New brownfields program clamps down on tax credits

By Jane C. Timm | July 23, 2008 03:50PM

New York State’s Brownfield Cleanup Program has been revamped again, this time by a new bill passed by the legislature in the last hours of its 2008 session.

The bill, which is set to be signed by Governor David Paterson today, aims to encourage the clean-up of brownfields, abandoned or under-utilized properties where development is impaired by a risk of environmental contamination. It increases the subsidies for clean-ups, while at the same time placing stricter controls on tax credits for subsequent developments that had been widely criticized for mostly enriching a few big builders.

“There needed to be some changes from the existing legislation,” said E. Gail Suchman, special counsel of Stroock & Stroock & Lavan. Stroock advises buyers of brownfield sites, while Suchman has been involved in drafting brownfields legislation for several states. She added that the tax credits were very costly for the state and were “not directing the funds in the right areas.”

The bill revises the current law, passed in 2003, which awarded tax credits based on overall redevelopment costs, in the amount of 10 to 22 percent of the project’s total price tag. That resulted in massive credits, far more than the actual clean-up costs, being paid out to single developers who were constructing costly buildings, according to the program’s critics.

“The current program has not achieved desired redevelopment in struggling areas,” a press release from the Governor’s office said, “and has provided large windfalls for some projects that were not meeting the state’s goals of assuring environmental cleanup while spurring economic development.”

The clean-up for a site could cost only $5 to $10 million, Suchman said, but total the costs of building a luxury condominium on the site would cost $500 million, meaning a developer could receive over $100 million in tax credits.

The new bill will provide tax credits ranging from 22 to 50 percent on the clean-up process. The redevelopment tax credits will stay the same, but a cap will be imposed for residential developments at three times the cleanup costs (or $35 million, whichever is less) and for manufacturing uses at six times the cleanup costs (or $45 million, whichever is less.) Manufacturing developments earned a higher tax credit in hopes of encouraging job creation.

“This legislation is an important step forward for improving both our environment and our economy,” said Governor Paterson in a statement. “If properly targeted, these tax incentives have the potential to turn brownfields into economic engines, particularly upstate. This agreement balances the need to both clean-up sites and spur development with the need to provide fiscal controls and prevent situations where developers received unintended windfalls.”  

The Democratic-controlled Assembly, backed by former Governor Spitzer, wanted to put much higher tax credits on the clean-up process and take away much of the credits on the development side, Gail said. But the Republican-controlled Senate wanted to keep the high credits for redevelopment.

“The sign of a good compromise is that no one’s ecstatic and no one’s terribly disappointed,” Gail said.

The New York Times reports that a 15-person advisory board will be formed to oversee the program; it will be chaired by the state’s environmental commissioner.

In mid-June, State Comptroller Tom DiNapoli issued a report on the brownfield program, which Suchman said “was really helpful to move things along. [The report] really demonstrated the revenue impact.”

DiNapoli found that the state had issued $3.1 billion of tax credits, but only 44 sites had been completely cleaned up.

But Jon Brooks, a partner at Phillips Nizer LLP and co-chair of its Environmental Practice Group, said in an email that the changes will “cause havoc” for certain developers, especially those in less developed regions, which have stricter zoning restrictions.

Instead of putting a cap on development credits, Brooks said the law should have used the cleanup costs as a base, while adding enhancements to some projects, such as eco-friendly buildings or developments in impoverished areas.