sites. Manufacturing sites will have the tangible property tax credits capped to six times the site preparation costs or $45 million, whichever is less. Previously, there was no cap to the tangible property tax credit total dollar amount.
These new changes to the tax credit structure will be applicable for all sites which are admitted into the BCP (received positive determination of eligibility) after June 23, 2008. Sites which were admitted into the BCP on or prior to June 23, 2008 will be subject to the original tax credit structure from the 2003 BCP Act.
In addition to these changes to the tax credit structure, the new Bill establishes a 15-member Brownfield Advisory Board, which is comprised of select members of public and private enterprise. The Brownfield Advisory Board is charged with monitoring and reviewing the implementation of the BCP.
The Bill also requires a Brownfield Redevelopment Report to be prepared and submitted by the developer for 12 successive years after the execution of a brownfield site cleanup agreement. This report will provide the State with a variety of tax related information (e.g., state and local taxes generated by the brownfield site resulting from businesses and employees, real property taxes, etc.) so the State can evaluate the long term cost and benefit of the site’s enrollment in the BCP.
What does this mean to me?
The proposed changes are intended to result in making tax credits available for a wider range of projects by distributing them more evenly across New York State. No longer will the potential exist for a couple of large projects with high developmental costs and commensurate tangible property tax credits to take a disproportionate amount of the available tax credits or limit the State’s ability to incentivize further development. These large projects were previously not admitted into the BCP, whereas now, the cap on tangible property tax credits will enable NYSDEC to incentivize these large projects.
In addition, the increase in the percentages of site preparation costs available via the site preparation tax credit will reward remedies that achieve a higher cleanup standard.
Although not included in the Bill referenced herein, there is talk about the BCP being expanded to provide applicants a liability release while excluding their eligibility for tax credits. If enacted, this would provide a mechanism to release liability for sites that NYSDEC might normally reject from the Program based on the cost of tax benefits. - Look out for this and other potential developments coming out of the newly established New York City Office of Environmental Remediation. Follow the link below for more information on the New York City Office of Environmental Remediation:
Regardless, the eligibility of sites to be admitted into the BCP and receive tax credits will still be judged upon whether there is confirmed or suspected contamination on the property and that contamination “complicates” the proposed site redevelopment. Proving that contamination is present and that the contamination complicates the redevelopment requires the performance of an environmental site investigation prior to applying for entry into the BCP. A strong case must be submitted to NYSDEC in the BCP application to demonstrate that the extent and cost of remediating the contamination requires the BCP tax incentives in order to proceed with the development. This will provide developers with the best possible chance of having their site admitted into the BCP.
More details regarding the BCP and proposed program changes can be found online at the NYSDEC website: http://www.dec.ny.gov/chemical/8450.html or contact Joshua Levine, P.E. of Roux Associates, Inc. at jlevine@rouxinc.com or (631) 232-2600 for more information.
