Review of Compliance with Job Commitments in State Incentive Packages

The Attorney General's Office completed its review of compliance with job commitments the state received in exchange for various incentives.  Here is the summary of its findings:

  • Workforce Compliance Rate: 100% (49 of 49 awards in substantial compliance)
  • Grant Compliance Rate: 74.4% (29 of 39)
  • Tax Credit Compliance Rate: 62.4% (78 of 125)
  • Loan Compliance Rate: 57.1% (24 of 42)

The chart and figures show the break down of compliance by type of incentive.  The report also contains an appendix which identifies all of the specific incentive packages by company and the status of compliance.  

The report really doesn't provide much insight as to why some incentives have a greater level of compliance than others. One explanation for the 100% compliance with workforce development is that the commitment is really just a training commitment, not a job creation commitment.

The state not only reviews compliance with the job commitments in state incentive agreements, it takes enforcement against those companies that it deems are not in substantial compliance.  This from the Columbus Dispatch Article discussing the Attorney General's Report:

The state has taken action against many of the companies behind the 75 projects that were not in compliance. It demanded the return of some grant money, modified terms on loans and shortened periods in which the companies were able to collect the tax credits. In other instances, the state found the companies were mostly in compliance despite coming up short and ordered no remedial action.

Incentive agreements also contain an out clause in the event there is an economic slowdown which prevents the company from meeting its commitments.  

Brownfields

One type of grant not covered in the report are brownfield grants.  This is because under the Clean Ohio Program, the grant agreement required a commitment to cleanup the property to Ohio EPA's Voluntary Action Program standards, not a specific job creation commitment.  While job creation was a metric evaluated when projects competed for Clean Ohio funding, the pledges did not make it into the grant agreements.  

That has changed under the JobsOhio Revitalization Program.  Under the new grant template being used by JobsOhio, companies are required to make specific commitments in terms of job creation, job retention and/or capital investment.  The JobsOhio agreement contains a specific deadline for meeting that commitment and the ability to require repayment of the grant in the event those commitments are not met.  

The JobsOhio agreement focus on job creation and investment  is similar to other State economic incentives.  It is an example of the shift in philosophy behind brownfield redevelopment in Ohio. Clean Ohio was focused on cleanup and redevelopment of contaminated property.  The JobsOhio Revitalization Program is focused on economic redevelopment.  

 

Key Update on JobsOhio Revitalization Brownfield Program

Last week, we hosted a very successful seminar covering commercial and industrial property redevelopment.  I participated on a panel that included JobsOhio, the City of Cleveland and TeamNEO discussing brownfield redevelopment, in particular, incentives.  A major focus of the discussions was the relatively new JobsOhio Revitalization Program.  

I have worked with JobsOhio on brownfield projects and have experience with how the new program operates.  It is very different then the old Clean Ohio program which operated for over a decade.

Here are some of the key pieces of information that I learned either at the seminar or through my experience working with the program over the last year.

Available Grant and Loan Brownfield Incentives

  1. Phase II Assessment
    • Up to $200,000 in grant funds for Phase II sampling
    • Phase I must be completed prior to application
    • JobsOhio said a project "needs a high likelihood of job retention or creation, not certainty at this stage"
  2. Revitalization Loan Fund
    • Low interest loans up to $5 million, covering 20-75% of project costs
    • End user and job creation/retention
    • Industrial, commercial or mixed use w/office
    • Principal & interest free during construction (i.e. until certificate of occupancy)
  3. Revitalization Grant Fund
    • Up to $1 million in grant funds for cleanup and other eligible costs
    • Typically coupled with a loan where grant acts to fill funding gaps

Who and What is Eligible

The JobsOhio program has wider eligibility than Clean Ohio.  Businesses, developers and non-profits can all apply for incentives without going through a local governmental entity.  However, the entity cannot have been directly responsible for the environmental contamination (with some limited exceptions based on the structure of the deal).

Eligible Use of Funds

A wider array of costs are eligible for reimbursement under the JobsOhio program.  In fact, it was noted during the program that 50% of the projects JobsOhio has funded did not involve contamination.

Eligible costs include any of the following:

  • Phase II environmental assessments
  • Demolition and disposal
  • Environmental remediation
  • Building renovation
  • Site preparation
  • Infrastructure
  • Environmental testing & lab fees

Criteria for Evaluating Projects

JobsOhio utilizes three basic criteria when evaluating projects:

  1. Jobs (private sector)
    • Retained
    • Created
    • Wage rate 
  2. Investment 
    • Private v. public & JobsOhio investment
    • Capital investment in addition to site preparation
    • Priority for JobsOhio targeted industry projects
  3. Certainty of Completion
    • End user commitment
    • Completeness of redevelopment plans
    • Adequacy of project funding

Key Differences between JobsOhio and Clean Ohio

Having worked on multiple projects under both programs, it is fair to say there are very significant differences between the two programs.  Here is a list of key differences:

  1. No VAP Covenant-Not-Sue Required under JobsOhio- As discussed above, 50% of the projects don't even involve contamination.  All brownfield Clean Ohio projects involved contamination.  Even with sites that have contamination, JobsOhio says they will not require you to complete Ohio EPA's Voluntary Action Program in all cases.
  2. Application Costs and Timing-  The JobsOhio application process is significantly faster than Clean Ohio.  All applications can be filed on a rolling basis.  The amount of information required to find out whether you will receive an award is vastly different.  Under JobsOhio you can find out whether you will qualify for funding very inexpensively.  Under Clean Ohio it could cost $20k-$50k to find out whether you would be funded.  Also, funding under Clean Ohio was more of a political process that was largely determined by which projects were most favored locally.
  3. Flexibility-  JobsOhio provides greater flexibility in terms of the projects that can qualify.  Also, a wider array of costs are eligible for reimbursement under JobsOhio.  There is also greater flexibility to structure the incentives under JobsOhio to fit your project.  No rigid match requirements or artificial caps on certain costs.
  4. Confidentiality-  The Clean Ohio process was entirely public.  All applications and reports were public records.  Under JobsOhio, a company can keep deals confidential until a public announcement is made regarding the award.  There is even the opportunity to sign a Non-Disclosure Agreement with JobsOhio.  
  5. Funding- Unfortunately, JobsOhio does not provide the same level of grant funding as Clean Ohio.  For smaller, less contaminated sites this is not an issue.  For sites involving very significant contamination or complex cleanups, the $1 million in available grant funding may not be sufficient.
  6. Jobs Requirement-  All JobsOhio projects must involve either job retention or creation.  Under Clean Ohio, there was the opportunity to cleanup sites without firm job commitments in order to attract development to strategic areas.  
  7. Criteria for Award-  Clean Ohio had a published scoring system that could provide potential applicants some sense of whether they would qualify for money.  JobsOhio has the three criteria discussed above (jobs, investment and certainty of completion), but there are no hard and fast rules of when they will fund a project.

 

 

JobsOhio Discusses New Brownfield Incentive Program

On October 22nd, Kristi Tanner, a managing director of JobsOhio presented regarding Ohio's new brownfield redevelopment incentive program which will replace Clean Ohio.  Many in the brownfield redevelopment community have been anxiously awaiting the roll-out of the new program.

According to Ms. Tanner, JobsOhio will start discussing potential projects now, but awards under the new program are not likely to be made until March 2014.  

Under the new program, the amount of funding available will be comparable to the Clean Ohio- approximately $43 million annually.  However, the State is making a major shift away from a grant based program under Clean Ohio to a low interest loan program through JobsOhio.

Review of Ohio's Prior Brownfield Incentive Program- Clean Ohio

Since 2002, Clean Ohio provided over $400 million in grants for brownfield redevelopment projects.  The Clean Ohio Revitalization Fund (CORF) was Ohio's centerpiece brownfield funding program with some of the largest incentives available Under Clean Ohio the basic program consisted of the following:

Clean Ohio
Revitalization Fund Assistance Fund
Competitive Pool- awards 1 or 2 times per year Non-Competitive Selection Process
Complete Application- Phase I, Phase II and Proposed Remedy Only available in eligible areas
Up to $300k for Phase II Assessments Up to $300k for Phase II Assessments
Up to $3 million in grants for cleanup  Up to $750k for Cleanup
Eligible costs = demolition, purchase, infrastructure and cleanup costs Eligible costs = demolition, purchase, infrastrucutre and cleanup costs 
Required to complete VAP Required to complete the VAP

Many liked the openness the CORF selection process which used a competitive pool where all projects were pitted against one another for funding.  Award were made either once or twice per year.  

Projects were selected was through the Clean Ohio Council with heavy involvement from the local communities.  One major drawback of the program was that an applicant could spend approximately $30,000 just to develop the application (assuming a Phase I and Phase II was already complete) with no guarantee of being funded.

Still, as one of the best brownfield incentive programs in the country, CORF/COAF allowed many projects to move forward that may not have occurred otherwise.  As discussed in a Dispatch Article, Clean Ohio provided funding for over 70 projects in just Northeast and Central Ohio alone. 

JobsOhio Revitalization Program

Under the new JobsOhio program, the State will be making major changes to the structure and process for selection.  Here are the basic elements of the the new program:

Incentives Available

  • Up to $200k for Phase II Assessments-  JobsOhio had commented that it felt $300k for Phase II's under CORF/COAF was excessive.  However, in order to qualify for the cleanup grant or loan, the developer is required to meet the applicable standards established by Ohio EPA's Voluntary Action Program (VAP).  Therefore, a Phase II must generate sufficient data to be deemed VAP compliant.  With reduced funding, some projects may not be able to satisfy Ohio EPA's rigorous Phase II VAP standards.
  • Up to $500k for Asbestos & Lead Paint-  This is a new component of the Ohio brownfield program which appears to target existing structures that may be idle due to asbestos and/or lead paint issues.  Under the proposal, the funds can be used for asbestos abatement, demolition, site preparation and disposal of universal waste.
  • $5 million cleanup loan with possibility of $1 million cleanup grant-  As the biggest change with the new program, JobsOhio has shifted from a grant cleanup funded model to a loan model.  Developers and companies looking to expand may have an opportunity to secure a $1 million cleanup grant if need is demonstrated and the grant is coupled with a loan.  Details on the requirements for securing a $1 million dollar cleanup grant were not provided.

 Selection Process

  • Open funding versus competitive pool-  JobsOhio has done away with the competitive pool process utilized by CORF.  Under the old process all grant applications were scored and the top projects were funded.  The positive aspect of this process was its transparency. The negative was that an applicant could spend a significant amount of money ($30k just for the application) without knowing whether they would receive an award.  The new process will be more flexible and less costly than Clean Ohio.  Projects can receive awards throughout the year and will not compete with one another.  Also, JobsOhio will likely notify an applicant it will receive an award before it has to put together the more detailed aspects of the application. 
  • Criteria for selection-  The JobsOhio selection process will utilize three basic criteria
    • Jobs- Retained or created with priority for projects with higher-than-average wage rate (generally must retain or create 20 jobs)
    • Investment- private versus public, capital investment in addition to site prep and priority will be given to JobsOhio targeted industry project
    • Certainty of completion-  must have an end user committed to the project, have redevelopment plans and sufficient funding to complete the project.

