This is the third post in a series of four assessing the current state of brownfield redevelopment in the State of Ohio. This third post will evaluate the progress Ohio has made in the last twenty years with regard to addressing brownfields.
Current Options for Addressing Environmental Liability
As discussed extensively in the prior posts in this series, environmental liability concerns are a major disincentive for brownfield redevelopment versus greenfield development. Many different federal and state environmental statutes can impose liability on owners of property: RCRA (hazardous waste and petroleum contamination); TSCA (PCBs), Clean Water Act (runoff, sediment, wetlands), and other federal or state statutes.
However, the law that imposes the most far reaching liability for environmental contamination is CERCLA (Superfund) which imposes joint and several liability on buyers of contaminated property. Under CERCLA, a new owner of property can have liability for preexisting contamination regardless of whether they performed activities that created the contamination.
CERCLA's broad liability provisions act as a major deterrent to brownfield redevelopment. Ohio utilizes two principal mechanisms to address the risk associated with CERCLA legal liability:
- Voluntary Action Program (VAP)- Adopted in 1996 to provide greater flexibility in cleaning up brownfield properties. The VAP has been very successful. No question the program provided greater and more cost effective cleanup options for brownfield properties. As detailed below, the VAP has been utilized to cleanup hundreds of brownfield properties. VAP cleanup standards are regularly referenced during due diligence as a means of evaluating environmental liability. In fact, some developers or owners perform limited cleanups using VAP standards without seeking Ohio EPA's concurrence the cleanup was sufficient.
- Bona Fide Purchaser Defense (BFPD) (i.e. "All Appropriate Inquiries" under CERCLA)- In 2002, Congress created the Bona Fide Purchaser Defense to encourage brownfield redevelopment. EPA adopted the "All Appropriate Inquiry" rule which established a mandatory level of environmental due diligence a buyer must perform to qualify for the liability defense. If due diligence identifies ongoing releases or risks to human health, the buyer must take "reasonable" steps to address those issues. However, a buyer does not need to perform a full cleanup of the property to qualify for the defense.
Issues with VAP
Twenty years ago the VAP was considered groundbreaking. The program allowed privatized cleanups where the company/developer's consultant completed the cleanup and submitted a No Further Action (NFA) after the cleanup was completed. Ohio EPA reviews the NFA and, if the property meets VAP standards, the Agency will issue a legal release (i.e. Covenant-Not-to-Sue or CNS).
While the VAP provides a lower cost alternative to perform a full investigation and cleanup, the program has been underutilized. Here are some of the reasons why:
- Slow Process- Many real estate deals need to be completed in a few months or even shorter. It can take 90 to 180 days just to complete the VAP investigation of the property (i.e. Phase II assessment). A full cleanup can take one, two, three or even more years to complete.
- Costs- Twenty years ago the program was championed as a lower cost alternative to traditional CERCLA cleanups. However, the cost to take property through the VAP can still be very high. It can cost $100,000 to $200,000 for a VAP Phase II alone. Full cleanup can cost hundreds of thousands to millions of dollars. These costs act as a strong deterrent to entering the VAP program.
- Complexity- The VAP program is highly complex. There are around ninety guidance documents alone in addition to nearly one hundred pages of rules.
Issues with BFPD
The Bona Fide Purchaser Defense (BFPD) has been in place for a little over a decade. The advantages of the BFPD is that is much faster and cheaper than the VAP. In many transactions, the Phase I assessment by itself is enough to establish the BFPD if no problems are identified (i.e. a "Clean" Phase I). Even if Phase II sampling is needed, sampling can be completed in 30-60 days at a much lower cost than a full VAP Phase II. However, the BFPD has its own set of issues:
- No Sign Off by Regulators- Some like that sampling and cleanup plans do not need to be reviewed by regulators to qualify for the defense. However, without review there is no assurance to the buyer that they qualify for the defense. In fact, a property owner cannot even voluntarily submit sampling and cleanup plans for concurrence. As a result, property owners only find out if the sampling or cleanup was sufficient if it stands up in court.
