United States: The Wiggin and Dana Manual on Legislative, Regulatory, and Financial Assistance Tools for Brownfields Development in Connecticut: Part II

Brownfield sites raise issues with regard to contamination, government regulation, and community relations, among other areas of concern, that one would not encounter at a "greenfield" site. It thus comes as no surprise that programs designed specifically for use at brownfield properties address financial requirements unique to these properties. Properties not stigmatized by real or perceived contamination do not require the expense of undertaking invasive site assessments, preparing remedial plans, and implementing cleanup. In addition, the cost of financing brownfields sites commonly exceeds that for other sites because investors and lenders believe they assume a higher risk which justifies a higher return. Hence, lenders commonly require at least a 25% equity investment in a brownfields project.²¹

Recognizing the need to "level the playing field" for brownfield properties, both the State of Connecticut and the United States government offer grant and loan programs for brownfield site assessment, remediation, and development. These include programs administered by the Connecticut Brownfields Redevelopment Authority (CBRA), the Connecticut Department of Economic and Community Development (DECD), the United States Environmental Protection Agency (EPA), the United States Department of Housing and Urban Development (HUD) and the Economic Development Administration (EDA) of the United States Department of Commerce. The CBRA's innovative programs target for-profit owners and developers. Most federal funding sources, however, limit eligibility to municipalities, quasi-governmental organizations, and, on occasion, to non-profit entities. For-profit entities can sometimes apply for federal funding as subgrantees, when local and state governments or governmental organizations manage and distribute federal funds as subgrantors.

In recent years Connecticut has made considerable strides in reaching out to property owners, for-profit developers, and municipalities interested in redeveloping the State's brownfield sites, most significantly with the creation of the Connecticut Brownfield Redevelopment Authority in 1999. A quasi-state organization, CBRA is a wholly-owned subsidiary of the Connecticut Development Authority (CDA), a state agency dedicated to expanding Connecticut's business base, in particular through various financing programs. CBRA focuses exclusively on brownfields and strives to offer a largely "one-stop-shopping" approach to facilitate brownfield redevelopments in the State. Specifically, CBRA administers grant and loan programs for brownfield site assessment, remediation, and redevelopment, which specifically target for-profit developers and property owners.

Connecticut's Department of Economic and Community Development, a state agency that implements policies and programs for the enhancement and development of communities, businesses, and housing within Connecticut, also administers several programs that may be appropriate for some brownfield developments. In particular, DECD administers both the Small Cities Community Development Block (CDB) Grant Program, targeted at particularly distressed areas within the State, and the Urban Site Investment Tax Credit Program, which provides corporate tax credits for brownfield investments. In cooperation with the Connecticut DEP, DECD also operates (1) the Special Contaminated Property Remediation and Insurance Fund, which furnishes loan assistance for investigations and remediations; (2) the Dry Cleaning Establishment Remediation Fund, which provides cleanup grants to eligible dry cleaning operators; and (3) the Urban Sites Remedial Action Program, which commits public funds for remediation at sites in particularly distressed communities within the State.

In identifying brownfields, CBRA uses the definition provided in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. § 9601(39)(B): "...real property, the expansion, redevelopment, or reuse of which may be complicated by the presence of a hazardous substance, pollutant, or contaminant." To assist developers in locating appropriate sites, CBRA has compiled on its website (http://www.ctbrownfields.com) an inventory of Connecticut brownfields awaiting redevelopment. Although the expanding list provides a useful sampling of suggested sites, CBRA does not restrict its programs to these listed properties. Any brownfield property in Connecticut is potentially eligible to receive CBRA funding.

After its creation in 1999, CBRA received an initial allocation of funds from the State Legislature, from which it pays operating expenses and provides assessment grants.²² CBRA's redevelopment grants employ a tax increment finance (TIF) model whereby its parent, CDA, issues bonds to finance a redevelopment project and the municipality in which a project is located dedicates a portion of anticipated incremental (future) tax revenues from the redevelopment to CBRA. Once financing is in place, CBRA uses incremental tax revenues assigned to it by the municipality to pay bondholders and, where possible, to finance new redevelopment projects. By implementing this method, redevelopment grants largely sustain themselves. If a redevelopment project fails or the developer abandons the project before completion, CDA (and not the developer or the municipality in which the project is located) remains legally responsible to service the CBRA project-related bonds.²³ In the event of a shortfall in tax proceeds relative to debt service requirements, CBRA may file a tax lien annually on any underlying redevelopment property equivalent to the amount of the shortfall. CBRA may also extend the duration of payments where incremental tax revenue projections have exceeded actual returns.

