After more than a year of uncertainty regarding the future of the New York State Brownfield Cleanup Program (“BCP” or “Program”), Governor Cuomo and the State Legislature have extended the Program for 10 years as part of the State’s $142 billion budget for 2015-2016.
The BCP incentivizes private-sector investment in the cleanup and redevelopment of contaminated properties through remediation and tangible property tax credits. The current BCP program would have expired on December 31, 2015, meaning that if a Certificate of Completion (“COC”) was not obtained for a site prior to that date, it would not be eligible for tax credits. The uncertainty surrounding the future of the Program, and the ability to obtain a COC in that limited timeline, has had a chilling effect on potential redevelopment of such properties, especially in Upstate New York.
The extension of the Program provides much needed certainty, and includes reforms which help to clarify certain aspects of the Program, while responding to criticisms that some developers, primarily in the metropolitan New York area, have been abusing the Program and have obtained tax credits well in excess of the remediation costs for sites that would have been redeveloped with or without the BCP.
The definition of “brownfield site” has been amended to include, as eligible, any site that is contaminated in excess of DEC soil cleanup objectives or other health-based or environmental standards adopted by the DEC based on the reasonably anticipated use of the property. This objective definition provides more clarity (but may be more restrictive) than the former definition, which required a site to have contamination that “complicates” redevelopment.
One possible reform that had been discussed at length prior to the extension included the creation of “gates” for sites seeking tangible property credits. The extension includes gates, but not for sites in Upstate New York.
The gates that apply to the tangible property credits for sites in metropolitan New York provide that credits may only be obtained if:
- the property is “upside down,” meaning the estimated cleanup cost exceeds 75% of the appraised value of the site absent contamination;
- more than 50% of the property is located in an EnZone;
- the project is an Affordable Housing Project (to be defined by June 8, 2015); or
- the property is "underutilized" (to be defined by July 1, 2015).
Site preparation costs and groundwater remediation costs have also been redefined and limited in scope. The costs must be necessary to implement site investigation or remediation or to qualify the property for a COC. This is an important clarification, as these costs form the basis of calculating a cap for a property’s maximum tangible property credits. So, for example, demolition costs will now, in many instances, not be considered a site preparation cost and will not count towards the calculation of the tangible property credits for a site.
The BCP will now also include a “BCP-EZ” program, a fast-track review option if a site is willing to forego tax credits and solely obtain a release from liability from the State.
Under the Program, sites currently in the BCP, and those admitted into the BCP prior to December 31, 2022, will be eligible for tax credits if they obtain a COC by March 31, 2026. However, the new Program grandfathers in sites that were already in the BCP:
- Sites admitted on or after the later of (a) July 1, 2015, or (b) the date on which the DEC defines "underutilized" (by October 1, 2015) will be subject to new limits on tax credits.
- Sites admitted before June 23, 2008, will remain within the existing tax credit program if the sites obtain their COC by December 31, 2017.
- Sites admitted from June 23, 2008, until the later of (a) July 1, 2015, or (b) the date on which the DEC defines "underutilized" (by October 1, 2015) will be grandfathered into the existing program if they obtain a COC by December 31, 2019.