Feature
EPA: New rule to encourage brownfields redevelopment
A new rule establishing clear federal standards for the processes used to assess properties for environmental contamination is expected to encourage more urban redevelopment.
The All Appropriate Inquiries rule was announced Nov. 2 at the Brownfields Conference in Denver, Colo., by Stephen L. Johnson, administrator of the Environmental Protection Agency (EPA). The rule was published Nov. 1 in the Federal Registrar and becomes effective one year following the date of publication.
“By making risk management less of a guessing game and more of a science, we are expanding the number of problem properties that will be transformed back into community assets,” Johnson says in a recent EPA press release.
The All Appropriate Inquiries rule is expected to increase private cleanups of brownfield properties while reducing urban sprawl, affecting annually more than 250,000 commercial real estate transactions across the nation, according to the EPA. The rule increases certainty of Superfund liability protection and improves information about environmental conditions of properties.
All appropriate inquiries is the process of evaluating a property’s environmental conditions and assessing potential liability for any contamination.
The final rule establishes specific regulatory requirements for conducting all appropriate inquiries into the previous ownership, uses and environmental conditions of a property for the purpose of qualifying for certain landowner liability protections under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
Until the rule becomes effective in a year, parties may use either the requirements in the All Appropriate Inquiries final rule or the requirements of the interim standard established in the Small Business Liability Relief and Brownfields Revitalization Act.
The rule is expected to affect most directly people or businesses purchasing commercial property, or any property that will be used for commercial or public purposes, and who may, after purchasing the property, seek to claim protection from CERCLA liability for releases or threatened releases of hazardous substances. Parties who receive grants under the EPA’s Brownfields Grant program to assess and characterize properties must comply with all appropriate inquires standards.
Under the rule, many of the inquiry’s activities must be conducted by, or under the supervision of, someone who qualifies as an environmental professional. The rule includes specific educational and experience requirements for an environmental professional. The environmental professional must have a state- or tribal-issued certification or license and three years of relevant full-time work experience; or a bachelor’s degree or higher in science or engineering and five years of relevant full-time work experience; or 10 years of relevant full-time work experience.
The All Appropriate Inquiries rule requires the inquiry of this environmental professional to include:
- Interviews with past and present owners, operators and occupants
- Reviews of historical sources of information
- Reviews of federal, state, tribal and local government records
- Visual inspections of the facility and adjoining properties
- Commonly known or reasonably ascertainable information
- Degree of obviousness of the presence or likely presence of contamination at the property and the ability to detect the contamination
Additional inquiries to be conducted by or for the prospective landowner or grantee include:
- Searches for environmental cleanup liens
- Assessments of any specialized knowledge or experience of the prospective landowner or grantee
- As assessment of the relationship of the purchase price to the fair market value of the property, if the property wasn’t contaminated
- Commonly known or reasonable ascertainable information
The rule was developed collaboratively with groups such as realtors, bankers, environmental interest groups, the retail industry, environmental justice organizations and state, tribal and local governments. For a complete reading of the rule, visit www.epa.gov/brownfields.
Problem Solver
Oregon town turns contaminated car lot into catalyst for economic development
When presented with the question of what to do with a contaminated property in the heart of its historic downtown, the city of Newberg, Ore., didn’t turn and run. Rather, it stepped up to the challenge.
If the city hadn’t taken the property off the previous owner’s hands, the former car lot that sits across from city hall would have been a community eye soar, says David Beam, Newberg’s economic development coordinator.
“We didn’t want a big, contaminated site in the middle of town,” Beam says. “It was very likely that property could sit empty forever.” Instead, the property needed to return to city tax rolls, benefiting the downtown economy.
After nearly five years of working to assess, clean up and revitalize that property, Newberg is well on its way to having that vehicle for economic development. No longer an eye soar, the land is a green space, expected to be sold or even developed into a business complex with apartments on top.
“Either way, the city wins financially,” Beam says.
The property, a corner lot sitting on a quarter acre, was an auto dealership and service center since 1934. A gas station once operated on the lot’s southeast corner. In the early 1950s, the gas station was replaced with expanded facilities for the auto dealership.
In 2001, the former property owner decided to move his car dealership. City officials knew the site was being watched by the Oregon Department of Environmental Quality (DEQ). In 1987, a leaking waste oil underground storage tank was removed from the property. It became imperative the city get involved, Beam says.
Working with the former property owner, the city instigated a charrette. It’s not a typical way to start one of these renewal projects; however, for Newberg, it was a good tool, Beam says.
A charrette is a French word meaning “cart.” In the business world, a charrette refers to an intense work session, usually with workshops and open houses, that harnesses the talents and energies of all parties and results in a feasible plan for a project.
Anyone with a stock in this property was invited to the charrette. The former property owner, state and federal officials, the downtown association, real estate agents and bankers, city representatives and even residents attended. In the meeting, all those involved talked about the different ways to develop the property.
