Brownfields/Transactions

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On February 14, 2019, the IRS will hold a public hearing on its regulations governing Qualified Opportunity Zones.  The public comment period closed on December 28, 2018.  The IRS is expected to finalize regulations soon after the public hearing.

One of the most notable comments received during the public comment period on the IRS regulations for Opportunity Zones (QOZ) came from the Deputy Director of U.S. EPA’s Office of Brownfields and Land Revitalization (See, epa_comments_on_qoz_regs).   The comment letter did an excellent job of pointing out that the regulations could, in large part, freeze out brownfields from leveraging the significant advantages of the OZ classification.  This is best highlighted by the following comment in the letter:

EPA’s OBLR encourages the IRS to clarify in the final guidance that investments in the assessment, remediation, and redevelopment of brownfields properties located in Qualified Opportunity Zones (QOZs) are included within the scope of Qualified Opportunity Funds (QOFs).  This clarification will provide an incentive to invest funds in the assessment, remediation, and reuse of brownfield properties.

As discussed in EPA’s comment letter, without proper treatment of costs associated with investigating and cleanup of brownfields, developers will have very little incentive to tackle properties with any significant environmental contamination.  At issue are regulations regarding which properties or improvements allow a property to qualify for the tax incentives associated with QOZs.  Under the draft regulations, properties must meet certain requirements to qualify:

  1. Substantial Improvement Test- the investor must substantially improve the real estate by doubling the tax basis of any building on the property without regard to the value of the land itself.    Under current regulations, if the investor/developer spends funds to investigate or cleanup contamination on the property and, as a result, the land value increases, that increase cannot be counted toward the substantial improvement test;
  2. 30-Month Window for Improvements- the draft regulations establish a 30-month window to complete the investments (i.e. building improvements) used to qualify under the Substantial Improvement Test.  Since most brownfield cleanups will add substantial time to a redevelopment project, the 30-month window requirement would also act to exclude brownfield redevelopment projects; and
  3. Original Use- the original use must commence with the applicable QOZ investment. The draft regulations put the focus on the vertical structure on the property, not the land itself.  By focusing on buildings, the QOZ would provide little incentive to cleaning up contaminated land.

To allow flexibility for brownfield projects, EPA proposes the following changes to the IRS proposed regulations:

  • Brownfield = Original Use- Allow “brownfields” (as that term is defined under CERCLA) to qualify for the “original use” thereby putting the focus on the land when the land is contaminated.  EPA also states that allowing brownfields to qualify as the “original use” will address  30-month deadline for improvements which may be too restrictive if substantial cleanup is needed prior to development;
  • Vacant or Underutilized Properties = Original Use-  Allow properties that have been vacant or underutilized for a period of one year or more to meet the definition of “original use” under the regulations.  “Underutilized” would mean the entire property or a portion thereof which is only used at irregular periods or intermittently.  Expansion of the definition of “original use,” as suggested by EPA, would address concerns related to properties that add to blight even if they don’t meet the definition of a “brownfield;”
  • Foreclosed or Land Bank Property Should Qualify– if a property has gone through foreclosure or is being held by a land bank, EPA encourages the IRS to allow those properties to qualify for QOZ investment by treating them as “Underutilized or Abandoned Property” under the regulations;
  • Sampling and Cleanup Costs = Substantial Improvements- EPA requests that the IRS regulation treat assessment, cleanup and other site preparation costs as expenses that meet the “Substantial Improvement” Test under the QOZ regulations;
  • Allow Redevelopment Ready Brownfield Projects to Qualify-  EPA asks that the regulation allow a project to qualify that is solely assessment and cleanup of a brownfield property in preparation for future development.  Such a change could add a major incentive to spur cleanup of brownfields and positioning such property for future development;
  • Allow Gains from QOZ Investment Related to Brownfield Cleanup to Be Carried Over to Vertical Improvements on the Property-  EPA requests that the regulations allow the gains realized from the sale or exchange of QOZ Property to be deferred if they are reinvested in replacement QOZ Property within a 12-month period.  Without such clarification EPA is concerned that a Redevelopment Ready Brownfield Project may have to delay actual building construction for ten years after cleanup is complete to access the benefits of the Opportunity Zone incentive; and
  • Stack Window for Cleanup with Window for Redevelopment-  EPA requests that the IRS allow a 30-month window for brownfield cleanup to show substantial improvement to the land value and a separate 30-month window for building improvements for costs to count toward the Substantial Improvement Test.

