Brownfield reuse is a costly proposition. The complicated process and legal hurdles of acquiring, cleaning, and reusing older, often abandoned, industrial sites can be expensive in terms of site preparation expenses and fees, and costly in terms of time delays. Site evaluation processes, testing, possible legal liabilities, and other factors serve to deter private participation in activities to bring old industrial sites back to productive use. In many situations, the private development and financial sectors are not able or willing to act on their own to ensure that the full economic potential of site reuse will be achieved.
Critical funding gaps are the primary deterrent to site and facility reuse. The financing situation is especially dour for start-up firms or small companies with little collateral outside the business. Clearly, the public sector — and especially the federal government — can do much to help level the economic playing field between greenfield and brownfield sites. Some existing federal economic development programs, while not targeted specifically to brownfield needs, are well-suited to support site characterization and reuse projects. In addition, Congress is considering several proposals to increase the availability of federal resources for brownfield projects.
Creatively crafted and carefully targeted incentives and assistance can help advance cleanup and reuse activities and achieve significant economic, social, and aesthetic benefits. These efforts do not have to be "giveaways." The notion of the entrepreneurial public sector, increasingly prevalent in many types of development programs, can be extended to initiatives targeted to site clean-up and reuse. Public agencies and organizations that share in project risks also can share in their rewards by recovering some of their investment during subsequent site sale or development.
No single "best" public-sector approach fits the financing needs of brownfield projects, which vary by project type, developer (i.e., non-profit development corporation or private investor), level and class of contamination, and financial position and desired return of the site owner or developer. Clearly, a variety of incentives can make the most effective use of public-sector assistance. These incentives — used separately or in combination — should be able to meet several goals, including:
Governments at all levels can find creative ways to help enterprises overcome the difficulties that contamination can bring to the site reuse process, ranging from regulatory clarification for loan workouts to direct financial program assistance. (Options for action are highlighted below.) However, the federal government — whose programs, policies, and regulations form the foundation on which many state, local, and private development finance initiatives are built — must play a stronger, more visible role if financing for brownfield reuse is to become more widely available.
For decades, federal, state, and local governments have used or sponsored public finance mechanisms to stimulate economic activity in certain geographic areas or industries. Increasingly, publicly-driven economic development is reaching into new sectors and incorporating new concerns, such as environmental improvement. Some existing programs can be used to confront the environmental issues of site reuse. But public-sector finance programs that cross traditional spheres of activity to address complex new situations like contamination, clean up, and related liability need to be carefully planned — for both those who will run the program and those who will benefit from it.
Governments at all levels can find creative ways to help businesses overcome the difficulties that contamination can bring to the site reuse process, setting up finance programs to ease the cost or terms of borrowing, augment private funds, or fill funding gaps that the private sector will not bridge. This section of the report explores existing federal programs that have helped finance brownfields cleanup and reuse, or have the potential to do so. The next part examines common state and local financing initiatives. Since financing approaches continue to emerge, both sections also look at promising approaches various levels of government could adopt.
Programs offered by the U.S. Department of Housing and Urban Development can play a critical role in local economic development. Cities and towns across the country use HUD resources to support a wide variety of financial assistance programs — such as loans and loan guarantees, grants, and technical assistance. Despite program changes and likely budget cuts, HUD initiatives harbor considerable potential to support future brownfield revitalization efforts.
The CDBG program is one of the most useful federal initiatives providing direct funding for activities that could support the reuse of industrial sites. Distributed to cities according to formula (either directly or, in the case of small cities, through the states), CDBG resources can be used to finance the rehabilitation of privately-owned buildings and sites, covering specific costs related to labor, materials, construction, or renovation. They also can pay for services such as entrepreneurial counseling, preparation of work specifications, loan processing, and site inspections. Block grant funds, therefore, are well-suited to the "new generation" of industrial site reuse projects that require a much stronger focus on environmental concerns. Since large and small cities can use CDBG funds for grants, loans, loan guarantees, and technical assistance activities, the program is a highly versatile tool to stimulate private investments in targeted distressed areas, such as those with a concentration of largely abandoned, obsolete industrial facilities.
Specifically, HUD has determined that eligible CDBG expenses include both the costs of environmental reviews, as well as the actual cleanup of identified hazards. Block grant funds also may cover the costs associated with the use of new environmental investigative procedures (such as those developed by the American Society of Testing and Materials) to identify toxic hazards at a site. Like all efforts supported by CDBG resources, activities aimed at identifying or remediating environmental contamination must meet one of the program's national objectives:
In 1994, HUD proposed changes in its CDBG regulations to increase the program's flexibility at the local level and to make it more suitable to projects that involve environmental problems impeding site reuse activities. In particular, the department suggested that the occurrence of "economic disinvestment" due to environmental contamination would qualify areas for designation as "blighted," and therefore be eligible for CDBG assistance. If fully implemented, such a rule change would permit communities to help rescue valuable industrial and commercial properties before they deteriorate to the point of no return; intervening before such levels of deterioration take place can reduce cleanup and redevelopment costs significantly.
In the past, CDBG's potential as an economic development tool has been constrained by regulations — both in the written rules themselves, and in their interpretation and implementation by specific HUD field offices. Many communities have struggled with rules requiring localities to provide extensive documentation in order to prove that their efforts were in fact helping low- and moderate- income persons. Others have faced difficulties in carrying out brownfield-related activities because of narrow interpretations on the "appropriateness" of such projects. Much of this documentation is difficult to compile in a timely way, leading to delays that derail projects. In response to such complaints, HUD now is moving in a direction that makes it easier to use CDBG for economic development purposes and that streamlines the documentation required to justify such use.
A related HUD program, known as Section 108 loan guarantees, enables local governments to finance physical and economic development projects too large for front-end financing with single-year CDBG grants. Under Section 108, localities issue debentures to cover the cost of such projects, pledging their annual CDBG grants as collateral. The debentures are underwritten and sold though public offering by a consortium of private investment banking firms assembled by HUD, which guarantees each obligation to ensure a favorable interest rate. Local governments can use their annual CDBG allocations to pay off these obligations, although most use income generated from the development project for some or all of the payments.
Activities undertaken with money from loans guaranteed under Section 108 must meet the basic requirements of the CDBG program. Communities have used Section 108 guarantees for property acquisition, clearance or rehabilitation of obsolete structures, construction of public improvements such as water and sewer facilities, and site improvements. Brownfield projects also can be financed through Section 108 guarantees; site preparation activities may include removing hazardous wastes and toxic contaminants.
Clearly, Section 108 and CDBG resources are well-suited to an industrial site reuse strategy. In addition to creating new economic opportunities for low- and moderate-income and economically disadvantaged persons, these programs can bring new life into brownfield areas, eliminating blight by helping to correct conditions deemed harmful to public health and safety.
Empowerment zones (EZs) and enterprise communities (ECs) are geographic areas targeted to receive special federal treatment and incentives in order that private investment and other economic activity might be attracted to them. Depending on the plan developed for each area, benefits can include financial, regulatory, as well as technical assistance.
