INDEX
- Brownfields Issues: Legal Support for Local Governments and Industrial Development Authorities
- Brownfields Conceptual Plan
- Local Government Partnering Plan
- Local Authority Real Estate and Land Use Issues
- Federal Grant and Loan Options
BROWNFIELDS ISSUES:
LEGAL SUPPORT FOR LOCAL GOVERNMENTS
AND INDUSTRIAL DEVELOPMENT AUTHORITIES
What is a Brownfields Site?
Typical cities, townships, and counties in the northeast have a number of abandoned industrial properties commonly referred to as "Brownfields" sites. These sites have usually ceased contributing taxes and employment to the community, and will require environmental remediation prior to any redevelopment. Title to a typical abandoned "Brownfields" site is held by an insolvent former operator, or by a municipal government or industrial development corporation having foreclosure rights. In most situations, the title holder would likely convey title for nominal consideration. Other potentially enthusiastic stakeholders include any involved bank, the local government or development authority, as well as nearby residents.
What is a Brownfields Program?
In the above-described situations, there is a unique opportunity to accomplish profitable redevelopment while recognizing key public interest and political goals. A number of states, including Pennsylvania, Michigan, Connecticut, Maryland, West Virginia, and Massachusetts, are responding by enacting programs to facilitate the sale and redevelopment of environmentally impacted "Brownfields" property.
These programs allow cleanups based on site-specific risk analysis in lieu of inflexible standards which may be technologically or financially infeasible. It is also possible to obtain binding government approvals that allow real estate transactional parties to quantify risk. Many states are also providing grants for both investigative and remedial action.
The federal government has also become an instrumental force through grants and loans for site investigation and remediation. HUD's traditional Community Development Block Grants (CDBG) and 108 Loan Program are being promoted as Brownfields tools. There are also new programs such as the Brownfields Economic Development Initiative (BEDI), which have increased the flow of financial assistance to local entities.
How Pepper Can Assist
The Pepper Hamilton LLP Brownfields Group can play an instrumental role in designing and implementing successful redevelopment projects. Working closely with local solicitors, and accounting/real estate consultants we can provide critical advice at each step in the process. These steps typically include:
- Preliminary Site Investigation and prioritization of development candidates
- Legal opinions on municipal liability risks and potential regulatory requirements
- Negotiation of cost-effective remedial approvals with State Agency
- Negotiation of necessary liability releases for redeveloper entities
- Plan and draft documents for necessary assembly of real estate and any required long-term interest to be held
- Negotiation and drafting of low interest loans to redevelopers.
- Counsel for issuance of supporting general obligation bonds or Tax Increment Financing (TIF) bonds.
Pepper's Brownfields Group legal services can bring considerable value to redevelopment projects. Experience as well as efficiency are derived from productive team work among environmental, real estate, public finance, and construction lawyers. We are one of the few national firms with significant and successful experience in the Brownfields area.
LOCAL AUTHORITY REAL ESTATE AND LAND USE ISSUES
I. Acquisition/Assembly
A. Prioritization of Potential Candidates for further investigation
1. Key environmental factor indicators in a Phase I context
- Availability of a previous private site assessment
- Presence of site on CERCLIS and availability of a Preliminary Assessment or Site Investigation Report
- Past industrial use profile available
- Documented release history
- Presence of current or past underground tanks and documentation of closure
- Availability of state files regarding air or water permits or hazardous waste generation inspections
- Extent of likely pre-1980 on-site hazardous waste disposal (eg. wastewater impoundment)
- known groundwater contamination
2. Market value indicators
- Square footage
- Proximity to highway
- Proximity to rail
- Presence of buildings
- Occupancy of buildings
- Tax liens
- Assessment value per acre
- Redevelopment or Tax Abatement Zone designation
3. Weighting of environmental and real estate factors
B. Real Estate Issues
- Eminent domain v. purchase mechanism;
- Should municipality take the lead or agree to use eminent domain as backstop?
- Is local eminent domain authority legally confirmed? Politically accessible?
- Evaluating cost of eminent domain up front.
- Risk Issues - Public/Private
- Time/value issue
- Risk sharing strategies for unanticipated costs
C. Municipal Land Assembly and Liability Risk Sharing Strategies
- Agreement to cover fixed remedial costs from statutorily liable parties
- Share contingent costs on a sliding scale with developer
- Developer/City compromise on risk of sinking funds into project before property is actually acquired
- Developer's pre-development costs
- City's condemnation costs
- Developer Agreement to purchase land up front, with City buy-back, if deal fails
- City may acquire land and lease back to Developer
- Developer may pre-pay rent to fill cash-flow gap
- Acquisition and remediation of a group of parcels using Tax Exempt Variable Rate Demand Note
II. Coordinating Future Land Use Restrictions and Remedial Requirements with Local Development Plans
- Planning Commission Plans May either limit or drive future land use upgrade;
- Reasonable cleanup cost may assume future restriction to avoid residential;
- Maximum property value may require unrestricted upgrade which increases environmental costs.
