The Brownfield Cleanup Program was enacted in 2003 to encourage private development of former brownfield parcels. The program was amended in June 2008 to cap tax credits, and those tax credits were scheduled to expire in December 2015. As part of the 2015 budget proposal, the governor recommended significant changes to the program and an extension of the tax credits. The governor and New York State Legislature have agreed to modify the program and extend the tax credits. While the BCP has been very successful since its enactment, particularly in Western New York, financial concerns have existed. Notably, issuance of substantial tax credits to a perceived small number of mega-projects in downstate in exchange for modest environmental remediation expenditures, and a need to foster additional development of multiple brownfields across upstate urban areas. Those concerns have made the status of the BCP and tax credits uncertain during the 2014 and 2015 state budgets cycles. The BCP tax credit expiration in December 2015 and the governor’s last minute veto of a 10-year extension late in December 2014 only heightened uncertainty. Gov. Andrew Cuomo’s 2015 budget proposal included several modifications to the BCP program. The governor sought to limit tangible property tax credits to three classes of sites: environmental zones; sites where the projected cleanup cost is greater than the value of the property as clean; or an affordable housing project. Based on an agreement reached between the Legislature and governor, the BCP tax credits will be extended through March 31, 2026. Initially, site eligibility has been modified to require proof of site contamination that requires remediation, so sampling data must be part of the application. The BCP will also be available to Class 2 and RCRA sites if the applicant is a volunteer and DEC determines that no viable PRP exists. The amendments change the tax credits available to parties performing BCP projects. The changes bifurcate between New York City and upstate New York projects, mandating that downstate sites meet certain gates to qualify for tangible property tax credits. Upstate sites remain eligible for the tangible property tax credit as a matter of right. However, projects in New York City must separately apply for the tax credit and will only qualify if at least one-half of the site is located in an Environmental Zone; the property is “upside down” or “underutilized” or the project is an affordable housing project. Although DEC will need to issue regulations, “underutilized” is property where the actual and projected investigation and remediation costs exceed 75 percent of the parcels’ appraised value based on the uncontaminated value of the parcel. Assuming that a site qualifies for tangible property tax credit, the base credit is 10 percent and will be capped at 24 percent based on the following components: 10 percent base credit; 5 percent if the site is in an Environmental Zone; 5 percent if the site is in a Brownfield Opportunity Area; 5 percent if the site is developed as affordable housing; 5 percent for a manufacturing project; and 5 percent if the site is remediated to track cleanup standards. Therefore, based on the revisions to the percentages, it is likely that upstate BCP projects will be eligible for a larger share of tax credits. The BCP amendments also restricts eligible costs for which tangible property tax credits can be sought to tangible property that has a depreciable life of 15 years or more, and to costs of non-portable equipment, machinery and fixtures used exclusively on the site. In addition, the site preparation credits have been amended and provide a list of eligible costs that are necessary to implement the site remediation, including the cost of excavation, demolition, asbestos, lead and PCB abatement, engineering and consulting costs, as well as remediation costs, but excludes the cost of building foundation systems that exceed the cover system and remedial requirements of the site. Hence, by restricting site preparation costs, the amendments seek to control the scope of the credit beyond what is required for site remediation purposes. The BCP amendments are slated to be effective July 1, 2015, if DEC publishes new regulations, otherwise the effective date will be pushed back. The amendment also set new deadlines for BCP completion. Initially, sites admitted prior to June 23, 2008, need to obtain a Certificate of Completion by December 31, 2017. Sites admitted after July 23, 2008, but prior to July 1, 2015, must receive a Certificate of Completion by Dec. 31, 2019. Further, sites accepted into the program after July 1, 2015, must obtain a Certificate of Completion by Dec. 31, 2015, to qualify for BCP tax credits. The budget agreement also adds a number of other program changes. DEC will issue regulations for a streamlined BCP-EZ program for applicants to perform remediation without tax credits. The applicant must waive its rights to tax credits and satisfy the applicable Part 375 requirements, but will be entitled to a Certificate of Completion. After the July 1 effective date, volunteers will not be charged DEC oversight costs and participants may be able to pay a flat fee. The BCP program has provided significant economic development benefits to New York state, but particularly upstate communities. With the amendments and certainty of the tax credit extension, the BCP will continue to be a potent economic development tool. Download the Reprint from The Daily Record As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

