- State Tax Incentives — Credits, Abatements and Other Tax Incentives Being Applied to Brownfields Projects
- Financial Assistance Programs that can be Targeted Directly to Promote Brownfields Reuse
- Direct Financing Efforts
- Efforts that Enhance Financing
- Loan Programs
- Loan Guarantees
- Tax Credits, Abatements and Other Incentives
- State Enterprise Zones
- State Clean Water Revolving Loan Funds
- State Transportation Funding Allocations
- Financing Enhancements Linked to State VCPs
Over the past decade, national trends in brownfields financing have focused on partnerships with federal agencies that have targeted resources to meeting various brownfield needs. The brownfields “marriages” promoted by EPA were first launched in 1997 as part of Brownfields National Partnership Action Agenda. These links have been creative and productive, as outlined in this guide. However, traditional state development programs can also be used creatively in the brownfields financing mix. This section provides examples of creative financing programs and suggestions for how resources can be leveraged together to enable site developers to pursue funding for a range of project components.
When examining the experiences of several communities, it is clear that successful brownfields revitalization requires innovative funding partnerships that link together a number of federal, state and local financing programs and resources. During the last decade, many communities have discovered how to take these types of partnerships to the next level and link state program resources with federal funding and technical support in order to realize even greater leveraging opportunities. Across the country, localities are increasingly turning to their states for support, recognizing that good coordination among state and federal agencies (along with the private sector) is necessary to piece together possibly a dozen or more program sources that may be needed to carry out a brownfield project.
The level of brownfields revitalization continues to increase, even in the face of mixed real estate markets. Governments at all levels can find creative ways to help enterprises overcome the obstacles that environmental contamination brings to the economics of the site reuse process. Federal financing programs, linked to brownfields projects and coordinated with complementary state efforts, can do much to help level the economic playing field between greenfield and brownfield sites. Creatively crafted and carefully targeted incentives and assistance can help advance cleanup and reuse activities. However, such strategies must recognize that brownfields projects differ considerably in terms of barriers to investment and opportunities for redevelopment. Therefore, no one “best” public-sector approach — state, federal or a single combination of programs — will fit all needs. This is why coordination plays such a key role; various programs with similar missions and eligibility criteria that ultimately promote community revitalization must be stitched together to meet the diverse needs and common goals of brownfields revitalization.
At the state level, as the brownfields reuse issue has evolved, a growing number of state officials have begun to recognize the critical role that financial incentives must play as a critical piece of the financing puzzle. Certainly, they are well positioned to promote the federal, state, local and private-sector cooperation that makes for brownfields success, because all states have some types of economic development, environmental, transportation, infrastructure and other departments that can contribute to these efforts and channel resources and incentives toward activities that may also include key brownfields activities such as site assessment, reuse planning, cleanup and redevelopment
Accordingly, states are putting many different — but equally effective — approaches in place to meet the diverse financing challenges of brownfields reuse. Increasingly, these approaches are being linked to federal and state development programs to provide the continuum of financing that is needed to take a brownfields project through its complete cycle of redevelopment, from site assessment to cleanup to construction. (For complete information, see State Brownfields and Voluntary Cleanup Programs, at www.epa.gov/brownfields). These programs are varied as described below.
