Brownfields Revitalization


The cleanup and revitalization of urban "brownfields" represents one of the most exciting, and most challenging, environmental and urban initiatives in the nation. Brownfields are abandoned, idled, or underused industrial and commercial properties where expansion or redevelopment is hindered by real or perceived contamination. The brownfields challenge faces virtually every community; experts estimate that there may be as many as 450,000 brownfields sites throughout the country.

Cleaning up and redeveloping brownfields provides numerous environmental, economic and community benefits including:

  • expediting the cleanup of thousands of contaminated sites;
  • renewing local urban economies by stimulating redevelopment, creating jobs and enhancing the vitality of communities; and
  • limiting sprawl and its associated environmental problems such as air pollution, traffic and development of rapidly disappearing open spaces.

Despite growing interest and initial success some communities have experienced in redeveloping brownfields, many barriers remain. Uncertainties regarding liability and cleanup costs have discouraged potential developers from reusing old industrial sites. As a result, many brownfield sites remain abandoned, often presenting an eyesore or potential health hazard to the surrounding neighborhood.

Brownfield sites raise a number of legal, financial and technical concerns for current or prospective owners. The federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund") imposes strict, joint and several liability for the full cleanup costs on past and current owners or operators of the contaminated property, among other parties. While EPA first pursues those parties responsible for the pollution, present owners may get stuck with part or all of the cleanup costs even if they did not cause the problem. Present owners may therefore be reluctant to perform the investigations necessary for sale and development because of the possibility of uncovering site contamination, which could result in their incurring liability for full cleanup costs.

Similarly, potential buyers have been reluctant to acquire property out of fear that the standards necessary to successfully invoke EPA's "innocent landowner defense" against liability are too strict and uncertain. That defense applies if an owner or operator acquires property after the contamination and establishes that he/she had no reason to know that a hazardous substance was disposed on the property; and he/she exercised "due care" with respect to the hazardous substance. The standard of "due care," ho

  • Brownfields are abandoned, idled, or underused industrial and commercial or redevelopment is hindred by real or perceived contamination.

wever, can vary on a site-by-site basis.

Finally, although CERCLA releases from liability municipalities that acquire property involuntarily because of federal, state or local law (such as tax escheat provisions), uncertainties in this exemption have deterred municipalities from developing brownfield sites. Because the law is unclear as to what constitutes "involuntary" acquisition, local governments have been reluctant to acquire abandoned property for fear that they would become subject to CERCLA and charged for the cleanup.

Financing constraints pose an additional barrier to the redevelopment of brownfield sites. The potentially high costs of investigating, cleaning up and redeveloping brownfields have often been prohibitive for owners, especially local governments. In addition, lenders have been reluctant to loan money to clean up and redevelop such sites. Lenders fear that escalating cleanup costs could hamper repayment of a loan or even bankrupt the borrower.

Finally, the patchwork of state and federal laws can complicate efforts to deal with even minimal contamination. As written, CERCLA's liability and cleanup requirements extend to even low amounts of contamination. In practice, however, EPA has devoted its resources largely to the roughly 1,290 sites on the National Priorities List ("NPL"). While most states now have laws and cleanup programs for non-NPL sites, EPA may nonetheless become involved if state measures do not adequately address the contamination. A developer contemplating cleanup and reuse may therefore have to deal with both state and federal requirements.

Tools and Opportunities for Brownfields Redevelopment

To respond to the brownfields challenge, many communities have established local brownfields programs. In addition, the federal government and many states have developed a variety of initiatives and tools intended to overcome barriers and facilitate brownfields redevelopment.

EPA Brownfields Action Agenda: Liability Clarification Policies

On January 25, 1995, EPA announced its "Brownfields Action Agenda," which is intended to help States and localities in their efforts to clean up brownfields. The Agenda includes several EPA efforts to clarify liability policies and thereby remove current barriers to the assessment, cleanup, and redevelopment of brownfields. Some of EPA's actions include:

Removal of Sites from CERCLIS List

EPA has removed approximately 25,000 potential hazardous waste sites from the 40,000 sites on the Superfund Tracking System ("CERCLIS") list. These sites were removed after EPA determined that they were only mildly contaminated or had been cleaned up and therefore suitable for "no-action" letters. Lenders had previously refused to lend money for any activity at a site on the CERCLIS, even when EPA determined that no cleanup was needed, because of the continuing liability exposure.

Guidance on Prospective Purchaser Agreements

In May 1995, EPA (the "Agency") issued guidance expanding the circumstances under which the Agency will assure prospec

  • Despite growing interest and initial success some communities have experienced in redeveloping brownfields, many barriers remain. Uncertainties regarding liability and cleanup costs have discouraged potential developers from reusing old industrial sites. As a result, many brownfield sites remain abandoned, often presenting an eyesore or potential health hazard to the surrounding neighborhood.
tive purchasers of hazardous waste sites that EPA will not hold them liable for past contamination.2 Ordinarily, landowners who acquire property with knowledge of its contamination can be held liable under Superfund for cleanup costs. EPA's new guidance allows the Agency greater flexibility to enter agreements extending a "covenant not to sue" to prospective purchasers who were not associated with past contamination but might still incur Superfund liability.

