Ohio Environmental Law Blog : Ohio Environmental Lawyer & Attorney : Joseph Koncelik : Frantz Ward Law Firm : Environmental Regulation, Land Use, Compliance : Cleveland, Ohio

A few weeks back I was contacted by the Cleveland Council on World Affairs (CCWA) to meet with a small delegation of representatives from Serbia who were interested in learning about environmental regulations, specifically those that relate to solid waste and/or recycling. While I was to be interviewed by the delegation members, I think I learned much more even though I wasn't asking the questions.  Here is a bit of background on the CCWA from their e-mail invitation:

The Cleveland Council on World Affairs (CCWA) hosts international leaders from all over the world year-round. Each year the CCWA hosts over 400 foreign nationals to meet and confer with their professional counterparts and to experience America firsthand. The visitors, who are selected by American Foreign Service Officers and U.S. Embassies overseas, are current or potential leaders in government, politics, the media, education, the arts, business and other fields. This program is sponsored and funded by the United States Agency for International Development (USAID)

Members of the delegation worked in the following areas:

• Journalist reporting on environmental issues
• Manager of an electronic waste recycler
• Member of a trade association for chemical manufacturers
• Manager for a public utility company
• Members of Environmental Groups
• Local Government
• Green business consultant
• Small business owner with recycling operation

What jumps out at me from the list above is that you have the same cross-section of organizations and individuals involved in environmental policy in the U.S.  Each individual is interested in representing their own constituents, business or advancing their own environmental principles. 

During the exchange I was asked to describe various regulatory challenges faced by businesses.  I was also asked, generally, about general attitudes of citizens toward protecting the environment or environmental issues.  Here are a few interesting observations or conclusions I made from the meeting:

1. Management of Electronic Waste-  The delegation was interested to learn that there were no mandates requiring individuals or businesses to recycle electronic waste in Ohio.  I was pressed on this point several times by members of the delegation.  They thought it was interesting that any citizen could carry his old TV out to the corner to be thrown away in a landfill.   Here is Ohio EPA guidance encouraging recycling of electronic waste. 
2. Used Tires-  While I think elimination of used tire piles is one of the biggest environmental success stories in the State of Ohio, the delegation provided a different perspective.  The laughed and smirked when told that an individual was allowed to accumulate 23 million tires on their property (Kirby Tire Pile).  For a country known for its sophisticated (if not overly complex) environmental regulations, it is somewhat odd this slipped through the cracks.  As a result, Ohio was forced to enact a new tax on tires and it took nine years to clean up the Kirby Tire Pile.
3. Renewable Portfolio Standards-  I was asked to provide some pretty detailed information regarding Ohio's Advanced Energy Portfolio Standard, including use of alternative compliance payments and renewable energy credits (RECs).  I was told that Serbia was working toward a RPS standard.  I thought it was interesting that a small European country was developing a very sophisticated energy program.
4. Jobs and the Environment-  I was asked to comment on general attitude of the public on environmental issues.  Some were interested in understanding how those attitude vary depending on what state you called home.  Overall, there seemed to be general understanding among the delegation of the interplay between the economy and environmental regulation which challenged my perception those debates were less heated in Europe than in the U.S.  Just like in the U.S., I got the feeling there was a wide range of opinions within the room.  Those opinions can change with time as well.  As noted in CNN recent poll on attitudes of Americans towards the root cause of global warming.

Overall, some of my own perceptions or paradigms regarding environmental regulation were challenged.  It usually takes someone or a group of people from the outside to get you to re-examine your own perceptions.  I found it very enlightening even though I didn't get to ask a single question. 

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Today, a day that will likely live in environmental law infamy....the EPA Administrator Lisa Jackson finalized the "endangerment finding" in response to the U.S. Supreme Court's ruling in EPA v. Massachusetts which was issued way back in April 2, 2007.  While the Supreme Court found that greenhouse gases were air pollutants covered by the Clean Air Act, it did not say the Act mandated regulation.  Rather, the Court said EPA was required to make additional findings regarding the danger presented by greenhouse gases before regulations would kick in. 

