On January 11, 2002, President Bush signed into law the Small Business Liability Relief and Brownfields Revitalization Act.1 The legislation created a statutory brownfield funding program and provided financial assistance to states to establish and administer brownfield cleanup programs. The legislation also included several amendments to the liability scheme under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), otherwise known as the Superfund statute.
After the federal legislation was enacted, comprehensive Brownfields legislation was signed into New York law (the "Act").2 The Act creates a Brownfield Cleanup Program ("BCP") and amends other New York statutes to facilitate implementing the BCP. The Act also provides significant amendments to the New York Environmental Conservation Law ("ECL"), specifically regarding remediation of hazardous waste sites under the State Superfund Program, amends the defenses pursuant to the Navigation Law for cleanup of petroleum spills, and establishes the Groundwater Protection Act to address long-term remediation of groundwater contamination. The new legislation is extensive, with the authorizing of new programs with many nuances and amending liability schemes under current remedial programs. A summary of the major components of the new Brownfield Cleanup Program and the amendments to the other New York environment programs may assist in understanding New York's reforms to the environmental regulatory schemes for remediation of contaminated properties.
The Brownfield Cleanup Program ("BCP")
The Legislature modeled the BCP after the New York State Department of Environmental Conservation ("NYSDEC") administrative Voluntary Cleanup Program ("VCP"). With the enactment of the BCP, NYSDEC is no longer accepting application for the VCP, which will be phased out.3
The BCP focuses on facilitating the cleanup and re-use or revitalization of contaminated properties. The goal of the BCP is two fold. One is to provide economic incentives and remove impediments to revitalizing contaminated properties, which parties understandably were reluctant to purchase and lenders were reluctant or refused to provide financing. The economic theory is that these redeveloped properties will increase tax revenues, potentially create jobs and reinvigorate diminished property values in an area. The second goal is to minimize urban sprawl and diminish the demands for developing uncontaminated property in rural and suburban areas. The Legislature has attempted to address many of these issues to provide a framework to induce eligible parties to redevelop eligible contaminated sites.
Eligible Parties and Sites
All parties are eligible for the BCP except those subject to state or federal enforcement actions seeking remediation of the contaminated property or those subject to outstanding Spill Fund claims.4 The NYSDEC also has discretion to deny parties based on a party's past practices with respect to environmental compliance, including violations of ECL Article 27; previous denial of entry into the BCP; conviction in a criminal action regarding handling hazardous waste or petroleum, and other enumerated factors as set forth in the statute.5 Eligible sites include any real property the development of which is hindered by the presence, or potential presence, of hazardous waste, petroleum, pollutants or contaminants, as defined under the BCP. Several types of contaminated sites are not eligible. The ineligible sites are mostly highly-polluted sites:
(1) Sites listed as Class 1 or 2 in the Registry of Inactive Hazardous Waste Disposal Sites, (notably, Class 2 sites owned by Volunteers are eligible until July 1, 2005);
(2) Sites listed on the USEPA National Priorities List ("NPL Sites");
(3) Sites subject to enforcement action under ECL Article 27, Titles 7 or 9, except hazardous waste treatment, storage or disposal facilities ("TSD Facilities") subject to a permit, other than an Interim Status permit;
(4) Sites subject to a cleanup order or Stipulation under Navigation Law, Article 12 (Oil Spill Act) or under ECL, Article 17, Title 10 (Bulk Storage of Petroleum) for a petroleum discharge; or
(5) Sites subject to any on-going state or federal enforcement action regarding hazardous waste or petroleum.6
While the process may be more analogous to cleanup under the Inactive Hazardous Waste Disposal Site Program and less flexible than petroleum spill cleanups under the Navigation Law, the requirements of the BCP Process depend to some degree on an Applicant's status as either a Volunteer or Participant and whether the prospective redevelopment plans require unrestricted, commercial or industrial use.
The initial step of the BCP Process requires submitting an application to determine eligibility of both the party and the site for the BCP. NYSDEC highly recommends that Applicants participate in a preapplication meeting with NYSDEC. NYSDEC will determine whether the Applicant is a Volunteer or Participant as defined under the Act.7 A "Volunteer" is an Applicant who is not liable for the known or suspected contamination, or whose liability arises solely from ownership after disposal, provided the Applicant has taken reasonable steps to stop continuing releases, prevent future threatened releases, and prevent or limit exposure to the contamination8 (this "appropriate care" standard is that same as the bona fide purchaser and contiguous property defense under CERCLA.)9 A "Participant" is an Applicant who is liable for a discharge as the owner or operator of the site, or otherwise responsible for remediation of the site.10
Once NYSDEC approves the Application, the parties enter into a Brownfield Cleanup Agreement ("BCA"). While the program is voluntary and can be terminated at any time, the BCA requires the Applicant to undertake appropriate remedial activities depending on the site and the prospective redevelopment plan under NYSDEC oversight.11 Specifically, a Volunteer is required to identify the nature and extent of on-site contamination and to develop an acceptable remedial work plan or determination that remediation is not necessary. A Participant has the same requirements except that the investigation and remedial work plans and reports must also address off-site contamination emanating from the site. If site remediation is deemed necessary, then a remedial work plan is developed. The remedial work plan must include an "Alternatives Analysis." The Alternatives Analysis requires fewer steps then a traditional Feasibility Study under Superfund but still requires a detailed analysis under nine remedy selection factors. NYSDEC then reviews the Alternatives Analysis for the proposed remedial action and determines the scope of the site remedial program after public notice and comment.12
The NYSDEC is required to evaluate the remedial program based upon a multi-track approach for remediation of contaminated soils, ranging from unrestricted use to various degrees of restricted used (Tracks 1-4). However, the use of the multi-track approach cannot be implemented until NYSDEC and NYSDOH promulgate numeric soil cleanup objections for unrestricted, commercial and industrial land use. Until such regulations are promulgated, NYSDEC will evaluate each site on a case-by-case basis.13
Like other remedial programs, once the remedial work plan is approved, the Applicant can implement the plan. The BCP Process provides that the NYSDEC issues a Certificate of Completion to the Applicant for the site. However, it is not necessary that a party fully achieve the remediation requirement to receive the Certificate of Completion. NYSDEC has authority to issue the Certificate of Completion based upon a final engineering report that sets forth the following: (1) the completed remedial activities to date; (2) a certification that the remediation requirements have been or will be achieved within the approved timeframes; (3) a description of the site boundary subject to the BCA; (4) a description of the institutional/ engineering controls to be used, if any; (5) a certification that land use restrictions are set forth in a recorded environmental easement;14 (6) a certification that future operation and maintenance plans have been approved by NYSDEC; and (7) a certification that the party has required financial assurances mechanisms. The obvious benefit of providing the NYSDEC the authority to issue a Certificate of Completion prior to the actual completion of the remedial work plan requirements allows for Applicants to move forward with redevelopment and/or facilitate transferring the site to parties seeking to develop remediated Brownfield sites.15
A Certificate of Completion will not be issued to any Participant who has not resolved all liability to the Spill Fund under the Navigation Law for the BCP site (as opposed to all sites the properties for which the Participant may be responsible). NYSDEC and the New York Department of Taxation and Finance are charged with developing the format for a Certificate of Completion.
