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Revised Regulatory Impact Statement - 6 NYCRR Part 375

Amendments to 6 NYCRR Part 375

Environmental Remediation Programs - Revisions to BCP Regulations

1. Statutory Authority

In 2003, the New York State (State) Legislature created the Brownfield Cleanup Program (BCP) to promote environmental and public health as well as the economic vitality of the State through the cleanup and redevelopment of brownfields. The BCP offers parties two separate categories of refundable tax credits for the cost of (1) site cleanup and (2) redevelopment, the latter described as tangible property tax credits (TPCs).

The Legislature amended the BCP law in April 2015. Part BB of Chapter 56 of the Laws of 2015 amended and added new language to Environmental Conservation Law (ECL) Article 27, Title 14 (BCP) and Section 21 of the Tax Law. Some of these amendments provided new requirements for sites in New York City to qualify for TPCs. These requirements provide that, in order to qualify for TPCs, New York City sites need to be in an environmental zone, "upside down," "underutilized," or constitute an "affordable housing project."

While the Legislature defined the environmental zone and "upside down" requirements, ECL §27-1405(29) and (30) of the BCP law directs the New York State Department of Environmental Conservation (DEC) to define the terms "affordable housing project" and "underutilized" by regulation. DEC published proposed regulations regarding the "underutilized" and "affordable housing project" definitions in the State Register on June 10, 2015. Proposal of these regulations resulted in the amendments to the BCP law becoming effective on July 1, 2015. DEC also proposed to replace the prior regulatory definition of "brownfield site" to comport with the statutory definition found in ECL §27-1405(2), as amended by Part BB of Chapter 56 of the Laws of 2015.

In the proposed rule making, DEC does not propose to revise the text of the "brownfield site" definition and only made one minor technical change to the "affordable housing project" definition as published in the State Register on June 10, 2015. No revisions were made to these definitions after the revised proposed rule making was published on March 9, 2016. The substantial revisions to the Express Terms made during the proposed rule making are found in the definition of "underutilized." DEC proposed these revisions in response to comments received during the public comment period and the public hearing in 2015. After the revised proposed rule making, DEC made a minor clarification in the "underutilized" definition to the language pertaining to substantial government assistance, which would allow for a combination of different types of assistance in order to meet the requirement for substantial government assistance. The comments on the "underutilized" definition to a large extent urged DEC to expand the definition of underutilized properties that would qualify for the benefit of TPCs. The revisions to the definition consider the realities of redevelopment by allowing for mixed use development (up to 25 percent residential or restricted residential) while focusing on incentivizing redevelopment for industrial and commercial uses within New York City. The City of New York made clear that their primary focus was to promote the redevelopment of underutilized sites for industrial uses. The changes to the definition removed the requirement for substantial government assistance for development where the proposed use was going to be 75 percent or more for industrial uses. Additionally, DEC has lessened the time period from five to three years that a property has to be underutilized relative to applicable zoning, and DEC expanded the eligibility criteria for "underutilized" properties to include properties that are vacant with no structures on the site. All of these changes were made after consultation with the business community and the City of New York.

Finally, DEC recognizes that many of the 2015 amendments to the BCP law require the agency to propose additional regulatory changes which will apply state-wide. Following the finalization of this rule making, DEC will undertake another rule making in order to make the required additional changes to the regulations.

2. Legislative Objectives

ECL § 27-1403 states the objectives of the BCP, including the advancement of "the policy of the state of New York to conserve, improve, and protect its natural resources and environment and control water, land, and air pollution in order to enhance the health, safety, and welfare of the people of the state and their overall economic and social well-being," finding that, "it is appropriate to adopt this act to encourage persons to voluntarily remediate brownfield sites for reuse and redevelopment."

The 2015 amendments to the BCP reflect an intent to reduce the amount of TPCs available to applicants in New York City for brownfield sites in high-value real estate markets while further incentivizing development on brownfields where certain project criteria are met. These amendments also clarify the definition of "brownfield site" such that DEC-identified standards may be used to determine program eligibility for sites. The amendments restricting the availability of BCP TPCs apply only to sites in New York City and preclude credits unless the sites are determined to be "upside down," in an environmental zone, "underutilized," or used for an "affordable housing project." For sites that are eligible for TPCs anywhere in the State, these credits may be increased for projects "in an environmental zone," "within a designated brownfield opportunity area," "developed as affordable housing," "used primarily for manufacturing activities," or "remediated to Track 1."

3. Needs and Benefits

The proposed rule making is mandatory and required by statute.