Conclusion

More details should be forthcoming regarding the program this fall.  However, JobsOhio has made clear that they will discuss prospective projects now.  However, awards will likely not be made until March 2014.  

The most likely users of the program will be commercial/industrial clients looking to expand onto brownfield properties.  With $200,000 available in grants for Phase II assessments and the possibility of $1 million in grant cleanup funds, the program offers very strong incentives. 

Due to the focus on job creation, cities looking to cleanup properties in hopes of attracting future development will have to look elsewhere for incentives.  Also, residential development projects will find it harder to compete without a jobs component.  

While there are good aspects of the new program, its overall success will depend upon whether loans will will be sufficient to attract redevelopment of contaminated properties.  

With the last $15 million of Clean Ohio Spent...What is next?

This past spring, the Kasich Administration put another $15 million in grant funding into the Clean Ohio program. (See prior post).  While a public announcement has yet to be made regarding grant awards for the remaining $15 million, it is my understanding that the money is allocated. Announcements may be made next week at the Ohio Economic Development Association 2013 Summit.

After this last $15 million has been spent, what is the future in Ohio for brownfield grant funding?  The Administration has discussed a possible rollout of a new program by year's end.  On multiple occasions, the Kasich Administration has indicated the new JobsOhio brownfield grant program will closely approximate the size of the old Clean Ohio program- roughly $43 million annually.

The changes made to the Clean Ohio program this past spring provide some indication of what a new program could look like.  

  • Streamlined application process where selection decisions are made before investing significant money in preparing detailed applications;
  • Selection criteria that will emphasis end use, job growth, job retention and enhanced tax revenue post development;
  • More involvement of local economic development organizations in the selection process; and
  • Continued use of Ohio EPA's Voluntary Action Program as the benchmark for determining whether a property has been adequately cleaned up

With the incredible success of the Clean Ohio program there is a lot to emulate when JobsOhio launches its new program.

The uncertain rollout date for the new program has hindered getting new brownfield projects in the que.  Projects can take months before all the pieces (end use, infrastructure, financing, incentives, etc.) can be fit together.  Hopefully, an announcement can be made before the end of the year so we don't lose any more momentum in this critically important area of economic development.

In the meantime are there other brownfield incentives available? 

Yes.  Many of the major and medium sized metropolitan areas have their own brownfield redevelopment programs.  They don't provide the same level of grant funding, but they can be attractive.  

Both the City of Cleveland and Cuyahoga County maintain their own brownfield incentive programs. They are similar in their approach.  Here are the key aspects of the Cuyahoga County Commercial Property Reutilization Program:

  • Phase I Funding: Up to $6,500
  • Phase II Funding: Up to $35,000

 

Cleanup Loans

  • Up to $1 million- 4% over 10 years
  • 40% forgiveness
    • 15% for VAP NFA
    • 15% job creation (1% per job over $44k per year)
    • 10% for use of vendors in the County
  • Wider eligibility for types of clean up costs covered by the program (i.e. BUSTR, RCRA, etc.)
     

Brownfield Redevelopment Tax Incentives

Ohio also has on it books tax incentives for brownfield redevelopment.  The automatic abatement described below has been widely used, but is tricky to navigate.  There was considerable debate following a determination that the automatic tax incentive didn't cover new buildings.  

Automatic Abatement (R.C. 5709.87)

  • 10 year Ohio Property Tax Abatement for Brownfield redevelopment
  • Abatement is on the increase in value of land and buildings post clean up
  • Abatement does not include new structures or fixtures after clean up (Caution: process for fixing abatement is complicated)

A more broad based tax incentive is available that does allow coverage for new structures as well as machinery.  However, do to the fact these incentives must be negotiated with local officials, the local tax abatement has not been utilized frequently.

Local Tax Abatement (R.C. 5709.88)

  • Tax abatement for real or tangible property(machinery and equipment)
  • Up to 100% abatement for increase in value in land or buildings(including new structures)
     

Clean Ohio Council Approves Changes to Brownfield Funding

On March 6th the Clean Ohio Council approved major changes to the Clean Ohio program.  The changes are now effective and will govern the remaining $15 million in funding that was set aside in the last budget. 

After the $15 million has been exhausted, JobsOhio has indicated it will launch a new $43 million per year brownfield redevelopment program.  No word yet on what the details of that program may look like, however, it is safe to assume that the more streamlined structure and emphasis on jobs will be key aspects of the JobsOhio program.

Here are the major changes approved by the Council on March 6th:

  • Single incentive program- COAF and CORF Combined into one brownfield funding program:
  • Streamlined application process-  Requests for funding are now initiated by submitting a letter of interest to JobsOhio regional network.  This is a positive development for CORF projects that required applicants to invest $20,00 or more to file the application without knowing whether they will be funded;
  • All grants will be awarded on a rolling basis-  This replaces the CORF process of two rounds of funding with pools of applicants competing against one another.
  • Cleanup grants remain capped at $3 million-  The proposal had been to reduce them to $1 million;
  • Assessment grants are capped at $200,000-  compared to $300,000 under the old program.
  • Expanded eligible infrastructure costs under the grant
  • Eliminated the Redevelopment Ready Track- Grant applicants must have a committed end user of the property. 

Brownfield Redevelopment Incentives Back on the Table in Ohio

Last year the Kasich Administration announced that it was phasing out the Clean Ohio brownfield grant program.  The Clean Ohio program,which had been in existence for over a decade, had provided approximately $37.5 million per year in incentives for cleanup and redevelopment of brownfields. 

Last May, the Administration allocated a final $15 million toward traditional Clean Ohio programs for sampling and cleanup work.  JobsOhio took over administration of the program from the Ohio Department of Development.  (Click here for prior post discussing changes)

What has been somewhat unclear since the announcement regarding phase out of the Clean Ohio program is whether JobsOhio would replace it with a new brownfield incentive program.  As discussed in an article in the Crain's Cleveland Business magazine, it appears JobsOhio does plan on a sizable brownfield redevelopment incentive program to replace Clean Ohio.

About $43 million of the $100 million JobsOhio can spend annually for economic development programs will go toward revitalization projects, Mr. Minor said.

The planned allocation to land revitalization is a big change in the Kasich approach to economic development. The Kasich administration let the former program, Clean Ohio, die last year without assurances that it would be picked up by JobsOhio...

Clean Ohio offered communities as much as $3 million in loans or grants for remediation projects — a number JobsOhio might match, Mr. Minor said. But Mr. Minor said the new program will prefer to invest with companies that will occupy the cleaned-up properties.

What is clear from the comments of JobsOhio officials is that only projects that have a committed end-users after cleanup will qualify for the new brownfield incentives.  Also, the old scoring methods utilized by Clean Ohio will not longer be used to identify good projects.  JobsOhio will heavily emphasize the following factors in selecting projects:

  • number of jobs the project retains;
  • the number of jobs created; and
  • investment in redevelopment of the property and/or equipment.

Clean Ohio Council to Meet

The Clean Ohio Council will meet tomorrow to discuss changes to its policies for awarding grants.  However, whatever changes are made will likely only govern the remaining $15 million in funding.  After that money is spent, JobsOhio will initiate its own program with its own procedures and methodologies for selecting projects. 

Regardless of whether you like some or all of the changes to the process for selecting projects, it is very good news that a strong brownfield incentive program will exist post-Clean Ohio.  In a state with a rebounding economy it is critical to attract redevelopment to properties that may have historical issues tied to Ohio's strong industrial history. 

Big Changes Proposed for Ohio Brownfield Funding

On Friday, the Clean Ohio Council met to discuss proposed changes to the Clean Ohio program. As discussed previously on this blog, the Kasich Administration has repeatedly discussed completely revamping brownfield funding in Ohio.  The Administration previously announced its intention to shift the program's administration to JobsOhio along with the liquor profits that were used to payoff the bonds that created Clean Ohio.  The Administration also has indicated it wants to shift from a grant based program to loans.

JobsOhio is currently caught up in a legal challenge to the constitutionality of the semi-public organization.  As a result of the legal challenge, the Administration has not provided any details as to what brownfield funding will look like under JobsOhio.

Back in May, it was announced that $15 million in new funding would be allocated to the Clean Ohio program as a stop gap measure until the dust settled on the JobsOhio litigation.  Clean Ohio funding has previously been at $37.5 million per year. Many believed that the $15 million would be allocated using the similar Clean Ohio process and procedures that have operated for nearly a decade.

On Friday, staff from the newly created Development Services Agency presented revised policies for new procedures to be utilized in awarding the $15 million in new funding. The proposal presented represents  a seismic shift in how funding decisions will be made.

Here is a quick synopsis of the major changes:

  1. Major Reduction in Funding Available Per Project- The maximum available in funding for assessment grants was reduced from $300,000 down to $200,000.   The maximum available in clean up funding was reduced from $3 million to  $1 million;
  2. Overhaul to the Grant Selection Process-  Previously, there were two grant rounds per year.  Grant applications received during a round competed against one another for funding.  The Clean Ohio Council utilized a scoring process to evaluate each grant application.  The scoring criteria was a mix of points based upon the proposed development, amount of clean up occurring and importance to the local community.  The new proposal would do away with grant rounds and the scoring process entirely.  Under the new system, the Director of Development Services would make awards on a rolling basis utilizing Agency discretion.
  3. Premium on Job Creation-  While the application process is still somewhat murky because the forms have not been released, it appears from documents released Friday that the intention is to evaluate applications based on jobs almost exclusively.  The old scoring system provided placed higher value on clean up of highly contaminated sites as well as their importance to the local community. 
  4. More Funding for Infrastructure-  The new proposal increases the percentage of the grant that can be spent on infrastructure versus environmental clean up from a maximum of 10% up to 25%.
  5. Loans- While the policy changes incorporate the concept of loans, as it stands the new policy would retain the limitation that no more than 15% of funding shall be used for loans. (See, Section 6.02).  Therefore, the Administration, at least for now, wants to see the vast majority of funding in the form of grants versus loans

Concerns were expressed during the Clean Ohio Council meeting on Friday that there had not been any opportunity for the public to comment on the major restructuring of the program. In response, it was decided to allow a thirty day (30) public comment period on the policy changes. 

Click here to access the proposed changes to the Clean Ohio Fund Policies.  Instructions for submitting comments are also available on the web page.

Implications of the Policy Changes

It is pretty easy to acknowledge the Clean Ohio as we know will no longer exist if the proposed changes are adopted following the public comment period. The old program had two grant processes:

a) Clean Ohio Assistance Fund (COAF)-  Allowed for up to $300,000 for assessment and $700,000 for clean up.  COAF applications could be submitted on a rolling basis and decisions were made exclusively by the Director of Development.

b) Clean Ohio Revitalization Fund (CORF)-  Allowed for up to $3 million in clean up funding.  There were typically two rounds per year.  Applications were submitted and competed against one another in each round.  The project applications were scored using a mix of points for development, environmental clean up and importance to the local community.

