Ohio EPA to Issue Letters Regarding TCE to Property Owners

At a recent meeting of brownfield cleanup professionals, Ohio EPA announced plans to issue letters to owners of property contaminated with TCE.  Ohio EPA says it reviewed thousands of sites and will be issuing letters to "hundreds" of sites where it has information in its files that TCE is present. Based on this review, the Agency intends to send letters in instances where TCE levels may be above recently lowered health risk standards.

While a draft of the letter was not provided, Ohio EPA indicated that the letter would "inform the property owner that TCE may be a health concern at their property."  The letters will request the following:

  • Ask the owner to evaluate the health risks (both on and off their property)
  • Ask that the owner notify the Ohio EPA of their plans of action and results

The letters will trigger a flurry of activity across the state as owners try and figure out the practical and liability implications of receiving notice the Agency believes their property may present a health risk.

Do Standards Move under the VAP?

The Agency said it even will reopen some sites that have completed an acceptable cleanup under Ohio EPA's Voluntary Action Program (VAP). Site owners will receive a letter if the Agency has information in its files that suggests TCE could be present at levels above the new more stringent standard for TCE (even if the property received a legal release based upon the old TCE standard).

At the meeting concern was expressed by brownfield professionals that the Agency was applying the new standard at closed VAP sites.  A core principal of the VAP program was that standards would not change after a volunteer completed a VAP cleanup. It was noted that standards used at the time of cleanup are directly tied to the legal release the property owner receives from Ohio EPA after completing the VAP cleanup (i.e. Covenant-Not-to-Sue or CNS).

With regard to properties covered by a CNS, Ohio EPA stated they hoped the property owner would "do the right thing" even in instances when the cleanup standards applicable at the time the CNS was issued are still not being exceeded.  However, Ohio EPA noted that it retains separate legal authority outside the VAP program to take action and recover its costs at any property the Agency believes may present an "imminent and substantial threat to public health and safety."

Implications for Property Owners and the VAP

The Ohio EPA announcement signifies a further escalation of its efforts to apply the new TCE risk standard to properties that either are not currently undergoing voluntary cleanup as well as those that actually completed such cleanups. The concern among the private sector and property owners is that the new TCE risk standards are very conservative.  Publicly calling out potential health risks both on and off property based on a conservative risk standard raises the liability exposure for property owners across the state.  

There is also concern that the Agency's actions on TCE may have the unintended consequence of dissuading property owners and developers from entering the VAP program.  With a few limited exceptions, Ohio law does not require property owners to make public sampling data obtained through due diligence as part of private transactions.  Therefore, unless a property owner believes the value of the VAP CNS outweighs the liability risks disclosure brings, owners will not be inclined to enter the VAP and make information about their site public.

With hundreds of property owners receiving letters it will be important to get advice from environmental consultants and attorneys regarding the implications for their particular site.

Rethinking Brownfield Redevelopment in Ohio: Part 4 of 4

This is the final post discussing the current state of brownfield redevelopment in Ohio.  It provides suggested changes to the regulations and incentives in Ohio to accelerate brownfield redevelopment. The prior posts in this series discussed the following:

  1. The Issues Presented by Brownfields- In particular the impact to Urban Centers
  2. The Current State of Brownfield Redevelopment in Ohio-  Including the issues of urban sprawl and the number of brownfield sites in Ohio.
  3. Progress made in Addressing Brownfields in the Twenty Years Since Ohio's Voluntary Action Program was Adopted

As discussed in these prior posts, Ohio needs to accelerate brownfield redevelopment in Ohio.  So how does that occur?  