This rule making would amend Part 375 to add to new definitions to 375-3.2, "affordable housing project" and "underutilized," and revise the existing definition of "brownfield site" as specified in statute. Part BB of Chapter 56 of the Laws of 2015 amended and added new language to Environmental Conservation Law (ECL) Article 27, Title 14 (Brownfield Cleanup Program, BCP) and certain other laws. As required by ECL §27-1405(29) and (30), DEC must define the terms "affordable housing project" and "underutilized" by regulation. On June 10, 2015, DEC published proposed regulations to define "affordable housing project," and "underutilized," as well as revise "brownfield site;" and the 2015 amendments to the BCP law became effective on July 1, 2015.

In part, the 2015 amendments to the BCP law address the large differences in the potential state tax liability between New York City BCP sites and those in the rest of the State. The primary driver for the regional imbalance within the BCP is attributed to high development costs for some downstate projects, which resulted in excessive TPCs. Limiting the eligibility of New York City sites for redevelopment credits to specific affordable housing projects and underutilized properties through criteria established by regulation, in addition to sites which are in an environmental zone or "upside down," should help to target funds and projects in New York City areas with the most need. The substantial revisions to the proposed "underutilized" definition were made in response to comments and after consultation with New York City. Importantly, the revisions to the underutilized definition fulfills the City of New York's stated goal to promote industrial redevelopment, while maintaining a fair and balanced approach to restrict the availability of TPCs to the sites with the most need. Finally, to ensure that TPCs are only afforded to sites with actual contamination rather than potential contamination, the amended definition of "brownfield site" clarifies DEC's use of an environmental standards-based approach to site eligibility determinations as was set forth in the revised statute.

4. Costs

a. Costs to Regulated Parties
Since all costs incurred at a site prior to its acceptance to the BCP are ineligible for tax credits, applicants would incur credit-ineligible costs for performing site investigation work prior to the acceptance of a site in order to meet the amended definition of "brownfield site." Nearly all applicants currently conduct this work, or are required to do so by DEC in the context of the review of their application as set forth at 6 NYCRR 375-3.3(a)(4)(ii), under the original definition. However, following the implementation of the amended statute, every applicant would be required to provide investigatory information sufficient to satisfy DEC's environmental quality standards prior to acceptance into the BCP.

New York City applicants may incur costs to establish the required criteria for TPCs, including costs involved with obtaining a certification that a site would not be developed without substantial government assistance as described in the definition of "underutilized." Should New York City applicants meet the required criteria for TPCs, the costs that are incurred in the application process would be fully or partially offset through tax credits. There may be similar costs to applicants across the rest of the State attempting to increase tax credits through a certification of an affordable housing project.

b. Costs to DEC, State and Local Governments
DEC, State and local governments would not incur additional costs due to the issuance of the revised proposed regulations. DEC costs for BCP application review are ongoing and any changes to DEC's application review process due to revised proposed regulations are expected to be de minimis.

5. Local Government Mandates

This is not a mandate on local governments. Local governments have no additional compliance obligations as compared to other subject entities. Also, no additional monitoring, recordkeeping, reporting, or other requirements would be imposed on local governments under this rule making. To the extent that New York City certifications are required for projects to meet the definitions of underutilized or affordable housing, these certification programs are in place or are developed and implemented at the discretion of the local government. The revised proposed rulemaking also responded to a request by New York City to limit instances where it needed to certify to applications received for "underutilized" properties.

6. Paperwork

The 2015 amendments to the BCP require environmental investigation data to be submitted with BCP application materials in order to prove status as a "brownfield site." Applications for New York City sites seeking TPCs would need to also include documentation of the proposed eligibility criteria for such credits. The additional information has been added to the application form that is required for entry into the BCP.

7. Duplication

The revised proposed rule making does not duplicate, overlap, or conflict with any other State or federal requirements.

8. Alternatives

DEC was directed by the legislature to propose definitions for "affordable housing project" and "underutilized" in order for the amendments in Part BB of Chapter 56 of Laws of 2015 relative to the BCP to become effective. While conforming the definition of "brownfield site" in the regulations to the law is not statutorily dictated, failure to do so would result in confusion between the statute and existing DEC regulations with potential legal action.

Because of the statutory mandate to define "affordable housing project" and "underutilized" and the need to conform the statutory definition of "brownfield site" to the regulatory definition, there are no other alternatives for this revised proposed rule making.

9. Federal Standards

The revised proposed regulations would not exceed any minimum federal standards.

10. Compliance Schedule

As applicants have had a proposed definition for underutilized since June 2015, and DEC has revised the definition to make it less stringent (which included an additional 30 calendar day public comment period, March 9 - April 8, 2016), applicants to the BCP should be able to comply with the regulations upon adoption.

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