The Brownfield Cleanup Program was enacted in 2003 to foster private development of former brownfield parcels. The program was amended in June 2008 to cap tax credits, and those tax credits are scheduled to expire in December 2015. Unfortunately, significant state concerns exist about the scope of the available tax credits. As part of the budget proposal, the governor recommended sweeping changes to the program and an extension of the tax credits. While the BCP changes were not incorporated into the final budget legislation, they remain subject to discussion and may receive action prior to the legislative session ending in June. The main areas of concern in the BCP since its enactment have been the following: determination of site eligibility for acceptance into the BCP; treatment of background contamination for eligibility; issuance of substantial tax credits to a perceived small number of mega-projects in downstate in exchange for modest environmental remediation expenditures; and a need to foster additional development of multiple brownfields across upstate urban areas. The BCP currently provides a three-part brownfield redevelopment tax credit: a site preparation credit (ranging from 10 percent to 22 percent based on corporate status and the location of the site); tangible property costs; and on-site groundwater remediation costs. The site preparation credit may be increased based upon the future use and level of cleanup (Track 1 is the highest cleanup; Track 4, the lowest) and ranges from 50 percent for unrestricted use, 40 percent for residential use; 33 percent for commercial use, and 27 percent for industrial use. However, if a Track 4 cleanup is performed, it reduces the applicable tax credit. The tangible property tax credit was capped in 2008 to avoid excessive credits for individual brownfield projects. At non-manufacturing brownfield sites, the tax credit is capped at $35 million of the calculated tangible property credit, or three times the site preparation cost and groundwater remediation costs, whichever is less. Manufacturing sites have a tax cap of $45 million, or six times the site preparation cost and groundwater remediation costs, whichever is less. Although the maximum tax credit appears to be significant, by enacting a “lesser of” test based on the site preparation costs and groundwater costs, the Legislature significantly limited the potential tax credits for any site. In addition, the 2008 amendments created a definition of “manufacturing activities” that are entitled to the tax credits. The governor’s 2014 budget proposal included a variety of modifications to the BCP program. In order to qualify as a “brownfield,” a site would be required to have documented contamination above NYS soil cleanup standards for the proposed future use of the site. The governor proposed a new “BCP-EZ” program that allows for expedited remediation of sites, but without access to tax credits. For the site preparation tax credit available for remediation work, the proposal kept the tax credits in the existing range of 22 percent to 50 percent of the costs, depending on the scope of the cleanup. However, the governor proposed granting tax credits based on a NYS DEC approved remedial work plan. This could exclude tax credits for necessary tasks such as site investigation and IRM work that might pre-date DEC’s approved work plan. The site preparation credits were also clarified to include remediation of asbestos, lead and PCBs. The governor also proposed significant new deadlines and criteria for the tangible property tax credits. This tax credit applies to the value of buildings and improvements put in service on the brownfield. The governor proposed a bar date of July 1, 2014, so that parcels admitted into the BCP after that date would not obtain tangible property tax credits unless they seek and obtain DEC approval at the time of the application and the site meets specific criteria. The site would need to be one of the following to qualify: vacant — the property and buildings have been vacant for 15 years or more, or have both been vacant and tax delinquent for 10 years or more financially underwater — the estimated cost of the investigation or remediation for the proposed future use of the site exceeds the appraised value of the property without construction; or a priority economic development project — the project has been determined to meet certain criteria by the Department of Economic Development, including locating specific types of businesses at the parcel and the creation of 50, 100 or 300 net new jobs based on the type of business. The proposal would also exclude tangible property tax credits if the site is subject to contamination from off-site sources, or if the DEC determines that the parcel has previously been remediated so that it can be developed for its intended use. Assuming that a site qualifies for tangible property tax credit, the credit would be capped under the proposal at 24 percent based on the following components: 10 percent base credit; 10 percent if the site is in an environmental zone; 5 percent if the site is in a Brownfield Opportunity Area and the project is certified to be in conformance with the plan; and 5 percent if the site is developed as affordable housing. The governor’s proposal also set deadlines for BCP completion. Initially, sites admitted prior to June 23, 2008, would be removed if no Certificate of Completion is issued by Dec. 31, 2015. Sites admitted after July 23, 2008, but prior to July 1, 2014, would be removed if no COC is issued by Dec. 31, 2017. Further, sites accepted into the program after July 1, 2014, must obtain a COC by Dec. 31, 2025, to apply for BCP tax credits. The proposal would also preclude sites accepted after Dec. 31, 2022 from tax credit eligibility. The BCP program has provided significant economic development benefits to New York state, but particularly upstate communities. Hopefully the governor and Legislature will take action prior to the end of the legislative session to renew the tax credits and provide long-term certainty for the BCP. Download the Reprint from The Daily Record As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