The magic language for emission standards from motor vehicles appears in Section 202(a) of the Clean Air Act.  Under Section 202(a), EPA is required to determine whether or not emissions of greenhouse gases from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare (so called "endangerment finding").   If EPA makes a positive finding- meaning emissions endanger public health and welfare- it then promulgate greenhouse gas emission standards for motor vehicles.  Today, the Administrator made an positive determination.

Today's major announcement is the necessary precursor to mandatory emission standards for vehicles.  More importantly, it sets in motion regulation of greenhouse gases from all sources, not just motor vehicles.   Here are the steps that lead to that result:

1. Positive "endangerment finding"
2. Finalize regulations setting emission standards from motor vehicles- March 2010?
3. Greenhouse gases (GHGs) become a "regulated pollutant" under the Clean Air Act- once a "regulated pollutant" other regulations in the Clean Air Act are automatically triggered.
4. Most notably, on the same day vehicle standards are finalized, New Source Review (NSR) standards would include review of emissions of GHGs from new or expanding sources.  No new regulatory action is required for NSR to apply to GHGs, it will automatically happen.

EPA realizes the process that has been set in motion for much broader regulations which is why it proposed the Greenhouse Gas Tailoring Rule in the Fall. (see prior post, EPA Risky Climate Change Regulatory Approach) The Tailoring Rule attempts to temporarily reduce the scope of the NSR program to only larger emission sources of GHGs. 

Now that a positive endangerment finding has been finalized, broad GHG regulation is absolutely inevitable.  Short of Congressional action, the existing Clean Air Act will be used to regulate GHG emissions.  An outcome, even the EPA itself has said it does not prefer.  Note the press release from EPA:

President Obama and Administrator Jackson have publicly stated that they support a legislative solution to the problem of climate change and Congress’ efforts to pass comprehensive climate legislation. However, climate change is threatening public health and welfare, and it is critical that EPA fulfill its obligation to respond to the 2007 U.S. Supreme Court ruling that determined that greenhouse gases fit within the Clean Air Act definition of air pollutants. 
 

Congressional refusal to act swiftly on climate change legislation is putting us dangerously close to a chaotic regulatory scheme under existing Clean Air Act authority.  In fact, as noted above, Congress has to act to take us off the path.  Refusing to act, in order to blame President Obama is too large a price to pay to score a few political points. 

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I was interviewed for a story on the local NPR station in Cleveland about a Northeast Ohio company that nearly went bankrupt because of confusion over Ohio's brownfield tax abatement law.  The title of the story was "How a Poorly Worded Tax Rule Nearly Bankrupted Ohio's Oldest Company." Listen to the whole story by clicking here.

After reviewing the issue in preparation for the interview, it became readily apparent this was a law in serious need of a re-write.  A company's future shouldn't hinge on a vague tax exemption law.  I also learned that it was probably time to revisit some of the policy decisions made when writing the brownfield tax exemption law.

Background: Taylor Companies was debating whether to move out of Ohio.  It decided to remain in Ohio, in part, due to incentives it would receive for building on a brownfield site.  The principle incentive being a 10 year tax exemption for the increase in value of the property post-clean up.  Here are some excerpts from the story on NPR: 

The abatement was 87% less than what he expected. See, Taylor’s lawyers interpreted the state statute to mean that the tax exemption would cover the increase in value from before they did any clean-up to the new value after the company built and moved into its nice new building on what had been a brownfield. But Shelley Wilson of the Ohio Department of Taxation says they were wrong...

Instead of comparing the value of the land from its polluted days to its clean state…which seems most logical, tax officials compare the value of the land from one year before the tax abatement to its value after the improvements were made. The problem is that cleaning up the land and constructing a building may take longer than that narrow one-year time-frame. In Taylor’s case, he had already made most of the improvements by the time the tax commissioner made his assessment of the change in the land’s value. Shelley Wilson of the office of taxation concedes Taylor’s reading of the statute was probably the intent of the law.

Basically, the Ohio Department of Taxation responded to the controversy by saying- it may be the intent of the law to compare value pre-clean up to post-clean up, but that is not how the Ohio Legislature wrote the law.