  • Need to be Faster- The ability to address the environmental, public health and liability risks presented by brownfield properties needs to occur much faster.  A cleanup under Ohio's Voluntary Action Program (VAP) can take anywhere from 1, 2, 3 or even more years to complete.  
  • Need Lower Costs to Redevelop Brownfields-  According to the Cleveland Department of Economic Development the per acre are significant.  These costs push businesses to consider greenfield sites
    • On average it can cost $13,000 per acre to perform sampling to determine how contaminated a brownfield site may be
    • It can cost on average $66,000 per acre to remediate a brownfield site
    • Brownfield redevelopment projects currently require a minimum of 32 -35% in public subsidies 
  • Effectively Address Liability-  VAP can be effective but takes too long and costs too much. The Bona Fide Purchaser Defense under CERCLA provides no regulatory sign-off that due diligence and cleanup were adequate.
  • Broad Based Incentives-  Current incentive programs require creation of jobs or specific types of redevelopment such as manufacturing.  More value needs to be placed on simply returning idle property to productive use.
  • Cleanup Grants should Target Public Health or Catalyst Projects-  Some portion of brownfield funding should be used to address highly contaminated sites that present public health risks to local communities or catalyst projects that may attract more development.

Rethinking Ohio's Incentive Programs

The first major hurdle to a brownfield redevelopment project is the unknown cost of cleanup.  Therefore, a large portion of incentives need to fund assessment activities.  

Ohio should drop the complicated VAP automatic tax abatement.  There are too many implementation issues (discussed in the prior posts) and the abatement does not cover new structures.  In its place, Ohio should adopt a brownfield based tax credit program that allows developers to take assessment and cleanup costs as a tax credit.  Such a credit would start to even the playing field between brownfield and greenfield sites.

Rethinking Ohio's Tools to Address Environmental Liability

The VAP should remain in place with an effort to reduce the current complexity of Ohio's primary brownfield cleanup program.  The VAP is a very good program for full assessment and cleanup of a property.  However, full assessment and cleanup isn't always necessary to put property back into productive use.  

U.S. EPA's Bona Fide Purchaser Defense under CERCLA does not require a complete Phase II assessment or full remediation.  Under the program, a buyer must take "reasonable steps" to address any threats to public health or the environment.  Reasonable steps is far less than full remediation of soil and ground water.  It typically means preventing ongoing release and eliminating complete pathways for human health exposures.  Such flexibility dramatically lowers to the cost of redevelopment.

The major issue with the BPFD is that it is a legal defense with no regulatory review or sign-off.  Some purchasers are comfortable with no oversight.  However, many would prefer the comfort of knowing their assessment and cleanup strategies received regulatory sign-off.

Ohio should adopt a State version of the BFPD that includes some level of regulatory oversight.  A similar program was adopted in Michigan- Baseline Environmental Assessments (BEAs).  While Michigan's program could be improved, it has greatly accelerated brownfield redevelopment. 

According to figures provided by Joe Berlin, BLDI Environmental Engineering, here is a comparison between the Michigan BEA and Ohio VAP Programs:

  • Michigan BEA
    • 1995-2015 there has been 20,634 BEAs completed
    • Average of 1,032 per year
  • Ohio VAP Covenant-Not-to-Sue (CNS)
    • 1995-2015 there has been 527 CNS issued
    • Average of 26 per year

The proof is in the numbers.  Maybe its time Ohio look to its neighbor up north for new ideas to accelerate brownfield redevelopment.

Ohio EPA Proposed Voluntary Action Program (VAP) Rule Changes

Ohio EPA is moving forward with substantial changes to the rules for the Voluntary Action Program (VAP) which governs the procedures and standards for voluntary cleanup of industrial sites and brownfields.  The Agency provided an overview of the changes and its response to public comments last week at the Ohio Brownfields Conference in Columbus.

The Agency describes the changes as mostly providing greater clarity or trying to streamline the processes.  However, many of the changes are significant.  Some of the more significant changes are discussed in this post.

Note:  A detailed overview by Ohio EPA of the proposed rule changes can be accessed here.

Process Changes- Faster Turnaround but Greater Risk of Surprises

Under the current VAP process, when the volunteer is ready to seek concurrence that the property meets VAP standards, they request their consultant submit a No Further Action Letter (NFA).  Under current process, the consultant must submit the NFA along with all of the supporting documentation.  This includes the Phase I property assessment, Phase II property assessment as well as any risk assessment work.  The supporting documentation can be hundreds, if not thousands of pages.