If the IRS does not revise its regulations to address EPA regulations there is a strong possibility that brownfield projects will not be able to leverage the significant tax incentives provided by QOZs.

Since the sunset of the very successful Clean Ohio Brownfield Revitalization Program, brownfield redevelopment has slowed in Ohio.  At a time when the economy is finally doing well, and real estate development is in full recovery mode, brownfields are still being passed over for less costly redevelopment options.

This past week, Representative Arndt introduced House Bill 737 (Click on link hb737_00_IN) which would incorporate the CERCLA Bona Fide Purchaser Defense into Ohio Law.  The Greater Ohio Policy Center (GOPC) has been working with Rep. Arndt on the legislation.  As discussed below, if passed, the legislation would fill a gap in Ohio law that discourages brownfield redevelopment.  The current legislation also includes an option to obtain a “concurrence letter” from Ohio EPA that would help provide comfort to businesses, developers and lenders as to whether the proper due diligence steps were performed to establish the environmental liability defense.

Background

The cost to cleanup historical contamination at brownfield properties has long discouraged reuse and redevelopment.  As discussed in prior posts, brownfield properties are often bypassed to develop on greenfield space moving jobs out of urban cores and promoting urban sprawl.

In 2002, Congress created the “Bona Fide Purchaser Defense” (BFPD) as an amendment to CERCLA to encourage brownfield redevelopment.  Under the BFPD, a buyer of property can establish a defense to environmental liability under CERCLA if the buyer performs environmental due diligence prior to purchase in accordance with U.S. EPA standards.

U.S. EPA adopted the “All Appropriate Inquiries” rule which establishes the mandatory level of environmental due diligence a buyer must perform to qualify for the liability defense.  If the due diligence (i.e. Phase I and Phase II assessments) identifies an ongoing release or risk to human health or the environment, the buyer must take “reasonable steps” to address those issues.

A key aspect of the BFPD is that “reasonable steps” does not mean full cleanup of the property.   Rather, the goal is to make the property safe for reuse and to prevent any ongoing threats to the environment.  In this manner, the BFPD offers a much more cost effective means to putting brownfields back into productive use than traditional full blown cleanup programs such as the Ohio EPA Voluntary Action Program (VAP).

Gap in Ohio Law

While the BFPD exists to protect a buyer from liability under CERLCA, a federal law, it does not extend protection from liability under state laws.  Currently, even if a buyer performs “All Appropriate Inquiries” on a property in Ohio, the buyer will receive no legal liability protection under Ohio law.

H.B. 737 would fill this gap.   It would extend protection from liability under Ohio law for pre-existing “hazardous substances” contamination on property to buyers who take all the necessary steps to qualify for BFPD.  By strengthening protections under the BFPD, buyers will have a greater incentive to reutilize brownfields in Ohio.

In extending the BFPD to liability under Ohio law, Ohio would be playing catch up with many other states, such as Indiana and Michigan, which already have incorporated the BFPD or BFPD like legal protection into state law.

Concurrence Letter

Under federal law, the BFPD is self-implementing, meaning a buyer completing “All Appropriate Inquiries” does not submit anything to U.S. EPA to verify they complied with the rule.  Rather, the buyer relies on advice from their environmental consultant and attorney that they have taken the proper steps to qualify for the BFPD.   The first time a buyer will learn whether they did fulfill the necessary steps to qualify for the BFPD is when it is challenged in court.  Ashley II is an example where a buyer didn’t fare well in asserting the BFPD.

While there are positives with a self-implementing program (i.e. no regulatory sign-off), many clients I work with are more conservative with regard to taking on risk.  Some may like the option to have Ohio EPA review their Phase I and Phase II (if needed) to confirm they have done enough to qualify for the BFPD.  Other clients would be comfortable without such a comfort letter.

H.B. 737 provides an optional track to receive a concurrence letter from Ohio.  Buyers still have the option of following the traditional self-implementing approach.