The proposal presented Friday essentially does away with CORF and moves exclusively to a COAF like approach.  The advantage of the new approach is the speed as to which funding decisions will be made.  However, the disadvantages to this approach are as follows:

  • $1 Million Dollar Cap on Clean Up Grant Funding will mean Only Smaller Clean Up Projects will Get Funded-  The vast majority of the larger development projects involved $2 to $3 million in funding under the old CORF program.  By capping the available cap at $1 million, the larger brownfield redevelopment projects are far less likely to occur.  What could happen is that the only projects getting funded in future will be for asbestos abatement & demolition.  There simply won't be enough funds to deal with sites that have significant soil or groundwater contamination.
  • No Competition Makes it More Difficult to Ensure the Limited Funds Go to the Best Projects-  Because all grant awards will be made on a rolling basis it will be much more difficult to compare and contrast projects.  No objective scoring criteria will be implemented and the public involvement in selecting projects will be greatly reduced.

 

JobsOhio $1.4 Billion Dollar Deal Includes Sketchy Details on the Future of Clean Ohio

Details were released this week by the Kasich Administration on the establishment of its privatized economic development agency known as JobsOhio.  Many of the traditional job creation duties that fell to the Ohio Department of Development will be shifted to JobsOhio. 

Along with the restructuring of development duties, the Administration is shifting the State's liquor profits to help fund the Agency.  Last year the liquor profits took in around $700 million in revenue to the State.  In return for a 25 year agreement to fund JobsOhio with liquor profits, JobsOhio will make a one-time $1.4 billion dollar payment back to the State.  Details of how those funds would be utilized were discussed in the Plain Dealer:

The $1.4 billion agreement calls for Ohio to collect $500 million for its general revenue fund, money already factored into the current state biennial budget, $750 million to pay off existing liquor revenue backed bonds, and $150 million to continue "Clean Ohio" environmental programs for the next three years.

The reference in the Plain Dealer Article regarding Clean Ohio is a bit confusing.  Based upon an article in Columbus Business First, the $150 million is set aside to pay for the grants that were awarded or will be awarded by July 1, 2012.  In the future, funding will be set at $43 million per year.

The agreement, which will be reviewed and possibly voted on Jan. 30 by the state Controlling Board, includes a provision for the $43 million for economic revitalization projects as well as $150 million to cover Clean Ohio Fund projects approved by the state before July 1, 2012.

Impact on Clean Ohio

The transformation of the Ohio Department of Development and creation of JobsOhio has resulted in tremendous uncertainty regarding  the State's $50 million dollar per year brownfield redevelopment program. 

This fall, when the Administration made the announcement that liquor profits would be shifted, the Administration said it would look for a new revenue source to support Clean Ohio.  It now appears that the same revenue-a portion of liquor profits- will be used to support the program for the next three years. 

What remains uncertain is when that money will be available.  Currently, the Ohio Department of Development announced the end of funding for the Clean Ohio Assistance Fund (COAF) which pays for Phase II environmental assessment on brownfields.  Also, the Department announced the current round of the Clean Ohio Revitalization Fund (CORF) would be its last. Now that the funding source has been announced, the question is when will the State start accepting grant applications again?

Due to the fact the $150 million is being allocated pay for COAF and CORF grants in the pipeline and the last round of CORF, it appears no new funding will be available for Phase II work prior to July 1st.


Who Will Administer Clean Ohio in the Future?

What also remains uncertain is whether the current process for grant selection and administration will remain.  During yesterday's announcement, the Administration indicated that the current process will remain in place through the summer.  However, the Kasich Administration also suggested that legislation could be introduced this Spring to modify the program. 

What the Administration did make clear is that they want to see more direct economic development benefits for use of Clean Ohio funds in the future.  This means it is unlikely grants such as the Redevelopment Ready track of the Clean Ohio program will continue. 

The Redevelopment Ready track provided grants up to $2 million to clean brownfields that were primed for development based on their location but lacked a specific end use (i.e. development project).  Some argued that the Redevelopment Ready Track allowed areas outside Cleveland, Columbus and Cincinnati to better compete for the grant money. 

While this week's announcement seemed to answer the question as to whether funding will remain in place for Clean Ohio in the near future, there remains three major questions:

  1. When will the grant process open up again:
  2. Who will administer the program- the newly created Ohio Development Services Agency or JobsOhio; and
  3. What will the grant application and selection process look like in the future?


 

State Halts Applications for Brownfield Grant Program

Yesterday, the Ohio Department of Develop put the following notice on the Clean Ohio Fund webpage:

NOTICE

Effective immediately: The Clean Ohio Assistance Fund is no longer accepting applications. If you have a project and would like to discuss other funding opportunities please contact us.

Back in October, Governor Kasich announced that he was redirecting the funding for the Clean Ohio program to his JobsOhio economic development program.  Funding would remain for one additional round of the Clean Ohio Revitalization Fund which provides up to $3 million in clean up grants for brownfield redevelopment.. 

In addition, funding for the Clean Ohio Assistance Fund (COAF) was thought to last through June 2012.  However when the announcement was made that funding was shifted to JobsOhio it cast doubt on the future of the Clean Ohio program.  As a result, the Department of Development was flooded with COAF applications in December.  No one wanted to risk missing what could the last of the Clean Ohio funding. 

Due to the rush of applications, all available funding was already allocated in December for the COAF program.  Several projects that were also seeking funding were told they were too late.

With the last round of CORF this month and the announcement ODOD is no longer accepting applications for the COAF program, the Clean Ohio program in Ohio is effectively closed.  This announcement is disappointing since the program was one of the most successful in the country in spurring revitalization of brownfield properties. 

In November, the Governor's spokesperson indicated the Administration was looking to find new revenue to continue the program.  No such funding has been identified to date.  The prospects for finding new revenue must be very uncertain because the Department is not even allowing developers to submit applications to form a line when funding does come available. 

Signs point that the Country and State's economy may slowly be turning the corner. If that is indeed the case, It would be nice to have the tools in place to direct new development to abandoned sites and contaminated properties which populate Ohio's urban core.

 

Loans Versus Grants to Spur Brownfield Redevelopment

Current Debate Regarding the Future of the Clean Ohio Program

The Kasich Administration has announced that it is re-evaluating the Clean Ohio program.  The next round of the Clean Ohio Revitalization Program (Round 12) will be the last.  Also, funding under the Clean Ohio Assistance Fund, which pays for sampling on brownfield properties, is likely to run out as soon as February 2012.

It appears the Administration is discussing other funding sources that may allow the program to continue.  (See Clean Ohio Funding End 2012....What Next?)  Last week, an article in Crain's Cleveland discussed the potential end of the program:

Ohio Department of Development spokeswoman Katie Sabatino said the state considers these successful programs, but is evaluating its options for assisting with the redevelopment of brownfield sites. Of the Clean Ohio Fund in particular, she said, “The Ohio Department of Development is working with the (Kasich) administration to chart a path to assist with brownfield issues....."

“It was supposed to end June 2014, but word out of Columbus is it will end sooner,” said one observer who asked not to be identified because he's shepherding brownfield projects still under review. “I'm very concerned about them pulling the rug out from under us.”

 In the article, it states that the Administration may be interested in moving towards loans instead of grants. 

In addition, Mark Kvamme, chief investment officer of JobsOhio, is said to prefer loans over grants, according to a half-dozen economic development professionals who work with the state's programs. He was not available last week for comment.

A similar change is under way at the Third Frontier Commission, which runs loan and grant programs for technology companies. Crain's reported in June that Mr. Kvamme was behind recommendations the commission is adopting to move to loans from grants.

Advocates of the change say loans not only stretch the reach of public funds, but also cause applicants to be more discerning about what they propose when they're on the hook to pay the money back.

Loans versus Grants

The problem with loans is that the require the developer or company considering a brownfield to pay for the entire cost of investigation or clean up.  Total clean up costs can range from $500,000 to $5 million or more.  This is the cost just to clean up the land, not the overall development costs. 

If developers and companies are required to utilize their own funding to pay for all the clean up and investigation costs, most will look to greenfield sites instead of re-utilizing urban properties that have pre-existing contamination.  Heavy industrial properties will simply sit idle unless the value of their location is so great it outweighs the clean up costs.  This is an unlikely scenario for the vast majority of brownfield sites.

Ohio already has a brownfield loan program that almost no one is currently utilizing- Ohio Water Development Authority's Brownfield Loan Program.  Under the OWDA program you can obtain a low interest loan for sampling (up to $500,000) or clean up ($5 million).  Despite the fact more sites are eligible for OWDA's program than Clean Ohio, OWDA has had trouble attracting interest in the program.

Under the grant program, applicants still have "skin in the game."  Under the Clean Ohio program, applicants are required to provide a 25% match.  Paying 1/4 of the clean up costs makes many for brownfield sites attractive to development. 

Future of Clean Ohio

Funding had been available for Clean Ohio to continue until July 2013.  However, as discussed in the Crain's Article funding has been shifted to other priorities. 

Word is the Kasich Administration is looking for a funding source to continue a brownfield redevelopment program.  The Administration may also be overhauling the program. Let's hope that what ever emerges provides a real opportunity for our urban core to attract development.

Miceli Dairy Project Highlights the Benefits of the Clean Ohio Program

Last Friday, I attended the Clean Ohio Council meeting with my client Miceli Dairy Products, Inc. (Miceli Dairy).  I had worked with Miceli Dairy over the last couple years on evaluating five parcels of property adjacent to their current facility on which the Dairy would like to expand its operations. 

The Dairy submitted an application to receive approximately $3 million in grant funds to assist with demolition, clean up and installation of infrastructure on the brownfield parcels.  The Dairy's application was competing with fourteen (14) other brownfield redevelopment projects from around the State. 

The fourteen projects were in competition for the available funding.  Each project is scored using various factors such as how much contamination is being cleaned up, number of jobs, etc.  In the end, the Miceli application was the number one project in the State and the Council voted to fund the application.  (Click here for press release from the Clean Ohio Council)

Miceli Dairy's expansion is a great story. Did you know that Miceli is the largest ricotta cheese manufacturer in the U.S.?  The Company has a wonderful Cleveland history that is best described in the Plain Dealer story profiling the Dairy's expansion plans. 

However, without the Clean Ohio program the expansion may never happened in the City of Cleveland.

Why the Project Wouldn't Have Worked without Clean Ohio

During the Clean Ohio Council meeting several comments were made the the Miceli project was one of the most complicated to every go through the program.  Here were some of the issues that complicated use of the brownfield parcels for expansion:

  • Two businesses operated on the parcels- a drum reclamation facility and plating operation;
  • Both businesses were the subject of environmental enforcement actions by the Ohio Attorney General's Office;
  • No environmental sampling has been performed prior to the project so it was impossible to know the levels of contamination present;
  • Liens were on the properties that exceeded $1 million dollars;
  • Hazardous waste units and drums were located on the parcels that needed to be cleaned and that work is ineligible for Clean Ohio funding;
  • Buildings in poor condition were located on site that made it difficult to obtain samples; and
  • Large debris piles were across the site.

All of these issues had to be addressed for the project to move forward.  It is clear that without funding through Clean Ohio the costs of sampling and clean up alone would have prevented expansion onto these parcels.  Without funding it was quite possible Miceli may have been forced to look outside Cleveland to expand its operations.