Under the proposed change, a volunteer would submit just the NFA letter (the executive summary of the Phase I and Phase II, operation & maintenance documentation and draft environmental covenant). After the covenant-not-sue (CNS) is issued, the Volunteer would be required to file the supporting documentation.  

While the supporting documentation must be submitted, the Agency would not review it immediately.  Rather, the documentation would be maintained in Ohio EPA's public files.  

Through this process change, the Agency is trying to speed up their review process by reducing the amount of paperwork that must be reviewed prior to issuance of a CNS.   Less review means faster turnaround.  This is good news for developers whose projects or transactions were slowed waiting for the CNS to be issued.  

However, as with everything, there are trade offs.  Ohio EPA is also going to revise its audit protocols.  A VAP audit is similar to a tax audit.  Under a VAP audit, the project is thoroughly reviewed by Ohio EPA, including the NFA and all supporting documentation.  The probability of an audit is highest after the first year the CNS is issued, but can occur anytime.  Under the process change, Ohio EPA proposes to increases the frequency of its audits.

If through the audit, Ohio EPA identifies issues with the investigation or cleanup, a notice is sent to the volunteer.  If those issues are not addressed, the volunteer could lose their CNS.

One outcome of this process change may be more surprises for property owners after they thought a project was finished.  For example, two years after the CNS is issued, Ohio EPA could audit the project, find deficiencies and require more investigation and/or cleanup.  This may come as a major surprise to a new owner who bought the property after the CNS was issued.

Revised Generic Cleanup Standards

The VAP rule change also proposes a major overhaul to the methodology for calculating VAP generic cleanup standards.  Ohio EPA is moving toward use of U.S. EPA Regional Screening Levels.  

In some cases the standards get more stringent and in other cases more lax.  At the Brownfield Conference, Ohio EPA stated the only dramatic change is to the cleanup value for trichloroethylene (TCE).  At the conference, the Ohio EPA stated it notified all sites it was aware were currently performing a VAP cleanup where TCE was a constituent of concern of the proposed change.

In order to have the current generic cleanup standards apply to your VAP cleanup, then the volunteer must submit a NFA to the Agency before the rules are finalized.

Urban Setting Designations- Expanded Use 

Urban Setting Designations (USDs) are an important tool under the VAP.  Cleanup of contaminated groundwater can often be the most costly portion of the cleanup.  Ohio EPA recognized that there may be little benefit to requiring cleanup of contaminated groundwater in urban areas where the population was served by public drinking water systems.  

Requiring cleanup of groundwater in those situations may result in avoidance of brownfield properties.  With a USD designation, a volunteer can avoid a costly cleanup of contaminated groundwater.

Under the proposed VAP rule changes, Ohio EPA is proposing to expand the eligibility of areas for USDs.  For example, a village that meets certain geographic requirements can request a USD.

Off-Property Cleanup Requirements

An area of uncertainty under the VAP program had been what cleanup requirements apply to contamination that may have already left the volunteer's property.  Under the proposed rule, Ohio EPA states it is clarifying the obligations to address off-property releases.

Ohio EPA states a volunteer is required, even under current VAP rules, to cleanup off-property releases of contamination that exceed VAP standards.  Under the proposed rule change, this requirement is being made explicit.  This may be viewed by some as a major program change.

The proposal does include new provisions to provide some flexibility in addressing off-property releases.  A volunteer can attempt to make a demonstration to Ohio EPA that it "used best efforts" to address the release, but something made it impossible or impractical.  Examples:

If a neighboring property owner uses a drinking water well and refuses access to his property to address the contamination, this may be grounds for an exemption from Ohio EPA.

 

 

A release from the property contaminates sediment in adjacent river that exceeds applicable standards.  The volunteer would need to address the sediment unless it can demonstrate it is contaminated from multiple sources.

 

 

However, it is important to note, if an exemption to address a off-property pathway is granted, the CNS (legal release) will not extend to that pathway (i.e. the volunteer could be required to clean it up in the future if circumstances change).