BCP Liability Limitations
The BCP provides that upon issuance of a Certificate of Completion, the Applicant (Volunteer or Participant) is no longer liable to the State for hazardous waste or petroleum at or emanating from the site under a covenant not to sue (subject to specific reopeners upon notice to the Applicant). Volunteer-status Applicants are insulated from natural resource damages claims. Participants, however, may still be liable to the State for natural resource damages. This liability limitation applies to the Applicant's successors and assigns who take title to the site, develop or otherwise occupy the site, provided the successors and assigns are not responsible for the disposal or discharge of contaminants, unless they were parties to BCA and they adhered to the BCA requirements.16
Moreover, an Applicant's claims for contribution and indemnification from third-parties are not impacted. Only claims against the Spill Fund are extinguished and an Applicant is granted contribution protection from claims relating to remediation addressed in the BCA. It should be noted that the BCP does not provide protection to an Applicant from personal injury or wrongful death claims by parties other than the State.17
BCP Tax Credits Benefits
To make investing in redevelopment or reuse of a known or suspected contaminated property more attractive, the BCP provides tax credit incentives to parties who perform remedial activities under the BCP. In order to receive the tax credits, a Certificate of Completion is required, stating that remediation requirements for the site have been achieved or will be achieved under the work plan. The tax credits start to accrue upon signing of the BCA and are not available until the taxable year in which the NYSDEC issues the Certificate of Completion. In any case, the tax credit will not become effective until the tax year beginning April 1, 2005. The percentage of tax credit ranges from 10% to 14% depending on whether an individual or business is remediating a site and whether site is cleaned up to restricted or unrestricted levels. The credits consist of: (1) costs for investigation and remediation; (2) tangible property credits for development or redevelopment of the site including building and structural components; (3) on-site groundwater remediation credits; (4) real property taxes credit for qualified sites based on the number of jobs created by the redevelopment; and (5) credit for environmental remediation insurance18 up to $30,000 or 50% of the premium paid, whichever is less, which may be used to support the financial assurance requirement.19
The BCP comprehensive program provides an excellent opportunity to increase the potential benefits for redevelopment and reuse of contaminated properties. When reviewing a property's potential for development, it is worthwhile to consider the BCP Process for the cleanup of contaminated property. The liability limitations, coupled with the financial incentives, may tip the balance and turn a previously unfeasible redevelopment projects into a successful project.1 Pub. L. No. 107-118, 115 Stat. 2345 (2002) and codified to various sections of CERCLA, 42 U.S.C. §§ 9601 et seq.
2 A.9120, effective October 7, 2003 and codified into various section of New York Laws.
3 NYSDEC however, did provide for VCP parties the opportunity to convert the VCP application or site remediation to the new BCP with the enhance benefits of the BCP, however, such application had to be filed by March 31 2004, unless NYSDEC extends the deadline. If a party failed to convert the VCP remediation, it will be required to complete the project under the VCP and will not be allowed to convert it to the BCP and obtain the tax credits and liability limitation.
4 ECL §27-1407(8).
5 ECL §27-1409.
6 ECL §27-1405(2).
7 ECL §27-1407.
8 ECL §27-1405(1)(B).
9 CERCLA, 42 U.S.C. §§ 9601(40) and 9607(q), respectively.
10 ECL §27-1405(1)(A).
11 ECL §27-1409.
12 ECL §§27-1411 and 1413.
13 ECL §27-1415.
14 The Act provides for the new environmental easement provisions, under ECL, Art. 71, Title 36.
15 ECL §27-1419.
16 ECL §27-1421.
17 ECL §§27-1421(4) and (6).
18 There are several types of environmental remediation insurance: pollution legal liability insurance, cost cap insurance, finite risk cost cap, or secured creditor insurance. These are some of the insurance products that can be used to obtain financing for redevelopment projects from lenders. N.Y. Tax Law, Section 12.
19 N.Y. Tax Law, Section 12.
Published April 1, 2004.