(Map:  From Cleveland Plain Dealer Article cited above)

Kasich Administration To Transform Clean Ohio Brownfield Grant Program?

Rumors abound that the Kasich Administration is seriously considering totally overhauling the Clean Ohio brownfield grant program.  Multiple sources have indicated that the Administration is discussing internally making the next round of Clean Ohio the last for the program in its current form.

During the transportation engineers conference in Columbus, Governor Kasich made remarks that Clean Ohio would be reconstituted.  He said the program needs to improve upon providing funding projects that have the best opportunity to either create or retain jobs.

Back in April I wrote a post titled Clean Ohio Ends 2013....What Next?  In that post I discussed that the Department of Development was planning on four rounds for the competitive Clean Ohio Revitalization Fund (CORF):

  • Round 11 in November 2011 (applications have already been submitted)
  • Round 12 in Award in July 2012 (applications due in January or February)
  • Round 13 in November 2012
  • Round 14 in July 2013

In addition, to the Clean Ohio Assistance Fund (COAF) would receive new funding in July 2012 which would provide assessment (Phase II) funding through July 13.

The Kasich Administration may be planning on scrapping Rounds 13 and 14 and making Round 12 the final round.  If this happens it will make the final round highly competitive with many cities trying to cram projects in at the last opportunity. 

What Next?

There are no details that have been released publicly as to how the remaining funds (Rounds 13 and 14) may be used.  One possibility discussed was the Administration would proactively target sites rather than allow developers to join with cities in filing applications.  Another possibility would be to do away with the Redevelopment Ready and Sustainability Reinvestment tracks that do not require immediate development or jobs.

Its hard to comment on the merits of a new program when details have not been released.  However, there is no doubt the Clean Ohio program is extremely popular with all the cities as well as developers.  The program has been the key to allowing redevelopment on a number of highly contaminated and complex sites that would have otherwise sat idle.  In Ohio, where brownfields are too numerous, the COAF and CORF grants literally forced development onto underutilized or vacant properties. 

Because Clean Ohio was passed by the voters, it seems impossible for the Administration to redirect the money to other programs than brownfields.  However, the Administration does have the latitude to completely reshape the process for how sites get selected for funding. 

We will have to watch to see how it unfolds.  Regardless, it looks rather certain Clean Ohio as we know it will not look the same after the January Round. 

 

Kasich Administration Releases Plan for Reorganization of the Ohio Department of Development

One of Governor Kasich's top priorities is to restructure the Ohio Department of Development shifting some of its core functions to the private sector. The General Assembly passed the JohsOhio Bill which launched an evaluation of the current Department.

The bill allowed for the creation of a non-profit corporation which would assume some of the duties and responsibilities of the existing Department. The bill also required the Director of the Ohio Department of Development to evaluate all powers, functions, and duties of the existing Department and submit a report to the General Assembly that includes recommendations in the following areas:

  • Improve the functions and efficiency of the Department
  • Transfer specified powers, functions, and duties to other existing state agencies or to JobsOhio (private sector entity);
  • Eliminate specified powers, functions, or duties of the Department.

On August 18th, the Administration released its report with the results of its review and proposal for restructuring the Ohio Department of Development to the Ohio General Assembly. In the report, the Administration makes the recommendation to transfer core duties to the non-profit corporation. The Department will also undergo a restructuring relative to those duties and responsibilities that remain with the Department.

JobsOhio Duties

The following functions will be moved to the non-profit corporation:

·        Office of Business Development- responsible for jobs retention, expansion and location. This includes incentive packages to attract or retain companies.

·        Office of Grants and Tax Incentives- responsible for grants and tax incentives associated with business attraction and development.

·        Office of Loans and Services- loan origination and servicing

·        Ohio Tourism- marketing of the tourism in the State

Ohio Development Services Agency

The old Ohio Department of Development will be renamed the Ohio Development Services Agency. It will have three key divisions that will retain a large portion of the remaining functions of the current Department.  The new organization of the Agency will consist of three divisions:

·        Business Services

·        Community Services

·        Operations

Impact on Environmental Grant Programs (Clean Ohio)

The Clean Ohio and Jobs Ready Site programs are the two largest grant programs available for redevelopment of brownfields. These programs will remain government functions and be housed under the Community Services Division of the newly formed Ohio Development Services Agency.

The report includes additional recommendations from stakeholders and staff about changes to the urban development functions including the Clean Ohio program. One possibility apparently not seriously discussed was moving these functions over to Ohio EPA’s brownfield program.  Other improvements suggested including reducing public notice periods and expediting grant administration.

It appears that the Clean Ohio program will largely be untouched by the major transformation at the Ohio Department of Development. The only possibility could be staff reductions. The report contains the following chart showing significant staff reductions. However, the report notes that most of those reductions will be through attrition (i.e. as people leave they won’t be replaced). 

 

 

 

 

 

 

State Modifies Clean Ohio Brownfield Grant Program

The State has announced the latest modifications to the Clean Ohio Assistance Fund (COAF) policies which provides up to $300,000 for Phase II environmental assessments and up to $750,000 for brownfield clean up.  The State released its COAF policy update last month.

Unlike the Clean Ohio Revitalization Fund (CORF), COAF grants are given out on a rolling basis as long as the State had money during the funding cycle. COAF has traditionally been used to obtain funding for Phase II assessments on brownfields.  The use of the COAF for clean up has been less frequent due to limited funding available and the larger clean up grants available under CORF (up to $3 million). 

The changes to the COAF program this time include:

Asbestos- 

The policy now explicitly states that abatement of asbestos are eligible clean up costs.  See, 3.06

Matching Funds- 

For the first time, the State is requiring a 10% match for use of COAF for clean up grants.  This means for a max clean up grant, the applicant will need to supply $75,000 toward clean up. While its understandable the State wants to see the applicant have some "skin in the game,"  the no-match component of COAF was one element that made it more attractive than CORF. 

Another issue is that the policy says the match must be spent by the "project approval date."  The policies don't define this term, but it would appear to be the date the Controlling Board approves the issuance of the grant.  This timing seems odd in that applicants would need to spend the 10% before they knew for sure they were getting the grant.

Jobs Commitment-

Perhaps even a larger change than the 10% match, is the requirement that COAF clean ups for industrial or commercial use must generate or retain at least 10 jobs.  See 6.09  Not every project has a job component at the get go. 

The State previously recognized that some brownfields may not have redevelopment committed but are located in prime locations for future development.  This is why for the CORF the State created the "Redevelopment Ready Track."  Perhaps the limited amount of COAF clean up funds available is driving the State to use the money only for projects that have a job component.

No Longer a "First Come/First Serve" Program-

In the e-mail to interested parties providing notice of the changes to the COAF policies, the Ohio Department of Development also stated the following:

"During the month of July, cleanup applications will be reviewed and approved based on project merits rather than a first come/first serve basis."

While the indication is projects will be evaluated on their merits, there were no other changes to the policies which shed light as to how they will be evaluated on their merits.  Unlike the CORF application process there is no defined scoring methodology for projects.  This statement from ODOD can probably only be interpreted to mean the Director retains discretion to reject your clean up project as not worthy of COAF funding. 

Clean Ohio Program Ends 2012...What's Next?

In 2000, Ohio originally voted to approve the Clean Ohio Fund as a $400 million dollar bond program. In 2008, the Clean Ohio Fund was reauthorized through a ballot initiative known as Issue 2. The ballot initiative was overwhelmingly approved in all 88 counties which extended the Fund with another $400 million dollars.

Clean Ohio is probably the most successful brownfield redevelopment program in the Country.  Approximately $400 million of the $800 million in funding went to brownfield projects in the last twelve years.  Here is an outdated chart from the Clean Ohio Fund Report which shows the number of projects and dollars used for brownfield revitalization just in the first four rounds of the program. 

Since the first four rounds that State has gone to two rounds per year.  We are now up to Round number 10. 

The Clean Ohio Fund Interactive Map provides the location and project information for over 1,200 projects financed through the Clean Ohio Fund, representing over $627 million in awards to date.

Four Rounds Left After July 

Round 10 is in July.  Then there is enough funding for Round 11-2 (Round 12 will be May 2012).  That is not a lot more opportunities to use the program if you have a project that you think would be a good match for Clean Ohio funding.  It takes around 6-8 months to get a project ready for a Clean Ohio Revitalization Fund (CORF) project.  Which means projects for Round 10 are basically getting ready to be finalized and Round 11 projects are already being discussed.

Will Clean Ohio Continue?

The Clean Ohio program has been wildly successful.  Funding projects across the State.  Many significant development projects simply would not have happened with out the grant funds available through the program. 

While perhaps a little premature, its time to start planning another ballot initiative if suporters are going to seek to renew the program.  Governor Kasich has not been asked his opinion as to whether the program should continue.  While the program is funded through bonds it still takes state revenue to retire those bonds.  With an $8 billion budget hole and a difficult budget process, the challenges facing renewal have never been greater.

What Happens if Clean Ohio is Not Renewed?

The major source of assistance in Ohio to spur brownfield redevelopment will disappear.  There are other federal and local programs, but none with the resources and successful track record like Clean Ohio.  Unfortunately, if the program is not renewed, many brownfield sites with significant contamination will simply be avoided.  New development will be pushed out to greenfields and perhaps away from our urban core.

With the number of brownfield sites remaining in the State, the need for the program remains as strong as it was in 2000.

New Interactive Map Highlights Ohio Brownfield Projects

The Clean Ohio program has released a new interactive tool called the"Project Location and Information Map" which provides an interesting overview of brownfield and greenfield projects that have received grant funding under the program. 

You can search by type of grant funds for all projects across Ohio.  You can also search by specific county and see all the projects in that area that received funding.

The project information is pretty limited once you select a specific site.  It basically has a picture of the site and a description of the type of funding received (the picture above was taken from interactive map).  There does not appear to be any details on the type of development anticipated or description of clean up issues encountered.

The State is inviting the project developers to provide more description, so perhaps there is an opportunity to give more detail.  It would be helpful if the description on the map at least identified the parties involved on the project.  

Due to the limited information, the map does not have much utility other than highlighting the large number of projects that have received grant funding across the State. However, you do have other options to gain more information about projects listed on the map. 

Perhaps you are interested in a property in close proximity to a project that received funding.  You always have the option of making a public record request to find out more details on a specific project.  Under public records law you are entitled to see all the documents generated regarding the investigation and clean up associated with a project.

JobsOhio and Clean Ohio

The Governor's top legislative priority is the privatization of the State's economic development functions.  House Bill 1, known as "JobsOhio", has been introduced and a vote in the Senate may come yet this week. 

The Ohio Department of Development (ODOD) plays a critical role in the administration of the Clean Ohio program which provides millions in grants for brownfield redevelopment.  The Department's current role includes the following:

  • Review for Clean Ohio grant applications for completeness;
  • With the assistance of Ohio EPA, makes eligibility determinations;
  • Meets with applicants to discuss projects (known as "PRAMs");
  • Selects which projects will receive Clean Ohio Assistance Fund (COAF) funding which has recently become Phase II assessment grants;
  • Assists the Clean Ohio Council in evaluating projects for Clean Ohio Revitalization Fund (CORF) funding for clean up; and
  • Determines which projects can be reimbursed with grant funds.

