The Changing Landscape of Brownfield Cleanup and Redevelopment Strategies in New York State

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1 The Changing Landscape of Brownfield Cleanup and Redevelopment Strategies in New York State Mark Gregor Manager of Municipal Environmental Programs LaBella Associates

2 Overview 1. Strategies/Funding for Brownfield Cleanup and Redevelopment 2. Basic Categories of Funding 3. A Look Back 4. NYS changes 5. A recent City of Rochester example 6. Federal Changes Affecting NYS

3 OVERVIEW: Brownfield Funding Categories Funding Brownfield Cleanup and Redevelopment Basic Categories of Funding A Look Back State changes Federal Changes /settlements/insurance/cost Example of new approaches recovery 1. Local funds - eg. Gen. obligation debt 2. Grants - eg. USEPA BF grants and NYS ERP 3. Agency implemented environmental projects - USEPA removal actions, TBA s, Legacy Act sediment cleanup 4. Property valuation - acquisition price negotiations 5. Responsible parties - cooperation agreements 6. Developers & BCP volunteers BCP tax credits 7. HUD CDBG 8. Tax/Pilot Increment Financing

4 Key Governmental Brownfield Programs NYSDEC Brownfield Cleanup Program NYSDEC Environmental Restoration Program NYS DOS Brownfield Opportunity Area Program EPA Brownfield Grants Assessment Cleanup Cleanup Revolving Loan Fund Workforce Development Targeted Brownfields Assessment (TBA)* Other key federal agencies HUD (EG. CDBG) EDA

5 NYSDEC Brownfield Cleanup Program Established in 2003 Law Major amendments in 2009 and 2015 Certificate of Completion & Limited liability Releases Provided NYS Income Tax Credits for Site Preparation/Cleanup and Development Phase expenses 62 "Certificates of Completion" in 2017, the highest annual total ever issued by the State Department of Environmental Conservation. Since 2003, DEC has issued 364 certificates for brownfield cleanups Under the 2015 reform law sites will have until March 31, 2026 to receive a certificate of completion

6 NYSDEC Brownfield Cleanup Program Tangible Property Tax Credits (Development Phase) BCP Tangible Property Tax Credits Tangible Property Tax Credits Current, Accepted Prior to June 23, 2008 Current, Accepted after June 23, 2008 Reformed, Accepted after July 1, 2015 Baseline (Based on Tax Status)* 10-12% 10-12% 10% Plus the sum of the following: Environmental Zone: At least 50% of the site is located in an EN-zone (high poverty and unemployment rates) 8% 8% 5% Track 1 Cleanup: Unrestricted soil and groundwater cleanup 2% 2% 5% Brownfield Opportunity Areas: Development conforms with the goals and priorities of the designated Brownfield Opportunity Area (BOA) in which the site is located N/A 2% 5% Affordable Housing N/A N/A 5% Manufacturing N/A N/A 5% Maximum Percentage 22% 24% 24% Cap Non-Manufacturing N/A $35M or 3X Site Prep $35M or 3X Site Prep Cap Manufacturing N/A $45M or 6X Site Prep $45M or 6X Site Prep

7 NYSDEC Brownfield Cleanup Program outlook The primary tool for brownfield investigation, cleanup and redevelopment in NYS for the next several years BCP tax credits received by NYS tax payers are taxable as federal income however; BCP tax credits became more lucrative with the recent federal income tax rebracketing and rate cuts

8 NYS Environmental Restoration Program Established in 1997 Clean Water/Clean Air Bond Act Provided brownfield investigation and cleanup grants to municipalities Reimbursement grants Initially 75% Later increased to 90% Original $180 million committed FY State Budget allowed the NYSDEC to use up to $10 million a year from its Superfund authorization to fund ERP projects NYSDEC needs to set up a new program and application procedure before accepting new applications Municipalities will have the option of having the NYSDEC perform ERP funded remedial work and then pay the local 10% matching share

9 NYS Brownfield Opportunity Area Program Established with 2003 Brownfield law Provided brownfield inventory, planning and pre-development grants to municipalities and non-profits 90% reimbursement grants Initially jointly administered by NYS Department of State and the NYSDEC Later shifted entirely to NYSDOS Annual funding eliminated and then restored at dramatically reduced levels $2 million in last two years BCP sites in designated BOA s are eligible for enhanced BCP income tax credits

10 NYS Brownfield Opportunity Area Program The Governor's FY 2019 Executive Budget includes funding and reforms to the Brownfield Opportunity Area Program: Maintains BOA program grant funding level at $2 Million Streamlines planning by eliminating the existing prenomination step and creating a single-step communitybased process to achieve Brownfield Opportunity Area designation; Allow for existing plans or plans developed outside the Brownfield Opportunity Area process that meet general criteria to qualify for the program; and Allow existing Brownfield Opportunity Areas to apply for financial assistance for pre-development grants.