As previously reported in this column, the New York State Department of Environmental Conservation is still weighing public comments and considering proposed regulations to address Marcellus Shale development. But now, many local communities are beginning to act on the issue. The DEC needs to finalize state regulations before it will issue permits to hydraulically fracture and extract natural gas from the Marcellus Shale formation. Nonetheless, communities across the affected region of the state are beginning to ban the practice. The actions to date have taken the form of temporary moratorium on Marcellus Shale development through use of high volume hydraulic fracturing, as well as local zoning regulation of industrial development to ban the practice. Based on the huge investment in development and leases, industry and landowners are challenging the bans, while public interest groups are supporting the local laws. Initially, the state regulates oil and gas development pursuant to the Oil, Gas and Solution Mining Law (OGSML) of the Environmental Conservation Law (ECL). Section 23-0303(2) provides that the state’s oil, gas and solution mining regulatory program “supersede[s] all local laws or ordinances relating to the regulation of the oil, gas and solution mining industries; but shall not supersede local government jurisdiction over local roads or the rights of local governments under the real property tax law.” (Emphasis added). However, there are key distinctions between the oil and gas statute and the statute addressing surface mining. The state’s Mined Land Reclamation Law (MLRL) is set forth in the ECL. The MLRL preemption provision differs significantly from that of the OGSML in that it provides that “this title shall supersede all other state and local laws relating to the extractive mining industry; provided, however that nothing in this title shall be construed to prevent any local government from: a) enacting or enforcing local laws or ordinances of general applicability ... or b) ... local zoning ordinances or laws which determine permissible uses in zoning districts,” ECL §23-2703(2)(a) and (b). (Emphasis added). As such, the statutory language differs materially in that the OGSML precludes local regulation, except relating to roads and taxes, while the MLRL permits local zoning regulation. Many communities have revised their zoning codes to ban hydraulic fracturing. The local actions have been premised on Home Rule authority and caselaw under the MLRL. In August 2011, Dryden, N.Y., passed a zoning ban. In September, Anschutz Exploration Company, which holds leases on approximately 22,500 acres in the town and has invested more than $5 million in leases and research, filed suit challenging the town’s action. In Anschutz Exploration Corp. v. Town of Dryden , Index No. 2011-0902 (N.Y. Sup. Ct. Tompkins Co.) the company alleged that the zoning ordinance is invalid and unenforceable because it prohibits the development of oil and gas, which state law explicitly authorizes under the ECL. The gas company asserted that OGSML supersedes local ordinances relating to natural gas drilling except two limited areas of jurisdiction relating to local roads and property taxes. The case is the first in the State to address whether OGSML preempts local zoning laws. On Feb. 21, the Tompkins County Supreme Court granted the town’s summary judgment motion and held that the local law is not preempted by the OGSML. The court followed Court of Appeals’ precedent in Matter of Frew Run Gravel Products v. Town of Carrol, 71 N.Y.2d 126 (1987) and Matter of Gernatt Asphalt Prods. v. Town of Sardina, 87 N.Y.2d 668 (1996), which found that local zoning of gravel mines was not pre-empted under MLRL. The court concluded that the statutory language of both the OGSML and MLRL were nearly identical. Specifically, the court declined to find any difference in the preemption provisions of the OGSML and MLRL or the purposes behind the two statutes. The court found that neither suppression clause contained clear legislative intent to preempt local control over land use and zoning. Finally, the court referred to decisions in Pennsylvania addressing a similar suppression provision which allowed local zoning bans on oil and gas operations. Similarly, on Feb. 24, the Otsego County Supreme Court issued a decision in Cooperstown Holstein Corporation v. Town of Middlefield , Index No. 2011-0930 (N.Y. Sup. Ct. Otsego Co.) upholding a town zoning law that declared “[h]eavy industry and all oil, gas or solution mining and drilling …” as prohibited uses. A dairy farmer that had leased 380 acres to a gas company challenged the zoning law. The court did not find preemption under the OGSML and wrote that there was no legislative intent in the statute to preempt local regulation. As in