Brownfields/Transactions

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Ohio is not the only state that is reviewing all sites that have trichloroethylene (TCE) contamination. Massachusetts Department of Environmental Protection (MassDEP) recently announced that is was going to review 1,000 closed sites with TCE contamination.  MassDEP will evaluate the sites "based on the current understanding of health risks, even if the site was previously closed properly under earlier standards."  

Unlike Ohio, MassDEP issued a public statement in April 2016 that it discussing its review of TCE Sites. Ohio EPA has not made a public announcement similar to Mass DEP.  Rather, Ohio EPA has discussed its review in meetings with environmental consultants and through issuance of letters and requests for information to sites with TCE contamination.

TCE was widely used as a degreaser for industrial metal parts and as an extraction solvent for organic oils. As a result of its use, TCE contamination related to use of solvents is very common at manufacturing sites.  

A discussed in the MassDEP announcement, the heightened scrutiny of sites with TCE contamination was based, in part, on a 2011 review to the U.S. EPA toxicity information.  The review included assessment of the potential for fetal developmental effects following even short-term exposure to TCE contamination.  As a result, the standards related to TCE have become significantly more stringent.

MassDEP provided a comparison of the levels of concern from 2011 to 2016 which shows the TCE standards:

Changes in TCE Risk-Based Levels in Massachusetts
Pathway 2011 Level of Concern 2016 Level of Concern
Indoor Air (Residential) 85 ug/m3 6 ug/m3
Groundwater (near residences)

300 ug/l pre-2006

50 ug/l post-2006

 5 ug/l
Health Effect of Concern Long-term cancer risk Short-term development effect

 The primary pathway of concern in both Massachusetts and Ohio is vapor intrusion (volatilization of contaminants into the indoor air of a building).  Ohio’s current indoor air standards are relatively comparable to MassDEP.

Ohio TCE Indoor Air Standards
Pathway Standard
Residential 2.1 ug/m3
Commercial Industrial 8.8 ug/m3

Continued developments with regard to TCE are surely forthcoming.  As the new significantly more stringent standards get implemented property owners and site developers that have TCE contamination will need to proceed cautiously.  This includes sites that previously completed investigations or cleanup activities.

In my four part blog post series- Rethinking Brownfield Redevelopment in Ohio- the final post advocated for a new Ohio liability protection law for buyers of contaminated property.  The new law would provide brownfield redevelopers liability protection faster and at a lower cost than the current Ohio Voluntary Action Program (VAP).

I suggested looking to Michigan’s Baseline Environmental Assessment (BEA) law for guidance on how to set up such a program.  Well Kansas has recently passed a new law that provides a second example.  

On May 9, 2016, the Contaminated Property Redevelopment Act (S.B. 227) was signed into law by Kansas Governor Sam Brownback.  Similar to the Michigan BEA, the new law provides buyers of contaminated property liability protection under certain conditions. Those conditions include:

  • The Buyer cannot have caused or contributed to the pre-existing contamination on the property;
  • The Buyer cannot exacerbate pre-existing contamination on the property either through redevelopment or other activities;
  • Buyer must request liability protection from the Kansas Department of Health ("Kansas DHE") and Environment by applying for a Certificate of Environmental Liability Release ("CELR");
  • The Application for a CELR must include a Phase I or Phase I/Phase II assessment report or other reports requested by Kansas DHE that demonstrate the property was adequately assessed; and
  • The Buyer must provide notice to future purchasers of the existence of the CELR and notify Kansas DHE upon transfer of the property.

What is interesting is that the new law does not affirmatively require the Kansas DHE to make a finding that buyer has taken appropriate steps to address immediate environmental threats or public health risks similar to the "reasonable steps" requirement under U.S. EPA’s Bona Fide Purchaser Defense.

A fee is charged by the Kansas DHE to review CELR applications.  Those fees are placed into the Contaminated Property Redevelopment Fund to assist municipalities with brownfield redevelopment.

Kansas provides another example of an enhanced Bona Fide Purchaser Defense at the State level that will likely accelerate brownfield redevelopment. 
 

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.