On the brownfield projects I work on, the ODOD personnel are the key point of contact when evaluating projects and through out implementation of the project.  More than once, ODOD personnel have made absolutely critical decisions that impact the viability of projects or have made significant reimbursement decisions that cost  developers hundreds of thousands of dollars. 

With the privatization of economic development functions, ODOD's key role will almost certainly be absorbed by another state agency.  Most likely, Ohio EPA will pick up these functions, but its possible the functions could stay with the newly created non-profit corporate entity.

How far away are we from that transition? House Bill 1 is only the first step in privatization of the Ohio Department of Development and the associated transfer of existing functions to other state agencies.  The bill basically establishes the non-profit corporation to be known as JobsOhio.  The Bill then calls for a six month consultation process to evaluate transition of the other functions of ODOD. 

Here is the relevant section of H.B. 1:

Sec. 187.05. The director of development, as soon as
practical after the effective date of this section, shall, in
consultation with the governor, evaluate all powers, functions,
and duties of the department. Within six months after that
effective date, the director shall submit a report to the general
assembly recommending statutory changes necessary to improve the
functioning and efficiency of the department and to transfer
specified powers, functions, and duties of the department to other
existing agencies of the state or to JobsOhio, or eliminate
specified powers, functions, or duties
. The recommendations shall
be submitted in writing to the speaker and minority leader of the
house of representatives and the president and minority leader of
the senate.

After submitting the report, the director, in consultation
with the governor, shall continue to evaluate the department and
make additional recommendations on such matters to the general
assembly.

We are probably at least a year away from seeing any of ODOD's responsibilities transition to other agencies or to the JobsOhio entity.  For now it will be the status quo.  But in the near future a crucial decision will be made as to who will administer ODOD's critical Clean Ohio responsibilities.

Clean Ohio Council Creates New Option for Sustainable Reinvestment

Clean Ohio Council has expanded the types of eligible projects that can receive funding under the Clean Ohio Revitilization Fund (CORF).  Parks, urban waterfronts, solar and wind projects are now eligible for funding so long as these projects take place on a brownfield. 

This change will create greater competition begining in Round 10 of the program.  

Three Grant Tracks Under CORF

  1. Known End Use Track- $3 million for projects with a use of the property identified as part of the application.
  2. Redevelopment Read Track- $2 million for projects on land believed to be primed for redevelopment, but with no specific end use identified. 
  3. Sustainable Reinvestment Pilot Track- $1.5 million for sustainable Infrastructure, which includes certain park projects and green infrastructure, urban waterfronts, and cleanfields and brightfields (Wind and Solar projects).

The CORF program has funded very good projects which have always been classic brownfield redevelopment projects, such as the following:

  • Construction of new commercial or industrial facilities on a brownfield property
  • Expansion of existing industrial and manufacturing facilities onto contaminated land
  • Refurbishment and/or renovation of existing structures for reuse

The classic redevelopment projects with known end users have become less frequent in recent rounds.   In order to increase the number of applicants, the Clean Ohio Council decided to create the Known End User Track.  This allowed clean up of brownfields in key locations in hopes of attracting development on these parcels.

Perhaps because the State fears future reductions in applications submitted for CORF, the Clean Ohio has decided to expand eligible projects far beyond the classic brownfield redevelopment project.

Sustainable Reinvestment Pilot Track

In Round 10 of the program, there will be up to $8 million available for these projects.  Here are some of the key aspects of the Sustainable Reinvestment Pilot Track:

  • Can only get a maximum of $1.5 million in funding
  • Must be on a brownfield
  • Can spend the grant funds on demolition, clean up and infrastructure activities
  • Infrastructure expenditures are capped at $400,000
  • For this track, the definition of "infrastructure" is expanded to include:
    • pathways
    • structures used to manage stormwater
    • wetlands
    • stream restoration
  • 25% Match is required, and the following can be used as match:
    • park amenities
    • plants, trees, landscaping, urban gardens
    • solar panels and components
    • wind turbine components
    • green roofs
  • Projects must meet the following for infrastructure or new construction:
    • Follow sustainable best practices
    • LEED
    • Green Infrastructure Guidelines
    • Local ordinance mandating all future construction on the project property meet LEED guidelines for a period of 10 years

Parks and Waterfront Restoration Projects Now Eligible

Under the new track, parks and urban waterfronts redevelopments can also be projects.  This subcategory is called the Signature Parks, Sustainable Infrastructure and Urban Waterfronts category.  All park and waterfront projects must meet the following:

  •  80% of area must be greenspace or public space
  • max 20% of area can be used for parking
  • deed restrictions good for 10 years
  • commitment for maintenance and stewardship
  • Signature Parks or Sustainable Infrastructure must be a minimum of 1.5 acres
  • Urban Waterfront projects must be a minimum of 1.0 acre

Cleanfields/Brightfields (Wind and Solar)

Nothing is provided in the Round 10 CORF policies regarding restrictions on this subcategory of the Sustainable Reinvestment Track.  However, if you review the scoring methodology the Council will use to evaluate these projects, the following a key considerations:

  • project site has grid access with a participating electric company; or
  • project will result in net-metering for an existing entity
  • the electric generation site will be a minimum of 25 acres

Impact of New Track

Clean Ohio has not increased funding by $8 million.  Rather, the Council decided to make up to $8 million of the total $23 million available in CORF Round 10 available for the new Sustainable Reinvestment projects. For future applicants, this change likely means increased competition. 

While grant funding for wind, solar, parks and urban stream restoration is understandable, the Clean Ohio program is moving away from classic brownfield redevelopment projects.  The core of the program has always been to remove the barriers to commercial and/or industrial reuse of contaminated land.  In essence, with more competition less money will be available for these classic clean up projects.

Deadlines

Applications are due to your local library by January 14, 2011 as a part of the scheduled Round 10 of the Clean Ohio Revitalization Fund. Approved applications will be announced in May 2011. 
 

Eligible Areas for Clean Ohio Assistance Fund Reduced

Ohio has one of the best state brownfield grant programs in the country.  There are two pots of money available at the state level:

  • Clean Ohio Revitalization Fund (CORF)- Grant that offers up to $3 million to reimburse clean up and some redevelopment costs.  Requires a 25% match.  Typically awards are made twice a year and applications for projects compete against one another for limited funding.
  • Clean Ohio Assistance Fund (COAF)- Grants are awarded on a rolling basis so long as money remains available in the grant cycle.  COAF pays up to $300,000 in assessment costs (Phase II) and $750,000 for clean up.

A year ago, the Ohio Department of Development (ODOD) announced a major change to COAF-greatly expanding areas eligible to submit COAF applications.  ODOD has just released the 2010 Priority Investment map which shrinks the eligible areas back down the "normal" coverage under the program.

Properties eligible to request COAF funding are those located in a "inner city area", a "labor surplus area" or a "situational distress area" as defined by O.R.C. 122.65(H). Each year the Ohio Department of Development releases a map of the State that identifies which areas fall under one of the three categories and could apply.

ODOD also announced a freeze on COAF clean up grant requests because the number of applications in the pipeline already exceed available funds for FY 2011.  You can still submit an application, but you will not receive clean up funding in FY 2011.  This is in part because ODOD decided to prioritize Phase II grants last year thereby reducing available funding for clean up.


 

Important Ohio EPA Updates on Brownfield Redevelopment

Recently, Ohio EPA released its newsletter directed toward those interested in brownfield redevelopment (SABR News).  The July 2010 newsletter included some important recent developments at the federal and state level.

Federal Brownfields Legislation

The Federal Brownfield Re-authorization Bill was introduced in May 2010.  If the bill passes it could include some important reforms to U.S. EPA's brownfield programs, including:

  • Increased funding- From $350 million in 2011 up to  $600 million in FFY 2016.  While an increase in funding helps spur brownfield redevelopment, one has to question whether such an increase is at all likely given the state of the federal deficit.
  • Increase in the cap on federal grants-  Move from $200,000 to $750,000. This is obvious change because the cap was woefully low compared to real word sampling and clean up costs at brownfield sites. Compare it to the Clean Ohio program that has a cap for property assessment work of $300,000.  Over and above the assessment money, you can also get a maximum of $3 million in clean up funding under Clean Ohio. 
  • Locally owned properties eligible for federal funding-  Under current law, any municipality who takes ownership of a parcel through foreclosure is considered a PRP under CERCLA and is ineligible for federal brownfield funding.  The legislation would remove this prohibition. This is a very important change.  Cities often take properties because of health or safety issues presented by their current conditions.  We shouldn't penalize cities for being proactive.

Background Soils Workgroup

The newsletter provides an update on Ohio EPA's effort to create a background soil database.  Native Ohio soils can contain various contaminants.  For example, Ohio farm soils are known for higher natural arsenic content. 

At clean up sites, consultants are often asked to perform an analysis to determine if detected levels of contamination are "above background."  If levels are at or below background, then remediation is not necessary. 

The site specific background evaluations can become time intensive and costly.  Hopefully, by producing an Ohio background soil database these types of evaluations will be streamlined and can be performed in a more cost effective manner.  A draft of the database may be available by this Fall.

New Guidance on Vapor Intrusion

In May 2010, Ohio EPA released its new guidance document for sampling and evaluation of potential vapor intrusion associated with contaminated soil and groundwater.  The technical guidance document provides information regarding how Ohio EPA will determine whether soil or ground water contamination would potentially result in unhealthy indoor air exposure to occupants of buildings. 

Vapor intrusion is getting much more attention nationally.  Previously, Ohio EPA simply referred to U.S. EPA's OSWER guidance on vapor intrusion.  Now, Ohio EPA has developed their detailed guidance. 

From discussion with some environmental consultants, they indicate that the Ohio EPA guidance seems to tilt the scales toward sampling in addition to just modeling.  Regardless, it is an important guidance document on an issue that will be receiving heightened attention.

Private Party Environmental Assessments Need to be Encouraged

A recent article in the Columbus Dispatch, authored by Spencer Hunt, paints a sensationalistic depiction of environmental contamination on a former manufacturing site.  The article suggests toxic contaminants were hidden from the State EPA.  While it may be interesting to write a story about contamination on the new casino site in Columbus, the portrayal misses some key aspects of brownfield redevelopment.  Here are some excerpts from the story:
Hush-Hush Hazards
 
State kept unaware of environmental dangers at casino site
 
Delphi spent about a year identifying toxins at the West Side manufacturing plant it closed in 2007 but never told the state about what it found. It wasn’t required to. New owner Penn National Gaming has shared Delphi’s 3,000-page report with the EPA and plans to clean up the site before opening a casino in 2012... Prospective buyers have a right to know about any potential problems, said Tiffani Kavalec, the agency's (Ohio EPA) cleanup and reuse-section manager.

"If they had any expectations of selling the property, they would have had to do this," Kavalec said.

But what might be surprising is that companies don't have to share their findings with the government.