The charrette was followed by a one-day event to talk about how the property would be cleaned up. All the involved parties were invited back. This is where project officials started putting together the financial piece of this project, hooking up with the Environmental Protection Agency (EPA) and DEQ to come up with a financial game plan, Beam says.
Because the site had been on the DEQ watch list, a Phase I analysis was already complete. Phase II was done by DEQ through its Targeted Brownfield Assessment program. Sampling found:
- Benzene, toluene and xylenes detected in soil concentrations exceeded screening levels for residential and nonresidential scenarios.
- Groundwater contamination with volatile organic compounds exceeded screening levels.
- Asbestos-containing materials were identified in building flooring and the basement boiler room. Later, more asbestos was found in roofing materials.
- Old fluorescent light fixtures in the buildings contained polychlorinated biphenyls, an identified carcinogenic.
At that point, the city believed it knew what it was getting into and bought the land for $1. A $300,000 Community Development Block Grant paid for demolition and contamination removal. A contractor was hired by the city to implement the demolition and cleanup project. And a consultant was hired to advise the city and ensure procedures suggested by the contractor were consistent with the city’s goal of having a site suitable for building upon. Building materials were recycled as much as possible, extending the demolition time by a couple weeks.
Inevitably, surprises popped up, says Bob Bielman, the city’s project manager. The property had multiple layers of concrete–the former showroom alone had three layers. Of the six fuel USTs recovered, four were undocumented. Of the eight air-hydraulic hoists found, two were undocumented. The project was even shut down for a time to deal with the extra tanks, Bielman says. The good news was the business sat on dense, fine-grain clay, so contamination tended to contain itself, he says.
“This is where you get to why people are scared to death of these projects,” Beam says. City officials had to keep telling themselves the benefits would outweigh the bad, he adds.
In the end, the only investment from the city was staff time, Beam says. The process was paid for by grants along the way. The city got a valuable piece of property now valued at nearly $140,000. And the city got to control what happened to that site.
This past summer, Newberg threw a block party on the new green space to celebrate its adventure. The party, which drew 500 people, also served as a way to determine what the public wanted to see done with the property. People were shown conceptual drawings and asked for their opinions on the property’s future use. The city’s Downtown Revitalization Council has recommended a three-story, mixed-use building be built.
The site’s water quality now will be monitored for a year. The DEQ is expected to close the project in the next couple months, Beam says. Under CDBG guidelines, the property must serve the low-income population or the money is paid back. If the property is to be used in economic development, as the city plans, then it would first remain vacant for five years, as required by the CDBG, until sold to a developer.
Beam advises other communities to do their homework before embarking on such a project but to also take some risks. “It was a lot of hard work and it certainly made our hearts skip a beat a couple times,” he says.
But it was worth it, he adds, because the city has a great catalyst in the revitalization of its downtown.
Groundwork
Federal tax incentive deadline approaches
Time appears to be running out on a federal tax incentive available to private investors cleaning up brownfield sites.
Under the federal Brownfields Tax Incentive, environmental cleanup costs are fully deductible in the year they are incurred, rather than having to be capitalized. The tax incentive is not a tax credit, nor is it available to public entities. A tool to encourage the cleanup of brownfield sites by private individuals, the tax incentive is set to expire Dec. 31.
It’s unlikely this valuable tax incentive is going to be renewed.
Since 1994, the Internal Revenue Service has allowed certain costs from assessing and cleaning up soil and groundwater to be deducted as business expenses in the year incurred. However, the IRS allowed only taxpayers who caused the contamination on the properties they owned to deduct these costs in the year incurred. People or companies that bought contaminated properties and cleaned them up had to capitalize their costs over several years.
Then, in August 1997, the Taxpayer Relief Act was passed. It included the federal Brownfields Tax Incentive, which encourages the redevelopment of brownfields in distressed urban and rural areas. The tax incentive was extended to private individuals who bought contaminated lands with the goal of cleaning them up. Set to expire after 2003, the tax incentive was extended through the end of this year by the Working Families Tax Relief Act of 2004.
In some communities, the tax incentive has been a valuable tool, cleaning up blight and sparking economic development. The government estimates this tax incentive costs the country about $300 million in annual tax revenue. However, it’s also expected to leverage $3.4 billion in private investments and return 8,000 brownfields to productive use.
Entities interested in the tax incentive must receive a certification of eligibility from their state contact, which includes a letter stating the site is contaminated and warrants cleanup. Property owners must show there has been a release, threat of release or disposal of a hazardous substance at the property. They also must show they own the property for business purposes, and they have incurred qualified environmental remediation costs.
Amended tax returns can be filed to deduct expenditures from prior tax years, provided the costs were incurred after August 5, 1997.
For more information about the Brownfields Tax Incentive, go to http://www.epa.gov/brownfields/bftaxinc.htm. For a letter documenting cleanup, contact your state brownfields representative:
