STEPS TO STABILITY:

A Report on the Key Issues FacingNew York State Brownfields Policy

March 2014

On January 21, Governor Andrew Cuomo released his proposed budget for the 2014-15 fiscal year, which would modify and extend the state’s Brownfield Tax Credits (BTCs) for 10 years, provide $90 million for the state Superfund Program, and begin to revive the Environmental Restoration Program (ERP) with a $10 million allocation. Inexplicably, it eliminates funding for the Brownfield Opportunity Areas (BOA) Program.The nonprofit organization, New Partners for Community Revitalization (NPCR), that emerged during the multi-year policy debate surrounding the 2003 brownfields law, and which has been at the forefront of brownfields policy ever since, is issuing this report to help inform the public and decision-makers about the implications of the Governor’s proposal on the cleanup of contaminated sites and the neighborhoods in which they are located.

On March 4th, NPCR held a Roundtable discussion that engaged a range of interested parties – developers, community representatives, state and local government officials, environmental and tax attorneys, engineers, academicians and planners. The purpose of the Roundtable was to give stakeholders an opportunity to consider the impact of the Governor’s proposal. A consensus was not sought. Given the number and complexity of the issues and viewpoints involved, NPCR saw value in recording the views of those New Yorkers who will be working with and be impacted by a modified and reformed program, without attempting to reach agreement on an ideal approach. NPCR was seeking a clearer understanding about how the proposal would work in the real world: where participants saw program improvements, large or small, and where they saw potential for unintended consequences. Participants were encouraged to discuss likely implications of proposed changes, to assess proposed language for clarity, and to make recommendations for both substantive and linguistic changes. Participants were told that their discussion would be set forth in a report[1] but, to help ensure an open and honest dialogue, they were promised that no one would be quoted and no ideas or comments would be attributed to particular individuals.

In the end, the participants expressed similar views on a number of key issues, and made a range of recommendations on others. Importantly, as discussed below, there was strong agreement that the defunding of BOA communities is not in the best interest of the state and its least prosperous neighborhoods, or the success of the Brownfield Cleanup Program for which the BOA program is creating a pipeline of projects. The consensus was that the BOA program has been underfunded and understaffed since its inception and should be given a reasonable opportunity to fulfill its promise as a catalyst for thoughtful, community-supported, coordinated urban and downtown revitalization throughout the state. There is agreement that BOA works in tandem with the state’s other brownfield programs, filling a resource gap, particularly in poor neighborhoods and communities of color which are disproportionately impacted by multiple brownfields. BOA is advancing area-wide community-supported redevelopment strategies, creating value and strengthening the market in poor neighborhoodswith a history of disinvestment and decay.

EXECUTIVE SUMMARY

While stakeholders are generally pleased that Governor Cuomo has issued a brownfields proposal, there is considerable dissatisfaction with the proposal as currently drafted. The many questions raised and ideas discussed at the Roundtable are detailed below. To summarize the larger consensus issues, the stakeholder discussion would indicate that, the four changes listed below would result in vastly increased support forthe proposal, and would offer the best balance of costs and benefits for most New Yorkers, while achieving the Governor’s objective of targeting the state’s resources to projects that need the support.

  1. BOA - Restore the BOA program to its original annual funding level of $15million– to make the important connection between thoughtful local planning, coordinated development within communitiesand the incentives offered by both the Brownfield Cleanup Program and Environmental Restoration Program, thereby creating strategic revitalization opportunities for poor neighborhoods and communities of color. To increase cost effectiveness of brownfield cleanup and redevelopment resources, the state needs to put more – not less – emphasis on planned redevelopment of clusters of strategic brownfields, as opposed to piecemeal incentivizing of individual brownfield cleanups. To date, the state’s $46 million BOA investment is creating and strengthening the market in 126 poor communities, advancing over 12,000 sites. The $15 million requested for BOA is a fraction of what is available for many single projects in the Brownfield Cleanup Program.
  1. New Doors to Access Tangible Property BTCs - Create two new “doors” for tangible property BTCs forprojects built consistent with a BOA and for affordable housing projects. These have already been acknowledged in the Governor’s bill as worthy of increased tangible property incentives, but for many or most projects in these critical categories, the tangible property incentives would not be available:

The heart of the reform in Governor Cuomo’s proposal would create two gates through which applicants may pass in order to access various tax credits. The first gate – through which a project would receive site preparation tax credits –would remain as-of-right for most projects(though eligible costs are significantly reduced). It is through the second gate – for tangible property tax credits – that Governor Cuomo seeks to achieve “targeting” of state dollars for projects in need. As proposed by the Governor, this gate has three doors through which an applicant can access tangible property tax credits: i) sites which meet the vacancy test (where the site has been vacant for at least 15 years, or has been both vacant and tax delinquent for at least 10 years); ii) sites which meet the Upside Down Test, where the applicant must demonstrate that the site is economically "upside down" (i.e., it is worth less in the absence of contamination than the projected cost of remediation); or iii) sites that satisfy the Priority Economic Development (PED) Project Test – which has strict jobs generation requirements. In addition, the Governor’s proposal would increase the amount of tangible property tax credits (the “bump-ups”), for sites in En-Zones (10%); sites conforming with a BOA (5%); and affordable housing projects (5%). However, these “bumpups” are only available to projects that are eligible to pass through one of the 3 doors.

  1. Vacancy Definition - Amend the vacancy “door” for tangible property BTCs so that there is a date certain (such as July 1, 2014) by which a property must be vacant for 15 years to meet this test. Restricting the 15 year vacancy test to a look backwards only, will ensure that property owners aren’t rewarded for keeping property vacant going forward. And, in recognition of the difficulty proving vacancy over such a long period of time, as well as the interest in encouraging more sites in distressed areas to participate, and, only if linked to a firm date connected to a backwards look, reduce to 5 years the amount of time that a project must be vacant in order to satisfy the vacancy test for tangible property BTCs.
  1. Grandfather Provisions–Amend the Governor’s proposal sothat all changes to the site preparation tax credit calculation and tangible property eligibilitywill affect only those projects that enter the Brownfield Cleanup Program (BCP) after July 1, 2014, defined as those projects that receive a notice that their request for participation has been accepted after July 1, 2014. Many projects currently in the program have based their planning and financing on the current rules, and would be in danger of default if the rules change now. This would create a particularly acute problem for affordable housing and other important projects in weak market areas. In addition, it would likely open the state up to significant lawsuits; and,it creates a political problem in that for many developers currently in the BCP, no legislation is better than the reform bill.

BROAD POLICY RECOMMENDATIONS

Though it was not the intention of NPCR to seek agreement on the various aspects of the Governor’s proposal, it became clear in the discussions that there were a number of items on which there was little or no disagreement. To the extent there were differing views, these are discussed below (without attribution).

  1. Restore $15 million in BOA Funding.NPCR has, on a number of occasions, drawn attention to the disconnect between the Brownfields Cleanup Program, administered by the NYS Department of Environmental Conservation (DEC), and the Brownfield Opportunity Areas (BOA) Program, managed by the NYS Department of State (DOS). Sizable tax credits have been available for both the cleanup (“site preparation” credits and groundwater remediation credits) and the redevelopment (“tangible property” credits) of brownfields, regardless of their location. At the same time, BOA grants have been given to communities for the development of revitalization strategies in blighted areas, focusing on the role that redeveloped brownfields might play in achieving economic and neighborhood revitalization goals. While BOA applicants were told to work with brownfield owners, there was never a reason for owners or developers of these properties to cooperate with – or even speak to – the community planners. Brownfield tax credits have been awarded as-of-right, even if a project conflicted with community plans and priorities.

The Governor’s proposal purports to fix this anomaly, by creating a stronger connection between the tax credits and Brownfield Opportunity Areas. Amendments proposed in the Governor’s budget would grant developers larger rewards for working in cooperation with BOA plans. This is a thoughtful and logical connection that could make a difference for hundreds of blighted neighborhoods around the State. The problem is that the fix is illusory, because:

  • There are no BOAs. No community has yet made it through the entire DOS process (though 16 communities are likely to achieve BOA certification in 2014); and
  • The budget, as proposed, includes no funding for the remaining 110 communities that have worked hard and raised neighborhood expectations via Step 1 and 2, but which now have no resources to advance to Step 3 and secure designation as a BOA.

The arguments for continued funding of communities seeking BOA designation begin with the progress made within the program, despite the many bureaucratic obstacles to success and a significant economic downturn. The fact that so many communities have nonetheless done so much in furtherance of revitalization is a testament to both the need for resources in our most challenged urban and downtown areas, and the energy and vision community members are ready to put into such an effort.

Among the obstacles, BOA program participants have faced are:

Relatively small grants, ranging from $21,159 for the Village of Perry in Wyoming County to $1.5million for Wyandanch on Long Island (in the most segregated community in NYS). A total of $46 million has been spent on BOA grants over the course of 10 years,involving some 12,000 contaminated sites[2]compared to the $1.25 billion that has been awarded via refundable brownfield tax credits to brownfield developers;

Waiting periods ranging from several months to 2 years in the awarding of BOA grants;

The need to access other resources up front, since BOA is a reimbursement program;

The fact that more than one third of all moneys allocated for BOA funding has never been available, due to the requirement of a legislative Memorandum of Understanding between the Governor and the two houses of the Legislature[3];

In the early years of the program, responsibility was split between DOS and DEC, slowing the review time for applications, work plans and proposals;

The heavy demands of each of the three steps to achieving BOA status, each step requiring a new set of tasks, separate application, a new process for the awarding of grants, and another waiting period; and

The lack of any incentive for brownfield owners and developers to work within the BOA planning process.

Despite the impediments, there are 126 communities across the state participating in the BOA Program, involving over 12,000contaminated sites, with an estimated 100 more neighborhoods waiting to get in (see attachment #5). Those who have already finished at least one stage of the process have accomplished a great deal, including dozens of marketing studies, site assessments, vision plans, meetings with landowners, banks, developers and community members.A growing pipeline of development sites has emerged (see attachment #2). There is also strong evidence that BOA activity is responsible for stimulating strategic involvement in the BCP, with a large amount of cleanup activity already taking place where BOA communities have made the most progress (see attachment #3).In addition, dozens of cleanups are taking place outside of the BCP. For example, 39 sites in BOA study areas have enrolled in the NYC voluntary cleanup program.

After years of struggle and persistence in an underfunded, understaffed and otherwise demanding program, strong BOA communities are emerging and momentum is building despite the obstacles. Defunding the program at this moment would slow, if not reverse, the momentum, and, for the scores of communities unable to go to the next step, investments to date will have been lost. By defunding the program, the State is not only squandering the capital and human investment that the program represents, but is cutting off real promise and opportunity in communities most blighted by brownfields and most in need of support.

  1. Create New Doors to Access Tangible Property BTCs.The Governor’s proposal should be amended to create two new “doors” for tangible property BTCs: i) for projects built consistent with a BOA; and ii) for affordable housing projects. These have already been acknowledged in the Governor’s bill as worthy of increased tangible property incentives, but for many or most projects in these critical categories, the tangible tax credits would not be available.

The Governor’s proposal responds to repeated criticisms regarding the historical high cost of the tax credits and the lack of targeting, leading many to believe that valuable “incentives” are going to some or many projects that would have been advanced without or with fewer tax credits. This is because, under the current program, tax credits for development (the tangible property credits) are as-of-right for all participants in the Brownfield Cleanup Program, with no showing of need or public benefit. The proposed amendments allow all participants in the BCP to receive tax credits for cleanup, but the more lucrative development credits are only available for upsidedown properties, long vacant or tax delinquent sites, and large projects meeting exacting jobs & economic development criteria. Roundtable participants spoke of these as the three “doors” to tangible property credits. All agree that these are too restricting and that there are good reasons to expand the investment these credits represent by adding at least two new “doors,” one for conforming projects in BOAs and one for affordable housing projects.

It is difficult to predict how often the vacancy door and economic development door will be accessible, particularly given the need for the State to further define key terms, such as “vacancy” and the required promulgation of regulations. The “Upside Down” door, all agree, would largely be used by Upstate projects, where property values are much lower than they are Downstate.

What is clear is that many worthy projects – both Upstate and Downstate - will be left without needed resources. Of particular concern are those projects that play a key role in the revitalization of blighted communities; highlighted as particularly important by the Roundtable participants were projects that emerge from a BOA plan and affordable housing projects.

BOA Door - BOAs are the State’s only true planning and neighborhood revitalization program, and, as discussed above, both the State and scores of communities around the state have already made significant investments crafting BOA revitalization strategies. They are overwhelmingly in poor neighborhoods and communities of color, whose demographics reflect high poverty and unemployment, (see attachment #4). Brownfields in BOAs are frequently viewed as posing too much risk for private investmentwithout the leverage of significant public incentive. The tangible property credits can change that. Development in the context of a community supported strategy is more likely to be synergistic than investments in projects not a part of a larger vision. And, as discussed above, by offering the tangible credits for projects that conform to a BOA plan, the incentives will also serve to inspire collaboration between the community and brownfield owners and developers. This will help to advance the revitalization efforts and realize the vision that a BOA plan represents.