Relates to brownfield site cleanup; repealer

Summary of provisions

Section 1 would amend section 27-1405 of the Environmental Conservation Law (ECL) to provide potential applicants, the DEC, and other public and private institutions with guidance on site eligibility. An eligible brownfield would be characterized as a site that reasonably demonstrates a strong suspicion of a significant level of contamination, which is a determination that would typically, though not exclusively, be determined through the completion of a phase I environmental report. A determination of

eligibility would require a prima facie showing that rede- velopment of the site would be greatly inhibited by actual or suspected contamination factors at or below the surface level. Evidence of non-discretionary market-based economic distress must also be demonstrated, to determine if a site merits entrance into the BCP and the as-of-light State financial support. An eligible site must be primarily abandoned currently or at any time prior to application, or characterized by any prior and current severe economic or functional underutilization of a site, which is evident where the property is used as a parking, storage, or hazardous or solid waste facility. If the site's primary use has been and is intended to be a manufacturing or other industrial facility, a credible market study must show that the building and equipment presently at the location must be functionally obsolescent on an internationally comparative basis for the site to be eligible. The section also would allow current active State Superfund and RCRA sites in the program if owned and controlled by hue volunteers who pledge to complete any necessary investigations and remediation. Volunteers would also assume all future costs related to such sites, and they or their successors would have to maintain all institutional and engineer controls as required by DEC.

Section 2 of this bill would amend section 27-1409 of the ECL to limit the fees that DEC can impose on participants in smaller scale projects for administering the BCP. DEC and other concerned State entities can currently impose oversight and administrative fees related to costs connected to the BCP. There are no current limits on the extent of these fees related to the size of a potential project. This bill would cap these fees at no more than five percent of the site preparation costs related to ground, vapor, and groundwater cleanups as defined in section twenty-one of the tax law. In addition, such fees would be payable only upon the receipt of the certificate of completion for the project, or upon voluntary or other termination in the program. This section would also make clear that failure to pay due fees will result in revocation of such certificate and prohibit future participation in the program.

Section 3 would enact a new Title 45 to Article 71 the ECL, which would supersede the existing Title 36 environmental easement program unique to New York and provide for the use of environmental covenants as adopted by over twenty other states where brownfields are also a significant public concern. These covenants present a uniform method for assuring that title holders and their predecessors and successors maintain responsibility for ongoing maintenance and controls at a site that has gone through the BCP. Adoption of the covenant model will provide assurance and confidence to out-of state lenders and other interested parties on the status and future disposition of sites, based on common experiences with the conditions in other states that have adopted the environmental covenant model legislation.

Section 4 would amend section 27-1318 of the ECL to allow an owner or other responsible party to execute an environmental covenant in lieu of an environmental easement.

Section 5 would amend section 27-1415 of the ECL to require the DEC to record in its database on brownfield sites a copy of any environmental covenant created under Title 45 of Article 71 of the ECL.

Section 6 would amend section 27-1419 of the ECL to require that any site owner of a covered party must certify that an environmental coven- ant has been duly created and recorded and any affected municipality has been duly notified of the existence of the covenant.

Section 7 would amend section 56-0503 of ECL to add to the requirement under current law that municipalities, to participate in the environmental restoration program, must place and be bound by environmental easements as deemed necessary by the DEC.

Section 8 would amend section 21 of the Tax Law to treat taxpayers filing under Article 22 of the Tax Law (businesses treating income under the Personal Income Tax such as partnerships and Limited Liability Companies) the same as other business filers.

Section 9 of the bill would further amend section 21 of the Tax Law to make a technical correction to the statute regarding caps. When the caps were placed on development credits in 2008, they guaranteed the taxpayer a positive basis for the calculation of the credit limitation, based on a product of the site preparation credit component and the groundwater remediation credit component, the outcome of which was independent of the taxpayer's choice to take an expense deduction of cleanup costs under section 198 of the Internal Revenue Code. Current law is dependent on this choice as it requires the taxpayer to choose between the federal expense deduction or the state cleanup credits. Each taxpayer's circumstance may vary on which is the most advantageous course to elect. Under the product cap limiting development credits, which is based on a multiple of depreciable cleanup costs, if the taxpayer chooses to expense the costs for a federal deduction, there is no cleanup cost basis to apply towards the development credit cap. With no basis for the product, the amount of development credits under this current scenario is zero. This bill would allow the taxpayer to compute the maximum allowable development credit regardless of the treatment of the expenses for federal purposes. In addition, this section increases the cap for sites redeveloped primarily as a qualified manufacturing site by .333 percent to provide a maximum inducement and State support for these globally coveted projects.