III. Legal options for future institutional control:
- State agency enforceable covenants
- Zoning
- Restriction of residential/institutional
- overlay zones restricting well use
- Deed restriction
- Addressing particular uses
- Addressing particular areas of the site
- Restrictive Covenant
- Easement
- Equitable Servitude
- Well Restrictions
- Deed Notices
IV. Legal Policy Issues for Institutional Controls
- Enforceability of deed restrictions and restrictive covenants against future owners
- Need for conveyance to create deed restriction
- Limited utility where current owner intends to develop
- May create need to convey to local authority
- Creates new set of legal concerns for Authority
- Public Involvement
- Property Devaluation
- Stigma damages
- Taking issue
Federal Grant and Loan Options
EPA Pilot Grant and Cleanup Revolving Loan Fund (BCRLF)
EPA Pilot Grants are available to eligible municipal governments and authorities in amounts up to $200,000. Pilot grants are intended exclusively for environmental assessment activities and the planning activities necessary to support the assessment Funding authority is pursuant to CERCLA Section 104 and therefore carries the jurisdictional prerequisites of the Superfund program--e.g., petroleum cleanups are not covered, and there must be an identifiable release or threat of release of a hazardous substance.
The BCRLF is available to Pilot grant recipients, for remediation costs up to $400,000. See 62 Fed. Reg 24915 (May 7, 1997).
HUD Community Development Block Grant Funds (CDBG)
CDBG funds have been used by municipalities under the Community Development and Housing Act (42 USC 5301) since 1974. However, until recently, HUD regulations at 24 CFR Part 570 were not widely interpreted as allowing funds to be dedicated to acquisition, clearing or remediation of Brownfield sites. HUD is now actively promoting use of CDBG funds for these purposes [See e.g., "Redeveloping Brownfields: How States and Localities Use CDBG Funds (HUD Oct. 1998).
HUD Section 108 Loans
The HUD 108 program has facilitated local redevelopment for a number of years, by providing guarantees to back up local government debentures. The loan guarantees are secured by CDBG entitlements. HUD is actively promoting use of 108 loan funds for Brownfields Redevelopment in conjunction with the expanded CDBG program. In a widely publicized example of new HUD 108 Loan Strategies, the City of Chicago recently obtained $50 million in 108 loan guarantees. The money being raised through the bonds which are enabled by this guarantee is being used to acquire properties and provide low interest loan incentives to developers. The City is repaying loans via tax increment financing and, in some cases, via settlements obtained with potentially liable parties.
HUD EDI and BEDI Grants
Grant funds are available under a 1994 Program, "Economic Development Initiative" (EDI). This program makes funds available to redevelopment activities including Brownfields response, in order to further leverage 108 Loan funds and reduce likelihood of jeopardizing future CDGB entitlements which are pledged for repayment of 108 loans.
In 1998 a competitive grant program known as the Brownfields Economic Redevelopment Initiative (BEDI) emerged. BEDI is specifically focused on Brownfields sites but favors applicants having specific development plans which can document future economic growth. This, in turn, is intended to enhance economic viability of projects funded by 108 loans. Covered activities include remediation, land write down to cover the estimated cost of remediation, and reduced rate (buy-downs) lending to facilitate development. See 24 570, 703.
BEDI grant applications typically must be accompanied by a HUD 108 loan guarantee application or amendment. Most BEDI grants will be in the amount of $1 million.
Grant applications which "leverage" higher than 108 guarantee amounts (i.e., ratio of BEDI/108 greater than 1:1) will be rated more favorably.
SBA Section 504 Loans
Under this program, nonprofit corporations known as Certified Development Companies are established to provide technical and financial assistance to small businesses located in designated geographical areas. To qualify for the 504 program, a business must first meet the general SBA definition of a small business and have a tangible net worth of less than $6 million and an average net income of less that $2 million after taxes for the preceding two years.
The financial assistance package consists of three parts. The first component is the 504 loan, which may not exceed 40 percent of the project costs. Another 50 percent must be from a private lender. The 10 percent balance must be covered by an equity contribution of cash or property. The total outstanding balance of all SBA financial assistance to the borrower and its affiliates generally cannot exceed $750,000.
Project costs that may be paid with 504 funding include the acquisition of long-term, major fixed assets such as land, buildings improvements, and machinery and equipment. The loan proceeds may also be used to pay for a variety of professional fees that are directly attributable and essential to the project. These include the costs of performing environmental site investigations and legal fees. However, ' 504 loans may not be used to pay for working capital, debt refinancing, or short-term fixed assets such a furniture, furnishings, and motor vehicles.
Tax Incentives -- Community Redevelopment Act
Under the CRA regulations as amended in 1995, financial institutions can meet qualification criteria by making loans that support community redevelopment. One of the qualifying activities is "loans to finance environmental cleanup or redevelopment of an industrial site as part of an effort to revitalize the low- or moderate-income community in which the property is located."
Economic Development Agency Funds
EPA has made funds available under the Title I Public Works program for projects located within designated Redevelopment Areas or Economic Development Centers. The financial assistance may be in the form of grants, loans, loan guarantees, or the purchasing of debt. Recipients may use the financial assistance to purchase and develop land, facilities, and equipment for industrial or commercial uses including construction of new buildings or rehabilitation of existing buildings. In addition to acquisition and development costs, the financial assistance may be used to secure working capital loans, guarantee rental payments, and satisfy liens against property for which development is planned.