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:

  1. 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.   
  2. 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

Former Clean Ohio Program

  • No Longer Active
  • Up to $300,000 Phase II grant
  • Up to $3 million cleanup grants
 Ohio Historic Preservation Tax Credit

JobsOhio Revitalization Program

  • Up to $200,000 Phase II grant
  • Up to $1 million 
 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.

Scorecard on Brownfield Redevelopment in Ohio
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.

This second post in the series discussing brownfield redevelopment in Ohio will provide an overview of the extent and nature of Ohio’s brownfield problem.  First, the post will discuss Ohio’s progress in spurring brownfield versus greenfield redevelopment.  Second, the post will provide an overview of public information regarding the number of brownfields in Ohio  

Urban Sprawl in Ohio

One issue discussed in Part 1 of this series was how failure to re-utilize urban core properties significantly contributes to the issue of urban sprawl.  The negatives of urban sprawl are well documented:  decay of inner urban areas, increase infrastructure costs, more traffic (and associated air pollution) and greater impact to wetlands and streams as development moves to greenfields.

How is Ohio doing with regard to urban sprawl?  Not well based upon an analysis performed in 2014 by Smart Growth America.  Here are the rankings of some of Ohio’s largest cities:

  • Cleveland 153
  • Cleveland 138
  • Toledo 117
  • Dayton 116
  • Canton 93
  • Akron 111
  • Cincinnati 166

Cincinnati Urban Sprawl Trends

A study performed by Smart Growth America of the Cincinnati region showed that during the time period of 1196-2005 the trends on brownfield versus greenfield redevelopment were as follows:

  • Thirty (30) businesses that expanded operations moved from transit accessible areas to areas without transit (i.e. out of the urban core);
  • Eight (8) business expanded within the urban core

This is a clear demonstration of the trends that the costs to redevelop brownfields pushes many businesses to expand or relocate to the suburbs contributing to Ohio’s urban sprawl issues.

Cleveland Urban Sprawl Trends

Some times a picture (or in this case a graphic) is worth a thousand words.  Here is a graphic that shows developed land in Cuyahoga County from 1948 to 2002:

 

 

 

 

 

 

 

 

 

It is worth noting that there may be a major shift in these trends due to the millennials preference for downtown living.  A recent study showed that 7 city centers outperformed their surrounding metros in the 2002-07 period, 21 outperformed the periphery in 2007-2011.  Certainly, that trend is evident right here in Cleveland where residential occupancy is above 97.8% with major new downtown residential developments planned.  

The major shift in living preferences creates a golden opportunity to accelerate brownfield redevelopment.  

How many Brownfields are in Ohio?

Ohio does not maintain a registry that provides a good inventory of all brownfield sites.  The most extensive registry maintained by Ohio EPA was referred to as the "Master’s Site List."  However, after a property owner challenged its listing on the MSL, it was determined Ohio EPA did not have the legal authority to maintain the list.  Ohio EPA stopped maintaining the list in 1999.

Currently, Ohio EPA maintains the Ohio Brownfield Inventory, but listing of properties is voluntary. Typically, properties are listed in order to qualify for some brownfield redevelopment incentives. Therefore, the registry does not provide a good estimate of the actual number of brownfields.

Public information is limited on brownfields.  A review of local studies and information from local officials and U.S. EPA reveal the following statistics which provide some insight into the extent of the brownfield problem in Ohio:  

  • 119 brownfields in Lucas County (1996 estimate);
  • An estimated 62% of real estate transactions in Lucas County are encumbered by environmental issues;
  • An estimated 25% of transactions in Toledo were abandoned due to environmental issues with an average job lost of 20 jobs per lost transaction;
  • An estimated 4,623 acres of brownfields are in Cuyahoga County;
  • 350 brownfields in Cleveland with an estimated 1,000 to 2,000 condemned structures
  • 40,000 acres or 14% of Cuyahoga County’s land was industrial at some point (Estimate by the Cuyahoga Planning Commission)

Statewide estimates on brownfields:

  • 417 Ohio sites are currently identified on CERCLIS (sites on or being evaluated for Superfund Listing)
  • Over 5,000 RCRA sites listed on US EPA RCRAInfo data base
  • 4,000 to 6,000 brownfield sites in Ohio (as estimated by the Government Accounting Office)
  • U.S. EPA has a higher estimate- Over 10,000 brownfield sites have been inventoried by local governments according to testimony from Joe Dufficy (U.S. EPA) before Congress in 2005

Importance of Better Information on Brownfields

A strong case can be made that Ohio needs tools to create a better inventory of brownfields.  It’s current system of waiting for volunteers looking for incentives to list sites results in very limited information.  