Parties who contributed to environmental contamination at the subject site may not participate in this program. Before a developer who does qualify for the program, however, initiates the CBRA grant application process, he or she must identify the site as a brownfield eligible for potential redevelopment. Determining site potential will include considering both unofficial community reaction and the anticipated official response of the municipality to the potential development. Before submitting any application, the developer should contact CBRA to verify its eligibility and to facilitate the application process. Economic prudence may dictate deferring work on a site development plan until the developer has confirmed both the potential for site development and its own eligibility to participate in the CBRA program. With these tasks accomplished and having created a site development plan, the developer then presents the plan to the municipality where the site is located to obtain its support. If the municipality agrees with the plan, either it or the developer may then apply for a CBRA site assessment grant to gauge the level of contamination at the site.²⁴

1. CBRA Brownfield Assessment Grants (BAG)

Before developers and municipalities can reasonably form an opinion as to the economic viability of a brownfield project, they must determine the extent and cost of the remediation needed at the site. The BAG program provides financial assistance to developers and municipalities at this early stage of the brownfields redevelopment. BAG grants are used to reimburse costs associated with Phase I and Phase II Environmental Assessments. Phase I Assessments include site reconnaissance, review of land records, interviews with owners and officials, and report preparation by an environmental professional.²⁵ Phase I BAG grants may not exceed $3,000. If the Phase I Assessment identifies a "Recognized Environmental Condition" (as defined in ASTM Standard 1527 Section 3.3.30²⁶) at the property, and the municipality or developer (as the case may be) decide to undertake further invasive investigatory work to determine the nature and extent of contamination at the site, the municipality or developer may apply for a BAG grant of up to $10,000 to finance a Phase II Assessment. A Phase II Assessment involves some combination of surface sampling, soil or ground water sampling, and suspected hazardous material sampling.²⁷ BAG recipients may not use BAG funds for remediation and all records and reports generated by BAG-financed assessments remain the property of CBRA. If a developer declines to pursue a project after a BAG-financed assessment, CBRA retains these assessment records and makes them available to any future developers of the site.²⁸

To apply for a BAG grant, a developer or municipality must submit information about itself, the site, the site's history, potential contamination at the site, a proposed assessment budget, and the identity of the environmental professional who will conduct the assessment. If an applicant does not have legal access to the site at the time of application, it must obtain access within 90 days from the date when it receives notification from CBRA that funds have been approved. Examples of BAG grants include a North Haven project involving the conversion of a former industrial site into a multi-use development supporting both office space and light manufacturing, and also funds to the town of Danbury for assessment of the 5-acre Mallory Hat Company site, where manufacturers of hats with fur pelts had operated for more than a century and which had been abandoned in 1987.

2. CBRA Grants for Brownfields Redevelopment

With the environmental assessment completed and having obtained the approval of the appropriate municipality, the developer may then apply to CBRA for a redevelopment grant. The developer may use the proceeds from a redevelopment grant for any expenses directly related to the remediation, redevelopment, and improvement of a brownfield site, including the cost of environmental insurance. Applicants may propose a wide variety of project types, including manufacturing, high technology, research, laboratory, office, retail, housing, mixed-use or any combination thereof. While applicants are not required to contribute matching funds for a redevelopment grant, CBRA does insist that applicants show they have sufficient financing to complete a proposed development exclusive of cleanup costs. There is no minimum redevelopment grant amount and CBRA may award redevelopment grants of up to $10 million.

Consistant with the TIF model described above, a developer may not apply for the redevelopment grant until the assessor's office in the municipality where the site is located has calculated the amount of increased property taxes it anticipates that the proposed redevelopment will generate. The municipality must then determine the percentage of this future increase in annual taxes it is willing to assign to CBRA in exchange for an up-front grant from CBRA to the developer. Once future tax and assessment figures have been determined, the developer and the municipality must each submit a grant application to CBRA relative to the proposed redevelopment.

CBRA has used the following example to illustrate how the redevelopment grant program operates. If a developer proposes a project that a municipal assessor's office determines should generate $200,000 in new tax revenues annually, that municipality could decide to dedicate 50% of future projected taxes to CBRA for the next ten years. Under this scenario, CBRA would then provide an up-front redevelopment grant to the developer of $1 million dollars (based on an anticipated annual payment stream of $100,000 over ten years). Because CDA issues agency bonds to finance redevelopment grants, municipalities where redevelopment sites are located are not encumbered with additional redevelopment- related debt. If estimates for a project prove too optimistic and future tax revenues fall short, CDA-and not the municipality or the private developer - bears the risk. To compensate, however, CBRA may place a tax lien on the subject property on an annual basis in the amount of the shortfall.