- No Public Disclosure- Mandatory disclosure laws act as a strong deterrent to completing transactions involving contaminated properties. However, providing incentives to voluntarily disclose the results of due diligence can create more public information regarding the condition of properties.
Current Ohio Brownfield Incentives
Paying for sampling and cleanup of brownfield properties is expensive. As discussed in prior posts, these costs push companies to consider greenfields over brownfields. To offset these costs and attract companies and developer to brownfield properties, Ohio has a variety of incentives available. Those programs include:
|Brownfield Grants and Loans||Tax Incentives|
||Ohio Historic Preservation Tax Credit|
||New Market Tax Credit|
|County and Municipal Grant & Loan Programs||VAP Automatic Tax Credit (R.C. 5709.87)|
Issues with Grant/Loans/Tax Incentives
- JobsOhio Revitalization Program targets a limited number of projects. Certain brownfield redevelopment projects cannot even qualify for funding, such as retail or residential. This narrows the range of possible projects on brownfield sites that can offset investigation and cleanup costs
- Insufficient Funding- Cleanup grant funding at both the state and local level is capped at around $1 million. While this amount of grant funding may be adequate for a number of projects, more contaminated properties will not attract sufficient funding to offset cleanup costs.
- VAP Automatic Tax Abatement- While this is the primary brownfield tax incentive, issues with its scope and implementation are well documented in prior blog posts. One of the biggest issues is that it doesn't cover new structures. It also assumes property valuations already account for contamination.
Ohio's Scorecard on Brownfield Redevelopment
Let's review the number of VAP projects completed and incentives utilized to leverage brownfield redevelopment.
VAP Cleanups Completed 1995-2015
659 NFA's submitted to Ohio EPA
132 withdrawn, denied, revoked or pending
527 VAP Covenants-Not-to-Sue have been issued
Clean Ohio (2001-2012)
Clean Ohio was the primary brownfield grant program in Ohio for over a decade. More data is available to evaluate the success of the program. According to Greater Ohio, approximately 160 Clean Ohio Revitalization Projects were completed. In reviewing VAP projects completed by year, clearly Clean Ohio accelerated brownfield redevelopment in Ohio.
1995-2001 (Pre-Clean Ohio) approximately 17 VAP covenants were issued per year
2001-2015 (During Clean Ohio) approximately 35 VAP covenants were issues per year
Based upon a study performed by Greater Ohio, an average grant incentive per Clean Ohio project was $1.97 million. It is worth noting that this study showed each Clean Ohio dollar spent generated $4.67 in new economic activity.
|Total Sites to Address under the VAP||Years to Address under VAP||Total Cost in Incentives|
|527 covenants in 20 years since VAP implemented||Assuming full restoration of Clean Ohio funding||Assuming Clean Ohio available|
|estimated 10,000 brownfield sites*||35 VAP projects per year||$1.97 million on average per project|
|9,437 brownfield sites left to be addressed||270 Years to address all brownfields under the VAP||$18.5 billion in incentives to address all brownfields under the VAP|
There are a number of assumptions built in to the scorecard that anyone could challenge. Including:
- There is no reliable inventory of brownfield sites in Ohio. The number 10,000 was taken from a U.S. EPA estimate discussed in a prior post.
- Not all brownfield sites are addressed by the VAP. However, when it was adopted most thought the vast majority of brownfield cleanups would go through the program.
- Clean Ohio no longer exists and a brownfield program of that size and scope is not currently contemplated.
While the assumptions underlying the scorecard are fair game, it still demonstrates how long and how much it would cost to address a significant number of brownfield properties under the VAP. The scorecard also suggests there may be better strategies available to accelerate brownfield redevelopment in Ohio.
The final post in the series will include a discussion of new strategies to try an accelerate brownfield redevelopment in Ohio.