A better inventory helps to inform public policy as well as better track progress in addressing brownfields.  Also, better information provides more public information regarding sites that have issues.

Some may argue that there should be a mandatory law requiring all brownfield sites to be listed. However, there are many issues with this concept.  Such mandatory laws discourage brownfield redevelopment or even gathering data regarding contamination on property.  This is the exact opposite of what Ohio needs to do if it wants to encourage more brownfield redevelopment.

A mandatory law exists in New Jersey and my colleagues familiar with the New Jersey market state it acts as a strong deterrent to gathering data regarding contamination as well as transactions.

A better system is one that offers strong incentives to voluntarily disclose information regarding conditions of property.  The final post in this series will discuss Michigan’s Baseline Environmental Assessment program which has been highly successful in gathering public information regarding the condition of contaminated property in the state while at the same time spurring brownfield redevelopment.

Two weeks ago I participated in the Ohio Brownfields Conference in Columbus, Ohio.  2016 marks the twentieth (20th) anniversary of Ohio’s Voluntary Action Program (VAP) which is implemented by Ohio EPA and is the primary regulatory program for cleanup of brownfields.  

To mark the anniversary, Ohio EPA encouraged presenters to reflect on the success of the VAP and other brownfield programs in Ohio.  Presenters were also encouraged to discuss ways to accelerate brownfield redevelopment in Ohio.  

Despite twenty years of the VAP as well as some of the best incentive programs in the country, Ohio has failed to get ahead of its brownfield problem.  I believe it is time to rethink some of the tools used to greatly accelerate brownfield redevelopment.  This three part series will cover the following:

  1. Review the Brownfield Problem-  Without looking at the issues created by brownfields it is impossible to properly design policies to address them.
  2. An Inventory of Ohio Brownfields-  The second post will discuss public information regarding the number of brownfields in Ohio.  
  3. Review Ohio’s Progress in Tackling its Brownfield Problem-  The second post will provide an overview of Ohio’s progress using tools like the VAP, Clean Ohio, JobsOhio Revitalization Program and brownfield tax incentives.
  4. New Strategy to Accelerate Brownfield Redevelopment–  The final post will provide recommendations for ways to better utilize incentives, streamline regulatory cleanup and better address public health issues.

OHIO’S BROWNFIELD PROBLEM

What causes brownfields to occur?

Two primary forces create brownfields- market forces and fear of environmental liability.  

MARKET FORCES

  • Expansion of business-  businesses looking to expand in urban areas often find the cost of expansion significantly higher to expand in onto neighboring property versus moving to a greenfield.  One study in Ohio found the cost of developing on a brownfield property four times higher then the cost of building on a greenfield. 
  • Closure/Relocation/Consolidation of Businesses-  Businesses close for a variety of reasons. One of the hardest hit sectors has been manufacturing.  When these businesses close they often can leave behind contaminated sites.  
  • Lower Tax Rates or Incentives-  Businesses can also be lured away by either lower tax rates or incentive packages.
  • Moving to a "Better Area"- Some businesses also move because of the decay of the urban areas where they are located.  