The story misses several key issues regarding brownfields.

  1. Surprise..old manufacturing plants have contamination- It is expected that a plant that operated for 70 years is going to leave behind some residual environmental issues.  The plant pre-dated most of the modern environmental regulations.
  2. Companies routinely perform assessments of their properties-  The privatized system works in the sense companies are encouraged to evaluate and assess their properties. Phase I and Phase II environmental assessments have become routine in any private party real estate transactions.  Any sophisticated purchaser will demand a due diligence period to understand the issues associated with the property they are considering purchasing.
  3. Regulations contain reporting obligations-  Many environmental regulations, including hazardous waste regulations, contain mandatory reporting requirements.  Companies that violate these provisions would still be open to enforcement.  Its the historical contamination issues that generally fall outside these mandatory reporting requirements.
  4. Mandatory reporting would discourage evaluation-  If companies were required to submit every environmental assessment they performed to Ohio EPA, it would act as a strong deterrent to performance of assessments.  These are voluntary assessments after all.  Companies perform them to get a better understanding of potential liabilities as well as facilitate transfer of the property. 
  5. A brownfield redevelopment success story-  Penn Central is purchasing and redeveloping a contaminated brownfield that is currently owned by a bankrupt company.  Without the redevelopment, this brownfield, like many in the State would remain contaminated.  Without the environmental assessments, Penn Central may have been unwilling to take the risk of buying unknown liabilities. 
  6. State and local grant programs pay for assessments-  In recognition that the lack of information regarding contamination on property can act as a deterrent to redevelopment, there are State and local brownfield grant programs that will pay for these assessments.  The biggest and best program is Clean Ohio, which will pay for up to $300,000 in assessment costs.  Clean Ohio has been a huge success by overcoming impediments to private party transactions involving brownfields, including assessment and clean up costs.

 

We should be encouraging private parties to perform environmental assessments of their properties.  Only by understanding the levels of contamination can a clean up cost be calculated.  Potential buyers must know that number to be comfortable with moving forward with the transaction.

If private parties are discouraged from performing assessments there will be a greater need for federal, state and local grant funding to pay for these costs. Most prospective purchasers are unwilling to pay a few hundred thousand dollars to perform sampling unless there are very strong business reasons for doing so.
 

 

Addressing the State Liability Gap in the Federal "Innocent Landowner Defense"

Liability for pre-existing contamination acts as a strong deterrent to re-use of brownfield properties.  Prospective purchasers simply do not want to expose themselves to potential liability especially when they had nothing to do with the contamination.

At the federal level, there has been an attempt to address liability exposure in order to provide prospective purchasers some level of liability protection.  However, even though tools exist at the federal level, potential exposure to state environmental liabilities can act as its own deterrent. 

While Clean Ohio may be one of the best brownfield grant programs, not every redevelopment or re-use of a brownfield is right for Clean Ohio.  Given the number of vacant and idled brownfield properties in Ohio, perhaps its time Ohio looked to strengthen protections for innocent purchasers to encourage re-use and prevent urban sprawl.

Federal "Innocent Landowner" Defense

CERCLA (otherwise known as the Superfund law) establishes joint and several liability to a variety of parties, including property owners, for releases of hazardous substances.  Liability can attach regardless of whether you generated or brought the contamination to the property.

The 2002 Small Business Liability Relief and Brownfield Revitalization Act (“the Brownfield Amendments”) amended CERCLA to provide for protections for purchasers of property.  Under the Brownfield Amendments a person can receive liability protections when purchasing contaminated property, it the person meets certain requirements. This is commonly referred to as the “innocent landowner defense.”

Under federal law, in order to establish the innocent landowner defense the purchaser must, prior to the date of acquisition of the property, perform “all appropriate inquiries” into prior ownership and uses of a property. In 2005, U.S. EPA finalized a rule which establishes mandatory standards for conducting all appropriate inquiries ("AAI Rule").

If the investigation (a Phase I assessment) spots no issues, then the legal protection attaches if procedures are followed set forth in the AAI rule. If the investigation of the property reveals the likelihood that a release has occurred, the AAI rule requires reasonable steps be taken to address the release or contain it before you receive liability protection.

But what about State environmental liability?

State environmental statutes provides separate authority to bring actions for historical contamination on brownfield properties.  While there are certain limitations on that authority, I have had clients express concern regarding this liability exposure.

The State of Ohio does not have a regulation or even a policy that recognizes the "innocent landowner" defense.  Meeting the AAI rule will not establish a legal defense against state statutory environmental liabilities.  While the State may exercise enforcement discretion, some clients don't have the risk tolerance to live with that potential exposure.

Should Ohio adopt some kind of "innocent landowner" protection to attract re-use of brownfields?

At a minimum, some formal recognition of the AAI rule by the State would at least provide some level of comfort.  However, given the number of brownfield sites in the State, something stronger is warranted. 

One potential model is the Clean Michigan Initiative.  Under this law, the State provides liability protection to innocent purchasers similar to the federal AAI rule.  Here is a quick synopsis of the program:

  • Baseline Environmental Assessment (BEA)- A BEA is performed which is a simpler, streamlined alternative to full blown clean up of the site.
  • Establish the Baseline- BEA is used to gather information about a contaminated property when the owner or operator changes so existing contamination can be distinguished from any that might occur once a new owner or operator acquires the property.
  • Timing- the BEA must be performed prior to or no more than 45 days after the date of purchase, foreclosure, or becoming the operator, whichever occurs first; 
  • Disclose -  the results of the BEA must be provided to the Michigan Department of Environmental Quality (MDEQ) and subsequent purchasers and lessee operators.
  • Due Care Responsibilities- Purchasers need only take actions sufficient to ensure that their use of the property: 1) does not allow an unacceptable exposure to contamination, 2) does not worsen the contamination, and 3) protects against the reasonably foreseeable actions of third parties such as contractors or trespassers.

Very similar to the Federal AAI rule, Michigan's BEA serves as a good model to address State liabilities at contaminated properties.  Such protection could further encourage re-use of industrial sites that remain idled or vacant.

Changes to Clean Ohio Policies Impact Brownfield Projects

The administration of the Clean Ohio program is largely governed by the policies developed by the Clean Ohio Council. Separate policies have been generated for the Clean Ohio Assistance Fund (COAF) and the Clean Ohio Revitalization Fund (CORF).

Over the life of the Clean Ohio program, the Clean Ohio Council has routinely updated the program policies to address issues and provide additional clarification to applicants. The policies govern critical components of the brownfield grant program including eligibility, evaluation of projects and administration of grants.

The policies are used as a mechanism to address many of the more common issues that arise and to modify the program. Every brownfield project is different and on most Clean Ohio projects issues will arise that are unique to that project or that are not clearly addressed by the policies. However, it is important to pay attention any time the Council updates their policies.

On March 19, 2010, the Clean Ohio Council approved changes to the policies that govern projects seeking funding under the Clean Ohio Revitalization Fund (CORF). CORF funding is awarded on a competitive basis semi-annually by the Clean Ohio Council. The new policies were placed on the Clean Ohio web page today and are effective immediately.

An Ohio EPA newsletter states the changes were made based upon recommendations received from the Ohio Department of Development (ODOD), Ohio EPA, grantees and other interested parties. While the changes do adjust some of the administrative procedures, there are no changes on the scale of past policy updates. Prior changes included creation of the Redevelopment Ready Track and the addition of extensive conflict of interest provisions.

Here is a quick summary of the changes made:

Eligible Grant Costs- Costs incurred responding to Ohio EPA comments are now eligible. However, costs associated with re-issuance of a No Further Action letter are not eligible. Clarification was provided that costs incurred in preparing an application are not eligible.
 

Clarification of Eligible Infrastructure Work- To be eligible as match, infrastructure work must be performed on or at the project property. Infrastructure work used as match must be completed prior the end of the grant. The 10% limit on use of grant funds for infrastructure costs was maintained. A new definition of what constitutes “infrastructure” was added which states:

            o “Infrastructure” means technical structures that support society, including but not limited to roads, bridges, water supply, sewers, power grids, and telecommunications, but excludes vertical structures, such as buildings and parking garages. The exclusion of buildings and parking garages is the most important clarification of this added definition.
 

Requires a Project Resource and Advisory Meeting (PRAM)- The PRAM meeting includes ODOD and Ohio EPA at the Site. This is where any issues identified with the clean up or proposed project can be discussed early on with the State Agencies. While these meetings have been routine, the policy update makes clear that the meeting is mandatory and must be conducted prior to placing the grant application in the library for public comment.
 

• Integrated Rankings- Under the policy revisions, if an Integrating Committee ranks multiple projects, and a project is withdrawn prior to the Clean Ohio Council award meeting, lower ranked projects will move up in ranking. This is an important change because projects do routinely drop out of the process and some areas of the state (including Cleveland) typically have multiple projects submitted. The Integrated Committee related points are crucial you’re your application is in a competitive grant round.
 

Initiation and Completion of the Project- New requirements were added regarding funding projects. Applicants are not required to open a Technical Assistance Account with Ohio EPA within 60 days of grant award. These accounts are used to discuss clean up issues with Ohio EPA. Work must commence on site within 12 months of the effective date of the grant agreement. Finally, projects must be completed within 48 months (including issuance of the Covenant Not to Sue by Ohio EPA) of the date the grant contract is executed.


 

Ohio Brownfield Tax Abatement Law Needs Improvement

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. 

 

Land Banks Offer Unique Strategy to Address Brownfields and Abandoned Residential Properties

There has been much discussion regarding the use of Land Banks to assist in addressing the aftermath of the foreclosure crisis.  Here is an excerpt from the Cleveland Plain Dealer discussing the County's recently launched non-profit corporate land bank:

Formally launched by the county in April, the new, nonprofit land bank is the first of its kind in Ohio.It could soon turn Cleveland into the nation's biggest urban laboratory on how a declining industrial city with a comatose real estate market can downsize gracefully -- and prepare to rebound in the future. The impact on the city as a whole could be far greater than individual projects such as the proposed medical mart and revamped convention center downtown.

Ohio recently passed Senate Bill 353 which allows a two year trial period for Counties to create a separate county land reutilization corporation for purposes of acquiring abandoned and tax delinquent properties.  By allowing creation of a separate corporation, the law addresses the issue of liability- a major short-coming of Ohio's existing land banking law set forth in Ohio Revised Code 5722.  The law also allows for an expedited foreclosure process. The Federal Reserve Bank of Cleveland released an good analysis of the new legislation titled "Understanding Ohio's Land Bank Legislation."

Why create a land bank?  Obviously, thousands of abandoned properties bring down property values across the board and create blight.  Abandoned properties also present other risks. Here is a quote from a University of Michigan study of its Land Bank program:

The U.S. Fire Administration reports that over 12,000 vacant structure fires are reported each year in the U.S., which results in $73 million in property damage annually.  In addition, abandoned properties tend to attract crime. A 1993 study of 59 abandoned properties in Austin, Texas, found that 34 percent were used for illegal activities and of the 41 percent that were unsecured, 83 percent were used for illegal activities.

