Point:
What Are the Right Incentives?
By Kevin Noell
As a developer active in the brownfield sector, it might seem odd to hear me question the financial incentives available for the redevelopment of brownfield properties. But the question facing the industry, I believe, is not whether brownfield transactions need incentives, but which incentives would best spur redevelopment and the number of sites available?

AtN BA’s 2006 international, national and East Coast regional conferences, brownfield developers were asked what they wanted. While we assume financial incentives rank among the highest priority—and there is no denying that they are essential in creating inventories of contaminated sites and site assessments to increase the knowledge base as to the conditions of a specific property—the unanimous responses were:

1. Certainty, consistency and predictability from the regulatory agencies.
2. Reasonable time frames from the regulatory agencies to review and accept documents.

These are similar to my own perspective. Another incentive that would increase the volume of brownfield redevelopment would be liability relief. As it stands now, I develop a remediation plan, get it approved by the regulatory agencies, perform the cleanup, develop the property for an approved use, and then find myself—and any future property owner—at risk into perpetuity for regulatory re-openers and third party tort claims.

I understand the basic reasoning for this, but I’m not sure I agree with it. After all, the regulatory agency approved the testing and remedial plan; if we executed the plan appropriately without any exceptions, is it so unrealistic to expect that we could achieve closure from a liability perspective? Some states have effectively accomplished this—but most have not. Many sites awaiting redevelopment are held up as a result of this issue.

Interestingly, this is not in and of itself a core issue for brownfield developers. While there is a real economic risk to this process, it is a risk for which there is a well-established solution—pollution and legal liability insurance. The risk of liability into perpetuity falls on the current and former property owners, whether they are the responsible parties for the contamination or not. Many of these property owners make the rational business decision to keep the property undeveloped rather than run the risk of this uncontrolled liability. Find a way to limit this liability into perpetuity and you will find a way to get more contaminated properties cleaned up and redeveloped.

Many believe that this is not realistic, at least in the short term.

The alternative then is to provide redevelopment incentives that are feasible in the short-term. And from a private industry perspective, it seems the easiest solution to increasing the pace of brownfield redevelopment is to accelerate the regulatory and local land use approval processes. The issue is not the statutes or processes in place—although they may bear scrutiny—the issue is a combination of staffing and regulatory agency culture.

Most of us recognize the axiom that time is money. Nowhere is this truer than in the development business. We engage in a high risk business and we have a high cost of capital. Today’s brownfield developer is, for the most part, a knowledgeable and ethical businessperson who knows what needs to be done to properly remediate a site. For the most part, the processes and procedures in place today were set in stone years ago, for projects and problems that bear little, if any, resemblance to today’s brownfield redevelopment prospects. For an amount far less than another incentive program, the federal, state and local government could and should put their heads together to find some way to accelerate the approval process. Find a way to accelerate the regulatory approval process and you will find more properties getting redeveloped, whether that means changing the processes or developing staffing solutions.

At the end of the day, we recognize that incentives are a necessary and, perhaps, underappreciated means of getting the job done. But we also recognize that the incentives of old do not support the current needs of brownfield developers or the nature of many brownfield sites waiting for redevelopment. So whose responsibility is it to make those changes? As an industry, we are all responsible. If we don’t stump for the kinds of incentives that spur redevelopment, then there is no incentive for the regulatory agencies to effect those changes.

Counterpoint:
From the Reaches of My Regulatory Experiences: A Perspective on Incentives
By Sue Boyle
The first generation of state and federal incentives for brownfield developers and municipalities responded directly to the notion that the “unknown” was the biggest difference between developing on greenfields versus sites that were contaminated or suspected of such. Developers and property owners told lawmakers and agency implementers that if the contamination could be quantified, developers would then know how to remediate and then redevelop brownfield properties based on market factors. So, rationally, the first generation of financial incentives is geared toward providing funds to define the contamination.

Kevin Noell also rightly points out that liability relief for innocent purchaser developers is another incentive that is offered by government programs. It may not go as far as developers want, but it is a vast improvement over what existed prior to the federal government’s and states’ wholesale embrace of brownfield redevelopment as a public good. Third party tort is still out there and tackled by almost no government. But, Noell is correct that there is insurance, and most sophisticated developers and owners know how to use the products and how to calculate acceptable risk.