Major projects to receive CBRA redevelopment grants include the University of Hartford's performing arts center and the new train station complex in Fairfield. Using a CBRA redevelopment grant in conjunction with other public and private funding, the University of Hartford's Hartt School is constructing a new Performing Arts Center to house its Dance, Vocal, and Community Divisions. The new Center is located on the 7.2-acre site of the former Thomas Cadillac distributorship, built in 1929 by architect Louis Kahn. The new Fairfield train station project, which will add a new stop to the Metro North commuter rail line, will transform an abandoned industrial site into a 1.3 million sq. ft. office, hotel, and restaurant complex, alongside a new station and a 1,200-space parking facility.

3. Direct Loans through Connecticut Development Authority

Since the close of 2003, CBRA began facilitating applications of brownfield developers for loans under CDA's Direct Loan program. Under this program, CDA provides subsidized, low interest loans or equity-equivalent investments of up to $5 million to businesses that expand or commence operations in Connecticut. Companies relocating to the State or undergoing significant in-state expansion may apply for inducement loans of up to $10 million. Loan amounts for both are computed on the basis of no more than $20,000 per job created or retained. Direct Loan borrowers may couple CDA loans or investments with financing from other, including private, sources. Borrowers may use Direct Loan funds for a variety of purposes, including (1) acquiring land, buildings, machinery or equipment; (2) refinancing loans; (3) providing working, start-up, or mezzanine capital; and (4) site remediation. CDA Direct Loan applicants must demonstrate the strong economic development potential of their projects, or be unable to obtain adequate financing without CDA participation, or both. Business owner applicants must personally guarantee CDA Direct Loans and all applicants must show evidence of debt service capability. The CDA accepts applications at the beginning of each month and provides responses within seven business days. CBRA's involvement with this program is in its infancy, and, as of this writing, CDA has not yet distributed any Direct Loans to brownfield developers under the auspices of CBRA.

DECD implements policies and programs for the enhancement and development of communities, businesses, and housing within Connecticut. Serving a broader constituency than the CDA, which focuses on expanding Connecticut's business base, particularly through financing programs, DECD's mission encompasses programs and strategies not only to attract and retain businesses and jobs, but also to revitalize neighborhoods and communities, ensure quality housing, and foster development in Connecticut cities and towns. Of the many programs administered by the DECD, the five discussed below may be appropriate for some brownfield development projects.

1. Small Cities Community Development Block Grant Program (CDBG)

Connecticut's Small Cities CDBG grant program aims to revitalize particularly distressed areas within the State through enhancing neighborhoods, expanding affordable housing, creating economic opportunities, and improving local facilities and services. In terms of brownfield redevelopment, Small Cities grant recipients may use program funds to acquire property, to reconstruct and rehabilitate housing or other property, to build public facilities, and to eliminate or prevent slums or blight. Only local governments or multi-jurisdictional governmental entities may apply for a Small Cities grant. Applicants must first develop and obtain approval of a Community Revitalization Strategy (CRS) and must demonstrate a minimum local contribution of 10% of the award requested. Only residential areas that contain at least 51% low and moderate income residents may receive Small Cities Grants.²⁹

The U.S. Department of Housing and Urban Development funds the Small Cities program and DECD administers Small Cities grants in Connecticut. Although the size of the program is subject to change based on HUD allocations, Connecticut has received approximately $15 million in annual Small Cities program funds in recent years. In 2002, for example, DECD awarded the Town of Vernon a $50,000 Small Cities grant to be used for a study to determine the economic potential of the historic Hockanum Mills industrial site, which then housed several manufacturing companies. The study encompasses evaluating existing environmental data for the site, reviewing site architecture, and estimating the cost of rehabilitation.³⁰

Municipal and governmental recipients of Small Cities grants may provide grants or loans from their Small Cities funds to subgrantees who qualify as Community Based Development Organizations (CBDO), i.e., nonprofit organizations that serve the development needs of areas within nonentitlement communities.³¹ CBDOs may carry out neighborhood revitalization, community economic development, or energy conservation activities with Small Cities grants. With prior approval, a CBDO may perform usually ineligible activities including new housing construction.

