New York State has enacted major amendments to the New York State (“NYS”) Brownfield Cleanup Program (“BCP”), which grants liability protection and tax credits to developers who remediate certain contaminated sites. The following is an analysis of those BCP amendments, with particular focus on issues of interest to current and prospective BCP applicants and developers.
Of interest to current and prospective BCP applicants, any BCP site accepted into the program before the new BCP law takes effect will be grandfathered—that is, entitled to continue under the program’s current rules and system of tax credits. The law’s effective date is defined as the later of (1) July 1, 2015, or (2) the date when the Department of Environmental Conservation (“DEC”) proposes new regulations that are required by the law (which DEC is required to issue no later than October 1, 2015). To remain eligible for such grandfathered status, however, sites admitted into the program before June 23, 2008, must receive a certificate of completion (“COC”) indicating a completed cleanup by December 31, 2017, and sites admitted on or after June 23, 2008 must obtain their COC by December 31, 2019.
The new BCP program will apply to all grandfathered sites that fail to obtain a COC by the applicable deadline, as well as to all BCP sites accepted into the program after the new law’s effective date. A new sunset provision requires sites in the new program to be accepted by December 31, 2022, and to obtain their COC by March 31, 2026, to be eligible for BCP tax credits. 
The salient features of the new BCP program are as follows:
Site Eligibility. The amendments clarify site eligibility requirements and expand the types of contaminated sites which may be admitted into the BCP:
- The law amends the definition of “brownfield sites” eligible for the BCP to be “any real property where a contaminant is present at levels exceeding” the applicable remediation standards set by DEC regulations, “based on the reasonably anticipated use of the property.” This objective standard should provide prospective applicants with clarity as to their site’s eligibility. The new definition appears to override DEC’s existing regulation stating that DEC will “consider only contamination from on-site sources” in determining eligibility.
- The law makes “orphan” NYS inactive hazardous waste disposal sites (i.e., state superfund sites)—for which responsible parties are unknown or cannot fund the cleanup—eligible for the BCP. Under the old law, all state superfund sites, including orphan sites, were ineligible.
- These revised eligibility standards will apply only to sites accepted into the BCP after the effective date of the law.
Tangible Property Tax Credit Eligibility. Under the old program, all sites accepted into the BCP were eligible to claim the tangible property tax credit. Under the new program, for sites located in New York City, these tax credits will be available only if the applicant demonstrates at least one of the following additional qualifications:
- That at least half of the site is in an Environmental Zone (“EnZone”), which are areas with poverty or unemployment rates above certain thresholds, based on data drawn from the most recent five-year American Community Survey;
- That the property is either “underutilized” or “upside down”—the law requires DEC to define “underutilized” by regulation no later than October 1, 2015; “upside down” is statutorily defined as a site for which investigation and remediation are expected to cost at least 75% of the site’s appraised, hypothetical value if it were not contaminated; or
- That the project is an “affordable housing project,” as that term is defined by DEC in forthcoming regulations, based on the percent of units reserved for lower-income residents.
Furthermore, certain sites—including those for which on-site contamination is solely caused by an off-site source—will be ineligible for the tangible property credit.
Tangible Property Tax Credit Amounts. For sites accepted into the new program, the law alters the calculation of tangible property credits which the participant may claim:
- The percentage of tangible property costs for which eligible sites may claim tax credits will be 10% plus (1) 5% if the site is in an EnZone, (2) 5% if the site is in a state-designated Brownfield Opportunity Area and developed accordingly, (3) 5% if the site is developed as an affordable housing project, (4) 5% if the site is to be used for manufacturing, and (5) 5% if the site is remediated on Track 1 (allowing for unrestricted post-remedy use). The total percentage is capped at 24%.
- Costs which are eligible for the tangible property credit are limited to those incurred for tangible property with a depreciable life of at least fifteen years and for non-portable equipment, machinery, and fixtures for such property.
- The new program will retain the existing cap on tangible property credits of the lesser of either $35 million or 3 times the sum of costs included in calculating site preparation and groundwater remediation tax credits. However, the new law adds that costs that would have been claimed for tax credits if they had not been deducted as environmental remediation expenses for federal tax purposes should be included for purposes of calculating this cap.
- If a site is eligible for tangible property tax credits solely because it is an affordable housing project, the portion of tangible property costs which may be claimed is limited to the portion of the project that is dedicated to affordable housing units.
Site Preparation and Groundwater Remediation Tax Credits. The new law also amends the definition of site preparation costs and groundwater remediation costs for which BCP applicants accepted into the new program may claim tax credits.
- The law redefines “site preparation costs” which are eligible for the site preparation tax credit as those “necessary” to the site’s remediation and qualification for a COC. This definition is narrower than the former law, which included all costs incurred “in connection with” with remediation as well as other categories of costs necessary to prepare the site for future development, such as excavation and foundations. The new law expressly excludes certain costs associated with building foundations that arguably could have been claimed as site preparation under the old statute.
- Likewise, the definition of “groundwater remediation costs” eligible to be claimed under the program are redefined as those “necessary” to a site’s groundwater remediation and qualification for a COC.
BCP-EZ Program. Sites which entered the BCP under the new program may opt into an expedited process for obtaining a COC, and the liability protections that it provides, but the applicant must waive the right to claim BCP tax credits for the site. DEC is charged with promulgating regulations setting forth the details of this program.
For more information about the new BCP amendments and their potential impacts for current and prospective BCP sites, call Sive, Paget & Riesel.
 These rules substantially extend the law’s previous sunset provision, which required participants to obtain a COC before December 31, 2015, to obtain tax credits.