Tax credits can help clean up pollution and renew communities, three experts from Buffalo and Denver told Oregon leaders and professionals during a visit to Portland last week – but it's important to think carefully as they're set up.
There are thousands of known or suspected polluted properties – often called “brownfields” – around greater Portland, ranging in size from big industrial sites to corner gas stations and dry cleaners. Leaders, advocates and business are all interested in finding workable tools to get these sites cleaned up and renewed for better uses, including jobs, homes and commercial opportunities.
The Legislature has expanded the brownfield toolbox several times in recent years, making tools like land banking and property tax abatements available to local governments that want to use them to help spur cleanup and development.
But Oregon still does not have a tool that more than a dozen other states are using to help with particularly troublesome brownfields – those where whoever is responsible for the pollution has gone bankrupt, disappeared or abandoned the site.
Last week, three brownfield experts shared how state tax credit programs have helped make cleanup of abandoned brownfields possible in Denver and Buffalo, New York. Their visit culminated with a lunchtime discussion at the Collaborative Life Sciences Building in Portland's South Waterfront, itself one of the region's ongoing brownfield cleanup stories.
They shared tips for how tax credits can help with brownfield cleanup. Here are a few of the highlights.
Think from a developers’ perspective.
Brownfields represent an extremely risky proposition for developers – which is why so many sit vacant for so long, said Mary Hashem, whose development company RE | Solutions has been involved with some of downtown Denver’s highest-profile brownfield renewal projects.
A traditional development project might borrow as much as 80 percent of the money needed to build. But banks tend to steer well clear of projects on polluted sites, lest they be left holding the land (and the liability) if the project fails.
“All of that is time and money that has to be invested before you ever get to the point of being able to build that building and attract a user,” Hashem said.
So if you want developers – whether for-profit or nonprofit – to invest in cleaning up and redeveloping of brownfields, the community often needs to step in to help fill that gap.
“There is no one tool that will work for every site, but you should have a variety of tools at your disposal, so you can pick and choose and find the ones that will work,” Hashem said. “Tax credits are one of those tools.”
Tailor to local priorities.
Fourteen states have some form of brownfield tax credit, Hashem said. Each state has a unique setup that reflects its own goals and circumstances.
Some states, including Colorado, only provide a credit for the costs of cleanup and closely watch the overall commitment from the state. Legislators in the state created the program in 2014 after letting a previous credit expire. Colorado has a $3 million annual cap on its program, with sites eligible for up to $525,000 to help offset cleanup costs – a relatively small total for some projects. But even that investment can have a big payoff. The program leveraged $1 billion of private improvements in 2015 on 13 projects and nearly $850 million on nine projects in 2016, Hashem said.
Properties that participate in the program also can be certified as fully cleaned up by the state when completed, which gives most banks the assurances they need to lend money. Like Oregon, Colorado’s brownfields program also offers site assessments and low-interest loans to brownfield redevelopers.
Others target certain kinds of redevelopment by adding extra incentives. In New York, developers can get additional credits for redeveloping sites in high-poverty areas, including affordable housing or manufacturing and so on, noted Marty Doster, who managed the brownfield tax credit program in western New York for many years at the state's Department of Environmental Conservation.
Those can add up to a total of tens of millions of dollars to make cleanup possible.
New York had to find the right way to define eligibility for properties, Doster said. After initially only requiring evidence that pollution would be “a barrier” to redevelopment, the state later made qualification more stringent based on precise measurements of pollution and set different standards for New York City than the rest of the state, where the incentive is more needed.
In New York, the program isn’t limited by an annual cap, so it has been able to impact many more properties. By 2014, Doster said, thousands of acres had been redeveloped in 155 sites through the program. About 50 sites a year go through the program.
Thanks to offering the incentive, he said, developers have actually sought out brownfield projects and helped bring them to the state’s attention. 74 seriously polluted sites have been identified thanks to developers participating in the program, Doster said.
“In other words, they rise to the level of a Superfund project and we didn’t even know they existed,” Doster said. “It’s really a huge benefit to get these sites cleaned up.”
Another challenge: It’s never clear at the start how long a brownfield cleanup could take. For a developer, that uncertainty could be more than enough to kill a project before it begins.
Doster said this issue was part of how New York set up its program – putting the onus on the state to move quickly to let developers know whether they are eligible and will receive benefits. That makes the program more successful.
“There are three things that are important to developers. One is money and another one is release of liability,” Doster said. “But the third thing that really is important to them is timing. Our legislation puts requirements on the state to turn around applications.”
Consider how to reduce risk.
Both Colorado and New York offer programs that can reduce developers’ risk if they take on a brownfield project by committing to a state-approved cleanup plan. Oregon has a similar program through the Department of Environmental Quality.
But even then, brownfields can be too big a risk for a regular corporation or even a government. That’s when alternative developer approaches might make sense.