In December, 1994, HUD and the Department of Agriculture named 95 enterprise communities (65 urban ECs and 30 rural ECs), as well as nine empowerment zones (six urban EZs and three rural EZs). Designation brings several benefits to the selected areas, including $100 million in social service grants for each of the urban EZs, $40 million to each rural zone, and $3 million to each EC. In addition, designated communities can compete for as much as $2.5 billion in new tax incentives to induce investment in the targeted distressed areas. These incentives include:
Applicant jurisdictions were required to specify how they would use these resources to confront economic distress and unemployment. Many applicants identified the problem of brownfields and stated that overcoming associated barriers was a critical element of their local economic revitalization strategy.
The Economic Development Administration (EDA) administers several grant programs that state and local governments can use to promote public-sector economic development projects and private business and investment activity in distressed areas. EDA's programs are categorical: they award money on a competitive basis rather than as a formula block grant. Most of the agency's activities are concentrated in several programs. Title I public works grants and the Title IX economic adjustment assistance programs harbor important potential for helping communities cope with the challenges of brownfields.
Most of EDA's Title I public works grants help local jurisdictions develop facilities, such as industrial parks and basic infrastructure, that can improve the area's economic development climate. Title I, EDA's largest program, seeks to provide the physical improvements that communities need to attract new business activity and capital investment. There is no specified minimum or maximum grant amount, but EDA participation is limited to 80 percent of project costs; on average, the agency finances about half the costs of approved projects. While a few cities have used public works grants to grapple with problems at contaminated sites, Title I could become even more useful in modernizing existing industrial areas, helping to finance the physical upgrades that will stimulate site restorations.
EDA's Title IX program deals with two types of problems: "sudden and severe" economic dislocations (SSED), such as plant closings; and long-term economic deterioration (LTED) of the local economic base. SSED grants are used to prepare an adjustment strategy or carry out projects that will save jobs or create new ones for dislocated workers. By approaching SSED creatively, local officials could link Title IX resources to a number of financing needs present at brownfield locations, especially at sites where a long-time industrial operation has just shut down.
LTED grants typically are made to establish or recapitalize locally-managed revolving loan funds that support business development; these funds are designed to overcome specific capital markets gaps and encourage business activity. EDA's participation in revolving loan funds, a key component of the Title IX program, has been especially effective at retaining small companies in distressed areas; such funds could be designed to play a prominent role in helping companies set up or maintain operations at brownfield sites.
Several existing federal tax incentives could contribute to brownfield redevelopment activities. Below are listed ways private investors and public development officials can use provisions in the federal tax code to structure innovative development finance packages.
When referring to bond financing for economic development purposes, public and private officials and practitioners usually mean "IDBs." In virtually every state, cities, public agencies, development authorities, and similar entities are authorized to issue tax-exempt, private activity industrial development bonds. The Treasury Department defines a state-wide volume cap on bond issuances each year — the greater of $50 per capita or $200 million. Companies and local jurisdictions favor IDBs as a source of financing since the interest they bear is not taxable, which reduces the yield that investors demand, which lowers a project's cost of capital.
Since IDBs are targeted to manufacturing projects, they can be an important part of a brownfield reuse or business retention strategy. The issuing authority process allows jurisdictions to channel investment capital, if they so choose, to certain areas and for specific types of projects. IDBs support the economic development process by allowing jurisdictions to offer expanding and new companies affordable financing that might not be otherwise available. IDB proceeds help private companies acquire buildings, equipment, and other components needed for an industrial project. In legal parlance, they are "revenue bonds." In other words, the company is responsible for repaying the debt. These bonds are payable from and secured by the revenues of the projects they finance; if the company defaults, the bondholders, and not the local taxpayers, absorb the loss.
The popularity of IDBs stems from their versatility as a development finance tool. Issuing agencies or authorities have numerous options for structuring an IDB; they can be issued for long or short terms, and can carry a fixed interest rate or a floating one — typically one quarter to one third less than the prime borrowing rate. From a local development perspective, IDBs have the advantage of giving small and inexperienced business borrowers access to securities markets.
Some jurisdictions use pooled or umbrella issuances to offer IDB financing for smaller projects. Such bonds are issued by states on behalf of a number of companies that individually would be too small to participate in the regular bond program. Generally, eligible projects are bundled as a package and issued as part of a single bond offering (typically in the $8 million to $10 million range). Pooling reduces the risk for bond purchasers and enables small manufacturers to raise needed funds. Currently, umbrella bond programs are available in about half the states.
Congress devised rehabilitation tax credits in the 1970s to discourage the unnecessary demolition of sound older buildings and to slow the loss or relocation of businesses from older urban areas. Across the country, the credits have helped attract redevelopment capital into all types of projects in blighted and ignored areas not ordinarily considered for investment.
This incentive offers to investors a credit against their total income, which is taken for the year in which the renovated building is put into service. Rehabilitation of certified historic structures qualifies for a credit equal to 20 percent of the costs of the work; rehabilitation work on nonhistoric structures built before 1936 qualifies for 10 percent.
The practical value of rehabilitation tax credits was undermined by the 1986 Tax Reform Act, which included new limits on passive losses and passive credits that generally result from real estate activity. These restrictions reduced the benefits of investment and the pool of investors able to take advantage of the tax credit benefits. The 1986 tax act defined "passive" income to include most real estate income, and specified that losses and credits from one type of activity generally can be applied against income only from the same type of activity. Thus, most taxpayers are prohibited from using real estate-generated losses and tax credits — a passive-income activity — to offset taxes owed on interest, dividends, business income, and other active income.
The rehab tax credit is well-suited for packaging with other economic development grant and loan programs; it can be an ideal complement to a brownfield redevelopment initiative in an older industrial area. According to data compiled by the National Park Service (which monitors rehab tax credit claims), about half of all projects claiming rehab incentives also tied other public-development programs into their financing packages. Property tax abatements and low-interest loans are the most commonly used companion incentives.
Rehabilitation tax credits have the most impact when knowledgeable local development staff help package and market them with other programs, as well as offer technical support. Developers and site owners often find the certification process complicated and time consuming, and are uncomfortable with the potential financial impact of a denial of tax-credit certification. Capable local development officials can help the site owner prepare a complete application that minimizes processing delays.
In short, Congress originally intended for rehab credits to help level the economic playing field and balance the development costs between older established (and often declining) areas and emerging, newly built suburban centers. This goal, of course, is the same one advanced by proponents of brownfields cleanup and reuse.
Over the last two years, policy staff at the Northeast-Midwest Institute have explored, in public forums and informal discussions, a variety of financing and related strategies to advance the reuse of brownfield sites. Other financing ideas have surfaced as interest in this issue has grown. Several of these ideas have been embraced by members of the 104th Congress, who have developed and introduced a variety of bills to promote financing and redevelopment of brownfield sites. The most promising of these initiatives are profiled below.
Federal tax incentives could attract investment for brownfields redevelopment and provide a cash-flow cushion of certainty for companies. Like historic rehabilitation tax credits, tax credits focused on environmental cleanup and site reuse would help level the economic playing field between old brownfield sites and new greenfield locations. To remain manageable, tax incentives could be targeted to economically distressed areas with demonstrated potential for productive reuse, to orphan sites, or to publicly-owned sites. Two tax credit approaches are being developed into legislative language.
Environmental remediation tax credits could offset a variety of costs, such as cleanup, site characterization, or participation in a state voluntary program. Rep. William Coyne (D-PA) developed a draft proposal to authorize an environmental remediation credit equal to 75 percent of the costs for carrying out a cleanup plan that has been approved either by the U.S. Environmental Protection Agency (EPA) or another designated body (such as a state agency administering a voluntary cleanup program). Rep. Coyne, who intends to introduce legislation soon, would target this credit to sites having "a strong likelihood of redevelopment" that would likely remain dormant without the financing assistance.