Anschutz, the court followed Matter of Frew Run under the MLRL to conclude that OGSML preempted only local regulation of the method and manner of gas drilling, but not local land use control. The court closely examined the legislative history of the OGSML. The court found that neither the statute nor the legislative history of the OGSML established that the Legislature’s language “relating to the regulation of the oil, gas and solution mining industries” was intended to limit the constitutional and Home Rule authority vested in municipalities to regulate local land use. The court concluded that “[t]he state maintains control over the ‘how’ of [natural gas development] procedures while municipalities maintain control over the ‘where’ of such exploration.” The existing uncertainty regarding the timing and scope of DEC’s proposed hydraulic fracturing regulations has now been compounded by a patchwork of local zoning barring the practice in some areas of the state. The gas company and property owner in both cases have appealed to the Appellate Division, Third Department. Regardless of the decisions at the Third Department, the cases are likely to be appealed to the state’s highest court. Depending on the outcome of legal challenges, the State Legislature may need to address the role of local governments in regulating Marcellus Shale development. However, Pennsylvania recently adopted legislation to allow hydraulic fracturing across the state and many local governments are challenging the legislation. While the future of Marcellus Shale development in New York remains uncertain, it is clear that both sides of the issue will explore all avenues to support their position. Download the Reprint from The Daily Record As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

The New York State Environmental Quality Review Act was adopted in 1976 and requires that state and local agencies evaluate potential environmental impacts of projects prior to granting approval. Since enactment, it has served as the principle environmental planning tool for New York agencies and municipalities prior to decisions to fund, undertake or approve projects across the state. Although SEQR has been the focus of significant discussion and litigation since its enactment, the purpose of this article is merely to highlight some fundamental changes that have been proposed to the short and long Environmental Assessment Forms (EAF). The Department of Environmental Conservation issued proposed regulatory changes consisting of revised draft forms for public comment through April 8, 2011. The full EAF, or long form used for large projects, has not been significantly revised since 1978. The short EAF, used for smaller projects, was last subject to substantial revisions in 1987. The DEC’s proposed changes seek to incorporate refinements in the process gained from experience over the years. However, DEC also intends to include consideration of emerging environmental issues such as climate change, energy conservation, environmental justice, smart growth and pollution prevention. In terms of a basic overview, when a project applicant submits a land-use application for a new project it is generally accompanied by an EAF to provide information to the agency regarding the proposed action, site location and environmental resources. The agency must first determine whether the proposed action is subject to SEQR, using basic regulatory criteria: is the project included in the list of Type 1 actions (SEQR review required), unlisted, or listed as a Type 2 action (SEQR exempt); is there a potential for significant impact on the environment; and will the planning and design of the project benefit from SEQR review. In determining the significance of potential environmental impacts from a project, the SEQR regulations require agencies to identify and assess relevant areas of environmental concern in order to address impacts that are reasonably foreseeable. The reasonableness standard is key, since potential impacts which are not reasonably foreseeable and are speculative do not have to be addressed. The EAF forms are central to this process. The short form EAF is used for unlisted actions. The long form EAF is used for Type 1 actions, or larger projects that may require preparation of an environmental impact statement. The EAFs consist of the following: Part 1 — prepared by the project sponsor regarding background information on the proposed action; Part 2 — completed by the lead agency, serves to identify potentially significant adverse environmental impacts; and Part 3 — completed by the lead agency to support the agency’s determination of significance. In the event that the agency determines that there will be no significant impacts on the environment (negative declaration) the agency completes the record for reaching that determination and environmental review of the action is concluded. In the event that a positive declaration is issued by the agency, an environmental impact statement must be prepared to further evaluate potential environmental impacts of a project. The current version of the short form EAF consists of two pages and has three parts: Part 1 — Project and Sponsor Information; Part 2 — Impact Assessment; and Part 3 — Determination of Significance. The DEC’s revised form is four pages with expanded details in each section. Aside from format changes, there are a number of substantive changes that make the short form EAF significantly more detailed. A few of the key changes to Part 1 include additional