As the 110th Congress reached its midpoint nearing the 2007 winter holiday recess, brownfields were gaining more attention on Capitol Hill. The EPA and the Bush Administration continue to support the brownfields program (see table), touting its impacts and results, and key members of Congress are considering the potential impact a reauthorization of the EPA brownfields program might have. Brownfield program proponents from more than 20 organizations, pleased that reauthorization had made it to the congressional radar screen, were also urging Congress to take advantage of the opportunities reauthorization offers to build on brownfield successes.

Reauthorization is in its earliest stages; many conversations have taken place and a brownfields coalition has been working to vet proposals and seek support. However, as of this writing, no bill has been introduced, although several House members have expressed interest in sponsoring one at the appropriate time. No Senate action has taken place, but solid movement on the House side could provide the impetus for the reauthorization coalition and others to urge action by the Senate Environment and Public Works Committee. A strong push in 2008 will be needed to get reauthorization through.

Pending Tax Incentives to Support Redevelopment
Congress is considering several tax incentive proposals with significant direct and applied potential to brownfield projects. Tax incentives can increase a project’s internal rate of return and ease developer’s cash flow needs by freeing up cash ordinarily needed for tax payments. Some credits can be sold for cash, transferred to reduce acquisition costs or syndicated to attract additional investment capital. In addition, tax incentives typically are not subject to a competitive public grant process. If you meet the criteria, you get the benefit.

The brownfield cleanup expensing incentive, which allows new owners to recover cleanup costs in the year they incur them (as a repair), rather than capitalizing them over time, is the only federal incentive targeted to private site owners.

Eligible expensing costs are varied; property owners have expensed site assessment, cleanup, institutional control installation and monitoring costs (even an access road used as an environmental cap, in one instance), as well as state VCP fees and costs of removing demolition debris that may be contaminated (with asbestos or lead paint, for example).

The incentive has been little used, but it is generally available for costs paid after Dec. 21, 2000. Petroleum cleanup costs became eligible on Jan. 1, 2006.

The incentive has suffered from short-term extensions over the past four years. Currently, it is set to expire Dec. 31, although the House has included a one-year extension in a broader tax incentive “extender bill,” that will likely pass during the 110th Congress. House members also introduced free-standing legislation to make the expensing incentive permanent and eliminate recapture penalties, but there has been no movement on this bill.

Historic rehabilitation tax credits are rapidly becoming a key financing tool in many brownfield projects where old structures are cleaned and renovated for new uses. The federal government offers a 20 percent credit for work done on historic structures, where work is certified by the state historic preservation office. Across the country, these offices are becoming increasingly versant in the realities of brownfield cleanup and redevelopment in saving old buildings. Older, non-historic buildings constructed before 1936 are eligible for a 10 percent credit, with no certification required. Nationally, more than 1,000 such projects were approved in 2006, stimulating more than $3 billion in new investment, more than half in office and commercial projects. In addition, developers are getting savvy about combining federal credits with similar incentives now available in many states, creating a powerful 40 percent or more credit on rehab activities.

Legislative proposals introduced in both the House and Senate to double the federal credit to 40 percent on small historic projects—those less than $2 million—provide additional incentives for projects in distressed areas and allow credits to be earned on non-historic housing rehabs. Considerable interest exists, but much work needs to be done to move targeted tax incentives.

In October, the Department of the Treasury made its last authorized allocation of new markets tax credits to 61 community development organizations around the country, totalling $3.9 billion for 2007. The program offers credits of up to 39 percent over seven years to investors in distressed areas. Projects eligible for these incentives include community facilities (such as health or child care), charter schools and homeownership projects. Nearly half of all credit activity supports both for-profit and nonprofit business development. Interest exists in Congress to continue this program, although no proposals have been introduced.

Finally, energy tax credits, authorized under the Energy Policy Act of 2005, offer significant incentives for new construction that is energy efficient. Through Dec. 31, 2007, developers can receive a deduction of up to $1.80 per square foot, depending on how efficient construction is. Additional credits of up to 30 percent are available for businesses that install solar energy systems by the end of 2007. Both of these credits will continue into 2008, although at much lower levels; the energy bill working its way through Congress right now would expand them to $2.25 per square foot. Properly deployed, these credits can have an important financial impact on new construction on brownfield sites. Several small commercial projects have reported savings topping $100,000 by using these credits.

Proposed Changes to Program Funding
At the N BAs’ Big Deal conference in October, participants discussed proposals to fine-tune the EPA’s program for greater impact and to better fit the realities of the real estate marketplace.

Participants said that Congress must acknowledge the complexity of the cleanup process at larger or more contaminated sites by increasing the funding ceiling for cleanup of a single site from the current limit of $200,000 to $1 million. While many grants would likely remain below these amounts, this increased cap would give the EPA the flexibility to help communities with projects that face higher cleanup costs. These include old dry cleaning sites that can carry an average cleanup cost of $400,000, according to EPA estimates, and for-mer small-scale manufacturing sites with big cleanup price tags that can approach $1 million.

This increased grant limit would go a long way towards addressing the funding gap that stymies redevelopment at many properties.

One way of introducing more flexibility into the grant program is to allow communities to apply for multipurpose grants that address the full range of brownfield needs—assessment and cleanup (both direct grants and revolving loan funds), as well as reuse planning, demolition and institutional controls—making sites shovel ready for redevelopment in a more timely, concurrent fashion.