Site remediation activities could be made eligible for some form of tax-exempt industrial development bond (IDB) financing; such a tax incentive has the effective result of lowering the cost of capital needed to carry out the project. Environmental remediation activities — site characterization, cleanup and preparation activities specifically — form an integral part of many manufacturing projects, which are acceptable small-issue IDB activities. Rep. Coyne also is circulating a draft proposal to clarify the use of so-called "qualified redevelopment bonds" (one type of IDB issuance) to specifically permit their use for environmental remediation, including "the clearing and preparation for development of land" acquired by a unit of government. Once federal statutes recognize site remediation activities as eligible uses, states could make brownfield projects a priority within their own IDB volume allocation procedures.
The Northeast-Midwest Institute, as well as other experts in both public and private sectors, has explored other possible tax-related brownfield financing tools. Three such examples are:
A business Industrial site Remediation Account, a sort of "brownfield IRA," would permit companies to set aside monies on a tax-exempt basis to establish a cleanup fund for future use. Since securing resources to pay for site cleanup is the most difficult financing aspect of many brownfield projects, a brownfield IRA would encourage companies, especially smaller manufacturers, to earmark funds for cleanup. Like a personal retirement account, the tax-exempt status of a brownfield IRA would be limited, in this case to paying for activities associated with site characterization and cleanup. Such an incentive could prove especially valuable to small, so-called "mom-and-pop" manufacturing companies; currently, many of these firms are stymied by their inability to raise cash to cope with environmental concerns when seeking to transfer the business to a new operator upon the retirement or death of a long- time owner.
Tax exemptions for interest generated on loans used for site characterization or reuse would make lending on brownfield projects more attractive while reducing the lender's interest costs. An interest exemption of this type, in practice, would extend the advantages of tax-exempt financing to very small or start-up companies that would not otherwise be able to afford the administrative and legal costs of a tax-exempt bond issue. Such an exemption could be targeted to this type of beneficiary. It could be capped to control the magnitude of foregone revenue. It also could be targeted in several different ways — for example, to small-scale projects on publicly-owned or orphan sites, or to projects implementing the cleanup recommendations made in a detailed remediation plan.
A brownfield development tax credit, as envisioned, would be structured similar to the existing (and successful) low-income housing tax credit. It would encourage investors to supply equity capital for brownfield projects by using a type of syndication financing mechanism to secure cash from investors. Made by public offerings, syndications offer limited partnership interests to investors who can share in their profits or benefit tax-wise from their losses.
Tax incentives can help address many brownfield needs, but direct capital attraction strategies are needed as well. Many small companies have little tax liability to offset with tax credits; those same companies usually lack the capital needed to initiate the first phase of a reuse project. New financing tools and regulatory actions are necessary to increase public and private access to capital for brownfield projects.
Loans should be made directly available to the borrower; publicly-supported programs can be more responsive in terms of addressing liability concerns. Reps. Ralph Regula (R-OH) and Peter Visclosky (D-IN) have introduced H.R. 1620 to establish a "brownfield cleanup and redevelopment revolving loan fund" to provide capital to cover up-front cleanup costs. Under their proposal, the federal government would loan federal money to states having EPA-certified voluntary cleanup programs. States, in turn, would use these resources to capitalize revolving loan funds to support local cleanup and redevelopment projects. Assistance would be targeted to public and private industrial property owners who have firm plans to clean and reuse brownfield sites. Recognizing current budget realities, H.R. 1620 would have the states repay their federal capitalization loans, starting five years after their receipt. Rep. Carrie Meek (D-FL) has introduced H.R. 1381 to establish a separate U.S. Treasury account known as the "cleanup loan fund" to provide low-interest loans of up to $750,000 to develop and carry out cleanup plans to restore specific sites. This fund would be administered by EPA. Representative Meek proposes to capitalize this fund in part with annual transfers from the Superfund Trust Fund.
The Community Reinvestment Act (CRA) should be revised to specifically allow lenders to demonstrate compliance by lending on brownfield projects in distressed areas, or contributing capital to a loan pool or revolving fund that operates in such areas. In fact, new CRA regulations issued on May 4, 1995, move in this direction. For the first time, federal officials note that brownfields redevelopment can serve as a way for financial institutions to meet their CRA requirements. In a brief footnote, the rules cite as an example "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." To qualify for CRA credit, bank-assisted projects must not only remove contamination; they also must lead to redevelopment activities. Northeast-Midwest Institute staff and local development practitioners urge further CRA refinements that would make it acceptable for banks to meet their obligations with direct contributions to brownfield project financing pools administered by local development groups such as community development corporations.
Federal economic development programs should add brownfields incentives to HUD's Community Development Block Grants and Section 108 loan guarantee programs, as well as various Small Business Administration programs. The mission of these programs meshes well with brownfield project activities, but historically they have not considered the nature of environmental concerns or the development constraints posed by environmental assessments and site cleanups. This needs to change if these programs are to be of maximum benefit in meeting the economic development challenges of the next decade. To this end, HUD issued its "Blueprint for Reinventing HUD" on December 19, 1994, suggesting that "environmental cleanup of brownfield sites to prepare for economic or housing development" is a key activity that the agency envisions being funded through its consolidated Community Opportunity Fund. The House Banking Committee, with jurisdiction over HUD programs, has indicated that this blueprint will serve as a starting point for its own consideration of 1995 HUD reauthorization legislation.
The Superfund Trust Fund is central to other financing options being explored by the Northeast- Midwest Institute and others. A small percentage of the Superfund Trust Fund revenue stream should be used to cover a bond issue to capitalize a national brownfield remediation revolving loan fund. A long- term pledge (at least ten years) would be needed to attract bond investors at affordable rates. Since Superfund regulations and judicial rulings govern cleanup and reuse of brownfield sites, it makes sense that trust fund resources be available to a wider range of cleanup and reuse activities than those at the 1,300 or so designated National Priorities List (NPL) sites. Several options could achieve this.
The first revenues would create a revolving loan fund, capitalized using the proceeds of bonds issued based on the pledge of trust fund revenues to cover their repayment and interest. To limit federal expenditures, the amount of Superfund trust revenues designated for redeeming the bonds could be capped. One important issue needs to be resolved, namely, the extension of the Superfund tax that generates the trust fund's revenue stream. The current tax authority has never been authorized for as long as ten years. This tax is paid by chemical and petroleum companies, which presumably would not have a problem extending the fund's eligibility to brownfield sites, but might be concerned about authorizing the taxing mechanism for ten years. An advantage of this approach is that a good-sized loan pool could be assembled now, and paid back over an extended period of time. In addition, as funds were paid back, they could be gathered to make the revolving loan fund permanent.
Communities should be allowed to apply directly to the Superfund Trust Fund for loans to carry out site characterization assessments on locations with reuse potential. Again, workable limits and caps would have to be defined. This approach eliminates the concern about a long-term reauthorization of the trust fund revenue mechanism. Loans could be paid back directly to the trust fund, with the fund absorbing any losses. Depending on the specifics of the approach chosen, different alternatives could be considered regarding the nature of eligible activities (such as site characterization and cleanup), acceptable loan levels, and interest rates. Reps. Sherrod Brown (D-OH), John Dingell (D-MI), Richard Gephardt (D-MO), and Louis Stokes (D-OH), among others, have introduced legislation (H.R. 2178) that would allow EPA to provide a total of $90 million in loans and $45 million in grants over three years from the federal Superfund to redevelop brownfield sites targeted by local governments.
These ideas need further refinement and analysis, and critical issues remain to be addressed. A common concern involves public-sector participation and responsibility in projects that run awry. For example, how can loans or tax incentives offered for site characterization or remediation be recovered if the site proves to be too dirty or too costly to clean in spite of initial favorable indications? (In fact, Representative Coyne's bond proposal includes an escape hatch in case of "extraordinary cost increases.") Or what complications must be addressed when lending takes place through municipal governments — thereby placing them in the title chain and pinning them to project performance? Such concerns, of course, can be met, and the breadth of ideas suggests that alternative financing tools can be designed to meet specific brownfield needs identified by states and communities.
Other public policies, while not providing direct funding or tax breaks, can play a critical role in determining whether prospective site reusers can attain the money needed for brownfield redevelopment or complement state and private financing efforts. Without a doubt, the development climate for brownfield cleanup and reuse would be enhanced by federal policies that bring clarity to the often murky site characterization and cleanup processes, as well as those that remove the inequities in current liability provisions that inhibit prospective developers, lenders, or site purchasers with no link to existing contamination. Several proposals already introduced into Congress deal with such matters, and other ideas are surfacing to bring a greater sense of finality and fairness to brownfields concerns.
Reps. Ralph Regula and Peter Visclosky, in addition to the loan program described above, have introduced H.R. 1621 to bring more certainty to the site characterization and cleanup process through EPA-certified state "partner" voluntary cleanup programs. Their proposal essentially would empower state voluntary cleanup programs by establishing a process in which states would be authorized to make final decisions on cleanup and future liabilities for low- and medium-priority contaminated sites, eliminating the prospect of federal EPA intervention. EPA, in certifying that state programs achieve the goals of federal laws, would remove itself from the site-specific review process.
By bringing finality to EPA's role in low- and medium-level contaminated sites, H.R. 1621 would considerably enhance the desirability and usefulness of the assurances, covenants not to sue, and comfort letters issued through the various state voluntary cleanup programs. According to one local brownfield development expert, this action "will do more to free up private capital and financing than any governmental funding program."
Rep. Fred Upton (R-MI) has introduced a bill (H.R. 200) to clarify liability concerns that deter brownfield project financing. His proposal would protect "innocent landowners" — those who acquired property subsequently found to be contaminated — from Superfund liability. Secondly, it would shelter lenders from Superfund liability unless they actively participated in the management of an organization subsequently found liable. H.R. 200 would bring a greater sense of lender comfort to the brownfield financing process; it also would offer lenders a more acceptable path in terms of initiating loan work- outs to salvage projects, as well as ensure that viable foreclosure procedures could be followed. Sen. Alfonse D'Amato (R-NY) has introduced the "Asset Conservation, Lender Liability, and Deposit Insurance Protection Act" (S. 394) to achieve similar objectives. Rep. John Dingell (D-MI) has proposed legislation (H.R. 228) to reauthorize the Superfund program, which builds on the consensus version reached in 1994; to promote brownfield cleanup and reuse, Rep. Dingell's proposal explores ways in which prospective purchasers could be shielded from liability at sites they acquire to redevelop.
State and local governments have an important role to play in brownfield cleanup and revitalization projects. In many respects, they are the innovators. Brownfield success stories typically are found in areas that have adopted their own site characterization and reuse tools, and creatively built on the foundation provided by federal programs and policies. These jurisdictions have crafted innovative mechanisms to help businesses overcome the difficulties that contamination can bring to the site reuse process, setting up finance programs to ease the cost or terms of borrowing, augment private funds, or fill funding gaps that the private sector will not bridge. Public agencies will find that state and local officials can use many tried-and-true financing mechanisms to help resolve economic development problems. Some versions can be used — separately or in combination — to meet the critical brownfield financing objectives outlined earlier in this report: namely, reducing the lender's risk; reducing the borrower's cost of capital; and easing pressure on the borrower.
Public-sector financial support does not have to be limited to helping specific companies; other related activities can be financed that help a potentially larger clientele. States and localities, for example, can assume some of the responsibilities for site preparation and cleanup, recovering some of their costs during subsequent site sale or development. Jurisdictions can support such activities by earmarking tax revenues, loan repayments from other programs, or other sources of funds.
As the brownfield reuse issue has evolved, more and more states have begun to recognize the critical role that financial incentives must play if state voluntary cleanup programs are to be used more widely and effectively. Financing disparities and investors' fears continue to tip the economic development balance away from older industrial sites and towards undeveloped greenfield locations. As indicated previously, critical financing to carry out site assessments and cleanup activities simply is not available to many prospective purchasers. Because brownfield redevelopment needs are so diverse, the key to effective financial assistance lies with a combination of sources.
A growing number of states have launched financing initiatives to focus on brownfield reuse situations, such as funds targeted to small and mid-sized companies that go through state voluntary cleanup programs. Many of these programs are just underway, having received legislative approval within the past year. For example:
States are especially well-positioned to promote brownfield reuse projects. Already, about half the states have established voluntary cleanup programs, which bring considerable certainty and finality to the remediation process; these are described later in this report. Some states have gone further, though, directing financial assistance to support cleanup and reuse activities. It is important to emphasize that more states could help in this regard, with little extra cash outlay, by giving existing programs a brownfields "spin." As with federal economic development assistance programs, many state efforts were designed and their rules defined long before brownfield concerns surfaced. States could enhance brownfield initiatives — like HUD has tried to do with its CDBG program — simply by recognizing site assessment and remediation needs as legitimate project development activities within the context of the development program. Likely program candidates for brownfield treatment are profiled below.
More than 30 states currently administer their own enterprise zone programs to spur investment and job creation in distressed areas. Operating independent of the new federal initiative, most were launched in the mid-1980s prior to the emergence of the brownfields issue. States have designated more than 1,400 zone areas. Although programs vary by provisions, eligibility requirements, and economic development "carrots," several common incentives can be found in most state programs, including:
Many state enterprise zone programs could be used better to invite brownfield reinvestment. For example, loan and grant programs, as well as tax abatements, could be targeted to brownfield projects. Technical assistance services also could be tailored to brownfield issues, such as site characterizations or liability, and brownfield users, such as manufacturers or developers.
Nearly every state offers economic development loans, either directly or through development agencies, authorities, or corporations. These programs are capitalized from a variety of sources: general appropriations, fee collections, or repayments from previous federal or state project loans. Many could be better targeted to the specific financing needs of brownfields.
Most jurisdictions require collateral before issuing a loan, so that if the business defaults the state does not lose its entire investment. The public or quasi-public agencies making the loans, therefore, are potentially subject to the same type of lender liability that private financiers face. If state programs are to promote brownfield cleanup and reuse more effectively, and make capital available to the types of borrowers that private lenders avoid due to environmental concerns, then they will have to assume some of this liability. Because of public interest or community concerns, state lending agencies may be in a better position to work with new purchasers or existing owners of contaminated sites — for example, by offering more flexible loan terms — to encourage cleanups and stimulate new development activity.
Given most private lenders' reluctance to make loans for brownfield projects, publicly-supported loan programs can prove pivotal in providing the capital needed for business retention or start-ups in areas suffering from some level of contamination. If states are willing to take some risk, they can use a direct loan program to provide loans that commercial lenders would often refuse to make. Moreover, given the experiences of states like Connecticut and cities like Minneapolis, the potential risk can be reduced significantly if sound evaluation and project guidance procedures are established.
State loan programs, which traditionally are targeted to achieve certain objectives, also could focus on brownfield situations. They could, for example, target existing manufacturers or small operators needing only a small amount of money for site characterization or initial cleanup purposes. Many state loan programs offer capital at lower than prime rates; more affordable funding would address a key concern of many prospective site reusers. Some initiatives forgive or defer loan repayments or interest charges if certain thresholds — generally linked to job opportunities — are reached; the typical brownfield project would be tailor-made to meet such an objective. Most existing state loan programs finance long-term fixed assets, such as machinery or buildings; these assets are critical components of many industrial site rehabilitation or business retention efforts.
Several states (as well as large cities and multi-jurisdictional authorities in rural areas) provide development capital through revolving loan funds (RLFs). These are pools of funds typically compiled from several sources. Often RLFs are targeted to certain types of companies or borrowers, or channeled to certain (usually distressed) areas. Their advantage is their flexible and simple design. The basic concept has the lending entity providing businesses with direct loans, companion loans, or other financial assistance; as loans are repaid, the funds are put back into the RLF to be lent to new borrowers.
An RLF pool targeted to brownfield activities, for example, could help finance environmental testing, soil removal, extraction of contaminants, and structural improvements. As the loans were repaid, new brownfield projects could be tackled.
Some loan programs provide help in the form of subordinated or secondary loans. Essentially, these serve as companion loans to financing that the company secures from private sources. They lower the amount of capital that private lenders must invest in a single project. Subordinated loans also give the private lender first claim on assets in the event of a default by the borrower, which could help reduce lender concerns about the size of a loan loss if a company must cope with unexpected cleanup costs, or if foreclosure is precluded because of contamination. In either situation, subordinated or secondary loans could prove valuable in stimulating brownfield project activity.
States offer loan guarantees to minimize various risks that make financial institutions hesitant to lend. Often addressed are small businesses, start-ups, and new technology ventures that typically are viewed as especially risky. Environmental risks are rarely addressed but could be the focus of a loan guarantee initiative.
Loan guarantees are based on the state's pledge to cover most or all of the outstanding balance of a loan made by a private lending institution in the event a borrower defaults. For companies, loan guarantees help increase the availability of capital and often reduce the cost of borrowing. For lenders, they lower the fiduciary risks of lending.
A loan guarantee program makes commercial lenders more likely to offer loans to operations whose fiscal health would ordinarily make them a questionable risk. Guarantees serve to lower what bank regulators term the "risk ratios"; the guarantee strengthens the performance of a bank's loan portfolio in the eyes of regulators because the guaranteed portion of the loan cannot be subject to default or become — in banking lingo — "nonperforming." Loan guarantees provide banks with a sought-after backstop. Although they do not solve the problems caused by concerns over liability, they do address the issue of diminished collateral value. Since collateral is much less important for a loan backed by a guarantee, the problem of a facility's lost market value due to contamination is reduced. Loan guarantees also do not require as much staff expertise as direct loans because most or all of the loan processing, risk assessment, and credit analysis is performed by the private sector.
Public-sector costs can be reduced by cutting the level of loan balance that the guarantee will cover. Yet private banks assuming 25 percent or more of the risk will probably be more stringent in evaluating a company's financial situation than if they had to take only 5 percent of the loan's risk. At the same time, more conservative bank scrutiny means that fewer marginal or complex projects — or those with more serious risk concerns such as cleanup and contamination — will be approved.
An important source of investment capital, especially for small companies, is the publicly- chartered private development bank, usually called business development corporations (BDCs) or development credit corporations. Currently, they operate in about 30 states. BDCs, although administered privately, are authorized by state law and operate under state rules. Several states have chartered them as an alternative to direct loan and loan guarantee programs, especially those states with constitutional restrictions on using public funds to help private business. To date, though, little BDC financial assistance has been directed to brownfield projects.
BDCs generate most of their capital from private sources, such as banks, insurance companies, and similar institutions that purchase shares of stock, provide advantageous loans, or extend lines of credit to the corporations. Some of the new BDCs have used state-granted tax incentives to attract individual and business investments. Often, a financial institution can participate in less risky companion or shared loans as part of a resource package assembled by the BDC to finance a business project.
BDCs make credit available to businesses that cannot secure it from conventional lenders, and they tend to be more flexible in their financing guidelines than state agencies. Most financing is directed to small companies that use the funding for construction activities and working capital. Interest rates are usually above the prime, meaning that the BDC program does little, if anything, to reduce the cost of capital; this fact minimizes its usefulness for brownfield projects or companies with cash-flow difficulties.
The primary advantage of BDCs is that they can provide money for companies that would otherwise be considered too risky for conventional loans — the typical brownfield project. In theory, they should be less influenced by lender liability concerns than private bankers. Since BDCs are not subject to the same federal or state loan performance regulations as traditional financing institutions, they may assume greater risks. Often, a conventional lender will refer a marginal prospective borrower to a BDC. Business development corporations also make an attractive partner for conventional lenders to team up with; the BDC is often willing to assume a subordinate position in the financing of a project. Finally, because BDCs typically handle mostly higher-risk loans, they have more experience in working with such projects and can process them more expeditiously than many conventional lending institutions. As such, they could be prime candidates to underwrite brownfield projects. However, some local development officials have observed that BDCs tend to become more conservative lenders, even though they are chartered as risk-taking institutions, because of their need to attract the participation or contributions of banks or stockholders.
Practically speaking, the benefits of doing business in the city have been outweighed by the risks accompanying the acquisition of brownfield sites. Environmental assessment and even small-scale cleanups remain a key cost for potential developers. In many instances, local governments are in the best position to offer financial incentives to offset some of these risks. Many of these incentives involve placing a new brownfields "tilt" on long-time, tried-and-true financial assistance tools.
The TIF mechanism, available in nearly 40 states and employed in some states for nearly half a century, traditionally has been used for numerous types of economic revitalization efforts, usually in economically distressed or abandoned areas — the typical brownfield location. To raise public-sector capital for a project, the TIF process uses the anticipated growth in property taxes generated by that development project. TIFs are built on the concept that new value will be created, and that the future value can be used to finance part of the activities needed now to create that new value. TIFs do not lower the amount of tax revenues collected, nor do they impose special assessments on the project area. Bonds are issued to raise the capital needed for the redevelopment, and the new tax revenues generated by the projects are earmarked to redeem the bonds. The key to TIFs is the local commitment of incremental tax resources for the payment of redevelopment costs.
States provide the authority for local governments to pursue TIF financing, laying out the basic ground rules that communities must follow. Enabling legislation varies from state to state, but there are several common requirements. First, a local government or redevelopment agency establishes a TIF authority to define an appropriate redevelopment district. Local assessors then freeze property values in the designated district to establish a revenue base line for the areas. This base is in effect for a specific length of time, often ten to 25 years. Generally, TIF authorities must prepare a redevelopment plan that lays out proposed projects, their costs, and a timetable for activities.
Many state statutes empower the locally-designated urban renewal agency or redevelopment authority to issue TIF bonds for projects approved by local governments. Most states give sponsoring local governments a variety of other tools to design and carry out a TIF plan. In many cases, TIF agencies derive powers of eminent domain from their host cities; they also can enter into negotiations and contracts with private developers and improve sites. Nearly all redevelopment activities must be preceded by a determination or declaration that certain areas are blighted and in need of revitalization, and most states limit TIF projects to distressed or blighted areas. A few states have articulated specific project activities; Alaska, for example, limits TIF activity to earthquake damaged areas.
The bonds are issued for the specific purpose of redevelopment — acquiring and preparing the site, upgrading utilities, streets, or parking facilities, and carrying out other necessary site improvements. This makes these bonds an ideal financing tool for brownfield projects; in fact, many cities with brownfield success stories helped bring them about with TIF financing. TIF programs are easily used with other types of funding, such as grants or loans.
From a local official's standpoint, an important feature of most TIF bonds is that they usually do not constitute a "full faith and credit" pledge on the part of the issuing jurisdiction, only a promise that new tax revenues flowing in from increased property values will go towards bond redemption instead of into local coffers. However, some jurisdictions are hesitant to use TIFs; if projected development fails to materialize or an area's growth is unexpectedly sluggish, it can be difficult to retire the bonds. Some local economic development practitioners also cite the complexity of many TIF initiatives as a practical disadvantage; it can require high levels of technical expertise and negotiating savvy to move a project from concept to implementation, especially one made more difficult by environmental concerns.
A hypothetical example will show how a TIF works in practice, and why it could be valuable for brownfield initiatives. It begins with state TIF legislation allowing a city to declare an old industrial district near the downtown area as deteriorated and in need to revitalization. The city then focuses on a run-down, largely abandoned 10-acre parcel within the district that currently has an assessed tax value of $4.5 million. The cumulative city, county, and school district tax rate of $3.25 per $100 assessed valuation produces an annual property tax revenue of $146,250. Redevelopment plans call for construction of a mixed-use light industrial and commercial center on the tract, with an estimated value of $50 million. The city, in defining this area, is allowed to freeze the valuation for general tax purposes at $4.5 million, its value before redevelopment. The $146,250 continues to be distributed to the varying taxing bodies in proportion to each's share of total tax collection for the prior, frozen assessment.
However, tax revenues from the $45.5-million increase in property value are earmarked to pay the costs of land acquisition, preparation, and construction of any physical infrastructure needed to support the new uses. Under the TIF system, the growing amount of the increment reflecting increased property value — up to $1,478,750 (or 3.25 percent of the $45.5 million in increased value once the project is completed) — is available for repaying the principal and interest costs on bonds issued to support the redevelopment costs. If this state authorizes TIF districts for 20 years, a common time frame, then nearly $22.2 million can be used for this purpose over the life of the TIF district (assuming a 50 percent completion and occupancy rate during the first ten years, and 100 percent during the second ten years). When the bonds are paid off, the incremental value is added to the regular tax rolls and distributed accordingly.
Tax abatements are reductions in or forgiveness from tax liabilities that are granted for a specified period of time. Abatements are most commonly given for property taxes, but they also are granted for sales, inventory, and equipment taxes. Tax abatements are commonly used to stimulate investments in building improvements or new construction in areas where property taxes or other conditions discourage private investment.
States usually must grant local governments the authority to offer tax abatement programs. Most state legislation designates only certain areas eligible to participate, such as economically-distressed communities or deteriorating neighborhoods. Abatements can be tied to specific industries or activities, company size, or sales volume. Some states abate taxes on certain types of machinery and equipment, such as assembly line components or pollution-control devices.
Tax abatements are among the oldest economic development incentives, and those most often derided as "giveaways" by their detractors. They can take several forms: freezing the assessed value of land or buildings at some point in time (often, at a pre-improvement date); reducing the tax rate for a certain period of time (typically, five or ten years); and exempting certain types of property from taxes altogether. Some abatement programs feature sliding scales — full abatements are granted initially, when business cash needs are the greatest, and the level of abatement is reduced (and the amount of tax owed is increased) over time until the firm pays its normal levy. Other programs link tax payments to business income or profitability. Frequently, the percentage of abatement is tied to performance in areas such as increasing job opportunities or investment within the jurisdiction.
Generally, tax abatement incentives are better suited for physical, "bricks and mortar" development projects than job-generating activities. If used alone, tax abatements would be useful only to reuse projects where cash flow is a problem, and they would not help brownfield owners who need money up front to carry out cleanup activities and make needed site improvements. Many small companies need greater financial help than reduced tax liabilities.
Tax abatement programs must be carefully designed to target intended beneficiaries without offering unnecessary subsidies, a feat often difficult to accomplish. Because of this, tax abatement programs have numerous critics. Many economic development officials and state and local governments complain about tax abatements, disputing their effectiveness and stressing their economic inefficiencies; yet nearly all offer them. The key advantage of tax abatements is that they give local governments a workable, flexible incentive that helps influence private investment decisions. This flexibility can be important in efforts to promote brownfield reuse.
Generally, CDBG recipients are unable to use their entire block grant allocations in the year received; long-term, larger projects (such as infrastructure construction) take more than a year to plan and carry out. According to HUD rules, funds not needed to meet current project costs remain in the federal treasury; it is not unusual for CDBG funds awarded one year to be drawn down a couple of years later as big capital projects move towards completion.
When a city can show that previously-awarded CDBG funds will not be needed in the near term, it may tap its block grant account on an interim basis — using what HUD calls a CDBG "float" — to finance short-term, low-interest construction financing for projects that create jobs. Any developer, not- for-profit agency, or private company that can obtain an irrevocable letter of credit from a lender is eligible to apply for such financing. (The letter of credit satisfies HUD's concern that the funding will be available for its originally planned purpose.)
Proceeds may be used to pay all costs for the purchase of land and buildings, site and structural rehabilitation (including environmental remediation), or new construction. Float funds also can finance purchase of machinery and equipment. Maximum loan size is determined by the amount of funds in a jurisdiction's CDBG account that are available to cover the float. Float loans cannot be extended for more than two years, and the interest rate is limited to 40 percent of the prevailing prime rate. A few municipalities, notably Chicago, have financed brownfield cleanup activities via the CDBG float mechanism.
Cities can use a "special service area" designation as a way to raise cash to finance extra services, improvements, or facilities that will benefit the targeted area. Projects commonly include security, store front rehabilitation, advertising and promotion, and business retention or attraction efforts; some communities have used this tool to finance infrastructure upgrades at industrial parks. Property owners in a defined brownfield area could use this approach to raise funds to cover cleanup costs.
The concept of a special service area is very similar to a TIF. In this case, property owners in the proposed district agree that a real estate levy or special fee be imposed in the defined area that will benefit from the proposed services or activities. The jurisdiction uses this additional revenue to finance the improvements, either earmarking it directly to the area, or using it to issue bonds to fund area projects.
Virtually all communities can issue G.O. bonds for (in the terms of one city attorney) "any proper public purpose which pertains to its local government and affairs." Economic development practitioners can make a strong case that a bond pool to support brownfield cleanup and redevelopment projects could create jobs and enhance the local tax base, which are appropriate public purposes. Cities traditionally issue G.O. bonds for acquiring land, preparing sites, and making infrastructure improvements — key elements in a brownfield redevelopment strategy. As more brownfields are brought back to productive uses, moreover, the city's ability to repay this bond debt would be enhanced by the growth in property tax revenues.
Every local government already uses a variety of financial assistance programs and incentives to promote economic and business development. Like federal and state programs, local offerings can be more explicitly packaged and promoted to test, clean, and rehabilitate brownfield sites. Such targeting might include:
In addition, cities can explore other low- or no-cost techniques to stimulate the flow of capital to promising brownfield redevelopment undertakings. For example, jurisdictions could adopt creative approaches to convey tax-delinquent properties to new owners with viable reuse plans. They also could modify zoning requirements in specific cases to provide developers with the opportunity to earn a greater return on their investment and offset more site preparation costs.
Although many brownfield sites have the potential to become economically viable, hosting new business activity and jobs, they often require some level of public investment. Federal and state resources will not be sufficient to address all the prospective site cleanup and reuse possibilities identified by jurisdictions across the country; the large number of applicants for the handful of EPA brownfield pilot sites designated in early August 1995 is testimony to that. Existing local programs can meet some of this need, but clearly cannot meet all financing gaps in many areas. Therefore, communities must consider establishing new brownfield incentive programs of their own. These could help with site characterization and cleanup costs, or development costs, or both types of activities.
Recognizing that competing public needs and objectives, as well as limits to public resources, are facts of life in every community, local officials could consider two approaches to promoting brownfield finance. First, they should identify and set-aside public sources that can be mostly self- sustaining, stable over time, and relatively isolated from changing political tides. Given the inherent limits of public funding, some type of cost recovery is essential to the sustainability of such programs targeted to brownfields. Against this backdrop, local programs, as they evolve and become more established, can enhance their own flexibility by offering forgivable loans, recoverable grants, lengthy repayment terms, recovery upon property transfer, and similar conditions.
Second, public resources should be marshaled in the context of an explicit, strategic brownfields approach. Generally, local officials should give sites with greater development potential priority for financial assistance. In many cities and towns, this may mean supporting several smaller sites in a declining area rather than the one big abandoned plant that has come to signify "brownfields" to the community. Momentum for brownfield cleanup and reuse — and justification for public-sector involvement in it — can be created and maintained with visible successes, even at small sites. Moreover, smaller brownfield projects are more manageable and often more significant in terms of real benefits than a single large, more contaminated site.
Environmental problems are pervasive at military installations around the country, and the Department of Defense's (DoD) inventory has grown significantly over the past decade. In fact, the number of potentially-contaminated military sites has trebled since 1987. Today, 107 installations have been listed on the NPL; more than 1,700 installations feature some degree of contamination. Altogether, DoD has identified more than 14,000 sites at these installations that require some level of cleanup. About half of these sites have received some treatment, but the most difficult ones remain.
Clearly, the brownfield issue is not confined to private site owners in distressed inner-city areas. In fact, the situation at shuttered defense facilities is similar to that of abandoned, privately-owned properties. Despite the many benefits of reusing defense facilities, and community eagerness to do so, these facilities face the same significant barriers to reuse: costs of environmental cleanup, inability to secure project financing, higher transaction costs, uncertain cleanup processes, and negative public attitudes.
Contaminated military sites are found in all 50 states, but they are concentrated where defense has traditionally played an important role in the local economy. Texas, California, Virginia, New York, and Pennsylvania have the greatest number of affected sites. Moreover, DoD continues to identify new sites with some levels of contamination, especially on bases that are scheduled to be closed. Such sites often are troublesome, since local officials, community and development organizations, and business leaders are usually eager to proceed with base reuse strategies and want to minimize the time needed to clean contaminated property.
Bases and other military facilities show evidence of contamination from a wide range of pollutants. Many are similar to the types found at a typical industrial site — petroleum, oil, and solvents. Likewise, defense installations also feature contaminated storage areas, underground storage tanks, landfills, spill sites, waste treatment plants, and groundwater aquifers. Some types of pollution are unique to the military, such as unexploded ordnance and chemical explosives; these are especially difficult and costly to remediate.
In 1984, the Department of Defense established the Defense Environmental Restoration Program (DERP) to begin the evaluation and cleanup of its contaminated installations. Until that time, DoD had paid relatively little attention to environmental concerns. Decades of poor chemical-handling practices have caused serious pollution of the soil and groundwater at and around many military installations. Landfills on the bases were used routinely for disposal of a mix of toxic substances, including chemical and paint wastes from equipment maintenance, and wastes from explosives and munitions production.
Cleaning these bases quickly has become even more important in light of the Base Closure and Realignment Commission's decisions since 1988 to close 84 major and 166 minor bases nationwide; it targeted an additional 132 installations for closure or realignment in the 1995 round approved by the president and forwarded to Congress in early July. Communities that depended on the jobs and revenue from these bases are eager to redevelop these properties for new uses. By law, however, DoD must clean these properties before transferring them to civilian use. The cleanup and restoration of the soil, surface water, and groundwater on these bases are monumental tasks that will occupy the military for years to come, but there's no doubt that their expedited cleanup and reuse would help revive the economies of the communities in which they are located.
As with privately-held properties, CERCLA is the most significant statute affecting cleanup and transfer of contaminated defense sites. The federal government is responsible under CERCLA for the costs of cleanup of "any release or threat of release of hazardous substances."
The Superfund Amendments and Reauthorization Act of 1986 (SARA) significantly expanded cleanup requirements for federal facilities. In addition to removing all hazardous materials in the soil and groundwater, agencies must include a description in the sale contract or transfer notification of the type, quantity, and date of storage, release, or disposal of any hazardous substances. Federal agencies also must undertake any cleanup found to be necessary after the date of transfer. Finally, to spur faster cleanup, the 1986 law set specific deadlines for site assessments, possible NPL listing, completion of necessary remedial investigation/feasibility studies, and signing of interagency agreements that lay out cleanup plans for a federally-owned facility.
Beyond the dictates of CERCLA, the 1986 amendments required DoD to restore contaminated facilities, whatever their current status. The department had to create a separate budget account to remove cleanup activities from competition with other defense purposes, and it was directed to manage the cumbersome approval process for military construction.
Congress further modified applicable environmental statutes in 1992 in response to concerns that a lengthy cleanup process would delay reuse of closed bases. The Community Environmental Response Facilitation Act (CERFA), referred to as the Panetta law after its original sponsor, then-Representative Leon Panetta, requires that federal agencies identify clean sections of closed facilities, which then can be sold or transferred for redevelopment, even if the rest of the installation needs cleanup measures. Military installations already closed or scheduled for closure had until June 1994 to specify clean areas (although the extent to which they complied with this provision has yet to be determined). Those bases targeted for shutdown in the future must identify uncontaminated portions six months before the installation is closed. EPA must sign-off on this identification at sites severely contaminated enough to merit NPL designation, and states must concur on all other installations.
Federal agencies also are allowed to transfer properties before the cleanup is complete, as long as the remedy is sufficiently underway. The example cited in the 1992 law is groundwater pumping and treating, which can take several years. The affected property now can be transferred once the pump and treat system is operating properly and successfully. Federal agencies, in these instances, continue to be responsible for costs of all cleanup actions, even after the property is transferred.
In addition, DoD has developed policies, known as the Defense and State Memorandum of Agreement (DSMOA), to ensure that states have the authority to oversee military-related site cleanups. DoD officials testified before congressional committees as recently as June 1995 that "compliance with state laws is an integral part of the current cleanup process."
Under the Base Closure Community Redevelopment and Homeless Assistance Act of 1994, Congress defined a new community-based reuse planning process, initiated upon a base's final selection for closure or realignment. Affected jurisdictions must designate or form a Local Redevelopment Authority (LRA) to serve as the community's link with DoD during the transition process. The LRA must be recognized by DoD's Office of Economic Adjustment, which may provide planning assistance and other financial support during the reuse process. Concurrent with LRA efforts, DoD also undertakes site disposal planning, environmental planning and management, and other base closure activities.
The reuse planning process begins immediately after a base is tagged for closure or realignment, and typically takes at least two years to complete. It unfolds in four broad phases:
While this process unfolds, DoD attempts to carry out environmental remediation activities at the site, and the LRA is to advise the department about its ideas for possible reuses. In this way, environmental processes and priorities are to be reconciled with community intentions, and appropriate cleanup levels can be established to reflect future uses.
DoD prepares for each affected site a cleanup plan, which describes the status of base environmental programs and identifies a strategy and schedule for "environmental cleanup, compliance, and natural- and cultural-resources related activities." As contamination is removed, the plan is updated to reflect completed cleanup and site close-out actions, as well as any changes in community redevelopment needs. Property that is being cleaned can be leased and put into immediate use, with DoD and the assigned base closure team working to ensure that cleanup work does not unnecessarily hinder reuse activities.
The Department of Defense manages its cleanup efforts within the framework of CERCLA and SARA; it now is incorporating the provisions of CERFA as well. Investigations and cleanup are conducted in accordance with EPA's National Oil and Hazardous Substances Pollution Contingency Plan, which outlines Superfund cleanup procedures. The individual departments (Army, Air Force, Navy, and Defense Logistics Agency) are responsible for implementing initiatives at specific installations.
DoD works with EPA and other federal agencies to evaluate and remedy contamination at military installations. The Other Hazardous Waste (OHW) division oversees research, development, and demonstration programs to improve remediation technologies. It also seeks more cost-effective approaches to DoD's continuing waste management activities at active bases. Actual on-site investigation and remediation of military installations is administered by the Installation Restoration Program (IRP). The IRP process is carried out in three phases, as noted below.
Phase 1: Preliminary assessment and site inspection. A preliminary evaluation of the entire installation determines if any contamination poses hazards to human health or the environment. The Phase 1 assessment identifies what potential hazardous substances were used or are currently in use at the installation. Once potential problems are identified, the installation employs the site inspection to determine the presence of actual contamination.
Phase 2: Remedial investigation and feasibility study. This phases includes sampling and analysis to determine the nature, extent, and significance of the contamination present, as well as any risk to the general population. At the same time, feasibility studies are conducted to determine cleanup alternatives for the site.
Phase 3: Remedial design and action. After the appropriate federal and state regulatory officials agree with DoD on cleanup actions recommended as part of Phase 2, they devise and carry out detailed site remediation plans. Once this is done, site operations, maintenance, and long-term monitoring or treatment activities may be undertaken.
DoD and EPA have agreed on procedures for the transfer of uncontaminated land, and on what steps must be taken to prepare a Finding of Suitability to Transfer (FOST) document. The agencies are still working on mechanisms to implement these procedures. DoD and EPA also are developing guidance for communities with respect to leasing land or transferring land to civilian use.
Efforts to clean up closed bases have been slow, however, forcing DoD to absorb substantial custodial and maintenance costs. Meanwhile, communities that could use these properties to revitalize their local economies must wait. Acknowledging the need to speed redevelopment, the Clinton Administration introduced its own base revitalization plan, known as the "Five Point Pillar Program." The Clinton plan allows DoD to transfer property free or at a discounted price to communities that plan to use the base for economic development. Briefly, its five key components are:
Announced in July 1993, the program aims to speed cleanup by emphasizing quicker assessments of contamination, government teamwork, and responsiveness to community needs. The administration's plan established cleanup teams for each site composed of experts from EPA, DoD, and state agencies. Team members with close ties to the affected communities, are expected to help local officials understand and deal with the cleanup and closure process.
Congress modified President Clinton's five-part plan in the fiscal 1994 defense reauthorization legislation. That modification, the so-called Pryor amendment, made it even easier for communities with closing military bases to make the transition away from defense dependency. The Pryor amendment, in short, simplified the process of property transfer to affected communities, and accelerated the process by which sites were screened either for use by other federal agencies, or to assist local homeless persons — both required by law before sites can be transfered to communities for redevelopment purposes.
The Department of Defense has spent more than $10 billion on environmental restoration activities at its contaminated sites, yet the Congressional Budget Office estimates that only some 2 percent of these sites have been cleaned. It is important to note, however, that about 97 percent of all contaminated sites — more than 18,000 — have received at least a Phase 1 review, and that DoD has undertaken about 1,000 interim remedial actions at nearly 400 installations around the country. Until permanent actions can be carried out, these steps have reduced the immediate risks of existing contamination.
Reflecting a situation that commonly deters reuse at privately-owned brownfield sites, estimates of the total cost of cleanup rise with every new facility determined to be contaminated. DoD officials now estimate that $30 billion might be needed to clean up all tainted bases. Yet that number changes constantly — and always upward. For example, DoD originally estimated that cleaning contamination at Pease Air Force Base in New Hampshire would cost $11 million. When the base actually closed in 1991, however, the estimate had ballooned to $63.6 million. By December 1992, that figure had nearly doubled to $114 million. In some cases, costs mushroomed because DoD has been required to meet more stringent state standards or use more expensive remediation technology. As with private brownfield sites, though, costs often rise because the contamination is found to be more pervasive than initial characterizations suggested.
In fact, difficulties in estimating cleanup costs typically stem from problems in determining precisely the extent of contamination. Many of these sites, especially the older installations in the Northeast and South, were used for many different purposes over several decades. Pollution often has spread over large areas or soaked into the soil, affecting the groundwater used by nearby communities for drinking water. Typically, the extent of the problem is fully known only after extensive remedial investigations. These investigations and feasibility studies can cost several million dollars and take years to complete — all before any cleanup actually begins.
The Deputy Undersecretary of Defense for Environmental Security, in June 1995 testimony before Congress, outlined several Superfund reforms that would help the military return more quickly closing base properties to local uses. These policy changes would:
As communities continue to grapple with the impacts of contamination at military installations, they should take note that the budget picture for DoD site remediation is not good — for several reasons. First, the growing cost of remediation limits the number of sites that can ultimately be cleaned for reuse in the near term. New technologies that could cut costs have been slow to develop and gain acceptance by both environmental and financial communities. In addition, DoD faces the prospect of paying substantial sums to reimburse defense contractors — caught in the CERCLA web themselves — for the cleanup of contamination they generated while meeting contract requirements. Finally, defense agencies face the added cost of carrying out Phase 1 assessments on the 132 facilities recently pegged for closure or realignment.
http://www.nemw.org/cmclean3.htm