 ENVIRONMENTAL LAWS

  • Liability-  Expansive liability provisions in environmental laws also act as a strong impediment to businesses choosing to expand on a brownfield. The law with the broadest liability provisions is CERCLA (Superfund) which contains provisions that make any "owner" liable for pre-existing contamination regardless if they created the contamination.  Many other environmental laws can also create liability concerns as well (RCRA, underground storage tanks, TSCA, etc.)
  • Financing Considerations-  Banks understandably are concerned with the risk to their borrowers should they seek to redevelop a brownfield.  These concerns can translate into extensive due diligence requirements, more complicated financing or even refusal to finance certain projects.
  • Timing/Delays-  Navigating the complex environmental liability issues and addressing contamination under regulatory cleanup programs takes significant time.  Many businesses simply don’t have the time to address the issues presented by a contaminated sites.

What social issues and environmental issues do brownfields create?

SOCIAL ISSUES

  • Vacant Buildings-  Invite abuse, including stripping of parts, materials vandalism, arson and "midnight dumping." 
  • Unemployment-  Higher unemployment occurs when businesses leave areas and those areas become blighted
  • Urban Blight- Discourage investment and contribute to pervasive sense of poverty and hopelessness.
  • Infrastructure-  Investment shifts from urban core to suburbs.  As a result of urban sprawl, more infrastructure is needed to be maintained. 
  • Taxes- Revenue sources for cities to pay for services are reduced as jobs migrate away from urban core.

ENVIRONMENTAL ISSUES

  • Contaminated Sites-  Brownfields present public health risks from exposure to contaminants. Contamination can also migrate onto neighboring properties, discharge to surface water or create vapor intrusion issues.
  • Urban Sprawl-  Expanded development away from our urban cores results in more impacts to wetlands and streams.  Also, urban sprawl results in greater air pollution due to more vehicle miles traveled and less use of public transportation.

 

The Ohio Development Services Agency has announced that it is now accepting application for the Abandoned Gas Station Cleanup Grant Program.  Eligible activities include $100,000 for assessment and up to $500,000 for cleanup.  

The program targets abandoned gas stations and cleanup of underground storage tanks (UST).  To be eligible, the tank must be certified as a Class C BUSTR tank (i.e. abandoned).  

The first round of application are due by April 1, 2016.  A total of $3.5 million of the $20 million will be available in this round of funding.  

A review of the scoring matrix released with the application provides insight into which types of projects will score the best.  There are a total of 100 point available.  The points are awarded based on the following categories:

  1. Environmental Impact (extent of contamination, proximity to waterways or residences, etc) 15 points
  2. Community Impact (land use after cleanup and benefits to the community) 15 points
  3. Economic Impact (job creation, increase in land value) 15 points
  4. Previous planning efforts 10 points
  5. Cost to address sold waste removal- if over $5,000 get 10 points
  6. Prior recipient of a BUSTR loan 5 points
  7. Private funds invested in the property in the past 5 years –  Less than $10,000 5 points; More than $10,000 gets 10 points
  8. Previous Assessment or Fast Track grantee 20 points

The scoring matrix does look like a balance of environmental, community and economic benefit. Unlike JobsOhio Revitalization Program, projects involving heavily contaminated sites will get higher priority.  JobsOhio’s program is almost entirely focused on economic redevelopment.  

Projects that have had prior planning efforts or investment in funds will also do better in this competitive grant cycle.

Potential applicants now have less than a month to get their applications in for this first round of funding. 

 

This Fall the Ohio Development Services Agency (ODSA) announced program implementation details for the newly created $20 million dollar Abandoned Service Station Fund.  ODSA sent out an announcement to contacts that it would likely begin accepting applications winter, however, to date the ODSA has yet to begin accepting applications.  ODSA developed the program in conjunction with Ohio EPA and the Bureau of Underground Storage Tank Regulation (BUSTR).

The Abandoned Gas Station Cleanup Grant was specifically created to target a certain segment of brownfields largely neglected in Ohio – abandoned gas stations and petroleum underground storage tanks.  The program provides grant funding to pay for sampling and clean up of BUSTR Class C sites (underground storage tanks with documented petroleum releases and the owner of the tank has no funds).

A key eligibility issue discussed in a prior post has been resolved favorably.  Local government entities do not need to actually own the site to be eligible to receive funding.  Local governments can work with the landowner, similar to other brownfield programs, and apply for funding so long as there is a development agreement between the government and the landowner.  However, the applicant and property owner cannot have contributed to the prior release of petroleum or other hazardous substance on the site.