Indiana already has such an option available, referred to as a “comfort letter,” and it is widely used by buyers.  Providing such an option under Ohio law would provide more tools for brownfield redevelopment.

Congress does not often pass environmental legislation, so the passage of the Brownfields Utilization, Investment, and Local Development Act (BUILD Act) is noteworthy.  While the amount of federal funds available will still be far less than needed to move the needle, there are important changes to the law that will help facilitate brownfield redevelopment.  The most notable of these changes include:

  1. Protections for Local Governments-  Local governments will no longer trigger CERCLA liability as “owners or operators” by simply taking title to property through law enforcement activity, seizures, bankruptcy, tax delinquency, or other circumstances.  The big change is that the BUILD act removed the term “involuntary” as a qualifier for local government protection from CERCLA liability if it takes ownership of contaminated property.  This allows local government to be more proactive in taking ownership of brownfield to promote redevelopment without triggering CERCLA liability.
  2. Extends Bona Fide Purchaser Defense (BFPD) to Tenants- U.S. EPA has used enforcement discretion to extend BFPD to tenants.  The BUILD Act now formalizes that protection into the law.
  3. More Money- The Act more than doubles funding available up to $200 million each fiscal year through 2023 and additional $50 million per year for state response program funding;
  4. Expanded Eligibility-  Certain nonprofit organizations, limited liability corporations, limited partnerships and community development entities are now eligible to receive grant funding;
  5. Increases the Funding Limit-  Max grants were raised from $200,000 to $500,000;
  6. Eligibility of Administrative Costs- up to 5% of a grant can be used for administrative costs, not including investigation or identification of site, design and performance of response action, or monitoring of a natural response;
  7. Petroleum Contaminated Site-  Sites with petroleum contamination are eligible when there is no viable responsible property;
  8. Prioritizes “Clean Energy” and Waterfront Projects-  Projects that involve clean energy or are located on the waterfront will receive more points when scoring applications thereby prioritizing these projects.

While each of the improvements have benefits, the most significant are the expanded liability protections for local governments and tenants.  Allowing cities to proactively target and acquire property without fear of CERCLA liability is a major development that will help facilitate redevelopment.

A very interesting article appeared in Crain’s Cleveland Business by Jay Miller discussing “jobs sprawl” and the lack of easy access to jobs.

Brad Whitehead, president of the Fund, points to a study by the Center for Neighborhood Technologies, a Chicago nonprofit that focuses on making cities work better, that found that housing costs in Greater Clevelanders are low, but people here spend more of their money on housing plus transportation — 41% of their income — than people in Boston, 38%, or New York, 39%.

Similarly, a 2015 study by the Brookings Institution, a Washington, D.C., think tank, found that between 2000 and 2012, the number of jobs near the average person in the Cleveland metropolitan area declined by 26.5%, the steepest decline among 96 metropolitan areas. The Akron metro ranked 84th. Part of that loss of job access is the result of an overall decline in jobs in the region, a 2.5% loss between 2002 and 2014, according to the U.S. Census, and part is the movement of jobs, of employers, from the central cities.

And finally, the Federal Reserve Bank of Cleveland in a 2015 study found that low-skilled and low-paying jobs are the hardest to get to. It also found that, “Millennials and baby boomers alike want more accessible communities, whether that means a workplace within reach of transit or downsizing from large suburban homes to areas where amenities important to them are just a walk away.”

I found it amazing that the Clevelanders spend more money on housing plus transportation than major cities like Boston or New York.  As long as Ohio can’t leverage the lower cost of living in the state as a true strategic advantage, Ohio will never be able to compete with major cities like Boston, New York or Chicago.

The images below have appeared before on this blog, but they dramatically show the issues with urban sprawl as well as jobs sprawl.  The graphic on the left is developed land in Cuyahoga County in 1948 and the graphic on the right is developed land in 2002.  As development spreads out, the ability of the urban population to access jobs becomes more difficult.

The link between avoiding job sprawl and brownfields is unmistakable.  The more we discourage redevelopment of our inner core cities, the more we push jobs out into greenfields which fosters jobs sprawl.  Also, without an growing population and affordable transportation to jobs, large employers face increased challenges finding qualified candidates to fill job vacancies.  If the problem persists, employers look to relocate where they can ensure vacancies will be filled.