Section 10 would amend subdivision (b) of section 21 of the Tax Law to reinstate county criteria-based EZs and have all EZs updated to reflect the recently completed 2010 Census.

Section 11 would make conforming EZ changes to section 22 of the Tax Law.

Section 12 would triple the existing Environmental Remediation Insurance credit granted under section 23 of the Tax Law from a maximum of $30,000 per BCP site to $90,000.

Section 13 would make the tax credits under the BCP permanent and would allow taxpayers who have not received a certificate of completion for a qualified site by March 31, 2015, to be eligible for tax credits under the program. This sunset date is especially pernicious since qualified sites take at least three and half years to get through the program, and many applicants asking for a site to be admitted to the BCP would likely be already ineligible for any State support through the program.

Section 14 provides for a severability clause for the sections of the bill.

Section 15 provides for an immediate effective date for the bill and would apply the new statutes only to all qualified sites accepted into the BCP on or after July 1, 2012.

Existing law

The Brownfield Cleanup Program was enacted in 2003 to encourage and guide the redevelopment of the State's largest and/or most economically inhibiting contaminated properties not on the federal priority list. Title 14 of Article 27 of the ECL was adopted to define project eligibility and give statutory grounding for administration of the program. Three new sections of the tax law were adopted to provide significant incentives through the nation's first fully refundable large-scale business tax credits. These credits provide state support for a portion of cleanups and redevelopment with much greater support for projects in distressed neighborhoods, provide a full or partial State rebate for property taxes paid on redeveloped properties based on the location of the site and the number of jobs created, and give an incentive for the carrying of environmental remediation insurance. In 2008, the redevelopment credits were capped to provide a sense of budgetary predictability.

Prior legislative history

This is a new bill.

Statement in support

The New York State Brownfield Cleanup Program has proved to be the nation's best designed and most successful remediation, smart-growth, sustainability, reclamation, and economic development tool. Budget concerns and programmatic anxieties have led to many proposals to amend the program, especially the redevelopment incentives, proposals that would make credits discretionary, and programs that would

fundamentally interfere with the marketplace. These proposals threaten the BCP's success in attaining the nation's highest cleanup standards backed by market-driven and as-of-light incentives. These proposals would also lead us back toward the old status quo of permanently abandoned sites, sprawl, urban decay, poor cleanups and redevelopment, and in doing so would defeat the dream for true sustainability and the promise of creating livable communities. A review of all the relevant facts available to date illustrates the overwhelming triumphs of the current tax credit program, rather than its shortcomings. The State needs to concentrate on fixing the administrative and programmatic problems, instead of focusing on the tax credits that have been the true measure of success for the program so far, would further strengthen the BCP.

A short recap demonstrates just how revolutionary Chapter 1 of the Laws of 2003 truly was and continues to be. While the State in the 1980's and 1990's did offer substantial grants to remediate sites-in many cases offering to pay nearly the entire cost of cleanups-New York was universally viewed as having one of the poorest cleanup and redevelopment records in the nation. By 1999, it had become clear to both houses of the State Legislature, the Executive, and the environmental and business communities, that New York's Superfund and other remediation programs were ineffective, underfunded, and poorly designed. New York State, despite likely having more major brownfields than any other state-and certainly more major urban and suburban areas adversely impacted by contaminated sites-also had the most dysfunctional programs. Despite laudatory goals and objectives, millions in capital funds and supporting statutes that sought protective cleanups and redevelopment, and while policies called for higher standards, shovel ready sites, and various ways to reclaim our urban cores and satisfy pressing demands for environmental justice, nearly every site remained unclaimed and toxic, cleanup agreements that were signed were inadequate, and capital grants and municipal awards were unproductive at best.

The State should have learned by this point that programs that. only reward cleanup efforts, or that attempt to centrally and rationally plan the type, location, and Scope of future redevelopment do not work. Only making sites "shovel ready" has demonstrated time and time again to result in corrupted or incomplete cleanups that have always left sites de-industrialized, poorly reused, and often still hazardous.

