Remediation Amendments to Brownfield Cleanup Program

NYSDEC Adopts Amendments to Brownfield Cleanup Program at 6 NYCRR Part 375 – Effective August 12, 2016

NYSDEC Update

On June 10, 2015, DEC formally proposed revisions to 6 NYCRR Part 375 to meet the statutory mandates in Part BB of Chapter 56 of the Laws of 2015, which amended and added new language to Environmental Conservation Law (ECL) Article 27, Title 14 – Brownfield Cleanup Program (BCP), and certain other laws. The proposal of these regulations resulted in amendments to the BCP law becoming effective on July 1, 2015.

The amendments to Part 375 are effective August 12, 2016. There are two new definitions, one for “affordable housing project” and a second for “underutilized” in 6 NYCRR Subpart 375-3 of the BCP regulations. The 2015 BCP law directed DEC to define these terms in regulation. These definitions, along with the other criteria for eligibility for tangible property tax credits (the site’s location in an environmental zone or the site meeting the statutory definition of “upside down”), will be used to determine whether a site in New York City is eligible for those credits. The “affordable housing project” definition will also be used statewide to determine a site’s eligibility for the five percent affordable housing tax credit bonus.

The “Brownfield site” definition at 6 NYCRR 375-1.2(b) has also been amended to meet the definition in the 2015 BCP law and 6 NYCRR 375-3.3(a)(1) has been deleted to conform to this definition.

In part, the 2015 amendments to the BCP law address the large differences in the potential state tax liability between New York City BCP sites and those in the rest of the State. The primary driver for the regional imbalance within the BCP is high development costs for some downstate projects, which resulted in excessive tangible property tax credits. Limiting the eligibility of New York City sites to specific affordable housing projects and underutilized properties through criteria established by regulation, in addition to sites which are in an environmental zone or “upside down,” should help target funds and projects in New York City areas with the most need. The amended definition of “brownfield site” implements a statutory amendment that clarifies DEC’s use of an environmental standards-based approach to site eligibility determinations to ensure that tangible property tax credits are only afforded to sites with actual contamination rather than potential contamination. The ‘underutilized’ definition encourages industrial and commercial development under the BCP. Properties that are not zoned for commercial or industrial use would be zoned for residential use; and while they would not qualify as underutilized, they could qualify as affordable housing, be located in an environmental zone, or possibly be “upside down.” The other eligibility pathways provide separate avenues for tangible property tax credits for residentially-zoned properties.

Environmental Services

Capitalizing On Sites With Environmental Property Damage

Capitalizing On Sites With Environmental Property Damage: Is There Really A Pot Of Gold At The End Of That Rainbow?

Barnes & Thornburg LLP
Kara Cleary
March 15, 2016

When a company learns that it has a site suffering from environmental property damage, “profit” is the last thing on that company’s mind. Rather, the terms that company is more likely thinking about in this situation are those like losses, risk, environmental agency scrutiny, costly and lengthy remediation, bad press, etc. A recent article in the New York Times titled “Turning Polluted Properties into Profits” takes an alternative view of the value of sites with environmental property damage.

The article discusses a new business model and group of investors who are actively seeking out these properties in order to buy them, clean them up, and then sell them for a profit. However, as the article noted: “insurance is key.”

Finding insurance to help cover some or all of the clean-up costs is vital to the profitability of the damaged site. Because environmental property damage can exist for decades, historical insurance policies might be able to provide coverage for the resulting losses. In fact, if the site triggers commercial general liability policies issued before the pollution exclusion was common in the mid-1980s, the likelihood of available coverage is very high, assuming the insurance company is still around and paying claims.

But, like any business model – there are risks. From an insurance standpoint, there are three areas of concern:

1. finding historic coverage is not always easy or cheap
2. whether the rights under the historic insurance policies will transfer to the buyer
3. remediation may exceed the originally anticipated scope

For example, unless a company has stellar record keeping practices, often times it is hard to determine what policies a company had 40 or 50 years ago and even harder to locate copies of those policies. There are companies that specialize in this area that can help. However, it may not be an easy, speedy or cheap task.

Next, insurance companies have been known to assert that so-called “anti-assignment” clause to prevent a buyer from accessing the seller’s insurance policy without the insurance companies’ consent. Whether or not such provisions will be enforced is largely dependent on what state law will apply to the interpretation of the policy and the nature of the transaction (asset deal versus stock deal).

Lastly, remediation is often times a long process with required monitoring for many years even after the clean-up is completed. In addition, contamination of groundwater or nearby water sources may impact significantly the scope and costs of contamination and remediation. Thus, it may be very difficult to properly assess the scope of remediation initially.

Despite these obstacles, courts around the country have ruled in favor of insurance coverage for sites with long-term environmental property damage. Thinking about those damaged sites as potential profit centers is very interesting and gives companies another potential option for dealing with the issue – selling the properties to interested buyers!

This article should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult an attorney on any specific legal questions you may have concerning your situation.

Environmental Services

Addition of a Subsurface Intrusion Component to the Hazard Ranking System

The US EPA is working toward a proposed rule to add a new screening component (subsurface intrusion (SSI) component) to the Hazard Ranking System (HRS) that would allow sites with vapor intrusion contamination to be evaluated for placement on the National Priorities List (NPL).

