Amendments to the New York State Brownfield Cleanup Act (BCA) fall well short of what both supporters and critics of the law had hoped at the beginning of the legislative session.

The BCA, while having many favorable features, has been hobbled from the outset by a tax credit scheme that is seen by some as overly generous with respect to lightly contaminated properties on which expensive developments are sited. Because the law provided that cleanup and development dollars were treated equally for tax credit purposes, such sites stood to reap substantial tax benefits even where cleanups were modest in scope and cost.

To combat this perceived defect, the New York State Department of Environmental Conservation (NYSDEC) developed eligibility guidelines that had the effect of denying entry into the program where the development costs were disproportionate to the environmental cleanup expenses, or where the projects were deemed to be sufficiently attractive that they did not require tax credits to be economically viable. The eligibility process also added costs and, in many cases, extensive delays to the already procedural-heavy processes under the BCA. The result was that numerous brownfield development projects either were not consummated, or the cleanup was undertaken “at risk” and without either NYSDEC’s supervision or any of the public notice components required under the BCA.

The concept embodied by a number of the proposed amendments to the BCA was a tradeoff—liberalizing the eligibility limitations but providing a “cap” on tax credits for development costs. Unfortunately, that tradeoff never happened. A cap was imposed on tax credits available for development costs—at the lesser of three times development costs or $35 million for non-industrial sites, and six times cleanup costs or $45 million for sites designated for industrial use. However, the amendments do not address any of the eligibility issues. Thus, NYSDEC may elect—or for reasons of consistency, may feel that it is required—to continue to administer the eligibility guidelines as it had previously. The bottom line is that applicants may still have to run the eligibility gauntlet, but the benefits (in the form of tax credits) are in many cases much reduced for successfully doing so.

There were other, more favorable changes to the BCA that were enacted along with the cap on development costs. These include: (a) increasing the percentage of cleanup costs eligible for tax credits from a range of 10 percent to 22 percent, to a range of 22 percent to 50 percent, depending on the anticipated end use and level of cleanup achieved; (b) transferring jurisdiction for operation of the Brownfield Opportunity Area component of the BCA from NYSDEC to the Secretary of State; and (c) establishment of a Brownfields Advisory Board to assess implementation of the Program and make recommendations for improvement.

It may well be that NYSDEC, knowing that tax credits for development costs are no longer unlimited, will in practice become more liberal in allowing sites into the program. At a minimum, NYSDEC will begin processing applications that it had held in abeyance, first under a self-imposed moratorium and then under a legislatively-enacted one.

Because of dissatisfaction with the limited scope of the amendments, many of those active in reform efforts have vowed to seek additional changes, either in a special session of the legislature that may be convened later this year, or in the session which will commence in January 2009. Such proposed changes include: (1) making explicit that any site having contamination above New York State’s Soil Cleanup Objectives, no matter what the source of the contamination, is eligible for admission to the Brownfield Cleanup Program; (2) eliminating the automatic exclusion from the program of sites listed as Class 2 on the state’s Registry of Inactive Hazardous Waste Disposal Sites, and sites subject to corrective action under RCRA; (3) establishing a more streamlined cleanup program for those desiring NYSDEC cleanup approval and liability protection, but not seeking tax credits; and (4) allowing qualified municipalities to run their own cleanup programs under NYSDEC supervision.

It remains to be seen whether these efforts will be successful, or whether the legislature will feel it has already addressed the most pressing issue in the BCA—the generosity of the tax credit scheme—and will decide to see how those changes play out in practice before further amending the Act.

Dave Freeman is a partner and chair of the New York Environmental Practice Group at the law firm of Paul, Hastings, Janofsky & Walker LLP.