Environmental
Strategies &
Applications


Brownfields

Brownfield Bulletin No. 1

Step No. 1 in the Brownfield Process
By: Stephen E. Fauer

Failure to undertake the correct form of due diligence can cost brownfield investors their rights and benefits under the New Jersey Brownfield and Contaminated Site Remediation Act (the Act). The first thing to remember is that every commercial and industrial property may be a brownfield . Here is what must happen prior to closing on a deal to ensure that your Brownfield benefits are fully available.

When you don’t know if the site is contaminated:
  • You must perform a Preliminary Assessment (PA) according to the New Jersey Technical Requirements for Site Remediation (N.J.A.C. 7:26E).
  • The PA is similar to an ASTM Phase I and will satisfy the due diligence requirements of any lender. This is because the PA includes the items required in a Phase I, then goes further by comparing and evaluating data from prior environmental work against current standards.
  • The price for a PA can be equivalent to a Phase I, but in some situations it can also be more expensive. This is largely a function of the amount of pre-existing data that must be reviewed.
When you know the site is contaminated and the purchaser will undertake cleanup:
  • Prior to closing, submit to the NJDEP a Memorandum of Agreement (MOA). The MOA is a document that says you are voluntarily undertaking a cleanup. Then you must begin the remedial process within 30 days after closing. Sometime thereafter a PA, similar to that described above, will be written.
  • Evaluate all the potential sources of money available to the purchaser. These include tax deferrals, tax appeals, rebates on remedial costs as a function of the amount of tax to be generated by the redevelopment project, a remedial grant for using an innovative technology, state loans, and insurance policies.
Why is an ASTM-E1527 Phase I a deficient form of due diligence under the Act?
  • Phase Is per ASTM-E1527 categorically do not conform to the Preliminary Assessment format as prescribed in the New Jersey Requirements for Site Remediation.
Brownfield Bulletin No. 2

Using Environmental Contamination for a Successful Tax Appeal
By: Stephen E. Fauer

Environmental contamination can sometimes be an asset. OK, maybe that is a stretch, but it could help reduce your property taxes. This little-known fact can save property owners substantial money. Here is what you need to know.

When Your Property is Contaminated:
  • Contaminated soil and ground water may diminish the value of your property thereby lowering the property’s assessed value.
  • New Jersey court decisions have clearly established that such factors must be taken into account when analyzing a property’s assessed value.
The power of “Stigma”:
  • The mere perception of contamination can stigmatize a property.
  • Stigma is a “mark of shame or discredit, a stain”. When evaluating stigma one looks at more than measurable contaminant levels. Perception, disruption, and fear all contribute to stigma.
  • A stigma may exist when an adjacent property is contaminated, or if your site has previously undergone a cleanup.
The Reality of Wetlands:
  • Properties with wetlands may be eligible for a successful tax appeal.
The Deadline for an Appeal:
  • Property tax appeals for a given tax year must be made by April 1 in that year.
Most tax attorneys that specialize in this area will analyze your site for no charge. If they take your case they typically work on contingency, meaning that after the appeal is granted they will send you a check.
Brownfield Bulletin No. 3

Getting Reimbursement for Environmental Costs
By: Stephen E. Fauer

The Brownfield and Contaminated Site Remediation Act has a series of mechanisms that enable Brownfield investors to recuperate large sums of money. You will maximize your return on investment through strategic planning prior to purchasing the property.

