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Testimony to
New York State Senate Finance Committee and Assembly Ways and Means Committee Hearing On SFY 2014-2015 Executive Budget Proposal
Amendments to the Brownfield Clean-Up Program

Presented by
Darren Suarez
Director of Government Affairs

January 29, 2014

Good morning Chairmen Farrell, DeFrancisco, Grisanti, and Sweeney, and the other members of the Legislature. I am Darren Suarez, Director of Government Affairs for The Business Council of New York State. Thank you for the opportunity to testify about the Governor’s Executive Budget and his proposed changes to the Brownfield Clean-up Program (“BCP”).

The Business Council is the leading business organization in New York, representing the interests of large and small firms throughout the state. Its membership is made up of over 2,500 companies, as well as local chambers of commerce and professional and trade associations.

As an organization dedicated to advancing an economic climate that encourages opportunity, entrepreneurship, and innovation, I offer testimony today to articulate our support for the current program. Brownfield projects have successfully redeveloped properties, neighborhoods, and communities, all while returning a direct capital investment of over $6.80 for every $1 of tax incentives. In a soon to be released study by the Public Policy Institute, we have determined that the current program has provided significant returns to New York in the form of state taxes and payroll.

The Business Council supports the framework and much of the intent contained in the Executive’s proposed amendments to the BCP; provided, however, we do have concerns about the results of some of the specific provisions.

Many of our members are currently reviewing the proposed amendments to determine the real world impacts. Today I will share with you some of our early observations, but in the coming weeks, our membership will provide a thorough and detailed response.

Background

In 2003, the Legislature and Governor George Paktaki developed landmark legislation that refinanced and reformed New York State's Superfund Program(1), expanded the Superfund program to cover hazardous substance sites, increased the effectiveness of the municipal brownfield program, increased public participation in cleanups, adopted use-based approach to cleanups, provided liability relief to municipalities and lenders; and created a new brownfields program.

The passage of the legislation was not simple; the Legislature, the Executive and determined advocates worked to draft and shape the complex legislation intensely for over four years. Much of debate regarding the legislation focused on the cleanup standards, and liability provisions.

The BCP was enacted because “ ... there are thousands of abandoned and likely contaminated properties that threaten the health and vitality of the communities they burden .... it is appropriate to adopt this act to encourage persons to voluntarily remediate brownfield sites for reuse and redevelopment.(2)

To meet the goals of the program, the legislation authorized the state, upon issuance of a certificate of completion for a brownfield site, to provide the applicant with a covenant not to sue for any liability, including any future liability or claim for further remediation of hazardous waste and/or petroleum at or emanating from the brownfield site that was the subject of such certificate. Additionally, the program provides an opportunity for developers to earn tax credits.

Tax Incentives for Brownfields

The most significant of the credits is the "Brownfield Redevelopment Tax Credit", which consists of the sum of three credit components: a site preparation credit component; a tangible property credit component; and an on-site groundwater remediation credit component. The credits are computed by applying a percentage to costs relating to each component.

The BCP credits are refundable, which means if the credit amount exceeds the total tax owed to the state for the year, the excess is refunded by the state to the taxpayer.

Additionally, the legislation created an "Environmental Remediation Insurance Credit.” The amount of this credit is 50% of the premiums paid on or after the date a brownfield site agreement is executed by the taxpayer and the Department of Environmental Conservation. There is a cap that limits the credit to $30,000.

A year later, after the creation of the BCP, Chapter 577 of the Laws of 2004 was adopted to provide a series of technical amendments. Contained in those amendments was a provision to extend the tax credits to residential projects other than rental housing. The initial draft of the legislation did not include residential units constructed by a developer for resale (such as condominiums, townhomes, or single family residences) as qualified tangible property. The chapter amendment extended the tangible property credit to residential units.

Chapter 577 contained a significant number of amendments that were “technical in nature,” including a provision clarifying that certificate of completion can be transferred to a new owner without triggering a change of use; lenders were provided the same liability exemptions for oil-spill sites as they were for Superfund properties, and the definition of municipality was clarified.

Amended Tax Credits in 2008

In 2008, after considerable media attention on outlier projects, amendments to the tax credits were adopted. The legislation imposed a cap on the tangible property tax credits, limiting credits for non-manufacturing projects to the lesser of $35 million or three times the site preparation costs (which include cleanup costs) and to the lesser of $45 million or six times the site preparation costs for manufacturing projects.

The site preparation and on-site groundwater remediation credits were restructured to increase incentives for achievement of the highest soil cleanup objectives. The site preparation and on-site groundwater remediation tax credits were not limited by a dollar cap.

The legislation added several reporting requirements to include the amount of tax credits claimed the redevelopment and taxes generated, and data on the progress of the BCP. The new reporting requirements were an attempt by the Legislature to provide the public with a fuller picture of the BCP.

The effects of the 2008 changes have not appeared yet because Tax & Finance does not track them differently than the pre-2008 projects, but it is logical to determine that some of the significant outlier projects that have been identified would not have occurred under the 2008 changes. In fact, the 2008 changes were agreed to in-part because they did address those outlier projects.