When a Property Must Meet VAP Standards

The proposed rule changes intend to clarify that a volunteer only has to construct the remedy prior to issuance of the CNS, so long as he/she demonstrates the property will meet VAP standards within five years (or some other time agreed to by Ohio EPA).  This allows flexibility where remedy involves ongoing treatment. 

Post CNS Changes to Remedy

The proposal also establishes a process for modification of a remedy post-CNS.  

  • For example, if institutional controls (ex: fence or protective barrier) is used to demonstrate the property meets standards, the Volunteer can remove those controls without the property losing its CNS status during implementation of the new remedy.

Sufficient Evidence- VAP Eligibility Post-Enforcement

A volunteer is eligible for the VAP until it receives notice of enforcement from Ohio EPA.  If a volunteer had initiated a VAP cleanup prior to receiving notice of enforcement, the volunteer can continue if it makes a so-called "sufficient evidence demonstration."  

The proposed rule changes clarify what must be demonstrated and how quickly the cleanup must be completed in order to avoid enforcement.  Under the rules, the volunteer must demonstrate initially that they

  • Completed a Phase I assessment;
  • Retained a VAP certified professional;
  • Developed a schedule of activities for completing the VAP

If the volunteer is deemed to have satisfied sufficient evidence, it must adhere to the schedule and complete the VAP cleanup within three years under the proposed changes.

Schedule

Ohio EPA indicated the final rules would be filed with JCARR on April 15th.  JCARR jurisdiction would end on June 16th, with the final effective date being no sooner than July 1st.  

However, this assumes that significant objections are not raised during the JCARR process.  If such objections are made, the Agency could be forced to pull the rules resulting in delays. 

Difference between "Classic" VAP and VAP MOA

In Ohio, the primary brownfield cleanup program is known as the Voluntary Action Program (VAP).  Volunteers can cleanup their site to commercial/industrial or residential standards.  Upon completing the cleanup the volunteer can receive a legal release from the State of Ohio (called a "Covenant-Not-to-Sue" or CNS).

The CNS under the VAP does not include a release of liability from U.S. EPA.  In order to attempt to provide an option for volunteers who desired some protection from U.S. EPA enforcement, Ohio created the VAP Memorandum of Agreement (MOA) track.

I have had a few clients in the last couple months ask about the differences between the "Classic VAP" and the VAP MOA.  The main reason they ask is because they are interested in the heightened liability protection that is available under the VAP MOA process.  However, is the extra cost and longer time frames worth it?

"Classic" VAP

Under "Classic" VAP, the volunteer hires an environmental consultant who is recognized by Ohio EPA as a "certified professional" ("CP") under the VAP.  The CP performs the investigatory and cleanup work at the site to VAP regulatory standards.  Once the cleanup is complete, the CP prepares a "No Further Action Letter" (NFA) certifying that the property meets VAP standards.  

The volunteer then decides if they want the CP to submit the NFA to Ohio EPA for review.  If the NFA is submitted to Ohio EPA and the Agency concurs the property meets VAP regulatory standards, then the Agency issues a "Covenant Not to Sue" (CNS).  This is a formal legal release of liability from Ohio EPA.

As outlined above, the VAP process is a private cleanup.  There is no public involvement and no records are public until they are submitted to Ohio EPA for review.  

VAP MOA Track

MOA means Memorandum of Agreement.  The agreement is between U.S. EPA and Ohio EPA. (A copy is available here)  Under the agreement if a volunteer agrees to follow additional steps than necessary under the Classic VAP, it can receive "comfort" from the U.S. EPA that it won't pursue additional cleanup.  Those steps include:

  1. Notice of entry into the VAP MOA program;
  2. Publish notice in the local newspaper that the volunteer has entered the program;
  3. Create a document depository in the local library available to the public;
  4. Volunteer must publish the proposed work plan and allow for public comments (30 day comment period);
  5. Host a public meeting to discuss the work plan;
  6. All documents associated with the VAP cleanup must be placed into the library (includes the Phase I, Phase II, Risk Assessment Report, Remediation Work Plan, and the NFA letter); and
  7. Public can request additional public hearing during the cleanup process.

