By Steve Dwyer
State, local and federal laws and regulations can make or break some of New York City and New York State’s incentives to invest—or not—in remediating and redeveloping brownfield properties. There are several outcomes across the broad spectrum, from tax burdens that push private investors away to tax relief measures that incentivize them.
There are a lot of moving parts. In early September, development rights and construction funding were awarded for four new housing projects that will collectively create more than 2,700 affordable-supportive residential units. Herkimer Gardens, located on Herkimer Street in Bedford-Stuyvesant, Brooklyn, is one of the projects to tap funding and approvals from the NYS $1.4 billion “Vital Brooklyn” housing initiative.
A year earlier, all hands were on deck to keep tax credit payments flowing to stakeholders under the Brownfield Cleanup Program, and you will remember that the NYC Brownfield Partnership strongly recommended that deferral of BCP tax credit payments (as proposed in the New York state executive budget) not be incorporated into the 2018-19 budget. It wasn’t.
New York Brownfield Opportunity Areas (BOAs) are proliferating, now 47 BOAs located across the Empire State. BOA establishment provides municipalities and community-based organizations with assistance, up to 90% of the eligible project costs, to complete revitalization plans and implementation strategies for areas or communities affected by the presence of brownfield sites, and site assessments for strategic brownfield sites.
There is another movement that’s worth watching. USEPA is eager for investors to take advantage of the Opportunity Zone (OZ) tax benefit program focused on distressed communities to assist with cleanup and redevelopment of brownfield properties. But to have it work requires assistance from the Internal Revenue Service (IRS) to clarify whether typical brownfield site activities, including site assessment and cleanup, are considered valid site preparation costs.
Opportunity Zones, as established by the Tax Cuts and Jobs Act of 2017, are economically distressed communities identified by state governors as having potential for investment. Through the IRS program, investors may defer capital gains tax by adding their gains to special funds dedicated to OZ revitalization. The OZ program is intelligent and innovative, but like many tax programs it’s also complicated.
An initial tranche of IRS guidelines for the program, issued in October of 2018, made USEPA uncertain whether typical brownfield site activities, including site assessment and cleanup, are considered valid site preparation costs..
The second tranche of guidelines, released in April, appeared to clarify that those are valid in certain cases. But the IRS does not mention brownfields explicitly, and therein lies the rub.
Is the IRS usually viewed as an agency dedicated to effecting much change to help ramp up activity in the brownfield redevelopment context? Probably not. The NYC Brownfield Partnership should continue to monitor the IRS clarification on brownfields and site preparation costs for OZs and determine if it is assisting NYC and NYS to realize accelerated remediation and redevelopment of brownfield sites in the Zones. When the time is right, the Partnership’s comments might assist in better federal decision-making to accelerate brownfield revitalization.