New York Gov. Kathy Hochul (D) has thrown her support behind efforts to reauthorize and expand the tax credit provisions of New York’s Brownfield Cleanup Program (BCP), which are slated to expire at the end of the year.
The principal element in Hochul’s proposal is to extend the deadline for sites to be admitted into the BCP from Dec. 31, 2022, until Dec. 31, 2032, and for sites to receive their certificate of completion (COC) of cleanup from March 31, 2026, to Dec. 31, 2036. This 10-year extension of the BCP tax credits will provide much-needed certainty to those participating in the program.
Unlike previous BCP extensions in 2008 and 2015, the governor has not proposed substantially cutting back on-site eligibility or the formula used to calculate tax credits earned by BCP participants. Hochul’s proposed reforms, however, fall short of the changes recommended by the New York State Bar Association, community groups, and developers, and in bills introduced in last year’s legislative session.
Cleanup and Economic Development
The BCP is both a cleanup and an economic development program. Applicants remediate sites under the supervision of the New York State Department of Environmental Conservation (NYSDEC) and, after successful conclusion of the cleanup, are awarded a COC, a covenant not to sue from the state, and contribution protection from third-party lawsuits. They are also eligible for “site preparation” credits against New York state income taxes of between 22% and 50% of eligible cleanup costs.
All projects outside of New York City are also eligible for tax credits of 10% to 24% of the value of the improvements constructed on the site, subject to a cap of $35 million or three times site preparation costs, whichever is less. For sites in New York City, eligibility for these “tangible property” tax credits is limited to projects that are (a) located in environmental zones, (b) affordable housing projects, or (c) situated on sites that are “underutilized” (as defined by NYSDEC) or “upside-down” (where the cost of investigation and cleanup exceeds 75% of the site’s value if uncontaminated).
The tax credits are refundable. To the extent that the credits exceed the applicant’s state income tax liability, they are treated as an overpayment, and the state will issue a refund.
Success of Program
Over 1,000 sites have enrolled in the BCP since its inception in 2003, and cleanups at approximately 550 sites have been completed. The economic impact has been substantial: $2.7 billion in tax credits have been generated, resulting in an estimated $17.6 billion in economic development—a return of more than $6.60 for every tax credit dollar. The BCP has helped finance approximately 6,400 units of affordable housing units. More than half of BCP projects are located in low-income areas.
The other elements of Hochul’s proposal are as follows:
- Extending, from 5 to 7 years after the issuance of a COC, the ability of certain sites to claim site preparation tax credits;
- for so-called “Brownfield Opportunity Areas” which NYSDEC determines to be eligible, providing an additional 5% in tangible property tax credits statewide, and a separate route to eligibility for sites in New York City that would otherwise not qualify for such credits;
- providing an increase of 5% in the amount of tangible property tax credits for projects in “disadvantaged communities”, and for renewable energy projects on sites accepted into the BCP after Jan. 1, 2023; and
- requiring a $50,000 nonrefundable fee for sites accepted into the BCP.
Other Changes Recommended
The NYSBA and other interested groups seek additional changes and modifications to the program, including:
- Expanding BCP eligibility, and enhancing tax credits, for state-mapped potential environmental justice areas (characterized by high poverty and low employment rates);
- expanding the ability for sites in Brownfield Opportunity Areas (areas with a high concentration of brownfield sites) to quality for enhanced tax credits;
- increasing the incentives for renewable energy projects on BCP sites;
- expanding the effectiveness of the BCP in addressing soil vapor issues, including clarification of the types of soil vapor-related expenditures that qualify for tax credits; and
- making a number of technical amendments that will improve efficiency in implementation of the program.
The governor has 30 days to amend and resubmit a final version of her budget. Thereafter, New York State Legislature can propose its own changes to the budget, including BCP amendments. The budget is supposed to be finalized and passed by April 1.
If the legislature and governor do not agree on BCP amendments as part of the budget, such amendments can still be passed in a non-budget bill before the legislature recesses in June. However, most observers expect that, given the governor’s initiative, any significant modifications to the program will be incorporated in this year’s budget bill.
Thus, what happens over the next two months will likely determine the shape of the BCP for the next 10 years. Those who have a stake in the outcome should make their voices heard now.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
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David J. Freeman is a director in the Environmental Law group at Gibbons P.C. and past president of the New York City Brownfield Partnership.
Lawrence P. Schnapf is the principal of Schnapf LLC and an adjunct professor at New York Law School, where he teaches courses in brownfield law and policy, real estate transactions and finance.
The authors are the co-chairs of the Brownfields Task Force of the Environmental & Energy Law Section of the New York State Bar Association and members of the New York City Brownfield Partnership.