In Buffalo, a nonprofit entity has helped turn around a legacy of heavy industry followed by economic collapse that left much of Buffalo’s working properties – including its waterfront – polluted and abandoned.
The Buffalo Urban Development Council has a board of elected leaders, business and community advocates, but its independence allows it to take on some massive redevelopment projects, said executive vice president Dave Stebbins.
The council can act nimbly to pursue opportunities, bear the risk and use tools like tax credits to help. They have invested in several large-scale redevelopment plans informed by considerable public input and played the role of convener, cleaner and developer.
In a city with as long a history of pollution as Buffalo, that’s no small task.
“Yes, it’s daunting. But you’ve got to appreciate, it’s really a long-term venture – a marathon, not a sprint,” Stebbins said.
By having a nonprofit entity take on so much of the risk and work of cleanup, new businesses can come in with confidence that they won’t get mired in the muck of pollution, instead focusing on creating jobs. Even though the council is a nonprofit with no tax liability, is can market brownfield tax credits to investors to help get funds to pay for complex cleanups.
Stebbins shared the remarkable success story of the Buffalo Lakeside Commerce Park, an abandoned steel factory around a polluted waterfront canal that is reemerging as a major jobs center with a jewel of public space at its heart.
The council is now moving forward on an ambitious workforce training and manufacturing campus project in an abandoned industrial corridor in east Buffalo. Brownfield tax credits and historic preservation tax credits will play an important role in the project, as will a variety of other state grants and public-private partnerships.
Brownfield cleanup can create more than jobs – and that can create a coalition.
In New York, Doster and Stebbins said, the state’s brownfield tax credit has helped create opportunities for thousands of jobs – with billions of investment.
Jobs are great. But if they were the only benefit of the program, it wouldn’t achieve its full potential, they said – and it might not even have survived.
Thanks to New York’s program, Buffalo has been able to restore miles of riverbank that were once completely dominated by industry, in the process turning a river that once changed colors and lit on fire regularly into a environmental and community success story.
“Along with the development…I really get fired up about the environmental remediation that falls on the back of these,” said Doster, who also serves on the board of an environmental nonprofit. “We’re restoring the riverbank to a state it hasn’t had for centuries.”
He noted that people are kayaking on the Buffalo River for the first time in decades, and public events on the waterfont have attracted thousands of people to rediscover a key community asset.
Affordable housing advocates have also recognized the benefit of the program to advance their goals in New York’s more expensive cities, Doster said.
So when the tax credit program was up for reauthorization in 2015, the strong support of environmental and housing groups combined with business interests from some of the struggling metropolises upstate to successfully push for renewal.
Finally, there’s the issue of leadership. Whether a mayor, legislator, or governor, leadership helps create the political will to create programs that support cleanup and make sure they work well.
“You need the champion. You need someone who can talk the language and get people’s confidence,” Doster said.
Without that, the status quo is hard to shake – and that benefits hardly anyone.
“If you don’t do anything, you’re gonna end up with land that will sit there for years,” Stebbins said.
In addition to their public presentation Friday, the three presenters spoke Thursday with the Oregon Brownfields Coalition.
The coalition, convened by Metro with dozens of public, private and nonprofit partners, has successfully advocated for a number of new tools in Oregon’s brownfield toolbox in recent years, including continuing to fund a state loan fund for brownfield cleanup and giving local governments land bank and property tax abatement abilities for brownfield cleanup.
A bill in the Legislature this year would begin a closer look at adding state tax credits to that toolbox. HB 2459 would create a state task force to study the issue and present recommendations to the Legislature by December 2018.
Several coalition members said they appreciated the lessons from New York and Colorado and how they could make a tax credit program work in Oregon.
“The presentations were very helpful,” Audubon Society of Portland conservation director Bob Sallinger wrote in an email.
He noted that his organization has been interested in setting up a tax credit program that can advance goals like open space and affordable housing while “scaling the credits correctly and protecting the public interest.”
“I was also intrigued by the way the New York program addressed the challenges of creating a program to serve both a huge metropolitan area and much smaller communities--a challenge we have here in Oregon as well,” Sallinger added.
The potential benefit to communities of all sizes was also encouraging to Karen Homolac, brownfields specialist at Business Oregon, the state’s economic development agency. Wherever a project is, she says, developers have a common need: Make the project pencil out so they can have some return on their investment – which can be much larger out-of-pocket for a brownfield cleanup.
In exploring a tax credit program in Oregon, Homolac said, leaders should simultaneously advance public goals and make sure that developers find enough benefit from the program to undertake these costly, risky projects.
“You have to have an active conversation with developers and understand their perspective and what they have to consider as they put together their pro forma,” she said.
But when things align and a program is set up well, brownfields can go from stigmatized liabilities to sought-after possibilities.
“One of the things that was really apparent is that developers weren’t running way from these sites,” Homolac said. “They were actually looking for them.”
A brownfield near you?
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