State Tax Incentives — Credits, Abatements and Other Tax Incentives Being Applied to Brownfields Projects
These programs basically help with a project’s cash flow by allowing revenue to be used for brownfields purposes rather than for tax payments. This can help site re-users get the cash together to deal with site preparation costs that involve contamination. This cash flow cushion from a tax break can also help a project’s financial look in the eye of a lender. State and federal tax incentives historically have been used to channel investment capital and promote economic development in areas that have needed it — and brownfields targeting is a natural evolution of this type of program tool. Most tax incentives are targeted to offset cleanup costs or to provide a buffer against increases in property value that would raise tax assessments before the site preparation costs are paid off. About 23 states offer some type of tax incentive, including:
- Deferral of increased property taxes — Connecticut and Texas
- Remediation tax credits — Illinois, Ohio and Wisconsin
- Cancellation of back taxes — Wisconsin and Massachusetts
- Rebates of sales taxes to offset cleanup costs — New Jersey
- Tax incentive “menu” to enhance re-user financial flexibility — Missouri
- Environmental insurance tax credit — New York
- Business tax offset — Michigan
Capital gaps remain the biggest barrier to brownfields reuse, and more than half the states have worked to address this issue by putting some sort of financing incentives in place — both direct financing tools, such as loans or grants, or indirect financing assistance such as tax abatements or credits. These programs meet several objectives: they are targeted to help finance specific parts of the project, such as site preparation; they can be used to increase the lender’s comfort with these projects, by offering guarantees to limit the risk of potential losses; or they can ease the borrower’s cash flow by plugging certain capital holes or off setting the extra up-front costs of site cleanup. Some 22 states offer some sort of targeted brownfields financial assistance, including:
- Indiana’s forgivable remediation loans, newly expanded to petroleum sites
- Florida’s tax “bonus refund” pegged to job creation
- Florida’s low-interest loans for contractor/tax lien purchases
- Massachusetts’ and Wisconsin’s insurance subsidies
- Michigan’s Brownfield Redevelopment Authorities
- Kansas’ focus on agricultural-related contaminants
- Illinois’ brownfield redevelopment loan program
These programs directly match resources to needs, usually in places where the private sector may fear to tread. About 14 states are doing this, one way or the other, including:
- Low interest cleanup loans — Delaware, Indiana and Wisconsin
- Remediation grant funds — New Jersey and Minnesota
- State revolving loan or redevelopment funds — Indiana, Michigan, Wisconsin and Massachusetts
- "Just in Time” Phase II site assessment program — Indiana
More states are promoting initiatives that expedite the financing process, attract other program resources and save money in the long run. Some 10 states have some type of program in place to facilitate financing with minimal cash outlays, using tools like cancellation of delinquent taxes for new purchasers as part of an agreement to clean up contaminated property. State budget crises have increased the focus on such innovative approaches, such as:
- Linking site owners to state voluntary cleanup programs (VCPs) and brownfields programs – which can bring finality to the cleanup process via liability relief and facilitate the use of environmental insurance
- Educating site owners about ways in which state VCPs and brownfields programs can facilitate access to other financing tools — such as use of the federal brownfields tax expensing incentive
- Helping site owners initiate institutional or engineering controls, and introduce innovative technologies
- Providing a climate that provides for better management of risk, which can reign in costs
In addition, more creative leveraging is taking place; states are especially well-positioned to promote brownfields reuse projects by giving a new twist to their existing economic development finance programs. As with federal programs, many state efforts were designed, and their rules were defined, long before brownfields concerns surfaced.
Nearly every state offers economic development loans, either directly or through development agencies, authorities or corporations, which can provide excellent leverage if properly coordinated with and targeted to the special financing needs of brownfields. These programs are capitalized from a variety of sources — general appropriations, fee collections or repayments from previous federal or state project loans.
Illinois offers a Brownfield Redevelopment Loan Program that provides low-interest loans to local governments and private parties for site assessment, remediation and demolition costs. This is intended to complement the state’s existing grant program that gives cities up to $120,000 to pay for site assessments and preparation of cleanup plans. The Mississippi River town of Rock Island has used these programs, in conjunction with federal transportation funds, to transform a derelict riverfront manufacturing site into a new mixed-use commercial and residential development, with these programs helping with site preparation and construction of infrastructure needed to serve the new uses. Kansas City has tapped into Missouri state business development programs to clean and transform the former Kansas City Terminal Railway yard into unique office space, creating 600 new jobs.
Many states offer loan guarantees to minimize various risks that make financial institutions hesitant to lend on brownfield properties. Small businesses, start-ups and new technology ventures typically are viewed as especially risky and often addressed in state programs; environmental risks are rarely addressed but could be the focus of a guarantee effort if better linked to existing programs. In particular, loan guarantees could help attract private investments at sites which also tap into federal infrastructure or site improvement programs.
To this end, Florida has added a loan guarantee program to its brownfields tool box, which provides five years of guarantees or loan loss reserves for primary lender loans made in defined brownfields areas for redevelopment projects.
These can help a project’s cash flow, and many states have linked their programs to federal program incentives. In practice, they can help channel investment capital and promote economic development in areas of need, and brownfield targeting is a natural evolution of this type of program tool.
Some states, such as Wisconsin, have been especially skillful in linking state tax incentives (such as forgiveness of back taxes) with federal tax credits. At the Sherman Perk project in Milwaukee, forgiveness of nine years of back taxes attracted a small community developer to the site — an abandoned but historically significant gas station dating back to the 1930s. With site title in hand, the developer also used federal historic rehabilitation tax credits and city business development loan funds to bring the site from ruin to reality. In Colorado, tax credits have been designed to encourage smaller site cleanups; a 50 percent tax credit against the first $100,000 in cleanup costs, 30 percent of the second $100,000 and 20 percent of the next $100,000.
