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The BCP: A Decade-long Road To Streamlined Efficiency

10 Jun 2020 2:27 PM | Anonymous member (Administrator)

By Steve Dwyer 

New York State brownfield stakeholders received  a “report card” about the 17-year-old Brownfield Cleanup Program, a report that shone a light on the program’s tax credit distribution trends—a mechanism that developers are able to apply for and obtain to enable winning projects. 

Michael Murphy, on the New York Dept. of Environmental Conservation team, presented “Brownfield Cleanup Program by the Numbers” as a program presented jointly by the Environmental and Energy Law Section of the New York State Bar Association and Environmental Committee of the Association of the Bar of the City of New York last December. Many New York City Brownfield Partnership Board members planned and/or attended the event and wanted to share this information with our membership.  We appreciate the approval from Mr. Murphy and the Section and Committee of the Bar Association to do just that.

The session provided an inside look at the State’s program, and the verdict delivered by Murphy is that the BCP, established in 2003, is “demonstrating continued strength.” New York State brownfield stakeholders on both the public and private side concur that the BCP has significantly evolved over its lifetime. 

David J. Freeman, Director, Environmental Law Department, Gibbons P.C., New York City, remarks that DEC’s attitude toward the BCP program has significantly evolved over time. “DEC’s view has swung from being a big proponent of the program (immediately after its initial enactment), to viewing it as a problem and keeping sites out of it via ‘eligibility criteria,’ to having a more balanced view—being generally supportive of it but conservative as to the amount of  tax creditable expenses being authorized by Decision Documents

Julia Martin, Esq., a partner with Bousquet Holstein PLLC, considers BCP a critical piece of the redevelopment tapestry in the Empire State—both across downstate New York City regions as well as upstate. A recent trend: there’s been a growing emphasis on tax credit dollars directed to developers championing Brownfield Opportunity Area (BOAs) and affordable housing projects, both powerful endgames to drive social and economic change.   

Martin says the BCP has created critical resources for the brownfield redevelopment community to not just survive but to thrive. Lenders can approve loans more readily when they see that their borrower-customers can gain access to state-sponsored tax credits via ambitious, forward-thinking reimbursement templates for riskier sites. Project developers are able to more confidently throw their hat into the ring in the first place, and develop sites within the urban infill for these projects—all the while knowing they have a higher level of financial insulation. 

“With each new classification of site generation [there are three classifications, Generation 1 through 3] the state has made a case to make BCP enhancement, and that’s seen through the narrowing the program focus,” comments Martin.  

Martin believes that the tax credit distribution process has evolved to where stakeholders of Gen 3 sites are seeing tax credits flow their way within a restructured BCP where tax credits are commensurate with contamination levels. To wit, footprints with high incidence of contamination, and subsequent remediation work are eligible to receive tax credit allocations that match the remediation work necessary. On the flipside, lower remediation work means fewer tax credit allowances.

Inside The Numbers 

During the December presentation, Murphy of DEC provided a snapshot of the BCP program, starting with a broad summary of brownfield redevelopment credits from 2005 through 2018. Drilling down, redevelopment claimed costs and credits showed total costs amassed $12.99 billion over the period while credits distribution amassed $1.98 billion, or 15.25%.

Crunching the numbers of total costs and credits for “on-site preparation” showed costs of $1.45 billion and tax credits $421 million, or 28.87%. “Tangible property component” saw costs reach $11.46 billion and tax credits of $1.54 billion, or 13.47%. “Onsite groundwater remediation” costs came to $71.5 million and credits of $16.5 million, or 23.15%. 

Articulated across the nine New York State regions, Murphy said there’s a total average of $5.01 million in redevelopment credits per certificate of completion (COC). Of all regions, Region 4 (the greater Albany area) amassed $15.1 million in redevelopment credits while smaller New York State areas such as Region 6 fetched $147,000 in credits. Region 2 (New York City and the five boroughs) landed second with $7.7 million in credits.

Last December, Murphy with DEC presented data indicating that redevelopment credits per the three generations saw Generation 1 site classifications garner $1.07 billion in credits, or 13.92% of the total pie, while Generation 3 accumulated only $16.37 million of tax credits—a far smaller sum. However, while the total credit sum was smaller for Gen 3 the tax credit money registered at a higher percentage—34.39%. Gen 2 sites were in the middle, receiving $885 million in credits, or 17.06%.

The indication is that Gen 1 had historically over time received a significant amount of tax credit dollars for a fewer number of very large properties, while Gen 3 received fewer tax credit dollars spread out across far more smaller-size properties.  

“Years ago, there were brownfield developments that received tens of millions of dollars where the cleanup was very minimal,” says Freeman. “This was because the initial tax credit scheme allowed tax credits as a right for all development expenses for any site that was admitted into the program.” 