Low Interest Loans:
  • Hazardous Discharge Site Remediation Fund (HDSRF) loans are available for site investigations.
Tax Deferrals:
  • If your property is located in an Environmental Opportunity Zone, you are eligible for property tax deferrals that can be stretched for 10 years and, under certain circumstances, can be extended to 15 years.
Rebates of Your Remediation Dollars:
  • You can get up to 75% of your remediation dollars refunded as a function of the amount of taxes to be generated by your redevelopment project. The entire rebate can actually be realized in the first year on big tax-generating projects.
Grants:
  • If you use an innovative remedial technology, you can get a grant representing 25% of the cost (not to exceed $100,000).
  • The Business Employment Incentive Program (BEIP) confers a grant based upon the total New Jersey income tax paid by your employees, up to 80%. Your Brownfield development project must create either 25 or 75 new jobs (depending upon your location) and you must apply for the BEIP prior to signing your lease or contact.
Double-Bang for Your Construction Dollars:
  • If you decide to deed-notice your site to minimize remedial costs, then make double-use of your construction dollars. For example if you know that your building will have a big footprint and a parking lot, pay for these improvements with a normal construction loan. Then wrap those same improvements into your Redevelopment Agreement so they qualify as a remedial measure, thereby increasing the amount of remedial dollars that qualify for reimbursement (up to 75%, see above).
Brownfield Bulletin No. 4

Mining Gold from Old Insurance Policies
By: Stephen E. Fauer

Many companies pay for contemporary environmental expenses with old insurance policies. Here is what you need to know. In the early 1980’s insurance companies were getting hammered with environmental claims. Around 1986 they sought to stem their losses by instituting “the absolute pollution exclusion”. This clause expressly excludes environmental claims from most policies written after 1986. But these policies were normally written on an occurrence basis. This means a claim can be filed today if you can demonstrate that the pollution occurred during the policy period. Some clients have multiple policies covering various years and are thereby able to make claims on all of them. Sometimes, these policies will even pay for legal fees!

Here is what you need to do.
  • In a best-case scenario, you will be able to produce your former insurance policies.
  • In lieu of an original policy, a cancelled check with the policy number is valuable.
  • If you have neither the policy nor a cancelled check, contact your former insurance agent or agency. They may have records or information that will help.
  • If all else fails, you can retain an Insurance Archeologist. This professional knows how to research old policies. Their investigations can run upwards of $10,000.
Another question that we are often asked is, “How do I prove to the insurance company that the contamination occurred many years ago when the policy was in force?” There are several answers to this.
  • Sometimes we can demonstrate that contamination was generated in the past by performing a Preliminary Assessment.
  • Chemistry is another excellent tool. For example, the presence of lead or the absence of methyl tertiary butyl ether (MTBE) is important when looking at gasoline. Forensic chemistry is a specialized form of laboratory analysis that does several things. It can age a chemical by telling us its degree of weathering. Or sometimes a plume will contain other chemicals that indicate its date of origin.
  • Another valuable technology is “forensic hydrogeology”. By looking at the distance a contaminant has traveled from the source area, we can determine the time it has taken to travel that distance thereby establishing the date of origin.
In summary, even though you paid your insurance premiums long ago the coverage may still be in effect. Therefore, why not claim the money to which you are entitled?
Brownfield Bulletin No. 5

Does Your Remedial Project Qualify for a Federal Tax Deduction?
By: Stephen E. Fauer

Some forms of cleanup may qualify for a current year federal tax deduction. The following information and application form are found on the NJDEP web site: http://www.nj.gov/dep/srp/forms/tax/irc198_cert.htm

Persons who have expended funds for environmental remediation may be eligible to treat that expense as a current year federal tax deduction. To pursue this opportunity, a statement from NJDEP is required confirming that the property being remediated is, in fact, a qualified contaminated site. For the definition of a “qualified site see, http://www.epa.gov/brownfields/pdf/pl105-34.pdf.

What does this mean to an eligible taxpayer? Have your tax preparer, after he or she consults the Internal Revenue Code section on “Expensing of Environmental Remediation Costs”, advise you whether your cleanup costs may be allowed as a deduction for the tax year during which the costs were paid or incurred. (See, http://www.irs.ustreas.gov/pub/irs-drop/rp-98-47.pdf).

Then, if you believe that your costs do qualify under the federal Tax Code,
complete the Taxpayer Certification and mail it to:

Office of Brownfield Reuse
NJDEP
PO Box 028
Trenton, NJ 08625-0028
Attention: Federal Taxpayer Relief

Upon satisfactory review, NJDEP will issue your statement to file with your tax return. If you have any questions, email them to Sue.Boyle@dep.state.nj.us