The BCP relies on a market-based approach. This mechanism will not unfairly prejudice one geographic sector of the State in preference of another, and tax incentives would be the most generous offered through any program in the State if not the nation. These properties need to employ the "highest and best use" test as determined by private sector specialists and risk takers.

The program's remediation and redevelopment incentives have proven beyond doubt to be the most paradigm shattering. For the first time anywhere, a completely market-driven, fully refundable tax credit system was adopted that would get sites cleaned-up to the highest standards, get projects done at a level of quality and job creation happening nowhere else, and getting sites done that have sat idle for decades.

The BCP has resulted in more private dollars being spent on cleanups and redevelopment than the rest of the nation combined.

The BCP is not designed, and cannot reasonably be altered, to cover the multitude of very small sites throughout the State. The program was meant to cover the State's largest or most problematical properties that justified private redevelopment. However, the State should anticipate at least forty projects a year through the program, four times more than previously obtained. Also, no projects from Long Island, home .o some of the State's worst environmental sites, have come completely through the program. The reforms in this bill would aid the reclamation and redevelopment of this crucial sector of the State.

What is more, the BCP has proved to be a much better mechanism to getting sites cleaned up and redeveloped than the State Superfund and registry programs at a much lower cost to the taxpayers. These sites originally were allowed into the BCP for a very short window. It is time to open these sites in the BCP on a permanent basis.

Since enactment of the BCP, the State so far has spent $365,118,000 on the superfund program-$220,118,000 on actual cleanup and $145 million on administrative costs. (Included within the $365 million is about $85 million that was rolled into old hazardous waste programs and paid for by current indebtedness.) Despite this large commitment of State resources, Superfund and RCRA sites still take decades to reclaim at merely industrial standards, are still bound up with years of litigation, and remain undeveloped once the agreed upon cleanup is completed. Comparatively, BCP site reclaims at the nation's highest and best cleanup standards are completed within an average of 3.2 years. It is therefore in the State's interest once more to allow superfund and other regulated sites that are owned and controlled by hue volunteers back into the BCP.

In contrast, on the 92 sites that have gone through BCP and have been awarded Certificates of Completion through tax year 2010, $403 million in private funds have been spent on cleanups. This has cost state taxpayers under $40 million in "pay go" cleanup credits. Nearly $3 billion in private funds have been spent on redevelopment of these sites. State taxpayers have provided nearly $461 million in support for buildings and equipment on these projects that have resulted in thousands of good jobs throughout the State. These redeveloped sites

have more than repaid the State's taxpayers investment with increased income, sales, and property taxes and elevated real estate values.

In addition, the BCP has not favored one geographic area of the State over any other. Although New York City and Westchester projects on average have been larger in scope, actually more projects from Upstate have come through the program-hence, an equilibrium.

The overriding problems in the program have come, not from the tax credits, but from issues of eligibility and the administration of the program. The original definition of a brownfield came from the Federal Environmental Protection Agency description that is extremely broad and was intended to aid states and localities in creating a site inventory, not to actually cleanup and redevelop identified sites. This definition had produced an impossible burden on DEC. These definitional problems have resulted in endless litigation, process delays, and a sense that the State cannot keep its commitments.

This bill would provide DEC with a definition that will focus the program on sites that the market has determined are in great distress rather than eliminating the strengths of the program through giving government officials discretionary powers of the location, number, and types of cleanups and redevelopments. Except for globally hyper-competitive manufacturing projects, the program should remain neutral over the type of developments meriting support. The State cannot forget that the BCP is as much an economic development as an environmental program. The BCP should also not be used as an experiment for unproven sustainability and low-income housing programs.

Furthermore, the bill would give private lenders more security about the programmatic requirements in the BCP and help assure that the State will keep its promises on incentives. Finally, it is absolutely essential that the sunsets in the current program be eliminated, as it is currently past the timeframe for a taxpayer to receive credits if these sunsets remain.

Fiscal implications

The bill is designed to be revenue neutral. Tighter eligibility standards would be offset by allowing State Superfund and RCRA sites into the program.

Providing Personal Income Tax filers parity would be counterbalanced by removing incentives not driven by market criteria. Capping oversight fees on small projects would be more than made up by increased penalties for non-payment. The program would continue to expend approximately an estimated $400 million a year on around forty new projects per year throughout the State.

Effective date

This bill has an immediate effective date. However, the provisions of the bill would only apply to applications that have been accepted into the BCP on or after July 1, 2012.