More than 30 states nationwide currently administer their own Enterprise Zone programs with tax, training and other development incentives to spur investment and job creation in more than 1,400 designated areas. Operating independent of existing federal financing programs, they offer good opportunities for linkage.
In New Jersey, a brownfields developer working to create a shopping complex in Elizabeth was able to market the site because of the reduced sales tax (only three percent) incentive available to state zone commercial operations. Most state programs provide some blend of fiscal incentives such as tax credits or abatements, or access to low-cost development capital, and these could be targeted to brownfield projects.
The Environmental Protection Agency (EPA) provides annual funding to each state to capitalize Clean Water State Revolving Loan Funds (CWSRLFs). This tool has considerable potential at brownfields where water quality is an issue. States can use their clean water RLFs for low- or no-interest loans of up to 20 years. Specifically, brownfields cleanup to correct or prevent water quality problems can be considered eligible if it focuses on abatement of polluted runoff, control of storm water runoff, correction of ground water contamination or remediation of petroleum contamination. CWSRLFs can cover the costs of activities like excavation and disposal of underground storage tanks; capping of wells; excavation, removal, and disposal of contaminated soil or sediments; or Phase I, II or III assessments. Each state determines what entities may use its revolving fund resources. EPA allows communities, municipalities, individuals, citizen groups and nonprofit organizations to be loan recipients. Usually, loans are repaid through sources such developer fees, recreational fees, dedicated portions of state, country or local government taxes, stormwater management fees, or wastewater user charges.
To date, only a few states — notably, New York, New Mexico and Ohio — have encouraged brownfields-related projects to use these resources, with Ohio recognized as the national leader in this regard. In Cleveland, the Grant Realty Company used a Clean Water revolving loan from Cuyahoga County to clean contaminated ground water and soils at a 20-acre industrial site and prepare it for commercial use. Repayment is coming from the income stream from a tank cleaning operation, and a personal loan guarantee and second mortgage as collateral.
More states are encouraging their communities to make creative use of transportation funds for brownfields purposes.
As a growing list of examples shows, transportation activities can be connected with brownfields projects. For example, the brownfield site itself may be a transportation facility (e.g., a road or rail yard) in need of upgrading, such as in Portland, Oregon where the city has done this as part of its Macadam District and Union Station area neighborhood redevelopments. In addition, transportation infrastructure improvements may be needed to make the site more usable and marketable, typically by expanding access for vehicles, freight or passengers, as Buffalo has done with its William Gaiter parkway project and Old Town, Maine has done with its waterfront redevelopment initiative. Finally, and increasingly key, part of the transportation solution can also part of the environmental solution, where roads, parking lots and other transportation structures can be used as caps to limit exposure. Towns from Emeryville, California to Bridgeport, Connecticut have used transportation funding for these purposes.
VCPs are initiatives that have been put into place to encourage the voluntary cleanup of contaminated sites. They are targeted specifically to overcome the barriers associated with brownfields activity and to better link together both cleanup and redevelopment activities that may be needed at a site. VCPs seek to provide predictability and finality to the brownfields process. Voluntary programs differ from other environmental programs because they provide a way for owners or developers of a site to approach the state voluntarily to cooperatively work out a process by which the site can be cleaned up appropriately and made ready for new uses.
Specific state programs vary — because the nature of contamination and site reuse varies from place to place — but all VCPs share several common goals. First, VCPs aim to provide a program that makes it easier and more predictable to bring contaminated sites back to productive use. They do this by establishing a recognized and predictable process for determining how clean is clean at any given site, and what steps need to be taken to achieve this. Second, VCPs aim to bring more certainty to brownfields reuse by offering some level of liability relief. This appeals to lenders and developers, and gives them the assurance they need to take on brownfield sites — and this level of certainty and comfort seems to grow over time as VCPs take hold and build a track record level of trust. And third, many VCPs help to expedite the financing process by providing seed resources or incentives to leverage private investment in brownfields projects.
Increasingly, VCPs are playing a role in leveraging financial assistance programs. Some cities, such as Milwaukee and Cincinnati, have linked specific redevelopment projects and local incentives to sites that have completed the state VCP process. The Federal Brownfield Tax Incentive is available only to site owners whose property has been certified as a brownfield by VCPs or similarly designated state agencies.
In short, many brownfields have the potential to become economically viable, hosting new business activity and jobs. Typically, brownfields success stories are found in places that have adopted their own site characterization and reuse tools and creatively built on the foundation provided by federal or state economic development programs or tax policies. But these are only the first steps; the potential exists for even greater activity.