While Ohio used to be a leader in promoting brownfield redevelopment, a combination of factors over the last several years has pushed us to the back of the pack, even when compared to neighboring states like Michigan.  The combination of factors, all which have been discussed on this blog, include:

  • Clean Ohio, a national model in brownfield redevelopment incentive programs, sunset approximately 5-6 years ago leaving behind no definitive brownfield redevelopment program.  Between 10-20 major brownfield redevelopment projects were occurring per year over the decade Clean Ohio was in place
  • A lack of tax policy that promotes brownfield redevelopment.  The most significant tax benefit, the VAP 10-year tax abatement, is too cumbersome and too limited in scope.
  • JobsOhio, while the program has some major advantages and is currently has the best incentives for brownfields, the JobsOhio Revitalization Program has steep eligibility requirements and does not focus on specifically targeting brownfields for redevelopment
  • Local brownfield programs have dwindled- For example, Cuyahoga County has basically done away with its brownfield program and forgivable loans, a key incentive to promote brownfield redevelopment
  • VAP- Controversy surrounds the VAP program and whether it still provides the legal liability protection envisioned when the program was launched more than two decades ago
  • Vapor Intrusion-  Greater federal and state scrutiny on vapor intrusion issues has increased liability concerns for property owners and redevelopers looking to reuse brownfields

As we head into an Gubernatorial election year, more voices need to be raised discussing issues like jobs sprawl, brownfields and how to get Ohio’s population growing again.  While tax policy, education and economic development are critical to Ohio’s future, making sure we are putting new jobs in locations that can easily be accessed needs to be a key strategy in Ohio.

[SPECIAL BLOG POST: Ohio EPA asked to publish a guest post on the Ohio Environmental Law Blog regarding recent developments pertaining to the Agency’s response to sites with trichloroethene (TCE) and the Voluntary Action Program (VAP).  The Ohio EPA response is posted below in its entirety]

In August 2017, Ohio EPA announced to Certified Professionals (CPs) that letters would be sent to owners of trichloroethene (TCE) contaminated properties. The intent of the agency’s action is to inform property owners that U.S. EPA had lowered the acceptable indoor air levels for TCE, and updated the federal technical guidance on assessing vapor intrusion to indoor air stemming from soil and/or ground water contaminated with solvents such as TCE. In the letter, Ohio EPA requested that owners evaluate the conditions on their property to ensure TCE vapor intrusion was not harming people working or living on their property or that nearby neighbors were not affected. While the intent of the letter is to inform the property owner in order to prevent human health risks, this announcement caused some concern among the Voluntary Action Program (VAP) community, leading some to mistakenly believe that Ohio EPA was undermining the value of a Covenant-Not-to-Sue (CNS) issued through the VAP.

While most acceptable indoor air levels for chemicals are based on a chronic risk, or long-term exposure, the change made by U.S. EPA regarding TCE was based on an acute risk, or short-term exposure, particularly to women with developing fetuses. This change presented a concern to Ohio EPA because fetal heart anomalies were determined to occur with only a few weeks of exposure to breathing TCE above the health standards.  Therefore, prompt attention to this new standard and exposure timeframe required a timely and thorough reevaluation of all known sites that may have TCE contamination. As part of this review, Ohio EPA contacted the property owners, informing them of this change, and asking them to investigate the conditions, and to make sure that people at and near their property were not being harmed. This action is consistent with the responsibility of the Director of Ohio EPA to ensure that the health of Ohio’s citizens is adequately protected.

Ohio EPA’s interest is in public health and not to invalidate property owners’ CNSs as part of this reevaluation. To date, no CNS has been revoked under this reevaluation, nor is Ohio EPA requiring a property with a CNS to update to the new federal standard for TCE.  Ohio EPA is working cooperatively with property owners to ensure that public health is protected. Our request for property owners to look at the information they have, and, if necessary, take samples, is in fact a good and necessary choice for these property owners. Understanding that a property is adequately protective allows an owner to use or redevelop a property with the certainty that it won’t be harmful to users or neighbors.  It protects the value of the property, enables safe and economically feasible redevelopment of contaminated property, and allows reduced remediation without having to “turn a blind eye” on future liability and injury.