Eligible activities include up to $100,000 for assessment and up to $500,000 for cleanup. Other eligible activities include costs to empty or remove underground storage tanks, abatement of asbestos, lead or other contamination, demolition and site clearance.

ODSA stated in its announcement that priority will be given to vacant gas or service station projects where cleanup provides the greatest environmental, community and economic impact.  This statement suggests that priority will be given actual abandoned gas stations.  There are also many instances where abandoned underground storage tanks exist on industrial or commercial property. It appears the State views these sites as less of a priority.

As discussed in the prior post, the State already maintains a list of BUSTR Class C tanks.  There are over 500 Class C tanks already appearing on the list.  With so many abandoned tanks, it is very likely that the $20 million in funding will be used up very quickly.  Therefore, it is important for any landowner or community seeking funding to make sure they are ready to submit an application as soon as the program opens.  

Update:  ODSA just released its webpage on the Abandoned Gas Station Cleanup Grant Fund.  Application materials and scoring matrices for projects will soon be availble

Attorney General Mike DeWine should be commended for putting together a comprehensive manual regarding legal issues, resources and incentives available to assist with economic development. The manual is called the 2015 Ohio Economic Development Manual.  

The Attorney General collaborated with a number of state agencies and local economic development organizations in putting together the manual.  These collaborators helped summarize a number of highly complex issues and programs.  

To my knowledge, no other state official has attempted to compile such a manual.  For those like myself who are engaged in economic redevelopment projects, in particular brownfield redevelopment, it can take a significant amount of time to stay up on the latest issues, programs and incentives.  

While the manual is an excellent resource, there is no way it can provide anything other than a basic level of understanding regarding complex issues such as brownfield redevelopment.  The purpose of this post is to raise awareness of the various layers of complexities related to brownfield redevelopment that are not discussed or oversimplified in the manual.

Overview of Brownfield Section of the Manual

The manual provides an overview of the stages of brownfield redevelopment as well as a quick summary of possible incentives.

Stages of Brownfield Redevelopment

The manual states the following as the stages for brownfield redevelopment:

  • Identify Site
  • Develop remediation Plan
    • Due Diligence
      • Phase I (paperwork, database review and site visit)
      • Phase II (sampling)
    • Cleanup- Under Ohio EPA’s Voluntary Action Program (VAP). Once cleanup complete a Covenant-Not-to-Sue (CNS) will be issued by the State

The manual provides an overly simplistic view of brownfield redevelopment.  Here are just some of the issues with this summary:

  1. Review of Phase I and Phase II Reports-  As discussed numerous times on this blog, it is very important to closely review any Phase I report received on a property to make sure it was done correctly (ASTM or VAP standards).  Also, it is not uncommon for different consultants to reach different conclusions as to whether something constitutes an issue to be identified in a Phase I report.  Finally, formulating the purpose and scope of Phase II testing is a critical component to the due diligence process. Phase II costs can range from $10,000 to $300,000 depending on the site and risk mitigation strategy to be employed.
  2. Alternatives to Full Cleanup-  There are alternatives available to property owners to mitigate environmental risk other than full cleanup of the property.  A very common approach discussed at length in prior blog posts is the Bona Fide Purchaser Defense (BFPD) under CERCLA. Depending on the Client’s risk tolerance and the issues presented at the site, BFPD can be a much faster and less expensive option to the VAP to mitigate risk and address the more serious threats a property may present.
  3. Eligibility Issues in the VAP-  There are different types of contamination and sites that are not eligible for remediation under the VAP.  These include, but are not limited to: underground storage tanks (USTs), hazardous waste management units (RCRA closure), PCBs, (TSCA) and sites under federal or state enforcement.
  4. Environmental Insurance-  No where does the manual discuss the possibility of environmental insurance to address risks presented by a site.  Such insurance is commonly used in business transactions as well as brownfield redevelopment projects.
  5. Cleanup Design-  The manual suggests that a party can consult with Ohio EPA’s VAP Technical Assistance program in developing its cleanup plan for a project.  While Ohio EPA’s Technical Assistance program is an extremely useful tool, the manual does not indicate that a private party has a great deal of control over designing a cleanup to meet applicable standards.  Since the cleanup is the most expensive component, it is critical to evaluate the options available to meet standards (i.e. engineering controls, institutional controls and addressing exposure pathways).

Incentives Available

The manual discusses the following incentives available to assist with brownfield redevelopment:

  • Ohio EPA Targeted Brownfield Assessment- Ohio EPA program to pay for Phase I assessments and potentially Phase II activities using its Site Investigation Field Unit (SIFU).
  • EPA VAP Technical Assistance- Ohio EPA provides technical assistance on how to complete a VAP cleanup on the property.
  • Ohio Brownfield Fund- Loans up to $500,000 for Phase II activities and $5 million for cleanup
  • JobsOhio Revitalization Loan and Grant Fund-  Up to $200,000 for Phase II, $1 million in grant funds and $5 million in loan funds for cleanup activities.
  • Abandoned Service Station Fund Program-  Class C underground storage tank (USTs) cleanup fund for abandoned tanks.  Up to $100,000 for assessment and $500,000 for cleanup activities.

This list of available incentives provided in the manual is a good basic overview of the major state programs in Ohio.  However, the manual does not mention the fact there are a number of local brownfield incentive programs that will provide grant funds for Phase Is, Phase IIs and cleanup activities. In many instances, these local programs can be a better fit for a particular project.

Furthermore, each of the programs listed above have important eligibility criteria, limits on reimbursable costs as well as development or job creation requirements in order to secure funding.  It is critical for a party to understand these commitments prior to accepting grant or loan funding.

Conclusion

This post is not meant as a criticism of the Attorney General’s efforts in putting together the manual.  The manual is a good place to start to get a basic understanding of various issues and programs that can impact economic development.  However, with complex issues like brownfield redevelopment, the redevelopment process is more of an art than exact science.  An over simplified view can result in failed projects or unnecessary costs.  

In a novel case, the Court of Appeals (Second District Montgomery County) held that Ohio EPA had no duty to disclose knowledge of contamination to a buyer of a contaminated property, even though the Agency had records in its files documenting additional contamination.  See, Ohio v. Republic Envrtl. Sys. (Ohio), Inc., 2015 WL 5783650 (Ohio Ct. App. Sept. 30, 2015).  

Key Facts 

Buyer purchased a property that was in the middle of a hazardous waste cleanup (RCRA).  Seller makes no representations regarding the condition of the property (agreement contains an "as is" clause). Buyer also agrees to assume Seller’s cleanup obligations.

Prior to purchase, Ohio EPA approves a cleanup plan ("RCRA Closure Plan").  The Buyer purchased the property in reliance on the closure cost estimates in the plan.  After Buyer purchases the property, it is later discovered that additional contamination is present on the property which will result in a significant increase in cleanup costs.  Buyer asserts Ohio EPA knew the contamination was present based upon documents it had in its files.

Court Holds Ohio EPA Has No Duty to Disclose

Buyer argued that Ohio EPA had a duty to disclose all known contamination because the Agency had records in its files showing additional contamination.  Buyer asserted that the Ohio Administrative Code provisions related to approval of cleanup plans (RCRA Closure Plans) placed an affirmative duty on the Agency to inform the Buyer of everything it knew regarding the property.

Court disagrees, holding that the Agency simply oversee the cleanup process.  Owners or operators are responsible for identifying all contamination and cleaning up the property to meet standards.  

The Court noted that the Buyer did not perform any independent due diligence prior to purchasing the property.  The Court said, Buyer should not have relied only upon the Agency’s approved cleanup plan cost estimate.

Lessons

Key lessons from this case:

  1. The burden is on the Buyer to perform sufficient due diligence prior to purchase;
  2. Don’t rely upon Agency approved cleanup cost estimates, Buyer should perform their own independent analysis of cleanup requirements; and
  3. Cleanup of environmental sites always involve the risk that additional contamination will be discovered during the cleanup process.