Guidance on Municipal Acquisition Liability

EPA has clarified the protections afforded to municipalities that involuntarily take over brownfield sites.3 The guidance sets out the circumstances under which municipal acquisition of a contaminated property will be considered "involuntary" and therefore will not expose local governments to Superfund liability. Examples of "involuntary" acquisitions include abandonment, bankruptcy and tax delinquency foreclosures.

Land Use Guidance

EPA has issued guidance directing the Agency to consider future site land-use plans when assessing risks and choosing a cleanup program for a Superfund site.4 A site slated for future industrial use, for example, presumably need not be as clean as a site intended for residential development.

Owners of Property Containing Contaminated Aquifers

EPA issued guidance that assures owners of properties above aquifers that were contaminated by a source outside their property that EPA will take no action to compel them to perform cleanups or to reimburse the Agency for cleanups.5

Brownfields Assessment Pilot Projects

Since 1995, EPA has awarded more than 120 grants of up to $200,000 each to support two-year brownfield "demonstration" projects. The pilots are intended to serve as "laboratories" to test different cleanup and redevelopment tools, new methods to remove regulatory barriers and innovative partnerships that facilitate coordinated environmental cleanup and redevelopment efforts.

The Agency plans to award an additional 100 pilot grants in 1998. In evaluating applications, EPA favors proposals which can serve as a model for other sites and communities, involve diverse groups in the community, and which have support from the appropriate state and local agencies.

Brownfields Cleanup Revolving Loan Funds

In September 1997, the EPA awarded 20 grants of $350,000 each to municipalities and states to capitalize Brownfields Cleanup Revolving Loan Funds. The purpose of these demonstration pilot grants is to foster the development of state and local financial mechanisms that will support sustainable programs to foster brownfields revitalization. EPA plans to learn from these first twenty pilots as it develops plans to expand the program.

Brownfields National Partnership

In May 1997, Vice President Gore announced Clinton Administration (the "Administration") plans to invest an additional $300 million in brownfields communities, plus an additional $165 million in loan guarantees. Fifteen federal agencies will participate in the partnership which the Vice President said will clean up and redevelop 5;000 properties, leverage up to $28 billion in private brownfields, create 196,000 jobs, and protect up to 34,000 acres of greenfields. Highlights of the Brownfields National Partnership include the following:

  • EPA will provide an additional $125 million for local assessments and cleanups, state cleanup programs and job training;
  • The Department of Housing and Urban Development (HUD) will provide $155 million in community development and housing support in brownfields communities plus an additional $165 million in loan guarantees;
  • The Economic Development Administration (EDA) will grant $17 million for brownfields redevelopment activities in distressed areas;
  • The Department of Transportation will provide $4.2 million for transportation projects addressing brownfields issues; and
  • Several other federal agencies, including the General Services Administration, the National Oceanic and Atmospheric Administration, the Department of Health and Human Services, and the Department of Energy will provide up to $1 million each in funding for brownfields activities

Brownfields Showcase Community Initiative

As part of the Brownfields National Partnership, more than

  • The brownfields challenge faces virtually every community; experts estimate that there may be as many as 450,000 brownfields sites throughout the country.

15 federal agencies recently announced 40 finalists for the Brownfields Showcase Communities initiative. The Administration plans to select ten "Showcase Communities" in early 1998 to demonstrate how federal, state, and local cooperation can leverage private sector investment and help clean up and redevelop hundreds of brownfields sites. A federal brownfields coordinator will be assigned to each Showcase Community. The coordinator's responsibilities will include coordinating the various federal agencies' brownfields involvement in the community and identifying and leveraging technical and financial resources for brownfields initiatives. The criteria for selecting the showcase communities include community need, current brownfields activity, local commitment, state involvement, community size and location.

Recent Congressional Action

Lender Liability Reform

In 1996, Congress passed legislation delineating the conditions under which lenders could be held liable for loans issued to companies that cause pollution problems. The new law clarified that if the lender were simply carrying out normal banking functions, the institution would not be subject to liability for contamination caused by a borrower.

Brownfields Tax Incentive

In 1997, President Clinton signed the Taxpayer Relief Act which included a new tax incentive intended to stimulate brownfields cleanup and redevelopment. Under the new law, environmental cleanup expenses can now be fully deducted in the year they are incurred, rather than having to be capitalized over a multiyear period. The Administration estimates that this $ 1.5 billion tax incentive will leverage $6 billion in private investment and stimulate the reuse of 14,000 brownfields properties. The new incentive, which will be in effect through the year 2000, .is targeted to the following distressed urban and rural areas:

  • EPA brownfields pilot areas designated prior to February 1997;
  • Census tracts with a poverty rate of 20% or more;
  • Low-population industrial or commercial areas located next to these poverty areas; and
  • Empowerment Zone or Enterprise Communities designated by HUD or the Department of Agriculture.