11 Current NYS Brownfield Resources Over the last 5-7 years: The NYSDEC s ERP has stopped accepting new applications The NYSDOS BOA grant program has been dramatically reduced: directly affecting municipalities The Brownfield Cleanup Program and the private sector are leading brownfield cleanup and redevelopment in NYS Since 2011 the Regional Economic Development Councils competition and Consolidated Funding Application processes have become the primary funding pipeline for community and economic development in NYS: Other brownfield-related NYS redevelopment funding sources include NYSERDA/solar, DRI, and Restore NY

12 NYS Current Brownfield Resources Restore New York Funding is available for projects involving the demolition, deconstruction, rehabilitation and/or reconstruction of vacant, abandoned, condemned and surplus properties. Goals of the program: Revitalize urban centers Induce commercial investment Improve the local housing stock Applications must be initiated by municipalities Demonstrate at least a 10% match; Applications are initially evaluated at the regional level. Priority is given to projects in Empire Zones, Brownfield Opportunity Areas, economically distressed communities, & projects that leverage state or federal redevelopment related programs

13 NYS Current Brownfield Resources Downtown Revitalization Initiative (DRI) Participating communities are nominated by the state s ten Regional Economic Development Councils (REDCs) based on the downtown s potential for transformation, and Each community is awarded $10 million to develop a downtown strategic investment plan and implement key catalytic projects that advance the community s vision for revitalization. Two DRI rounds have been awarded

14 Creative Municipal approaches to Brownfield Cleanup & redevelopment The Status of the NYSDEC s ERP and NYSDOS BOA programs and reduced funding have forced municipalities to become more creative In some ways current environment for munis is similar to early-mid 1990 s when state and federal grant funding for municipally-led brownfield investigation and cleanup brownfield projects is limited Increasing emphasis on public private partnerships

15 YOUR Title Big idea The City Former of Rochester Staubs Dry with Cleaner assistance Site: A municipal/private/state Driven Partnership from LaBella Associates facilitated the transfer, cleanup and reuse of the tax The City delinquent, of Rochester former with assistance dry cleaner from NYS LaBella Associates Superfund facilitated site the with transfer, minimal cleanup City and reuse of the tax delinquent, financial resources former dry cleaner NYS Superfund site with minimal City financial resources

16 Recent City of Rochester Example: City NYSDEC Pike Construction partnership Pike would enter into BCP agreement with NYSDEC contingent on securing Site ownership from the City City and Pike enter into a purchase/sale agreement contingent on a NYSDEC-Pike BCP agreement NYSDEC needed evidence of Pike s legal interest in the Site before entering into an agreement with Pike City needed an agreement for the Pike acquisition in advance of foreclosure City would then foreclose on the Site City would transfer the Site to Pike & the NYSDEC BCP requirements would then be activated

17 The decades old dry cleaner site was a barrier to new redevelopment on East Main Street THE Staubs Dry Cleaner SITE

18 Key Process Steps In 2015 City and Pike met with the NYSDEC to explore possible agreements to allow transfer and cleanup to proceed City secured court ordered access under NYS law (Temporary Incidence of Ownership) for site assessments City-LaBella completed asbestos & reg. bldg. materials assessment & remedial cost estimating - 4/2016 City secured an independent appraisal Market value with no impairment: $295,000 $845,000 adjustment for demo, debris removal, & to remediate building environmental issues Adjusted value: $0 NYSDEC completed GW testing & investigations and prepared RI Report & Feasibility Study - Fall 2016

19 Process Challenges and solutions Under the NYS BCP Pike would perform demolition & cleanup. By the Fall of 2016 these costs were projected to exceed $2.8 million. Response: NYSDEC & Pike agreed enter into in order on consent that would require demolition & site management by Pike (contingent on site control) with the NYSDEC completing soil & groundwater cleanup under the state Superfund program A zoning variance would be required for a parking lot reuse of the Staubs Site but Pike needed certainty in advance that a parking reuse would be allowed in order to proceed Response: Pike agreed in advance to combine the site with its adjoining parcels to avoid the need for a variance Other bidders at the tax auction could out bid the City Response: The Rochester Land Bank Corporation would use its trump bid authority to acquire the property

20 Process Challenges and solutions The Rochester Land Bank Corporation needed to authorize both the acquisition & the sale of the Site Responses: Presentations were made to the RLBC Board which then voted to proceed City Council s action was changed to authorizing funds for the RLBC to bid for the property Environmental liability concerns Responses: The RLBC formed a single purpose LLC which took title after RLBC acquired the Staubs properties at auction Pike s LLC, Circle Street Development, provided pollution legal liability insurance at its cost to the RLBC LLC

21 Key Process Steps NYSDEC issued the Preliminary Remedial Action Plan, which included demolition, for public comment - 12/2016 NYSDEC issued the Site Record of Decision 2/2017 NYSDEC & Pike LLC executed the consent order - 2/2017 Pike (LLC) & RLBC land disposition agreement signed 2/2017 City Council authorized the transfer of funds to RLBC 3/2017 RLBC board authorized the bid & sale of Staubs parcels 3/2017 City auctioned parcels & RLBC successfully bid 3/30/2017 Parcels transferred from RLBC LLC to Pike LLC 4/2017 Pike completed order required asbestos abatement, cleanout, and demolition 7/2017

22 City Resources Required Extensive legal, environmental, and economic development staff time over 2 years Limited direct City financial contribution: City funded assessments, cost estimating, & abstract of title: $7,350 Used USEPA brownfield grants for assessments: $18,920 City funding for RLBC to bid tax due amount: $195,347 (Tax payment simply returned back to the City s general fund) After the Site transfer to Pike LLC the City provided a $400,000 USEPA Cleanup Revolving Loan commitment to Pike for asbestos abatement and cleanup activities

23 Current Site Conditions Post Demolition: Completion of demolition has allowed for immediate reuse of the Former Staubs Site for needed parking.

24 Anticipated Results Nine-parcel Pike campus improvements include renovations, new office, garage, storage yard, and parking 100 jobs relocated to the City & 50 new jobs projected $7 million in private investment Total campus projected net assessed valuation increase: $1.9 million Projected $100,000 in additional annual property tax revenues (after initial tax abatements) Elimination of a vacant structure at a key location on Main Street Avoidance of City maintenance burdens and liabilities associated with an abandoned, tax delinquent, contaminated site Environmental cleanup and protection of public health

25 Federal Brownfield Policy affecting New York State Since the mid-1990 s a number of key programs remain that support brownfield redevelopment Bi-partisan congressional support has developed over time for funding brownfields: The original 2002 authorization for the USEPA brownfield program expired in 2006 Appropriations have continued each year (although below the authorization amount)

26 FY2018 Federal Environmental Protection Agency Brownfield Funding (Appropriations) Prior Year FY 2017: $153.3 M with $80M for project grants President s Budget: $118.5 M with $69M for grants House and Senate propose continuation of funding at or around FY 2017 levels: Senate: Same as FY 2017 House: $163.2 M with $90M for grants

27 USEPA Brownfield Program Appropriations status FY 2017 FY 2018 Budget FY 2018 House FY 2018 Senate Project Grants 80.0 M 69.0 M 90.0 M 80.0 M Funding for States 47.7 M 33.4 M 47.7 M 47.7 M EPA Program Management 25.6 M 16.1 M 25.5 M 25.6 M TOTAL M M M M

28 Commerce Department Economic Development Administration (EDA) Brownfield related grants for: Public Works and Economic Adjustment Assistance (EAA) Programs Planning and Local Technical Assistance programs FY 2017: $276 M Administration: $30 M Senate: $254 M House: $176 M

29 HUD Community Development Block Grant Funding (CDBG) FY 2017: $3 billion Administration: Zero Senate: $3 billion House: $3 billion

30 Federal Brownfields Policy affecting NYS One federal brownfield tool that is no longer available: Federal Brownfield Tax Incentive (BTI) Under the Brownfields Tax Incentive, environmental cleanup costs were fully deductible in the year incurred, rather than capitalized and spread over time. Improvements in 2006 expanded the tax incentive to include petroleum cleanup. Sunset on December 31, Congress has not renewed the BTI. Therefore, the tax incentive cannot be claimed for tax years beyond Originally signed into law in 1997 the BTI was used in by parties performing cleanup in NYS, especially in NYC.

31 New Federal Tax Law Effect on Existing Incentives: New Markets Tax Credits Historic Rehabilitation Tax Credits (20%) Non Historic Rehabilitation Tax Credit (10%) Low Income Housing Tax Credits (4% PAB) Renewable energy investment tax credit (10%) Tax exemption for private activity development bonds Renewable energy production tax credit Also remember that NYS BCP income tax credits became more lucrative with the recent federal income tax re-bracketing and rate cuts

32 Historic rehabilitation 20% tax credits Retained, but with reduced bottom-line value One of the most important brownfield financing tools especially for smaller projects of less than $1 million in size has been preserved, although Credits will now have to be claimed over 5 years upon project completion, rather than all in the year the restored property is put back into service. For large projects, this could affect the up-front syndication value of these credits; for small projects, it will likely require accommodating a new strategy for managing cash flow that addresses property preparation. In addition, the majority of states have their own historic tax credit programs, many synchronized with the federal tax code; the impact of this change in state credit time frames has yet to be determined.

33 Non historic rehabilitation tax credits (10%, for pre 1936 buildings) Repealed Not used nearly as often as the historic credits, the 10% credit nevertheless helped finance numerous revitalization projects involving the types of old buildings typical of brownfield properties, often for small economic development projects. Given this change, it may make sense for developers or communities to pursue historic designation for these properties, to take advantage of the revised 20% historic credit.

34 New Markets Tax Credits (previously authorized 2018 and 2019 rounds) Retained Targeted to distressed lowincome areas the typical brownfield location in many communities retention of NMTCs will channel $7 billion in private investment dollars to these areas nationally over the next few years, mostly for job generating real estate and business development projects. The tax act did not authorize NMTCs beyond 2019

35 Private Activity Bond (PAB) interest exemption Retained Continued availability of tax-exempt bonds to developers and state and local jurisdiction; While traditionally more of a tangential tool to brownfield redevelopment, PABs are a vital piece of public-private partnerships that finance manufacturing, infrastructure, hospitals, and other economic and community development investment.

36 Low income housing tax credits retained(lihtc s) LIHTCs emerged with no substantive changes (Both the 9% volume cap and the 4% PAB credits); Critical to financing affordable housing development and have been used in numerous brownfield-to-housing projects across the country. However, the nature of these credits, and who uses them, means that the lower corporate tax rate will make these credits less attractive to investors.

37 Renewable energy investment tax credits Production tax credits retained These credits, which have been integrated into brownfield repowering projects, will continue as-is, with existing phase downs (after 2019 for investment tax credits, after 2016 for production tax credits) retained.

38 Investing in Opportunity Zones Newly authorized: HR 1 included a new incentive to invest capital gains in new or existing businesses in state-designated opportunity zones in low-income communities, using criteria comparable to those for NMTCs. States will be allowed to designate up to 25% of their lowincome census tracts as opportunity zones, for a 10-year period. Qualified opportunity funds will be organized for purposes of investing in opportunity zone property. While specifics have yet to be defined, brownfield reuse advocates might be able to leverage their designation and operation to target distressed properties for revitalization.

39 Federal EPA Brownfield Program REauthorization Original Authorization Expired in 2006 House passed reauthorization (HR 3017) by Senate bill (S. 822) ready for floor action. Key Provisions: New multi-purpose grants can be used for planning, assessment, and clean-up. Increases funding maximum level for clean-up grants. Enhances liability protection for public agencies that acquire sites. Grant eligibility for sites acquired prior to Non-profits eligible for clean-up grants. Allows portion of grant funds to cover administrative costs.

40 Fondly Remembering Charlie Bartsch The Father of Brownfields

41 Contact Information: Mark Gregor Manager of Municipal Environmental Programs LaBella Associates