questions regarding: public transportation and pedestrian accommodations near the site; whether the action maximizes use of energy efficient design or on-site renewable energy technology; whether the proposed action will connect to existing public water and sewer utilities; whether the proposed action is on or adjacent to an environmental justice community of concern as defined by the U.S. Environmental Protection Agency; whether the proposal will create new point source storm water discharges; whether the proposed action includes construction of on-site impoundments such as retention ponds, waste lagoons, etc.; and whether solid or hazardous waste has ever been stored on-site or on adjacent property. DEC has added similar questions to the Part 2 Impact Assessment that is prepared by the lead agency for the project. Among the additions, one new question asks the agency to determine whether “[t]he proposed action may create a substantial hazard to environmental resources or human health.” Finally, Part 3 of the new short form EAF will require the lead agency to discuss why each potential impact checked as a “yes” in Part 2 will not result in a significant adverse environmental impact. In particular, DEC’s form will require the agency to discuss in detail the impacts, mitigation measures included by the applicant, and an explanation of how the lead agency determined that the impact will not be significant. The revised Part 3 appears to place a much greater burden on the lead agency to discuss and explain each element of Part 2, which forms the basis for its decision. The DEC’s revisions to the long form EAF are similar to, but much more detailed than, the changes to the short form. The current version is 21 pages. The DEC’s revised EAF is 31 pages. Substantively, the long form is much more detailed than the current version. The DEC has added similar questions to Part 1 regarding climate change, environmental justice, renewable energy and impacts on existing infrastructure. In addition, DEC has added much more detailed sub-parts regarding existing questions on potential environmental impacts. For example, the revised form requests information about whether the project will create a new demand for water, anticipated daily use, capacity of the public system, and need for expansion of the system or district. In addition, Part 2, which is prepared by the lead agency, is now exceptionally detailed with new questions and sub-parts to existing questions to conform with the expanded Part 1. While updating the SEQR forms is certainly appropriate given the length of time since the last revisions, in reviewing the proposed EAF forms there are a variety of questions and concerns that are raised. While the SEQR process has been around for decades, many smaller municipalities and project sponsors still struggle with it under the existing framework. The proposed forms appear to transform the preparation process away from the project sponsor and agency to an engineering function. In addition, the level and extent of detail which will be required at the initial stage of project review will be significant, and hence the EAF will be much more expensive and time-consuming to prepare. Further, questions regarding climate change, environmental justice, energy conservation and similar issues, while part of public discussion, are rather amorphous and difficult for applicants and municipalities to quantify. The nature of many of the new questions may subject the SEQR process to further litigation because applicants will argue that the new and expanded considerations are speculative and not reasonably foreseeable based on the proposed action. Finally, due to New York’s current tax and regulatory climate, the state faces substantial problems attracting and retaining new business investment. If the revised SEQR EAF forms are adopted by DEC they will inevitably require substantially more time, review and expense for project sponsors and agencies and will only add to these problems. Download the Reprint from The Daily Record As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

The New York State Department of Environmental Conservation is working on a new Self-Audit Policy to encourage environmental compliance. The draft policy is being finalized and is expected to be issued in the near future. The policy would apply to private industry, agricultural producers and municipalities. The purpose of the policy is to “encourage compliance with environmental laws and prevent pollution by reducing or waiving civil penalties for certain violations discovered by a regulated entity through self-audit, compliance assistance or pollution prevention activities.” The key is that the regulated entity must promptly disclose the violation to DEC and address the matter in short order. The new policy adopts portions of, but would supersede, DEC’s Small Business Self Disclosure Policy. DEC is responsible for enforcing myriad state and federal environmental laws and regulations through record-keeping, inspection and enforcement. However, budgetary impacts over the last several years have significantly reduced the DEC’s staff at regional offices across the state. Similarly, federal funding for state and local enforcement has been cut by national budget shortfalls. Consequently, according to the draft policy, DEC has concluded that “the high volume of activities potentially affecting human health and the environment as well as practical constraints, including resource limitations, compel the Department