If a volunteer meets the various requirements outlined above, then U.S. EPA provides the following "comfort"

For sites or facilities that have completed the voluntary action in compliance with the MOA Track procedures...U.S. EPA Region 5 does not plan or anticipate taking action under CERCLA or RCRA while the facility remains in compliance with the MOA Track VAP requirements, except as provided in Section IV.B below.

The highlighted language makes clear that completion of the VAP MOA does not provide the volunteer a legal release from U.S. EPA.  Rather, the volunteer gets the assurance that EPA "does not plan or anticipate taking action."  Nothing prohibits such action.

In fact, the highlighted language at the end of the paragraph provides several instances when EPA can take action, including:

  • Newly discovered information after the CNS is issued indicates additional cleanup is needed;
  • Failure to comply with applicable VAP cleanup plans and Ohio EPA fails to take action to correct the situation;
  • The site presents an imminent and substantial endangerment to public health or welfare or the environment; and
  • Ohio EPA requests EPA help because the volunteer isn't make sufficient progress to complete the VAP MOA track

How Many Sites Have Gone Through the Classic VAP versus VAP MOA?

Currently, according to Ohio EPA tracking, 556 sites have submitted an NFA for review.  Not all of those sites have received a CNS.  29 NFAs were withdrawn before receiving a CNS.  

Only a total of 59 sites are identified as having entered the VAP MOA process.  Of those 59 sites, 22 sites actually submitted an NFA thus completing the VAP MOA process.  (Link to Ohio EPA list of VAP MOA sites)

What these numbers tell you is that very few volunteers have decided to spend the extra time and money to complete the VAP MOA process.  Some who even started, later left the MOA process.

Biggest Issue is Time

The biggest issue for many volunteers contemplating the VAP MOA process is the extra time involved.  Each plan is available for public comment.  A public hearing is required as well.  The extra time to complete the added upfront Ohio EPA review and public involvement can add many months on to a project. 

A review of the MOA track list shows that most projects took more than one year to complete once they formally entered the program.  Some took five or six years to complete.  It is unlikely Ohio EPA would allow a project to sit in process that long any more, but the track record clearly demonstrates the added steps will add significant time to the cleanup.

Risk Tolerance

As with many things environmental, whether to go Classic VAP or VAP MOA Track really depends upon your client's risk tolerance.  For some clients, the added comfort from U.S. EPA (even though its not a legal release) is enough.

[Photo courtesy Engineering at Cambridge]

Is the Voluntary Clean Up Program in Ohio Working?

In 1994, the State created the Voluntary Action Program (VAP) to promote voluntary clean up of industrial and commercial sites, including those currently utilized as well as brownfields.

By 1994 standards the VAP program was cutting edge.  It utilized certified professionals (CPs) who performed the investigation and implemented clean ups to meet standards established by Ohio EPA.  In this sense it was a privatized program.  Letting the company or developer ("volunteer") control the clean up process.

By allowing CPs to direct the clean ups to meet standards, costs would be reduced comparative to other clean up programs.  Rather than having sampling plans reviewed back and forth, the CP had to meet the rule.  Rather than debating appropriate remedies in documents back and forth, the CP designed the remedy and it was acceptable as long as it met VAP standards. 

There are many positive elements of the VAP program seventeen years later.  However, a look at just the numbers raises the question as to whether its enough or whether other programs need to be developed to get ahead of Ohio's growing brownfield problem. 

Here are the VAP statistics presented by Ohio EPA this winter: 

  • 422 No Further Action Letters ("NFAs") have been issued by CPs-  A NFA is the document that details the clean up meets VAP standards. 
  • 386 requests for Covenants not to Sue ("CNS")- There is no requirement that a volunteer h submit the NFA to Ohio EPA in order to obtain a CNS (the legal release)
  • 18 denied CNSs
  • 25 Withdrawn
  • 29 pending review 
  • 314 CNSs have been Issued

To summarize, to Ohio EPA's knowledge 422 NFAs have been issued by CPs in the seventeen (17) years the program has been in operation.  I say "to Ohio EPA's knowledge" because there is no requirement that you even disclose to Ohio EPA that an NFA was prepared.  In fact, many companies elect to simply obtain an NFA an never pursue the CNS from Ohio EPA due to the added administrative costs.

