Mary Bielen
Throughout the country, especially in older industrial regions--such as the Great Lakes states--cities and neighborhoods face the challenge of redeveloping unused, and sometimes abandoned, industrial properties. If environmental contamination is present or suspected, the site is called a "brownfield." This term has been coined as an antonym for uncontaminated "greenfield" sites, located in undeveloped areas on urban fringes. Because of contamination in the ground, buildings, and other structures, and possibly in groundwater or adjacent surface water of contaminated sites, considerable remediation or cleanup is often required by state and federal environmental agencies and financial institutions before redevelopment can occur. Using current technologies, cleanup costs can be substantial. Uncertainty regarding environmental liability, cleanup standards, and the administrative process contribute to the difficulty of redeveloping these sites. Without a specific list of contaminated sites, the total number is difficult to quantify. The General Accounting Office estimates that between 130,000 and 425,000 brownfield sites exist nationwide. The fact that many sites are not in the real estate market adds to the difficulty of quantifying them.
The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as "Superfund," is the federal law outlining liability, enforcement actions, and cleanup provisions concerning contaminated properties. Properties posing significant environmental health risks, containing high levels of contamination, and requiring extensive amounts of time and resources to remediate are termed "Superfund sites." Only a small percentage of all contaminated sites, approximately 13,000, are designated Superfund sites, and ten percent of these are on the National Priorities List (NPL). In contrast, the term "brownfield" is commonly used to describe the large majority of contaminated properties, which are generally smaller in size than Superfund sites and involve low to moderate levels of contamination. On the state level, the Ohio Environmental Protection Agency (EPA) maintains a Master Sites List of more than 1,000 properties with known or suspected contamination. Although the list includes NPL sites, the majority fall below the threshold of Superfund. Other contaminated sites, unknown to the Ohio EPA and not on the list, most likely exist.
Current and prospective brownfield property owners must deal with the CERCLA requirements before the property can be redeveloped. CERCLA departs from earlier environmental laws by altering how liability, or financial responsibility, will be allocated when a site cleanup occurs. Prior to CERCLA, responsibility was decided based on acts of negligence, nuisance, trespass, and similar common law standards. When CERCLA became law in 1980, liability became "strict, retroactive, joint and several," meaning former, current, and prospective owners could all be responsible for site cleanups. Environmental liability under Ohio statutes differs from CERCLA. In Ohio, liability is "proportional," meaning it is assigned based on the degree of responsibility and most recent use of the property. The inconsistency between CERCLA and the state regarding liability contributes to the climate of uncertainty involved in redeveloping brownfields.
In addition, lending institutions involved in financing redevelopment projects may be held liable under CERCLA if they somehow "participated in the management" of the property. Interpretation of this participation has been the subject of some debate. Generally, if the lending institution's involvement was limited to extending credit or ownership following foreclosure, it is exempt from liability under the "secured creditor exception." Court decisions have varied, however, in their rulings on the extent of lender liability in brownfield redevelopment projects, leaving the lending community uncertain about their future liability in these cases.
Another requirement of CERCLA, sometimes inconsistent with state provisions, involves cleanup standards. Superfund has relied on a "risk range" in setting cleanup standards for the 100 most common chemicals found at contaminated sites. The range allows for site-specific risk assessments, which weigh the health risks of the chemicals against the likelihood and duration of human exposure. In contrast, some state programs base standards on the future use of the property.
Finally, brownfield sites may be subject to the regulations of other federal and state environmental programs concerned with asbestos, lead paint, underground storage tanks, and other hazardous wastes. When additional regulations apply, it can sometimes cause confusion for the property owner. Where CERCLA is concerned with cleanup and removal of hazardous wastes at contaminated sites, for example, the Resource Conservation and Recovery Act (RCRA) is concerned with the transport, storage, and disposal of hazardous substances at current operating facilities.
The remediation method to be employed in a cleanup is determined on a case-by-case basis. Factors to be considered are: the hazardous materials present; the level or concentration of those materials; whether materials are present in buildings, soil, or groundwater; and the future use of the site. When the level of cleanup required by the responsible regulatory agency is known, the appropriate cost-effective treatment can then be determined.
The five major categories of treatment options, in ascending order of cost, are: biological, physical, solidification or stabilization, chemical, and thermal. Containment and monitoring are additional options. Bioremediation is a promising new technology that uses bacteria, fungi, or yeast to destroy contamination in soil and water. It can be effective with a wide range of compounds at a relatively lower cost than other technologies.