Interestingly, he mentions site inventories as an early incentive. I don’t know if they were viewed that way when they were included in many state programs. I think that in any decent real estate market, they certainly don’t serve that purpose. I don’t know of any sophisticated developers who rely on government inventories to find their next redevelopment sites. And, most don’t want to list the sites they’ve found on the inventories.

At the threeN BA conferences that Noell mentions, government commented on what it feels it offers developers and what it wants from developers. Government officials acknowledged that “all property owners are not the same,” and that they have to change the culture of how brownfield developers are treated in the process. That doesn’t mean that health and environmental cleanup standards should be any less stringent for brownfield sites, but it does mean that a culture of cooperation and partnership needs to be fostered.

And, there was recognition that time is money. However, government officials cautioned developers that technical submittals need to adhere to regulations and are of excellent quality. Regulators waste a lot of time reviewing deficient documents, which bogs down the process for everyone. They also cautioned developers to take the realistic time frames of the agencies into account when scoping projects. Getting back to that culture issue, if developers and regulators sit down up front and have open and honest communication, time frames can be discussed.

Finally, agency personnel commented on the issue of process improvement and staffing. Many state agencies are working diligently at process improvement. State agency staffing is at the mercy of the public budget process. Most members of the public don’t want to see their taxes raised to provide more brownfield case managers. And, state agencies have many environmental and public health priorities in addition to brownfield remediation and redevelopment.

One way to rile a regulator is to complain about process time and low staff levels and then to sue the agency so it can’t collect its full cost from applicants to keep the program running in a timely manner. Or, to lobby against the tax or fee increases needed to hire more staff. You can’t have it both ways. No one can.

Note: Opinions expressed here are the author’s and do not reflect any position of any regulatory agency.

Counterpoint:
Bridging the Incentives Gap in Pennsylvania
By Rep. Eugene DePasquale, D-York
A number of innovative techniques have been employed in recent years to promote the redevelopment of Pennsylavnia’s brownfields, mostly in the form of economic and financial incentives. The question is whether or not these financial incentives are working to encourage developers to reinvest in brownfield properties, and to take the economic risk associated with reclaiming contaminated lands.

My answer would be a resounding “yes.”

Prior to the 21st century, many contaminated brownfield sites sat idle and unused because the risk—read cost of appropriate remediation—was not worth the reward. However, redevelopment of and investment in these former hazardous sites have become economically productive thanks to several state programs that assist developers interested in cleaning up these once wasted commercial and industrial lands.

In 1995, Pennsylvania created the Land Recycling Program, commonly referred to as Act 2. Since the development of this state program and the financial assistance initiatives that accompany it, more than 2,300 sites have been revitalized statewide and more than 40,000 jobs have been created or retained.

One highly effective financial incentive program, the Growing Greener initiative, has played a major role in reclaiming land that was once left unattended and rendered useless. In addition, the state developed the Industrial Sites Reuse Program, which provides loans and grants to municipalities and private entities for site assessment and remediation; the Infrastructure Development Program, which provides public and private developers with grants and loans for site remediation, clearance and new construction; and the Key Sites Initiative, which creates partnerships between local economic development agencies or municipalities and the Department of Environmental Protection.

These are only a handful of incentive programs in Pennsylvania that encourage developers to invest in brownfield lands and to offset some of the financial risks associated with revitalizing these properties. Thanks to these programs, the state has been successful in bridging the gap between growing our economy and protecting our environment.

Some may say that financial incentives are not enough. Although overwhelmingly productive and successful, I agree that providing funding alone is not the answer.

Oftentimes, developers and investors face time constraints, and with government’s reputation for adding a lot of “red tape,” many are turned off by the possible delay in approval. The state has recognized this problem and has created the Brownfield Action Team (BAT), which is designed to streamline the revitalization of Pennsylvania’s brownfield sites.

BAT enhances the interaction between DEP and local communities by designating a single point of contact within the agency for locally-designated, priority brownfield or abandoned mine land redevelopment projects. An evolution of the Land Recycling Program, BAT acts as an arm to the financial incentives offered through the program by providing an enhanced management process for community revitalization.

For developers, time is of the essence, and the state is doing all it can to make sure the turnaround time is conducive to the investment. However, we must be prudent in this regard. Are we willing to supersede the regulatory process, or expedite it to the point where evaluations of the potential hazards of lands are overlooked?

Protecting our citizens from the potential dangers of remediation and redevelopment of brownfield lands is an incentive worth its weight in time and money. In the end, we can move our economy forward, clean our environment and protect the public. That is the formula working in Pennsylvania.