The VAP has always acknowledged the Director’s responsibility to address imminent health threats; the reevaluation of potential exposure to unsafe levels of TCE is not a separate, or new legal authority.  Each CNS that is issued by Ohio EPA states, “Nothing in the Covenant limits the authority of the Director to request that a civil action be brought pursuant to the ORC or common law of the State to recover the costs incurred by Ohio EPA for investigating or remediating a release, or threatened release, of hazardous substances or petroleum at, or from the Property, when the Director determines that the release or threatened release poses an imminent and substantial threat to public health or safety or the environment.”  This provision allows Ohio EPA to evaluate for current, or likely imminent, health threats, and recover expended costs when a property owner is uncooperative and an imminent health threat may exist.

Ohio EPA is aware that some members of the public may have mistakenly inferred that a CNS issued after the submission of a No Further Action Letters (NFAs) is no longer worthwhile for property owners to obtain.  That assumption is false. Furthermore, it has been stressed that the Ohio EPA VAP is losing relevance, with the proof offered being the lower number of NFAs that have been submitted to the Ohio EPA in the past year.  That assumption is also false. Ohio EPA’s position is that NFAs submitted for a CNS is not the only measure of the success of the VAP.  The number of NFAs submitted for a CNS fluctuates over time and can be impacted by a variety of factors. One of the factors that has the greatest impact is the implementation of a new rule change. This results in a significant increase in NFA submittals, like the one that occurred in 2014.  Another factor is the change in brownfield funding available in the state. Loss of sources of funding, such as the Clean Ohio Fund, will continue to reduce the number of NFAs submitted to Ohio EPA in the coming years. CPs have indicated that only 10 percent of their VAP work is ever submitted to Ohio EPA for CNS, because volunteers, lenders and insurance companies are comfortable with work done by VAP CPs who follow VAP rules and guidelines. These institutions don’t require a CNS from Ohio EPA for there to be value in the program. Ohio EPA considers the program a success knowing that the use of the program rules and guidelines provide participants that level of comfort.

In summary, Ohio EPA is not taking this action due to a meaningless bureaucratic function. Ohio EPA is committed to ensuring protectiveness of human health and the environment, particularly when significant questions such as TCE exposure are raised by the best science and research available from US EPA. The VAP has shown over the past 22 years, that the program is able to protect human health without putting a stop to redevelopment, which demonstrates that citizens, owners, workers, and neighbors can be adequately protected without invalidating the VAP program.

As discussed in my prior post, in September Ohio EPA announced that it would be sending “hundreds of letters” to property owners that have trichloroethylene  (TCE) contamination, including property owners that cleaned up their property under the Voluntary Action Program (VAP).  At the September meeting of VAP professionals the Agency announced that it could take legal action against property owners with TCE contamination even if the property owner received a Covenant-Not-to-Sue (CNS) under the VAP (i.e. a legal release).

Since the September meeting many in the environmental community have questioned whether the Agency has undermined a cornerstone of the program- the ability to rely on a legal release through a VAP CNS that no additional cleanup would be required.  The Agency was careful to state it would not be reopening the CNS to apply the more stringent TCE VAP cleanup standard.  The Agency still agrees the VAP CNS locks in the cleanup standards once the CNS is issued (even if standards get more stringent for certain types of contamination based on the more up-to-date science).

The ability to lock in cleanup standards has always been viewed as one of the most significant incentives for submitting a VAP No Further Action (NFA) letter to Ohio EPA to obtain a CNS.   Without the ability to rely on the legal release, the VAP would provide very little incentive to make public information about levels of contamination at your property.

While the Agency said it would not reopen a CNS issued under the VAP to apply the more stringent TCE cleanup standard, the Agency also said it has an obligation to protect public health and the environment.  The Agency indicated it has separate legal authority, outside the VAP program, to take action at properties it believes present a threat to public health and the environment.  The Agency stated it could perform cleanup itself and recover its costs under this separate legal authority if property owners refused to do anything more to address TCE at their sites.

Legal End Around?

While Ohio EPA says it would not reopen VAP covenants to apply more stringent cleanup standards, it said it could use other legal authority to take action to address TCE.  Most property owners won’t care which legal authority the Agency utilizes. Most will be upset that they are being told to perform more investigation or cleanup after they thought they had met all their obligations.