EPA officials suggested recently that they might experiment in the coming year with a pilot effort that allowed multipurpose grant proposals for brownfield activities currently eligible.

To accomplish this, Congress must raise overall EPA funding commensurately to accommodate these increases so that the number of annual grantees is not reduced. Over the past two years, the EPA has turned down nearly 800 grant applications, including 460 cleanup grant proposals, because it did not have enough funding to meet qualifying demand. Congress should increase funding as part of a new reauthorization period; the 20-plus organizations participating in a brownfields coalition have suggested at least $350 million annually. This may prove the toughest part of the reauthorization process.

Improvements to Enhance Program Operations
The EPA brownfields program now has enough maturity, and certainly the track record, to allow for simplification of the grants process. One way would be for Congress to eliminate current set-asides for petroleum brownfields and allow all brownfield sites to compete equally for all program resources. Currently, the EPA must follow a two-track application and monitoring system to comply with the statutory petroleum set-aside.

Petroleum brownfield grants compete only with other petroleum brownfield applications, and applicants with both petroleum and non-petroleum brownfield grants must segregate these funds and manage them separately. This has led to paperwork burdens and lack of local flexibility to address critical assessment needs in a timely manner. A single paperwork process would reduce administrative requirements on both grantees and the EPA, freeing critical staffing resources for other needs.

Reauthorization should acknowledge the great strides in the technological and process elements of brownfield reuse and the fact that both developers and communities have become more comfortable with risk-based corrective action and the deployment of institutional controls (IC). This suggests lifting the 10 percent limitation on the use of grants for institutional controls if communities wish to leverage private participation in brownfield redevelopment via this approach. Based on the brownfield program’s track record, an institutional controls strategy often significantly reduces project costs and can maximize the benefit of program resources.

Most sites that receive state VCP sign-off each year use some sort of institutional or engineering control in their remediation plan. However, widespread IC use has raised concerns in some quarters (among neighborhood activists, lenders and tenants, for example) that ICs are inconsistently applied and sporadically monitored. Therefore, reauthorization offers an opportunity to assure that state VCPs or other response/-enforcement programs have enough staff to monitor the growing number of sites that employ institutional and engineering controls and enforce ICs as necessary.

Reauthorization language should also make clear that states can use their brownfield grants to reassure neighborhood residents, adjoining property owners and other affected parties that these controls do work to protect human health and the environment.

To accommodate these changes, funding for state brownfield grants, as part of the total program funding, should be increased; stakeholder organizations have suggested at least $70 million.

Congress should set the stage for communities to better leverage their cleanup revolving loan funds (RLF), which are becoming more widely used and vital to local brownfield program efforts.

Congress also should consider ways to further enhance the capacity of RLFs by encouraging additional private sector leveraging of these resources. This might be accomplished by allowing RLFs to guarantee private loans, or by permitting co-mingling and leveraging of funds from multiple sources (both public and private) into the RLF capital pool in ways similar to those already done with federally capitalized local loan funds.

Overall, program operations can be enhanced if a key program change is made, one long advocated by state, local and quasi-public development organizations; allow brownfield grant recipients to use a small portion of their grant—possibly 10 percent—to cover reasonable administrative costs, such as rent, equipment and utilities.

The current limitation makes it difficult for many prospective applicants to effectively develop and implement their site assessment and cleanup programs and projects. Removing this restriction would make the EPA brownfield program consistent with virtually all other federal development programs. It would make grant funds a more viable resource for smaller communities or nonprofits with little capacity to manage additional grant funds on their own.

Strategies That Reflect Practical Realities
Congress must recognize the realities of past land use practices, especially brownfield situations in cities and towns with long-time legacies of abandoned sites and changing economies. It can be difficult to prove that a public agency took reasonable steps many years ago, prior to acquiring sites.

Congress should allow grant applicants to receive funding for sites acquired prior to the enactment of the Brownfields Revitalization Act in 2002, when there was no required standard for all appropriate inquiries, if the applicant did not cause or contribute to contamination. For these sites, applicants would not have to demonstrate that they did all appropriate inquiries.

Further liability relief would allow communities to better market brownfield opportunities. Relief consistent with what exists in current law, but targeted to innocent easement holders, lessees and other parties in similar contractual relationships, would encourage more private interest in these sites.

Liability changes might include fixes for involuntary municipal acquisitions, specifically, a CERCLA exemption for sites acquired by innocent local and state governments that did not cause or contribute to contamination on a property and that exercise due care with regard to any known contamination on a site.

Brownfield revitalization, with its emphasis on infill and pollution prevention strategies, is well suited to advancing creative experimentation with sustainable reuse initiatives that have the potential to realize substantial energy savings and diverse economic service and production efficiencies. These initiatives include construction of green buildings, alternative building approaches (such as green roofs or permeable parking lots), incorporation of green infrastructure, adoption of water-recycling, renewable energy, and similar approaches.

Even with their laudable environmental goals, such initiatives can be difficult to implement. Typically, they are more costly, at least in their initial stages, when competing capital needs are the greatest.

Reauthorization should direct EPA to provide additional assessment and/or cleanup awards as an incentive for applicants to promote and use sustainable approaches in their brownfield revitalization strategies and projects. This approach is consistent with other environmental incentives that the EPA has offered in the past under the brownfield program, when it encouraged greenspace and recreational site reuse during its pilot program.

Charlie Bartsch is vice president of ICF International in Washington, D.C.