In seventeen (17) years, 314 sites have received a CNS, meaning Ohio EPA has verified the site meets VAP standards and issued a legal release. 

Brownfields-  Ohio Needs More Tools in its Tool Box

Focusing on brownfields, VAP is the only State tool to remove environmental legal liability with contaminated properties. (Click here for discussion of gaps in federal "AAI Rule")  To only have 314 sites addressed in 17 years has to raise the question whether we need other tools than VAP to address these sites in order to get ahead of a growing inventory of brownfield properties.

For comparison, a 1996 study identified approximately 350 brownfields and 1,000, to 2,000 condemned structures in Cleveland.  I can't imagine these number improved following the recent recession.

If you broaden out to Cuyahoga County, the Cuyahoga County Planning Commission found that 40,000 acres, or 14%, of the County’s land, has at some time been devoted to an industry that has historically been known to be a higher risk for environmental contamination.

Those are staggering figures - 314 VAP sites in 17 years versus an estimated 350 sites in Cleveland alone.  This represents only one city and one county in Ohio.  Just looking at the statistics suggests the VAP alone isn't  enough to encourage reuse of brownfields sites in the State.

Ohio Bill Introduced to Give Tax Credit for Site Remediation

The Ohio House has introduced a bill that would provide a tax incentive to clean up contaminated properties.  House Bill 10, if enacted, would provide an exemption from penalties as well as a tax credit to encourage companies to voluntarily remediate property.

Similar to other existing tax incentives, the bill encourages companies to remediate property under Ohio's Voluntary Action Program (VAP).  As discussed in my previous post, the VAP offers a much better option for addressing historical contamination on-site than traditional environmental clean up programs such as CERCLA.

One Year Exemption from Penalties

The bill as introduced, would provide any person or company to which a covenant not to sue (CNS) under the VAP was issued, a one year exemption from any fees or civil or administrative penalties that would be imposed under any environmental law. 

The bill is vague as to how the exemption would operate in practice.  For example, does it exempt penalties associated with violations that occur in that one year period? Or does it exempt the company from any and all violations, including historical violations, if an action is brought during the year following the CNS?

The other component that will likely be tweaked once the bill goes through hearings is the broad nature of the exemption.  It would exempt a company from all penalties, even those totally unrelated to the clean up of the property.

Tax Exemption for Site Remediation Costs

The exemption would cover remediation costs to clean up vacant land as well as property returned to commercial or industrial use.  The tax credit essentially doubles if the property is used for "productive use" which is defined as any trade or business. 

The tax credit applies to the commercial activity tax or the applicable income tax.   The credit would not apply (expire) to any remediation expenditures paid or incurred for a VAP clean up initiated after December 31, 2017.  A VAP is deemed "initiated" if a Phase I is performed.

Conclusion

Any tax exemption is going to be monumentally difficult to pass when the State of Ohio faces a $8 billion dollar budget deficit.  So, the prospects of this bill may not be bright. 

The bill's goal of spurring voluntary clean ups at industrial properties is admirable.  After the recent financial crisis, Ohio and the entire Midwest saw exponential growth in abandoned properties with contamination.  Creating incentives to address these properties is good for the State.

However, rather than a tax credit for remediation costs it may be a more prudent approach to look at expanding the tax exemption for new development on brownfields. (See prior post discussing issues with current brownfield exemption).   The tax impact on revenues would be less dramatic and even could be neutral.

Regardless, it is good to see Legislative policy debate regarding more incentives for voluntary remediations and brownfield redevelopment.  After the financial crisis, Ohio needs to get much more proactive to address its ever expanding portfolio of brownfield properties.

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.