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New York’s Brownfield Law Opens Up New Development Opportunities

Client Advisory

November 2004
by Clifford P. Case III, Michael Davis, Stephen L. Kass and Jean McCarrol

New York has enacted its long-awaited brownfield law, which substantially changes the way that many sites contaminated by hazardous wastes and petroleum can be remediated and restored to active use. The various provisions create distinct benefits and responsibilities for landowners and developers, the New York State Department of Environmental Conservation (“DEC”), municipalities and the public. While there is a significant amount of uncertainty about how the law will be implemented, both developers and environmental advocates have greeted it optimistically. It aggressively tackles some of the most important obstacles to reuse of abandoned industrial sites in the state: in particular the high cost of remediation and fear of ongoing liability. 

Brownfield Cleanup Program

The law establishes the Brownfield Cleanup Program.  This program has replaced the Voluntary Cleanup Program, which lacked a statutory basis and was generally considered to have been minimally successful in promoting redevelopment of contaminated sites. “Brownfield” is defined 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.” Thousands of  sites around the state, with varying levels of soil and groundwater contamination, may be eligible to participate.  The program will particularly benefit waterfronts and urban areas where these sites are concentrated.

Financial Incentives

Two elements of the law provide financial incentives to bring investment back to many long-abandoned sites. At the heart of the brownfield law are four cleanup “tracks,” permitting applicants to choose different levels of cleanup based on the extent of contamination and the type of use for the property that is anticipated.  For example, a developer may be able to choose a less-onerous cleanup by proposing that the site be capped with asphalt for a commercial development.  This would ensure that human health is protected while reducing the costs of cleanup. 

The second financial incentive is tax credits.  These include the redevelopment tax credit, the real property tax credit, and the environmental remediation insurance credit. The costs of preparing the site for development, the actual construction of usable buildings and onsite groundwater remediation costs can be used to calculate the available tax credit. Since credits are actually deducted from the personal or corporate tax bill at the end of the year, and negative credits (when the credits are larger than the tax bill) are refundable, the financial benefits may be quite large.  Up to 22 percent of these costs may be counted as credits under certain conditions.  Furthermore, a credit for property taxes and a one-time-only $30,000 environmental insurance credit may be available.

Liability Protection

The brownfield law reduces liability in two ways.  First, the certificate  that is awarded at the end of a successful brownfield cleanup under the program will function as a “covenant not to sue.”  Both the Department of Environmental Conservation and the State Attorney General will no longer be able to bring legal action based on the contamination.  The covenant not to sue will be available to future purchasers as well.  Participation in the program may be in the best interests of potentially responsible parties whom the State may target with enforcement actions as the Brownfield Cleanup Program gets underway.  Note, however, that there are a host of exceptions to this protection. 

Liability under New York State’s “Superfund” law is altered as well.  The most significant of the new liability defenses is the “innocent purchaser defense.”  Purchasers that conducted an exhaustive environmental inquiry before purchasing a site, only to have contamination show up later anyway, may not be liable.  Lenders or municipalities that take ownership involuntarily or pursuant to foreclosure on a defaulted loan or tax lien also will not incur liability, under certain conditions. 

Special Provisions for Municipalities

Municipalities, broadly defined under the law, will also benefit.  Funding available under the Environmental Restoration Program (“ERP”), a program created in 1996, is increased from 75 percent to up to 90 percent of the costs that municipalities incur in assessing or remediating a brownfield.  Brownfield Opportunity Areas (“BOAs”), localities with concentrations of brownfields, will be eligible for preferential treatment under the ERP.  Added tax credits are available for developers in Environmental Zones, the state’s poorest census tracts.  Municipalities will be able to petition courts for the right to enter and investigate abandoned properties and add those costs to any unpaid tax bill on the property. This provision is intended to allow municipalities to identify a contaminated property and determine the extent of contamination on it without taking ownership or incurring liability as the owner of the site. 

What to Expect Next

The law contains several inconsistencies and more than a few gray areas that need to be cleared up by DEC regulations and perhaps some amendments by the state legislature.  The regulations were expected in the fall of 2004 but have been delayed.  Technical amendments to the law were recently approved. The DEC must also produce a Guide to Public Participation to address the extensive role envisioned for the public.  Despite the need for further regulations and guidance, applications are being filed and approved. 

Conclusion

Not all sites or parties are eligible to participate in the Brownfield Cleanup Program.  Nevertheless, for those that do qualify, the program’s financial incentives and liability protection may make reinvestment in brownfields highly profitable. 


For further information please contact Clifford P. Case (212-238-8798, case@clm.com), Michael C. Davis (202-623-5710, mdavis@clm.com), Stephen L. Kass (212-238-8801, kass@clm.com), and Jean M. McCarroll (212-238-8828, mccarroll@clm.com).  



Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © 2017 Carter Ledyard & Milburn LLP.
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