to evaluate and implement auxiliary strategies to address compliance with the Environmental Conservation Law (ECL).” DEC has also determined that pollution prevention through improved environmental compliance may increase the competitive status of New York business. The policy contains two main elements. First, under the Self-Audit Policy, an entity can voluntarily report violations of environmental laws to DEC to seek a reduction or waiver of applicable penalties associated with the violation. In addition, the policy provides a prospective process for entities that enter a Self-Audit Agreement with DEC. The self-auditing process would allow entities to access environmental compliance and performance programs offered by the state, potential incentives, additional penalty reduction opportunities and recognition as part of the state’s New York Environmental Leaders Program. There are important limitations that will apply once the policy is formally issued. First, it is a policy and is not a statute or regulation which is binding on DEC and the state. The policy will not apply to: criminal violations of environmental laws; violations discovered by DEC inspection processes such as record-keeping review or information requests; or violations which result in serious actual harm or carry a threat of imminent substantial danger to the public or the environment. Similarly, certain high priority violations under the federal Clean Water Act, Resource Conservation and Recovery Act, and Clean Air Act would not be subject to the policy. In addition, DEC has complete discretion to determine whether entities are eligible for the self-audit program and can exclude entities that have a poor compliance history. The policy would authorize DEC to exclude entities with history of non-compliance within the last five years for the same or a similar violation, or those with a history of being uncooperative in addressing violations. The policy applies to environmental violations discovered by an eligible entity in the course of a self-audit or by DEC, federal, state or local agencies in the course of compliance assistance and pollution prevention matters. In order to qualify for the Self-Audit Policy, the regulated entity must voluntarily disclose the violation within any applicable time period under the subject environmental law or by 30 calendar days “after the business knew or should have known of the violation, unless an alternate time frame is established as part of a facility audit agreement.” The policy provides for contact with the DEC regional attorney who will assign a project attorney to assess eligibility for the policy. Although DEC has the discretion to extend the time period for reporting, the reporting must be made prior to any DEC, federal or local inspection or investigation or any reporting by a whistle-blower. In the event that the violation is timely disclosed, the entity must also take steps to promptly address the matter in accordance with applicable environmental law and as directed by the DEC. The policy includes a Return to Compliance Form to be executed and submitted by the regulated entity, which lists the following items: violation (with statutory or regulatory reference); detection method; detection date; corrective action and compliance date. In general, the policy calls for the violation to be addressed within 60 days after disclosure to DEC, unless a separate time period is established pursuant to a Self-Audit Agreement entered by the party. DEC has the discretion to extend the time period for compliance as it deems appropriate. Significantly, under the policy, DEC will require the entity to remediate “any environmental harm associated with the violation and implement procedures to prevent further violations.” A significant benefit of the proposed self-audit policy is a waiver of a portion of the penalties associated with violation of an environmental law. Most environmental laws provide for penalties including components for gravity of the violation and the economic benefit of non-compliance. If an entity qualifies for the policy, DEC will waive the gravity component of the penalty calculation. In addition, if an entity undertakes environmental audits and environmental management systems during the company operations or in accordance with an environmental audit agreement, DEC may consider additional penalty mitigation. In particular, DEC may waive the economic benefit component of an environmental penalty where it is de minimus (under $10,000) or where DEC determines that the waiver is appropriate. In the event that an entity receives penalty mitigation under the Self-Audit Policy, it must determine future compliance measures associated with the violation at issue and guarantee that the corrective measures will be implemented. Future environmental performance can be attained through a wide variety of mechanisms including environmental compliance systems, environmental management tools and pollution prevention steps. Although the Self- Audit Policy still needs to be formally issued, DEC views the policy as a means to attain environmental compliance in an era of rapidly shrinking budgets and staffing, along with an incentive for improved environmental performance. While environmental compliance is certainly a cornerstone of DEC’s mission, the policy appears to offer a method to address modest environmental violations and prevent future problems. Download the Reprint from The Daily Record As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.