DEC responded with a set of “eligibility criteria” that attempted to address this issue by artificially keeping sites out of the program, says Freeman. “A series of cases, culminating in the Lighthouse Pointe decision by the Court of Appeals, ultimately struck down these criteria as not authorized by the Brownfield Cleanup Act.  But the Legislature took matters into its own hands and, in both 2008 and 2015, amended that Act to limit the generosity of the tax credit scheme.” 

Martin of Bousquet Holstein advises brownfield stakeholders to better comprehend the benefits of the tax credits and other economic development incentives available for brownfields. The law firm has represented redevelopment projects in New York State with an estimated construction value exceeding $5 billion, which will generate BCP tax credits well over $750 million.

Drilling down, here are some highlights pulled out of context: 

Affordable housing emphasis. In May 2017, Gov. Andrew Cuomo unveiled the landmark $20 billion, five-year plan to combat homelessness and advance construction of affordable housing in New York State, marking the largest investment in the creation and preservation of affordable housing—all underpinned by the quest to end homelessness in New York. In an “Affordable Housing Preservation” line item, $146 million had been earmarked for substantial or moderate rehabilitation of existing affordable multi-family rental housing currently under a regulatory agreement.

The line item has incentivized developers and their partners, and is accelerating at a robust level.  Developers can indeed reap the benefits in championing affordable housing developments, witnessed by an accelerated tax credit outlay if they meet certain spelled-out criteria set forth in the revised BCP accord.

In Murphy of DEC’s PowerPoint presentation, a slide entitled “redevelopment credits per generation” listed three generations but also integrated BOAs and affordable housing sites as separate line items. Affordable housing projects saw total tax credits rise to $7.9 million while BOAs accumulated tax credits of $23.2 million over the period. 

Martin of Bousquet Holstein says that “BOAs are designated areas where a community organization conducts a study and a redevelopment blueprint is established—a vision for the area,” Martin says. “Some BOAs could establish affordable housing as part of the blueprint. Perhaps the end use mandates a retail component, such as mall or grocery store.”

She says that some BOA guidelines expressly mandate that X percent of the overall project be set aside for affordable housing. Developers must adhere to the BOA blueprint to maximize their tax credit positions. 

Cost-containment principles produce accountability. The BCP has evolved to where Gen 3 tax credit distribution is held to more stringent standards. Program accountability has been fortified, and an example is the “necessary cost” aspect—buttoning that down by proving that costs are necessary. 

Regional trends. Murphy revealed that per nine New York State regions and taking into account certificates of completion (COCs), the average per COC amounted to $5 million. Across all regions sees varying levels of brownfield work taking shape. In Region 2 (NYC), tax credit outlays over the years has been significant due to the density of the metro footprint. Region 4 (the greater Albany) has also been the beneficiary of tax credit reimbursement over the years due to an aggressive push for smart growth in that area. The same applies to Region 9, which encompasses Buffalo, which has been undergoing a significant amount of brownfield work over the past few years.

Being cognizant of tax credits. A burning question is: Are developers and other stakeholder even aware they’re potentially eligible for credits? Getting the word out is paramount. In Regions such as 5 and 6, which have seen less robust tax credit allotments over the years, it could be a case of scale—fewer projects are undertaken in regions that have less square mile bandwidth. But, it could be a case of developers not being aware of the BCP tax credit program, thus they avoid pursuing projects there.    

End use development trends.  When taking a snapshot of the type of end uses that have been executed, the trend has seen a preponderance of “restricted residential” projects—amassing 164 in all. Simply put, these are sites where there are terms and conditions underpinning what can be developed. Commercial projects topped 130, unrestricted 56, industrial 21 and “residential” 19. 

Lessons learned through experience. Industry participants have learned much over 17 years. Clearly at the outset and reflecting Generation 1 projects, developers walked away with large tax credit sum. The program has evolved where equity and balance have been implemented into the system.  

Going forward, there are to date 44.7% of “active” BCP sites having received a certificate of completion. The average time from BCP application to completion is about 4.5 years, according to Murphy’s presentation. COCs that are wrapped up quicker more than likely occurred as stakeholders learned to navigate the process more nimbly.

“The average time between site admission and issuance of a COC has been calculated by DEC as 4.7 years,” says Freeman. “However, that number is likely to be inflated by some of the early sites, which took 10 or more years to obtain their COCs. A more typical time frame, particularly for more recent sites, is 2 to 3 years from admission to COC issuance.”

There were 67 sites in the DEC department pipeline awaiting COCs by the end of 2019, with 37 in the Gen 3 bucket and 27 within Gen 2, which is consistent with a trend that sees Gen 1 sites “sunsetting” over time and Gen 3 rising up and dominating the BCP landscape. 

As Martin of Bousquet Holstein concludes: “The Gen 1 sites were pretty progressive [back in 2003] where developers, within the public-private partnership, were driving change within communities. From the start it was a novel approach to create more redevelopment of impoverished sites. Over time, the BCP has been greatly refined to intensify the focus on economically challenging areas.” 

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