Does this the Agency’s recent announcement weaken the VAP program?  It certainly diminishes the incentive of entering the program.

For years, many outside attorneys and consulting firms have advocated simply cleaning up the property to VAP standards and obtaining an NFA, but electing not to submit the NFA to Ohio EPA to obtain a CNS.  What are the perceived advantages to this approach:

  • Meeting VAP standards provides a technical argument that the property does not present a threat to public health or the environment;
  • While not a legal release, the Ohio EPA or U.S. EPA would have a much more difficult time taking enforcement against a property that is deemed protective of the public health or the environment (as indicated by issuance of the NFA);
  • By not submitting the NFA to Ohio EPA all sampling data can remain confidential.  No information will be accessible by the public regarding the condition of the property; and
  • By not submitting the NFA, the owner avoids the costs associated with Ohio EPA’s review of a CNS

While there are advantages to not submitting an NFA to obtain a CNS, these must be balanced against the limitations of such an approach:

  • The CNS still locks in cleanup standards.  Obtaining only an NFA leaves the property open to application of more stringent cleanup standards;
  • A CNS still provides a much stronger legal defense against EPA enforcement for cleanup
  • A property with a CNS is more easily transferred to a new owner because the property still has a sign-off from the Ohio EPA that the property meets standards;
  • Financing is more easily obtained for a property with a CNS versus an NFA; and
  • While the VAP is self-implementing, it is very common for VAP Certified Professionals and Ohio EPA to disagree over whether the cleanup was sufficient.  Obtaining a VAP CNS provides the assurance the Agency signed off on the cleanup.

This laundry list of pro’s and con’s make this a complex decision for the property owner.  The recent announcement regarding notices to property owners holding a CNS with TCE contamination adds another factor to be considered.

The numbers don’t lie, the number of VAP CNS have gone down over the last few years.

VAP CNS Issued by Year
Year

NFA Letters
Requesting a CNS

 CNS Issued Review Pending
2014 65 60 2
2015 33 33 0
2016 28 18 7
2017 to date 14 2 12

The cost and complexity of the program results in only a limited number of sites entering the property each year.  As has been discussed in prior blog posts, Ohio need to develop more options to address liability from pre-existing contamination to accelerate reuse of brownfields in Ohio.

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.

JobsOhio launched a new site selection tool called SiteOhio designed to provide easy access to businesses looking for locations to either develop new facilities or buy/lease existing buildings.  The easy to use web based tool allows you to search by the following parameters:

  • Available buildings of a certain size
  • Vacant land based on acreage
  • Businesses that may be for sale
  • Properties in specific communities by either city or county

The site selector tool allows you to compare filter properties by energy or broadband capability or labor force.  The tool is designed to allow businesses to more quickly identify sites that meet their needs.  

The site is also designed to certify sites as ready for development with available utilities, zoning, etc. The site hasn’t yet been fully populated with available sites, but JobsOhio will ensure that happens over time. Communities will be encouraged to go through the JobsOhio site authentication process to have sites in their communities certified as ready.

The JobsOhio authentication process is designed to identify sites that are "ready to develop on day one, saving businesses time and money."  JobsOhio in its announcement described the authentication process as follows:

“Through the SiteOhio authentication process, each site undergoes a usability audit designed to vet sites with companies in mind. All due diligence studies look to ensure strict criteria are met, as well as utilities and other site assets are on site, with excess capacity and accessible for doing business,” JobsOhio said in announcing the tool.

The site doesn’t include other information that may be key to determining suitability of a site, such as:

  • Taxes
  • Ease of permitting
  • Capacity of sewers
  • Availability of water

Implications for Brownfield Redevelopment

As JobsOhio stated in its announcement regarding the site selection tool, the purpose is to identify sites "ready to go on day one."  This certainly would not include brownfield properties.  A quick search of industrial properties by acreage shows a number of greenfield sites, typically industrial parks ready for development.  A quick search of available buildings identified mostly sites that would not qualify as traditional brownfield properties.  