The subsurface intrusion component would expand the number of available options for EPA and state and tribal organizations performing work on behalf of EPA to evaluate potential threats to public health from releases of hazardous substances, pollutants, or contaminants. This addition will allow an HRS evaluation to directly consider human exposure to hazardous substances, pollutants, or contaminants that enter regularly occupied structures through subsurface intrusion in assessing a site’s relative risk, and thus, enable subsurface intrusion contamination to be evaluated for placement of sites on the NPL. The agency is not considering changes to the remainder of the HRS except for minor updates reflecting changes in terminology. Read more ->

Blog

NY State Sales and Use Tax may Now Be Applied to Environmental Testing

In the recent trial of Exxon Mobil Corp. v. State of New York Tax Appeals Tribunal, 2015 WL 919788, 2015 N.Y. Slip Op. 01840 (3d Dep’t March 5, 2015), the appellate court ruled that environmental testing services are a large part of taxable remediation activities and cannot be listed as a tax exempt service by clients in need of environmental services. The tax law currently differentiates between services that are providing a capital improvement to a commercial property and services that repair or maintain a property. The trial of Exxon Mobil Corp. v. State of New York Tax Appeals Tribunal found that ascertaining the current environmental condition of a site via testing and monitoring was a major part of taxable aspects of a site’s remediation.

The sales tax in question was approximately $500,000 owed to the state for environmental monitoring services used from 2000 through 2004 and were deemed as “activities that relate to keeping real property in a condition of fitness, efficiency, readiness or safety or restoring it to such condition”. To understand whether or not a service provided is taxable or not, one would have to consider many factors about the service; is the site testing performed as an integral part of a capital improvement program; or is a part of the environmental work tax exempt while other parts are not? These questions can be answered by considering what type of project it is, the time between the completion of environmental work at a site and the completion of the capital gains work, and how the environmental services are referred to in contracts, work orders, and other paperwork relating to the project.

Source: law.justia.com/cases/new-york/appellate-division-third-department/2015/517504.html

Environmental Services

Controlled_Recognized_Environmental_Condition_CREC

Controlled Recognized Environmental Concerns (CRECs)

New ASTM Standard Coming………….

CONTROLLED RECOGNIZED ENVIRONMENTAL CONCERNS (CRECs)

New term on the market

A client recently said to me; “It seems like every year environmental requirements become more stringent and costly, making more purchasers and lenders request environmental inspections before committing to the real estate transaction”. Environmental Site Assessments (ESAs) or Phase I Environmental Site Assessments are the industry standard for assessing a parcel of property environmental quality and part of the due diligence process required by financial institutions for commercial real estate transactions. ESAs or Phase I ESA are usually conducted according to the American Society for Testing and Materials (ASTM) Standard E 1527-05; with the last changes to this standard occurring seven years go. This, however, is going to change very soon. ASTM, the organization that creates Standards that Environmental Professionals (EPs) follow when performing Environmental Site Assessments (ESAs), is scheduled to issue a revision of the current ASTM 1527-05 Standards that would mandate additional investigation and assessment.

The new Standard, when approved by the EPA, will require (a) assessment for vapor migration. Vapor migration must be considered no differently than contaminated groundwater migration. The proposed ASTM 1527-13 standard references E2600-10, a methodology to assessing vapor migration;

(b) More detailed explanations for regulatory agency record reviews in every new ESA. This means that EPs would have to describe in greater detail why they decide particular sites listed in database searches would not affect a Site’s environmental quality. Although the proposed standard will minimize confusion and allow clients to better understand EPs’ judgments, this new measure will require additional time that will be required to complete them and;

(c) Simplification of the definition of “Recognized Environmental Concerns (RECs)”. The current definition for Recognized Environmental Conditions, or REC (the main thing that EPs try to identify during ESAs), has been found to be confusing to some people. As a result, the definition is proposed to be simplified while retaining the same basic meaning, except for the creation of the new term “Controlled RECs” (CRECs) proposed by the new ASTM Standard to describe sites that have had their regulatory agency cases closed but still have some harmful compounds present. This will allow for more accurate ESAs and prevent misunderstandings.

RECs – Old Definition: “the presence or likely presence of any hazardous substances or petroleum products on a property under conditions that indicate an existing release, a past release, or a material threat of a release of any hazardous substances or petroleum products into structures on the property, or into the ground, ground water, or surface water of the property.”

New Simplified REC Definition: “the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (1) due to any release to the environment; (2) under conditions indicative of a release to the environment; or (3) under conditions that pose a material threat of a future release to the environment.”

Historical RECs – The definition for HRECs is proposed to also be revised in order to separate itself from the CRECs definition. The definition of HRECs is currently defined as environmental conditions that have been RECs in the past, previously remediated and had their cases closed by regulatory agencies, but which may or may not be considered a REC currently. The new revision for HRECs will be;

New HREC Definition: – “a past release of any hazardous substances or petroleum products that has occurred in connection with a property and has been addressed to the satisfaction of the applicable regulatory authority or meeting unrestricted residential use criteria established by a regulatory authority, without subjecting the property to any required controls (e.g., property use restrictions, AULs, institutional controls, or engineering controls).

Controlled RECs – At times, however, remediated RECs are closed by regulatory agencies with implementation of required controls (e.g., property use restrictions, Activity Use Limitations (AULs, institutional controls, or engineering controls).

AULs are put in place at Sites where there is still some contamination but, due to low levels of contaminants and/or institutional controls installed at the Site, the contamination is not harmful to human health. AULs serve to protect human health by prohibiting certain activities on AUL sites (i.e. excavations on sites with subsurface contamination). The problem with the current definition for HRECs for sites that had required controls was that it was sometimes interpreted by clients as environmental problems that happened in the past and had no current effect on a Site. The creation of the new term CREC in the revised standards will clarify the confusion and such sites will be a REC under a Phase I ESA.

Just like with the current ASTM 1527-05 Standard; the proposed Standard will still satisfy the “All Appropriate Inquires” rule that qualifies landowners for the innocent landowner defense under CERCLA. This Standard will ultimately call for more comprehensive ESAs; which will be able to characterize the environmental quality of a site to a greater degree.

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