On-site remediation has become more attractive as a result of new technological developments, as well as increasing costs and more stringent regulations at waste disposal facilities. In addition, on-site treatment lessens disruption at the site and reduces the potential risks involved with removing and transporting hazardous materials to appropriate waste disposal facilities.
Proponents of brownfield revitalization point out many potential benefits. They cite the environmental benefits of reducing the spread of urban sprawl and curtailing traffic congestion, related air quality problems, and other forms of environmental degradation. Economic benefits include relocating jobs back to the central city, providing employment for dislocated workers and minority populations, and creating additional tax revenue. Brownfield redevelopment could encourage further central city revitalization efforts. For example, brownfield sites located along urban waterfronts and adjacent to downtown centers may be well positioned for development of retail and entertainment. In addition, brownfield revitalization makes use of existing roads, utilities, and other infrastructure instead of using tax revenues and other public resources to extend the same services to new development in outlying areas.
Although potential benefits are great, so are the existing barriers. In some cases, remediation costs and other redevelopment costs may exceed the value of the property. Often the brownfield site is riddled with problems other than environmental contamination, which complicate its potential redevelopment. Structural problems in existing buildings and access to major transportation routes, for example, often make a site undesirable even if it were not contaminated. If local taxes are high and the quality of schools, local government services, and the local business climate are low, businesses will often look elsewhere. In urban areas, racial tensions, crime, congestion, and lack of available financing may add to the undesirability of these sites as future business locations. These factors propel companies to seek locations in greenfield areas where these problems may not exist. Cleaning up contaminated sites alone, therefore, will not necessarily bring jobs back to the central city.
The most often cited factors which discourage brownfield redevelopment are uncertainty regarding liability, remediation cost, remediation process, and level of cleanup required. Inconsistency in current federal and state laws and their related enforcement contributes to the uncertainty. For all of these reasons, lending institutions may be reluctant to finance brownfield redevelopment, which further decreases the opportunity to redevelop these sites. Furthermore, potential buyers prefer property be cleaned up prior to purchase. To overcome these hurdles, one real estate development corporation in Ohio purchases brownfield sites and, after remediation, sells or redevelops the properties. They are currently involved in converting a brownfield site in Brooklyn, Ohio, into a 320,000 square foot retail shopping center.
A recent study of twenty brownfield sites concluded that uncertain environmental liability had the potential to interfere with property sales. Even if the sale price of a brownfield site is discounted to allow for cleanup costs, potential buyers may prefer greenfield sites rather than deal with the uncertainties of cleanup, which add time and cost to the project. Uncertainty may also distort real estate markets. If owners fear detection of contamination, they may withhold their properties from the market. This shrinks supply, and causes buyers to seek uncontaminated properties. Brownfields, therefore, become less desirable than greenfield sites for future development. The magnitude, however, of the effect of uncertainty on business site location and expansion decisions is unclear. Some have noted that many urban areas with current environmental liability problems have been declining economically for decades, even before the advent of CERCLA. Relative to other redevelopment concerns already discussed, potential environmental liability may have only a marginal negative impact on industrial real estate markets.
As of 1996, 30 states have instituted voluntary cleanup programs to encourage brownfield site remediation. The Ohio Real Estate Cleanup and Reuse Program, also known as the Voluntary Action Program (VAP), in existence since 1994, establishes opportunities for parties to remediate contaminated properties voluntarily. Prior to the VAP, a property owner could not undertake a cleanup and be sure it would meet environmental standards without direct Ohio EPA oversight. The VAP is designed to minimize bureaucratic red tape and maximize private sector resources in cleaning up contaminated properties. Ohio EPA does not directly oversee the cleanup, but rather requires property owners to seek the services of a professional certified by Ohio EPA to perform cleanup activities. Ohio EPA is currently working on rules that will link the level of cleanup required to the future use of the site. For example, sites redeveloped for residential use would be required to meet a higher standard of cleanliness than commercial and industrial sites.
Upon final cleanup, the certified professional prepares a "No Further Action" (NFA) letter, which is submitted to the Ohio EPA requesting a "Covenant Not To Sue" (CNS). This agreement releases the property owner from further civil liability to the State of Ohio for additional cleanup. Four property owners in Ohio have been issued a CNS from Ohio EPA as of November 1996. One of the properties, a 17-acre parcel in New Boston, Ohio, owned by the Southern Ohio Port Authority, was sold after remediation to OSCO Industries for an iron foundry operation. The redevelopment of this former steel mill site will bring more than 100 new jobs to the area.
