legislation: New Legislation Offers Tax Incentive For Brownfields Cleanup

Littering the landscape across the United States are an estimated 500,000 acres of abandoned, idle or under-used industrial and commercial facilities or barren, urban tracts, where redevelopment is complicated by environmental contamination. Some of these sites, called "brownfields," are owned by bankrupt companies, while others are owned by local governments that foreclosed on real estate tax liens.

In a few cases, however, cleanup is underway due to government efforts since 1993 to reduce the legal risks for buyers. The Clinton Administration has touted the federal program as a key element of its economic and environmental policy.

"The brownfields initiative encourages businesses and communities to turn old polluted sites into homes for safe and sustainable businesses," the President said last year.

Under the program, the U.S. Environmental Protection Agency (EPA), Washington, D.C., works out agreements with prospective buyers of contaminated property. In exchange for cleanup and purposeful reuse of the site, EPA promises to protect the purchasers from remediation liability. The agency also provides grants to local governments to help them assess the potential for restoration of brownfields sites.

For their part, nearly half the states have passed laws to encourage the redevelopment of polluted land by reducing cleanup requirements, granting waivers from liability, and offering tax incentives to buyers.

Nevertheless, no consensus exists on how "clean" a site should be before it may be reused or on how much liability should be erased. Although federal and state regulators concede that most of these properties never will be restored to pristine condition and that purchasers should not have to pay for prior owners' wrong doings, these officials still agonize about waiving liabilities and thereby losing a source of cleanup funds.

The Comprehensive Environmental Response Liability and Compensation Act of 1980 holds past and current owners and operators of contaminated property strictly liable for cleanup, without regard to fault.

However, the law gave EPA the authority to issue waivers of liability for innocent purchasers. The agency simply has been reluctant to do so. Government liability waivers do not protect new, innocent owners from suits by owners of adjacent property or by prior owners who have liability.

Developers and investors seem apprehensive to purchase brownfields. They see such projects essentially as real estate ventures with a disproportionately large environmental risk. However, the key questions are the same as in other development opportunities: Will the property have value? What will be the return? How soon will the return be realized?

For starters, dealing with government agencies is an obstacle. Many developers walk away from potentially profitable deals because they won't put up with the 12- to 18-month delays that inevitably precede actual beginning of work on the site.

Thus, some developers focus on the "low-hanging fruit" - sites where a lot of initial work is finished and where good records of such work exist. This approach reduces the amount of up-front money necessary to assess the venture's prospects.

In addition, some brownfields players believe that the marketplace for real estate transactions is essentially inefficient. They seek the establishment of a clearinghouse or trading area where federal, state and local funding is coordinated, where buyers and sellers can meet each other, and where innovative insurance and lending arrangements can be found.

Developers cannot ignore the community relations aspect of such large-scale projects: How receptive will the neighborhood be to development on a site that has not been rehabilitated fully? Some neighborhood groups have urged local officials to turn down redevelopment of a site in favor of converting the property into recreational open space.

Ultimately, however, the high-rollers will get most of the attention. Agency officials tend to return phone calls about a $50 million project more frequently than phone calls about a $50,000 gas station conversion.

Two Democrats on the House Ways and Means Committee have introduced a bill (H.R. 523) that would offer $2 billion in tax incentives for cleaning up brownfields sites and restoring them to productive use. The Brownfields Redevelopment Act of 1997 would provide a credit for clean-up of certain contaminated sites and would allow states and local governments to use the proceeds of tax-exempt redevelopment bonds to pay for the work.

The bill is similar to a tax-incentive bill (S. 235) introduced in January by Sen. Carole Moseley-Braun (D-Ill.). The Senate version has bipartisan support and is endorsed by the Clinton Administration.

Contracts New Mexico has awarded En-Core Systems, Grand Rapids, Mich., a contract to furnish the state with 10 portable scrap tire balers.

The city of Flagstaff, Ariz., has signed a contract with Norton Environmental, Independence, Ohio, for the construction and operation of a commingled material recovery facility that will process more than eighty tons per day of residential commingled recyclables and commercial waste.

Education Mack Trucks Inc., Allentown, Pa., and the Pennsylvania College of Technology offers an associate degree in diesel technology.