While the tool is an excellent idea to expedite identification of readily available sites for development, the site selection tool will not encourage reuse of urban sites.  If the goal is of the site selector tool is to populate sites "ready to go on day one," then in order to encourage redevelopment of brownfield properties this would appear to encourage reconsideration of programs such as the Clean Ohio Redevelopment Ready Program.  Under this program, Clean Ohio funds were used to address environmental issues at brownfield sites upfront to facilitate reuse.

After more than ten years of building a brownfield redevelopment program, Cuyahoga County Officials are currently contemplating bringing the program to a close.  Over the last few years significant staff cuts have reduced the amount of resources dedicated to the program.  Now it appears that in 2017 the various incentives available to attract redevelopment to brownfields may no longer be available.  Or, there will be no staff dedicated to run the program.

Hopefully, County Officials will understand the critical need the brownfield programs provide to overcome the major impediments to reuse of old industrial and commercial buildings in the region.  Even with the recent economic development boom in Cleveland there remain hundreds of underutilized or vacant brownfield properties.

One of the most critical needs the County program fills is grant funds to pay for Phase I and limited Phase II environmental assessments through the County’s Brownfield Community Assessment Initiative. Under the program, the County would provide up to $5,000 in grant funds for Phase I assessments and up to $35,000 for Phase II assessments.  These incentives help overcome the first major hurdle to brownfield redevelopment- having no information about the condition of the property.  Many developers and businesses aren’t willing to front these assessment costs as part of early evaluation of a property.  

The County also provided forgivable loans to help offset environmental cleanup costs.  Under its Redevelopment Ready Program, the County can provide loan funds up to $1 million with 40% of the total loan forgivable if certain criteria are met.  This type of loan was a critical tool in the Miceli Dairy expansion project which was one of the significant brownfield redevelopment projects in Northeast Ohio.  Without County incentives, both assessment grants and a forgivable loan, the project never would have occurred.  The expansion kept and expanded jobs in a critical area in Cleveland.  

The County had offered a wide array of programs and incentives to help renovate vacant buildings and spur brownfield redevelopment.  It took nearly ten years to build up the expertise and incentives which made it a very successful program.  For a full list of the County Brownfield Programs click here.

We can only hope that the new Administration realizes what a critical function a brownfield program plays in an area with a long industrial past and limited space for redevelopment.

Companies expanding onto brownfield sites need public incentives to make their projects viable.  However, the days when cleanup of contamination by itself could attract public incentives are long over.  Under the new local and State brownfield programs companies must make job commitments and/or improvements to the property to attract government assistance.

When companies work with State and local officials to obtain brownfield incentives they must engage in negotiations regarding what they are willing to commit to as part of the project.  These commitments will often extend 3 or more years out into the future when it becomes more challenging to predict economic and business conditions.

The Dayton Daily News discussed the State of Ohio’s pursuit to recover incentives from companies that failed to meet business expansion or development commitments.  The DDN reported:

State officials reviewed 329 economic development deals that concluded in 2015 and found that all but 50 had substantially complied with the terms, such as hitting job creation and retention numbers, training workers and generating new payroll.

If companies fail to live up to their promises, the state may demand repayment or make other changes to the deal. In the 50 cases where targets weren’t hit, the state is moving to clawback a collective $776,000. Some of the biggest take backs are being launched against well-known, big companies — Proctor & Gamble Co., U.S. Steel Corp., and The Dannon Co. — for failing to create or retain promised jobs

This is very relevant to JobsOhio brownfield grants and loans provided to companies to assist with sampling or cleanup at contaminated properties.  The grant agreements for the JobsOhio Revitalization Program include contractual commitments to increase payroll, add jobs or make capital investments to expand the business.  For example, at minimum, JobsOhio typically requires 20 new jobs over a three year period to compete for brownfield cleanup grant funding under its Revitalization Program.

The grant agreement language is somewhat vague as to what happens if the grant commitments are not met by the company.  The language does allow for companies to assert that changing economic conditions resulted in unmet commitments.  However, the contract language does leave open the possibility JobsOhio could request return of the entire brownfield grant provided.

It is important that companies pursuing brownfield incentives be aware of the consequences of not meeting commitments.  It is also important to avoid putting forward unrealistic job or capital investment commitments just to attract upfront grant money.  Companies that over commit open themselves up to clawback by the State of the funds provided as well as publicly being outed for failing to live up to their commitments.