A state issued "Covenant Not To Sue" does not prevent the federal government or other third parties from taking action against a responsible party. Many state voluntary cleanup programs are, therefore, entering into "memorandums of agreement" with the U.S. EPA to discourage federal action in these cases. Certain properties are precluded from participation in the VAP, including sites on the NPL and properties that may be subject to regulation under other environmental laws.
In financing brownfield redevelopment, no single best approach fits. Projects vary by type of development, level and class of contamination, financial position, and desired return on investment of the developer. Tax incentives, low interest loans, and grants directed at brownfield redevelopment are available and more are being proposed.
On the federal level, the Department of Housing and Urban Development's Community Development Block Grants (CDBG) and Section 108 loans, and the Economic Development Administration's Title I Public Works Grants and Title IX Economic Adjustment Assistance may be used in brownfield redevelopment. A number of additional federal programs are being proposed, including environmental remediation tax credits, federally supported revolving loan funds to state voluntary cleanup programs, and low interest loans and grants.
On the state level, both the Ohio EPA's Water Pollution Control Loan Fund and the Ohio Water Development Authority make low-interest loans available for remediation projects benefiting surface and groundwater quality. The Ohio Department of Development's Urban and Rural Initiative program makes grants available to local governments and nonprofit development organizations for brownfield redevelopment projects creating or retaining jobs. Eligible activities include land acquisition, infrastructure improvements, site cleanup, and building renovation in distressed rural and urban areas. The Brownfield Site Clean-Up Tax Credit Program allows corporate franchise tax or state income tax credits to businesses undertaking a brownfield cleanup and committed to reuse of the property for economic development. Remediated brownfield sites are also eligible for state property tax abatements. To be eligible for these state programs, participation in the Ohio Voluntary Action Program is required.
On the local level, an increasing number of cities and other local communities have developed innovative financing programs to help ease the costs or terms of borrowing for businesses. Many of these involve earmarking certain local revenues for brownfield redevelopment. Financing is also available through locally administered revolving loan funds. The use of tax increment financing (TIF) to raise public sector capital for brownfield redevelopment is increasing. Bonds are issued to finance site improvements and new tax revenues from the project are used to pay the bond debt. All of these programs can then be used to leverage private sector financing. Additional incentives can be offered with local tax abatements. Also, on the local level, utility companies are beginning to examine preferential electric rates for in-fill development in order to offset the costs of utility extensions and services to outlying areas.
Local communities have a vested economic and social interest in brownfield remediation. Case study analysis shows the most successful local programs are initiated by public and private sector community leaders working in a concerted effort. The Cleveland Brownfields Working Group, a strategic planning committee consisting of private and public sector stakeholders, is an example of such a collaborative venture. The group was organized by the staff of the Cuyahoga County Planning Commission to make recommendations concerning removal of barriers to redevelopment.
Sites need to be closely inventoried by local areas so their potential for various types of redevelopment can be determined. A local optimization strategy prioritizing redevelopment based on the highest economic return per unit of cleanup cost would maximize use of limited public resources. Factors other than economic return also need to be weighed. Preference could be given, for example, to sites located in distressed neighborhoods, in empowerment or enterprise zones, in areas of natural or historical significance, and in areas accessible to valuable infrastructure.
The Brownfields Economic Redevelopment Initiative (BERI), a federal EPA program, provides grants to cities developing local strategies. Cuyahoga County was the first pilot community in the country to receive a grant under this program and continues to be regarded as a prototype. Although BERI funds cannot be used toward actual site remediation costs, cities are using these grants to develop the following: local brownfield site databases; community outreach activities; brownfield redevelopment handbooks and other local educational programs; revolving loan funds for redevelopment; brownfield prevention programs; and local coordination efforts.
Given current urban growth patterns and the shifting of the urban economic base away from manufacturing and toward service industries, successful redevelopment of brownfields may involve converting former industrial sites to commercial, service, or even residential uses. For example, central city revitalization trends include warehouses being converted to office space and condominiums, and former industrial riverfront properties being converted to festival marketplaces and other recreational uses.
Although the potential benefits of brownfield revitalization are many, so are the barriers. Chief among these are uncertainties involved with liability, remediation costs, remediation process, and level of cleanup required. Policies directed at reducing uncertainties are in a continuing state of development. More affordable and predictable cleanup technologies are also evolving. Case studies suggest federal, state, and local programs are having an impact. Successful redevelopment strategies are being initiated by local communities. Given current urban growth patterns, brownfield redevelopment may involve converting these sites to other than industrial uses. Redevelopment may need to be prioritized based on economic advantages as well as nonmarket benefits, such as improved social conditions for neighboring residents.
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