At issue is the statutory provision set forth in R.C. 5709.87 "Exempting increase in assessed value of realty cleaned of contamination."  The key language is as follows:

(C)(1)(a) Upon receipt by the tax commissioner of a certification for property under division (B) of this section, the commissioner shall issue an order granting an exemption from real property taxation of the increase in the assessed value of land constituting property that is described in the certification, and of the increase in the assessed value of improvements, buildings, fixtures, and structures situated on that land at the time the order is issued as indicated on the current tax lists.

The Ohio Department of Taxation looked at the bolded language and determined the valuation comes from when the tax exemption order was issued, rather than looking back at the value of prior to when clean up commenced.  Triggering the exemption based on when an order is issued by Taxation really puts the squeeze on businesses redeveloping brownfield properties. Unless they time everything perfectly, they can lose out on potentially millions in tax abatement. (see example below)

The Department states this interpretation is supported by a decision issued by the Ohio Supreme Court- Columbus City School District v. Wilkens.   Here is how Ohio EPA describes the process in its guidance document dealing with the brownfield tax exemption:

For example, if the covenant not to sue is issued by Ohio EPA in September, 2007, and the Tax Commissioner issues the tax exemption order in October, 2007, the property tax exemption granted will be for the increase in value of the land and buildings on the property from the value of the property as of January 1, 2006, the tax lien date for tax year 2006. Since real property taxes are collected a year in arrears (i.e., the 2006 taxes are based on a value as of January 1, 2006, but collected in 2007), the 2006 tax list would be the most current list available for the Tax Commissioner’s October 2007 exemption order. The tax exemption would begin for tax year 2007 which would affect taxes collected in 2008.

Even if businesses line up things in the right way, they are still dependent on two government agencies- Ohio EPA and the Ohio Department of Taxation- acting on a timely basis.  One Cincinnati company lost out on a potential tax exemption on a $4 million dollar increase in the value of its property simply because paperwork was not issued by the government agencies in a timely fashion.  See, Hamilton Brownfields Redevelopment LLC v. Zaino, Tax Commissioner of Ohio.  In that case the Board of Tax Appeals states: 

"The General Assembly has mandated the exemption period begin in the year in which the order is issued.  The statute provides no latitude to consider or alter the commencement of the exemption."

It is time to fix the language in the tax exemption statute.  The entire purpose of the tax abatement law is to provide an incentive to clean up brownfield sites.  If we want to encourage redevelopment of brownfields versus building on greenfield sites, incentives must be significant and effective to overcome the increased costs of building on brownfield sites. 

The best fix would be to simply take the tax valuation of the property that was issued immediately before the clean up was commenced (a date identified in the papers filed with Ohio EPA) and compare it to the valuation after clean up is completed. 

New Construction- In or out?

The commencement of the tax exemption is not the only flaw in this law.  There is also confusion regarding the extent of the tax exemption as it applies to new construction.  As noted in Ohio EPA's guidance document:

The Department of Taxation interprets the exemption granted under ORC 5709.87 as limited to the increase in value of the land and the existing buildings on the NFA property, and not of new structures constructed at the NFA property.

Taxation has made it even a bit more complicated than simply limiting it to existing buildings at the property.  Taxation has gone on to limit improvements to existing buildings that were not features of the building prior to the clean up.  For example,

• If you replace an old swimming pool with a new swimming pool, the increased value attributable to the new pool is exempt.
• However, if the building never had a swimming pool, it would be considered a new improvement and not exempt.

(See, Seven Seventeen HB Philadelphia v. Franklin County Board of Revision)

Unfortunately, Ohio is blessed with thousands of brownfield sites.  If we are going direct development towards these sites, we need strong incentives.  Costs of cleaning up a brownfield can run into the millions of dollars. 

Is it really good policy to restrict the tax exemption in such a fashion?

We also need the law to be clear on its face.  Lets hope the last part of the NPR story is correct and the Ohio Legislature takes up fixing the brownfield tax exemption law soon. 

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