The color of redevelopment

Although they can be laden with obstacles, brownfields reuse opportunities are real. In Worcester, Mass., a 24-acre, multi-owner site is being redeveloped to accommodate a regional medical center. Near Los Angeles’ Chinatown, a former rail yard and mill site is being converted into a mixed-use light industrial and commercial park. And in Bridgeport, Conn., a manufacturing plant has been converted into a minor league baseball park that attracted more than 300,000 people during its inaugural year.

Those are a few of the success stories involving local governments that have spearheaded or assisted in brownfields-related projects. Across the nation, cities and counties have completed hundreds of redevelopments. For example: * 365 projects in California are credited with creating more than 21,000 jobs, stimulating $475 million in annual tax revenue, and adding 5,200 housing units and 13 million square feet of industrial, office and commercial space. * Projects in 60 of Pennsylvania’s 67 counties have created 15,000 jobs. * Michigan communities have reported $458.7 million in private investments and 5,432 jobs stemming from brownfields cleanups. Results in those and other states suggest that brownfields liabilities can be worked out; that financing can be secured; and that cleanup can be accomplished – in short, that brownfields redevelopment can be achieved.

The traditional obstacles

The high price of brownfields cleanup – from site assessment to actual cleanup and re-development – has traditionally prevented local governments and private companies from taking on such projects. As a result, properties remain mothballed or abandoned, draining urban aesthetics and economics.

Unfortunately, cleanup projects are tied to a variety of factors for which finite schedules and prices are difficult to assign. Extensive demands for site evaluation, the need to comply with environmental regulatory requirements, potential liability and the resulting hesitancy on the part of financiers and insurers can add to the property owner’s reluctance to undertake a cleanup.

The Superfund law and its attendant regulations guide public officials and private parties as they cope with contamination at any site – regardless of a site’s inclusion on or omission from the U.S. Environmental Protection Agency’s priorities list. Even with those regulations in place, however, the process for cleaning up is determined on a site-specific basis, giving property owners little comparative data on which to base their project estimates.

Liability also is a critical concern. Even though EPA has moved to clarify the issue, the specter of liability drives site owners and tenants away from redevelopment projects. And it often interferes with their ability to borrow enough money to clean the site or modernize operations.

In fact, lack of financing for site assessment and cleanup is one of the biggest obstacles to redevelopment, according to EPA. Despite the agency’s efforts to clarify lender liability, financial institutions and private investors are concerned that contamination problems could reduce the value of the collateral. They also worry that borrowers faced with unexpected cleanup costs will not be able to repay their loans.

Leveraging resources

Since funding gaps are a major deterrent to brownfields redevelopment and reuse, local governments have expanded their menu of options for filling those gaps. They are tapping into federal brownfields funding, which has become more readily available in the last five years. And they are aided in 42 states by voluntary cleanup programs that offer incentives for local governments to redevelop sites or aid in redevelopment.

Furthermore, many local governments are leveraging their resources to encourage institutional and private investment in brownfields projects. For example, they are: * reducing the lender’s risk by providing the impetus for lending institutions to help companies or projects at sites deemed risky because of their prior uses; * reducing the borrower’s cost of financing by subsidizing loan carrying costs or crafting initiatives that reduce loan underwriting and documentation costs; * easing the developer’s or tenant’s financial burden by offering incentives, such as tax credits, that can improve the project’s cash flow; and * becoming partners by allocating public works resources for site preparation and cleanup, or by earmarking tax revenues or loan payments from other programs to fund specific project activities. They recover some of those costs during subsequent sale of the property or reuse.

In addition to providing financial backing and incentives, local governments can improve the brownfields investment climate by providing non-financial support. For instance, communities can promote “no cost” technical assistance or training.

Redirecting the ‘tried and true’

While municipalities continue to seek creative ways to advance cleanup, they also are steering a few tried and true vehicles toward the brown-fields arena. The strategies include: * Tax increment financing (TIF)
Available in nearly 40 states, TIF traditionally has been used for local revitalization efforts, usually in economically distressed or abandoned areas – the typical brownfields location. Based on the concept that site reuse will create new value, TIF is the most common local financing tool used in brownfields redevelopment. In fact, dozens of cities have used TIF to amass the capital needed for their projects. * Tax abatement
Commonly used to stimulate investments in building improvements or new construction, tax abatement gives local governments a workable, flexible incentive that can help influence private development decisions. * Community Development Block Grant “float”
In some situations, the U.S. Department of Housing and Urban Development allows cities to tap their block grant accounts on an interim or “float” basis. Those loans can be used to fund land and buildings purchases; site and structural rehabilitation; or new construction. A few municipalities – among them, Chicago – have financed brownfields cleanup activities using the CDBG float mechanism. * General obligation bonds
The bonds are used traditionally for acquiring land, preparing sites and making infrastructure improvements – all of which are key elements in brownfields redevelopment. The city’s ability to repay the bond debt can be enhanced by property tax revenues resulting from restored productivity of a previously contaminated site.

Creating the reuse environment As success stories multiply and interest in brownfields continues to grow, local governments will explore additional options for supporting cleanup and reuse projects. Already, some cities and counties are considering: * earmarking some portion of grant, loan or tax incentive resources for applicants proposing site characterization or cleanup projects; * developing a linked deposit program targeting brownfields projects. (Under the program, the local government encourages lending institutions to make reduced-rate, project-related loans; in return, it accepts a lower rate of return on the funds it places with the institution.); * implementing local use tax or franchise incentives for brownfields projects; * channeling some portion of loan repayments from existing city programs to brownfields activities; * earmarking water, sewer and wastewater charges for brownfields cleanups; * devoting money raised from environmental fines or development fees to brownfields projects; or * using small amounts of public funds to “seed” a private, shared-risk financing pool devoted to brownfields redevelopment. Finally, cities are experimenting with low- and no-cost techniques to stimulate brownfields redevelopment. For example, Chicago and Cleveland are considering ways to convey tax-delinquent properties to new owners with viable reuse plans. Other communities are contemplating making modifications in their zoning requirements (e.g., reducing parking requirements on existing sites near public transportation) to provide developers with the opportunity to earn a greater return on their investment.

Regardless of the strategies employed, local governments must realize that every brownfields project is different – specifically with regard to financial barriers and opportunities for reuse. Therefore, no single approach will fit all needs. However, used independently or in combination, federal, state and local resources, as well as incentives, are enhancing project viability.

Charles Bartsch is senior policy analyst for Northeast-Midwest Institute, a Washington, D.C.-based public policy center that focuses on economic revitalization in the nation’s industrial cities and towns.