While the focus of the recently enacted Land Bank Legislation has been as a tool for addressing abandoned residential properties, its utility should also be examined for application to brownfields. Land Banks can serve has effective means of addressing the complex legal and environmental issues that face brownfield properties. 

As an example, the Franklin County Land Bank was used successfully to address tax liens on the former Bedford Landfill which overcame a significant barrier to redevelopment.  The Bedford Landfill became a successful Clean Ohio project receiving a $3 million grant from the State of Ohio.

Today, I attended a presentation by members of the City of Cleveland's Economic Development Department on the City's Industrial Land Bank Program.  Nate Hoelzel and David Ebersole provided an interesting overview of this unique effort by the City to address large brownfield's for redevelopment.

The City of Cleveland's Industrial/Commercial Land Bank was launched in 2005.  The creation of the Cleveland Industrial Land Bank was preceded by an academic study by Cleveland State University.  The purpose of the bank is to try an assemble large tracks of abandoned property in areas identified by the City for priority commercial/industrial development.  Criteria include looking for properties of at least 20 acres in size and near key infrastructure.

In a relatively short time period (less than 4 years), the Land Bank has acquired 100 acres of brownfield property.  Thirty-seven (37) acres are currently on the market for industrial or commercial redevelopment.  The adjacent picture is from Economic Development Department's web page shows the location of 3 tracks currently held by the Land Bank.

The industrial/commercial land bank is designed to overcome the unique aspects of  contaminated urban property that prevents major development.  Representatives for the City of Cleveland estimated it cost approximately $300,000 per acre to address urban brownfield property.  Such a staggering costs often drives development to greenfields and promotes urban sprawl.  The factors that drive such staggering costs include:

  • liability for contamination
  • assessment costs for investigating the extent of contamination
  • demolition costs for vacant buildings
  • property title issues including tax liens

Land Bank's can overcome many of these barriers by providing public funds for costly environmental assessment, removing title issues and even potentially addressing liability through clean up of the property.  A property returned to the market may be free of tax liens and have received a full release from the State of Ohio for environmental contamination.

While successful for its relatively short existence, Cleveland's Industrial Land Bank could be improved if provided additional flexibility.  The Land Bank relies upon the traditional legal framework for its activities.  The legal authority for municipalities to purchase underutilized land exists at the State level in Ohio Revised Code 5722 and at authority for the Industrial Land Bank is located in Section 183.021 of the City of Cleveland Code. Under these authorities, no separate corporation can be created which means the City can face significant liability exposure under federal Superfund laws (CERCLA) for owning contaminated property. 

During the presentation, the presenters mentioned the City's effort to amend federal law during the effort in 2006 to reauthorize U.S. EPA's brownfield program.  While amendment of federal law to allow municipalities or counties to acquire property without fear of CERCLA liability makes sense, it may be an uphill climb.  It may be more practical to allow for expansion of Ohio's new Land Banking Legislation to specifically allow for political subdivisions to acquire brownfield properties through a separate corporation.  This would provide City's a layer of liability protection for being active in purchasing these complex properties.

Clean Ohio: New Conflict of Interest Prohibitions Shape Parties Involvement at Brownfield Redevelopment Projects

On May 18, 2009 the Clean Ohio Council finalized new policies that will govern future rounds of the Clean Ohio Revitalization Fund (CORF).  A major change has been incorporated into the policies that will impact developers, consultants and contractors who work on Clean Ohio projects.  For the first time the Council has included conflict of interest prohibitions. 

The conflict of interest prohibitions are directed primarily at consultants who have previously acted as both developer and environmental consultant on a project.  Contractors are also prohibited from taking any interest in the development if they want to received Clean Ohio funds to perform work on the project. 

Another important prohibition applies to consultants and prohibits participation as both consultant for the developer and a company who caused or contributed contamination at the property.  This has occurred at projects because it appeared to create continuity on the project.   Some public entities saw it as a positive to continue to involve the consultant who has the most knowledge about the challenges presented by contamination at the property.

If you are involved in Clean Ohio projects, this new provision carries important implications that could shape future involvement at brownfield redevelopment projects.  It will also be important to monitor your partners in a project because a conflict of interest could hold up the whole project. 

Here are the new provisions:

10.02 Entities paid for with Clean Ohio Revitalization Fund grant dollars on a funded property must avoid conflicts of interest. A conflict of interest occurs when an individual or organization involved in the cleanup project has an interest that might compromise their ability to execute the project in a manner consistent with the intentions of the Clean Ohio Revitalization Fund program. A conflict of interest may exist even if no proven illegal act results from it, and will include an appearance of impropriety that undermines confidence in the individuals or organizations involved in the project. To avoid a conflict of interest and ensure that proper checks and balances exist, the following restrictions are placed on funded properties:
    • The Certified Professional may not act as the developer or an investor in  the development on the funded project.
     • The selected environmental consulting firm or their employees may not act as the developer or an investor in the development on the funded project.
     • The selected contractor or subcontractors may not act as the developer or an investor in the development on the funded project.
      • The selected environmental consulting firm and the contractor or subcontractor for the funded project may not be the same firm or related firms.
     • The selected environmental consulting firm may not be engaged in concurrent service agreements for the grantee and the party that caused and contributed to the contamination on the funded project.

(Photo: Patriarca12/everystockphoto.com)

Major Expansion of Areas Eligible for Ohio Brownfield Grant Program

These are great times to investigating potential brownfield projects in Ohio.  The State has two pots of money available under its Clean Ohio brownfield program.  1)  the Clean Ohio Revitalization Fund (CORF); and 2) the Clean Ohio Assistance Fund (COAF).  CORF is a competitive grant process where applications are pooled into rounds and the top projects in that round receive funding.  Under COAF, projects are evaluated on an individual basis and decisions are made by the Director of the Department of Development.

COAF- Areas Eligible to Apply for Funding is Greatly Expanded

 

 

 

 

 

 

 

 

 

 

This month, the Ohio Department of Development announced a major change to COAF-greatly expanding areas eligible to submit COAF applications.  Properties eligible to request  COAF funding are those located in a "inner city area", a "labor surplus area" or a "situational distress area" as defined by O.R.C. 122.65(H).  Each year the Ohio Department of Development releases a map of the State that identifies which areas fall under one of the three categories and could apply. 

On May 1, 2009, the Ohio Priority Investment Area Map was modified to reflect the recent changes made to the Federal Labor Surplus map. Under the old map 41 counties and certain cities were designated "priority investment areas" based on one of the three categories.  The new map designates 83 counties in Ohio as Labor Surplus Areas. This includes all of Cuyahoga County and most of the surrounding Counties. 

All areas designated on the Priority Investment Map are therefore eligible to file applications for the Clean Ohio Assistance Fund for assessment grants of up to $300,000 and cleanup grants of up to $750,000. COAF will have approximately $12 million for new grants in the coming year. Applications can be submitted on a rolling basis (no deadline). 

The Ohio Department of Development also modified the policies governing COAF.  One notable change is the prioritization of Phase II Environmental Assessment projects.  Here is what the Department said about this change:

In order to maximize assistance to distressed communities during the economic crisis and meet a critical need to prepare sites for cleanup and redevelopment, the Clean Ohio Assistance Fund will now reserve 75% for funding Phase II Environmental Assessments grants and 25% for funding cleanup grants.

CORF's - Redevelopment Ready Track

If you are looking at a project with much higher clean up costs than $750,000, then CORF is still a great option.  The State recently provided more flexibility to the program.  Last summer, the Ohio Department of Development made a major change to the CORF program by adding the "redevelopment ready track." Before this change an applicant for CORF had to identify in its application a committed end user post clean up. Under the "redevelopment ready track" an applicant could qualify for up to $2 million in grant funds to pay for clean up costs even without an end user.

A significant amount of cleanup funding is available in the upcoming rounds of CORF. Funding for Round 7 (deadline July 25th) and Round 8 will total $48 million in the coming year ($24 million per round), which is the largest amount the program has experienced in its history.

Unlike other States, Ohio has a lot of funding available for brownfield investigation and clean up.  Over the last year the State has increased the flexibility in the program and expanded areas within the State eligible for funding.  While the economy is down, it is a great time to explore development options for brownfield sites.  As the economy comes back the competitiveness of these programs will increase. 

 

Ohio looks for "Shovel Ready" Brownfield Sites for State Share of Stimulus Money

Hurry up and get your site in line by Monday March 30th with the State of Ohio for possible additional federal brownfield money to support your project.  The State is only looking for "shovel ready" sites.  This means the types of brownfield sites that may be able to secure the $200,000 federal brownfield stimulus money are limited. 

Check out the Ohio Department of Development's fact sheet to see if your brownfield site may be eligible.  If it is then you need only fill out a simple form to get your site in line. 

The State has been sending out the following notifications:

Dear Brownfield Stakeholder:

The American Recovery and Reinvestment Act was signed into law by President Obama on February 17, 2009. The Recovery Act purpose and goal is to “to jumpstart our economy, create or save millions of jobs, and put a down payment on addressing long-neglected challenges so our country can thrive in the 21st century.” (www.Recovery.gov)

The American Recovery and Reinvestment Act allocated $100 million in additional funds to the United States Environmental Protection Agency (EPA) for the Brownfields program. This is a nationally competitive program for the assessment and cleanup of brownfield properties. Government entities and non-profit organizations may apply directly to EPA for these funds. It is anticipated the EPA will release a notice into the Federal Register detailing guidelines regarding application submittals this week. The timeline for distribution and administration of these dollars is very short. Additional information is available on EPA’s brownfield website: http://www.epa.gov/brownfields/eparecovery/index.htm

The Ohio Department of Development will be applying to the EPA to support brownfield cleanup and redevelopment statewide. Our Urban Development Division has successfully received grants of this type in the past and is well positioned to request significant cleanup dollars and to work in partnership with the communities to have an impact around the state. In preparation, the Department needs to create a pipeline of potential projects given the criteria listed on the enclosed fact sheet. The Department, if awarded, will administer and target the funds for these particular categories of brownfield projects: asbestos abatement, hazardous substance projects in the Ohio Voluntary Action Program and petroleum projects regulated by the Bureau of Underground Storage Tank Regulations.

If you have a viable project in one of these categories, please read the enclosed fact sheet then fill out the web form available at http://development.ohio.gov/recovery/recoveryform/ so we may include your project in our list of projects by Monday, March 30, 2009 at 12 p.m. EDT.

Important Note: Although you may have already submitted a request on recovery.ohio.gov, it is necessary to provide your project information on the web form for the Department’s funding request to US EPA. Submitting information to either the receovery.ohio.gov site or on the web form does not indicate application submittal or funding approval. If the Department receives funding, projects will be prioritized for their readiness to proceed and creation/retention of jobs.

Thank you,

Urban Development Division

Future Grant Rounds and Improvements to Ohio's Brownfield Redevelopment Program

After reauthorization of the Clean Ohio program this November by Ohio Voters, the State has announced their intention to maintain two grant funding rounds per year going forward.  Hopefully this will allow the program to operate more consisentely.  In the past, project developers were often forced to try and rush projects because future funding rounds were uncertain. 