Innovative Local Initiatives

Enforcement Settlement Helps Fund Chicago Brownfields Project

The City of Chicago has pioneered a new mechanism for funding local brownfields cleanup and redevelopment. As part of the settlement of a 1993 lawsuit initiated by the U.S. government, paint manufacturer Sherwin-Williams will provide $950,000 for a brownfields redevelopment project in south Chicago. This brownfields Supplemental Environmental Project (SEP) is part of a bro

  • Because the law is unclear as to what constitutes "involuntary" acquisition, local governments have been reluctant to acquire abandoned property for fear that they would become subject to CERCLA and charged for the cleanup.

ad settlement under which the company has agreed to conduct a facility-wide cleanup to achieve full compliance with environmental laws.

Chicago intends to use the SEP funds for a brownfields revitalization project in Chicago's Victory Heights/West Pullman neighborhood. The 130-acre abandoned industrial site contains partially demolished buildings and is divided by active and inactive railroad tracks. The City of Chicago has already commenced cleanup of the site. With $950,000 from Sherwin-Williams, the City will be able to expand vastly upon these initial efforts.

While it has become common practice for environmental offenders to sponsor SEPs as a part of such settlements, this marks the first time that a brownfields project has been funded through this mechanism. EPA and the Department of Justice are expected to issue guidance encouraging the further use of "Community Brownfields SEPs.''6

Portland Initiates "One Call for Brownfields" Pilot

The City of Portland recently received EPA Funding to establish a new pilot to test the feasibility of using the Oregon Utility Notification Center's (OUNC) "One Call" program as a mechanism for monitoring and enforcing institutional controls on brownfields properties. If successful, this model could be replicated by state and local brownfields programs across the country, since most states have similar utility notification programs.

The OUNC "One Call" program was established to serve as a centralized, one-stop shop to prevent excavation that would damage or disrupt utility lines. Under the program, the OUNC maintains a centralized data base and GIS mapping system of all underground utility facilities (e.g., gas, electric, water, sewer). State law requires anyone who excavates more than 12 inches deep to notify the OUNC prior to digging and provide precise street or other location information. The OUNC then notifies all affected utilities, which send personnel to identify underground lines near the project with color coded paint. The excavator now has the information required to safeguard its workers, the community and the utility systems.

The City of Portland and its brownfields partners are testing out the "One Call" model as a mechanism for enforcing institutional controls at brownfields properties. Here's how it would work: The OUNC would incorporate information on brownfields properties (e.g., owner, location, land use restrictions) into its centralized mapping system and data base. The OUNC would notify the Oregon Department of Environmental Quality (DEQ) whenever excavation is planned on any of the brownfields properties (just as it would notify an affected utility). The DEQ would then use this information to ensure that institutional controls and other public health safeguards are maintained and enforced at these brownfields properties.

Englewood Launches Loan Fund for Brownfields Site Assessments

The City of Englewood, Colorado recently announced a Brownfields Assessment Revolving Loan Fund available for use by private property owners within the city.7 The revolving loan fund program is capitalized through EPA's Brownfields Demonstration Pilot program. The objective of the revolving loan fund is to provide an opportunity for businesses and investors to reuse and renovate commercial real estate, even if there is possible on-site pollution.

Englewood is an inner ring suburb of 30,000 that grew up as an industrial sister city to Denver. Because there is little vacant land available in Englewood, redevelopment of older property is necessary to accommodate new and expanding businesses. The fund offers funding for environmental assessments, engineering studies and risk assessments necessary to overcome environmental concerns.

Flexible terms and repayment options facilitate the economic success of a redevelopment project. Funds are available to owners, buyers and/or developers. The borrower can establish a line of credit to cover current needs and provide a cushion for future unanticipated needs. The borrower may engage an environmental contractor of their choosing and repayment can be deferred to allow for construction time and cash flow.

Conclusion

There are many opportunities for local governments to create economic and environmental benefits through brownfields revitalization. Localities should take advantage of the new federal tools and resources to tackle their brownfields challenges.

Notes

1 This article draws on two other documents prepared by Spiegel & McDiarmid personnel: (1) the Spiegel & McDiarmid Environmental 'Memorandum, "Opportunities to Redevelop Brownfields," prepared by Wendy Lader and Robert Roach, January 1996; and (2) "Building a Brownfields Partnership from the Ground Up," prepared by Kenneth Brown and Matthew Ward for the National Association of Local Government Environmental Professionals (NALGEP), February 1997.

2 See 60 Fed. Reg. 34,792 (July 3, 1995).

3 See EPA Memorandum printed at 60 Fed. Reg . 63,517 (Dec. 11, 1995).

4 See 60 Fed. Reg. 29,595 (June 5, 1995).

5 See 60 Fed. Reg. 34,790 (July 3, 1995).

6 Contact William Trumbull, Chicago Department of Environment, 30 North LaSalle Street, Chicago, IL 60602.

7 Contact Jesse Silverstein, Investment Management Analysis, 8138 West Caley Place, Littleton, CO 80123.