Program Success

The program’s success is very apparent for anyone who is interested in looking beyond the headlines. Brownfield projects have successfully redeveloped properties, neighborhoods, and communities better than another single program in the state, all the while returning a direct capital investment of over $1.2 billion.

The data is undeniable – New York taxpayers have seen $6.80 in capital investment for every $1 of tax incentives. This is only direct investment and does not include the other benefits to the economy including jobs, wage taxes, sales taxes, corporate taxes, property taxes, infrastructure  savings (roads, powerlines, sewer, etc), or the environmental benefits.

There are numerous examples of brownfield redevelopment projects that have literally transformed a property, and the area around the property.

Critical Juncture

In December, The Business Council joined with members of the development community, the environmental justice community, and the environmental community, to request that the Executive Budget amend and extend the brownfield tax credits.

The letter stated “that the state has reached a critical juncture: sites currently entering the Brownfield Cleanup Program (BCP) are increasingly less likely to complete the program before the Brownfield Redevelopment Tax Credit sunsets at the end of 2015. It is paramount that the Brownfield Redevelopment Tax Credits be extended - along with the BCP and the Brownfield Opportunity Areas (BOA), they are driving brownfield cleanups and redevelopment in New York State.”

Many of the requests of the letter are contained in the Executive Budget including:

The Executive budget proposal has provided a critical framework to focus a discussion on the BCP program. After initial review of the proposal, our membership has developed an early list of critical items that should be addressed by all parties to ensure the BCP continues to encourage persons to voluntarily remediate brownfield sites for reuse and redevelopment.

It is very clear that, with the right reforms, the BCP can empower communities and private capital to redevelop New York’s contaminated brownfield sites. Unfortunately, some of the proposed amendments to the program will increase uncertainty, and reduce the programs ability to empower communities and private capital.

Specific Concerns

The Executive budget proposes to create three tiers of brownfield projects.
We support the creation of the first tier, under which brownfield sites will be eligible for a fast-track voluntary cleanup program without tax credits. The Business Council strongly supports the creation of this new tier, as many businesses are interested in quickly and safely addressing lightly contaminated sites in a manner that will result in reduced potential state liability.

We have significant concerns regarding the criteria that will be used to separate other projects into the newly proposed second tier, which – under the Executive Budget - would include sites that are not eligible for the tangible property credits, and the proposed third tier, which would include tax credit-eligible sites.

While The Business Council agrees that not every site admitted to the program needs to be eligible for redevelopment credits, we do not support the currently proposed criteria limiting eligibility for the tangible property credits.

The Executive Budget proposes that to be eligible for the tangible property credit a site must demonstrate that the site meets one of three tests:

The Business Council believes that these tests as currently drafted are too restrictive, and will lead to excluding sites which should remain fully eligible for tangible property credits.

Our membership is in the process now of reviewing past projects to determine the practical effects of the three criteria. Our initial concerns include the following:

The Business Council has concerns with other components of the Executive Budget proposal as well. The Business Council strongly urges the Administration to rethink the proposed “grandfathering” amendments, which impose significant modifications to the current terms and conditions for sites’ participation in the BCP, thereby increasing uncertainty and raising a future barrier to entry to the BCP.

Breaking from past reforms, the proposal would remove sites for which a brownfield cleanup agreement (BCA) was entered into before June 23, 2008, if it does not obtain a CoC by December 31, 2015. A site with a BCA dated after June 23, 2008, and before July 1, 2014, would be removed unless the CoC is issued by December 31, 2017. Sites accepted into the BCP after July 1, 2014, would have to receive a CoC by December 31, 2025, to qualify for any BCP credits. These provisions do not take into consideration market conditions, or newly discovered environmental conditions.

Another proposed change would require that the implementation of an approved work plan must begin within 90 days of approval and must proceed on the department-approved schedule. This is not necessarily practical even in the best of real estate markets. This provision could force poor long-term choices to satisfy an unjustified urgency. The DEC is right to be concerned about the timeframe for completion of this program, but the development of uncompromising statutory solutions does not reflect the long-term best interest of the community.

Finally, the effective date of this proposal should be amended to January 1, 2016, thus providing a greater transition period between programs.

Conclusion

In closing, we urge you to recognize that brownfield redevelopment can benefit both private investors and the communities in which these projects are located. For the private sector, brownfields redevelopment can mean new business opportunities, new revenues from underutilized assets, and access to untapped urban markets. For communities, the program provides improved community and environmental stewardship, employment opportunities, increased local and state tax revenues, improvements in the community’s quality of life, and a reduction in urban sprawl.

The Executive Budget proposal provides a framework for a productive conversation, and contains numerous positive reforms; however, it includes several issues of significant concern that we believe would reduce the effectiveness of the brownfield cleanup law.

Thank you again for the opportunity to comment. We look forward to continuing our conversation with the Administration and the State Legislature to advance a multi-faceted effort to strengthen BCP. With the right reforms, the program will empower communities and private capital to redevelop New York’s contaminated brownfield sites.

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  1. The legislation contained a significant fee increase on manufacturing see www.bcnys.org/inside/env/superfund061303.pdf
  2. (ECL 27-1403)