Round 5 was completed in December, with seven projects recieving around $12.7 million in funding.  This was less than the $17 million the state had available in that round.  This marks the first time less then the full amount of funding available was awarded. 

The State has already announced the schedule for the next two funding rounds:

Round 6- Unless your project is already been listed on Ohio's Brownfield Inventory, you are too late to qualify for this round.  The deadline for filing the form to be listed in the inventory was December 5th.

- Grant applications are due January 9th

- Awards will be announced in May of 2009

Round 7

- No deadline for listing a property with the brownfield inventory has been announced to date.  Typcially, the deadline is 30 days prior to the deadline for filing a grant application.

-Grant applications are due July 25th

-Award will be announced in November of 2009

The Ohio Department of Development (ODOD) who administers the program also announced other enhancements to improve the program.  These include:

  • Clean Ohio Assistance Fund applications will be processed in 10 days instead of 30 days
  • Disbursement requests can be made every 30 days instead of 60 days
  • Information regarding public bidding of work associated with Clean Ohio projects will be made available to small and minority owned businesses

The announcement to make the program more consistent should be great news for everyone who works with the program.  This will allow project developers and governments to tee up projects when they are truly ready versus trying to rush the project to meet the funding deadline. 

With the overall lack of development occurring in Ohio right now due to the poor economy, this is a great time to develop Clean Ohio projects because the next few rounds will likely be less competitive.  This was certainly true for Round 5 in which the State did not even award all the money that was avaiable.

Ohio Brownfield Redevelopment Program Leaves Grant Money On the Table

To quote a consultant I work with..."Times must be tough in Ohio when there is free money left on the table" for redevelopment. 

Today, the Clean Ohio Council met to evaluate the project proposals for Round 5 of the Clean Ohio Revitalization Fund.  There was $17 million in grant funding available.  In the previous 4 rounds, CORF was so competitive many projects were left without funding.  As perhaps an indication of the economy, Round 5 was the first time ever all of the money available was not awarded. 

Here is the typical process at the meetings where the Clean Ohio Council makes its decisions about which projects to fund- There is a brief presentation made to the Council about each project. The Council can asked questions to better understand the project or raise concerns.  After the presentations, the members of the Council vote on the project and each project receives an overall score.  The Council breaks for lunch and afterward the Staff of the Ohio Department of Development reveal which projects will get funded.

I used to sit on the Clean Ohio Council and experienced very competitive grant rounds where a number of projects did not get funded.  Due to the time and effort to put a application together, you could hear the audible sighs in the audience from those left out of the money.  No such sighs were heard today....

At today's meeting, Council broke with tradition and did not even bother scoring all the projects.  The total request for all eligible projects was only $12 million of the $17 million available.  Therefore, the Council simply passed a resolution to award all eligible projects the funding they requested. 

I worked on one of the projects that was selected for award.  The project is a great story of a closed manufacturing site getting cleaned up and returned to productive use.  The Clean Ohio program has had many success stories like this in the years it has been operating.  I hope the next round of funding sees renewed interest, it would be a shame to leave "free" redevelopment money on the table that could be put to good use. 

 

How the New Policy on Prevailing Wage Impacts Brownfield Projects

With very little fanfare, the Department of Commerce put on their web page two documents that change the policy interpretations of the prevailing wage requirements. The "policy interpretation" is controversial.  As reported in the Cleveland Plain Dealer, the Republican controlled House and Senate will likely be discussing ways to block the change.

What are Prevailing Wage laws? To offset the low bid public contract requirement,  the ""prevailing wage" law requires wages commonly paid to construction workers in a particular region will determine the minimum wage paid to the same type of workers employed on publicly funded construction projects. (For additional background view the extended entry below)

The Strickland Administration is claiming that the release of the Commerce Department's new guidance document on prevailing wage is a "simple clarification" of existing law.   The spokesman for the Governor said the law was simply "misapplied" to two situations, one of which is brownfield redevelopment projects.  However, many view it as a broad expansion of the applicability of prevailing wage that could drive up construction costs. 

Strickland Administration Frames the Debate: "In recent years there has been no clear approach used by the Department when determining whether publicly-funded construction activity is so intertwined with private construction activity that the activity constitutes a single "project" (triggering prevailing wage) and when they are sufficiently "separate and unrelated" that they constitute separate projects, one publicly supported (which triggers prevailing wage) and one privately financed (which does not trigger prevailing wage).

THE ISSUE: When a Clean Ohio grant pays for remediation work and demolition but the rest of the project development is privately financed, then what portion is covered by prevailing wage?

FROM ADMINISTRATION'S NEW POLICY STATEMENT:  Whenever a public entity contributes funding or other direct support (e.g.-public land) to a project, even an otherwise privately-financed project, prevailing wage must be paid to the workers on the project.

RAMIFICATION ON BROWNFIELD REDEVELOPMENT PROJECTS:  Under the Administration's new policy, prevailing wage will apply to all construction work at a site receiving Clean Ohio funds whenever an end-user is identified.  Therefore, if the Clean Ohio grant application includes a commitment to use the site by a new tenant or developer, prevailing wage applies to all construction at the site work.  If no end-user is identified in the application, prevailing wage only applies to remediation work at the site.

DISCUSSION:  It simply is a false distinction to apply prevailing wage on the basis of whether an end user has been identified.  Under Clean Ohio guidelines, grant funds can only pay for :

  • environmental remediation (including asbestos abatement)
  • demolition
  • a portion of the purchase cost of the property (optional under end user track). 

The Clean Ohio guidelines forbid expenditure on building improvements or infrastructure improvements.   If it is illegal to use to program funds for this work, how can prevailing wage be deemed to apply?

Developers will have to run the numbers.  By choosing the "development ready track" (no end-user), applicants can only seek $2 million in state funds versus $3 million for end-user projects.  Developers will be calculating whether overall project costs exceed the extra $1 million available if prevailing wage applies.  Some may say that's acceptable, but if makes less brownfield projects viable that is not a good result for Ohio's cities.

It seems questionable that the Administration can make such a broad change in application of the prevailing wage through a simple "policy interpretation."  Legal challenges or legislative action seems inevitable.

For those unfamiliar with prevailing wage laws, Ohio's Legislative Service Commission put together a good basic briefing on prevaling wage for legislators.  Here are highlights from their briefing:

[States] and the federal government adopted prevailing wage laws
during the Great Depression of the 1930s amidst concern that acceptance of the
low bid, a common requirement of government contracting for public projects, when
government had become the major purchaser of construction, would operate to
reduce the wages paid to workers on those projects to a level that would disrupt
the local economy

Prevailing wage laws require that workers on certain public construction
projects be paid a specified minimum wage (typically termed in those laws the
“prevailing wage”). Depending on the state, the wage rates used may be taken
from local collective bargaining agreements or may be the result of calculations to
determine what wage rates are “prevailing” in a given community.

Opponents of Prevailing Wage laws are primarily concerned that the requirement raises the cost of construction on public projects. In additoin, they raise the following concerns:

(1) It is a Depression-era measure that has long since outlived its usefulness,

(2) interferes with the workings of a free competitive market,

(3) is inflationary because it results in federal and federally assisted construction contracts costing more than other construction contracts,

(4) gives an unfair advantage to union employers over nonunion employers in bidding for government construction contracts, and


(5) impedes entry of minority groups into the construction industry because they are
disproportionately represented among the low-skilled labor force

 

Brownfield Redevelopment Could be Covered by Ohio's Prevailing Wage Law

This picture may be one of the last of the "big three" (Strickland, Husted, and Harris) holding hands over Clean Ohio. Governor Ted Strickland's administration is proposing to mandate prevailing wage for all construction that occurs on land for which the State has funded environmental remediation.  A key political debate is shaping up as to how this change will affect projects funded using brownfield grant funds through the Clean Ohio Program

 

To provide answers a few points must be addressed:

  • Which type of Clean Ohio grant funded the project?
  • Which costs are at issue?  Remediation costs or construction costs post-clean up?

Clean Ohio recently created a new "redevelopment-ready" grant track.  This is in addition to the "known end-user track."  Apparently, under the proposed policy how much work at a brownfield is covered by prevailing wage will depend upon which grant track your project was funded.  

Under the proposed prevailing wage policy, if your project receives Clean Ohio funding under the "known-end user track" the use of grant funds will "presumptively subject all construction on the entire project to prevailing wage."  However, if the state were to fund the cleanup at the brownfield under the "redevelopment ready track" (i.e. there is no identified end-user of the property), then only the remediation work is subject to prevailing wage. 

According to the Columbus Dispatch,  Speaker Jon Husted expressed concern that application of prevailing wage to brownfield development could drive people to using green space or farmland for development.  What type of cost increases would decrease the attractiveness of public-subsidized redevelopment of brownfield sites?

A Legislative Service Center (LSC) study of the exemption of school projects from prevailing wage concluded it reduced costs by around 10% and saved $487 million.   The conclusions of the LSC study were challenged, so it is difficult to really know whether similar cost increases could occur at brownfield sites.

Here is my take:

  • Environmental remediation is an expensive business, application of prevailing wage may not impact the costs associated with this type of clean up work. However, it may be different when dealing with the redevelopment of the site post-clean up (i.e. pure construction work).  It is possible that construction costs at a brownfield could increase by a comparable amount (10%) as was found in the LSC study. 
  • A 10% increase in costs is probably unlikely to make most projects that are premised upon receiving public subsidies no longer attractive.  However, why diminish the cost effectiveness of a grant program designed to spur redevelopment in neglected areas. 

Brownfield Redevelopment: Clean Ohio's New Grant Option

On June 4, 2008, the Clean Ohio Council approved two new grant rounds (Rounds 5 and 6) to encourage brownfield redevelopment through its Clean Ohio Revitalization Fund (CORF).  As noted in a recent stakeholder report on the Clean Ohio Program, the CORF is "seen as a significant national model that other states strive to replicate."  If you are not familiar with the program, I urge you to take the time to learn about the benefits. 

While the main benefit of the program is that it allows participants to offset clean up costs associated with industrial and commercial properties, there are also significant tax and legal advantages to participation. Attached is a client note that I prepared that provides more detail regarding the program. 

The most significant change made to the program is the creation of a new grant option called the "development ready track."  Now applicants have two options, they can elect to participate in the "known end use track" or the "development ready track."  The major difference is that under the "development ready track" an applicant for grant funds does not need to identify an end user that has committed to the property post clean up and development. 

The "development ready track" favors properties that have potential to attract future economic development.  For example, properties that have existing sewer and water service or are in close proximity to transportation will receive higher scores using the new scoring methodology developed for this track. 

Under the "development ready track" the maximum amount an applicant can request is $2 million instead of the $3 million potentially available under the "known end use track."   You may not use any of the grant funds for acquisition of the property, whereas the "known end use track" allows up to 33% of your total grant request to go toward acquisition. 

Even with these differences, the "development ready track" presents a new opportunity to communities, businesses and developers.  For communities, it provides an opportunity to drive economic growth toward priority development areas.   For developers, it increases the number of properties that could potentially be viable projects.

The new grant application forms can be obtained from the Ohio Department of Development's web page.