2. Urban Site Investment and Industrial Site Reinvestment Tax Credit Program

Designed to encourage private investment in the redevelopment of Connecticut brownfields, the Urban Site Investment Tax Credit Program (USITCP or Urban Reinvestment Act Program) provides dollar-for-dollar corporate tax credits for private brownfield investments. To be eligible for the program, an Industrial Site Investment Project must consist of real property or property improvements that have suffered environmental contamination. Investment in the property must return it to a viable business condition where it can sustain new economic activity, increase employment, and generate additional tax revenue to the State and the municipality where the property is located. The state projects the additional tax revenue by relying on an econometric model to estimate economic and fiscal impacts of the investor's project. The projected tax revenues must exceed a target threshold, and the total credits allowed may not exceed the cumulative increase in tax revenue. Within this limitation, an investor in an Urban Site Development Project may receive a dollar-for- dollar corporate tax credit on a yearly basis over a ten year period of up to 100% of its investment, up to a maximum of $100 million.³² The overall program has a $500 million ceiling, and should a project fail to meet its projected tax revenue targets, the credit will be reduced to assure the state remains in a revenue positive position. To participate in the USITCP, a community must (1) have an Enterprise Zone;³³ (2) have been designated a Distressed Municipality under Connecticut General Statutes § 32-9; or (3) have a population in excess of one hundred thousand.

A taxpayer may invest funds in a USITCP project either directly or indirectly through an investment fund. Direct investments must equal or exceed $20 million. Eligible investment funds must (1) have a minimum asset value of $60 million; (2) be established for the specific purpose of making investments under this program; and (3) be managed by a Certified Fund Manager. There is no minimum investment threshold for indirect investments made through an eligible investment fund. The aspect of this program that distinguishes it from others, both in Connecticut and elsewhere, consists of its allowing project investors to assign the credits authorizing their sale to other taxpayers in the state. The first project to use of the Urban Reinvestment Act Program involved the state's agreement to give $40 million in tax credits to the United Kingdom-based liquor giant Diageo. Diageo agreed to move its U.S. headquarters from Stamford to Norwalk, thus preempting its threatened move to Westchester County, N.Y. Diageo qualified for a five-year tax abatement in which it will be required to pay only 20% of its taxes. State authorities anticipate that Diageo will invest more than $100 million in capital associated with the project in Connecticut while the City of Norwalk looks to additional tax revenues of more than $21 million and the creation of 1,000 new jobs. State officials have projected combined state and local tax revenues for the project to amount to $83 million over the next 10 years. According to DECD, the Diageo deal requires more than a dollar of new tax revenue for each dollar in breaks given, as well as the creation of new jobs. Controversy around the Diageo deal has led to the introduction of legislation which would require the program to provide eligibility for smaller companies, assure greater legislative oversight over large deals, and require a third-party review of deals that offer companies more than $20 million in tax breaks.

3. The Special Contaminated Property Remediation and Insurance Fund

DECD, in cooperation with DEP, administers the Special Contaminated Property Remediation and Insurance Fund (SCPRIF) to provide assistance for site investigations and redevelopments in the form of short-term, low interest loans. Established under § 22a-133u of the Connecticut General Statutes, SCPRIF provides loans for Phase II Assessments, Phase III Investigations³⁴, building demolitions, and related lead and asbestos surveys and removal. The goal of the program is to facilitate public and private partnerships in the investigation, remediation, and redevelopment of commercial and industrial properties that remain underutilized due to concerns about site contamination.

Any person, corporation, municipality, or business may apply for a SCPRIF loan and there is no specified limit as to the amount that may be requested. An applicant, however, must demonstrate the financial and technical expertise and the resources necessary to undertake the investigation, remediation, and redevelopment of a site. Current site owners, prospective owner/developers with site access, and municipalities are standard applicant categories. However, owner-applicants must demonstrate that they did not willfully or knowingly create a source of pollution. In evaluating applications, DECD gives priority to projects that have the potential to generate (1) high commercial value, (2) additional municipal tax revenue, (3) community or economic benefit (including eliminating blight, conforming to a town development plan, and stimulating tourism), and (4) indirect spin-off economic benefits, including state tax revenue. The State Bond Commission has already approved $2 million for the SCPRIF program and up to $5 million has been allocated.

Owners of sites that undergo SCPRIF-financed assessments (whether or not they are also applicants) must consent to the placement of a lien on the property in the amount of the loan. Once environmental remediation at the subject property is complete, or once the property is sold or leased, the SCPRIF borrower must repay the loan. (If an assessment determines that remediation or redevelopment is not economically feasible, DECD may "forgive" the loan.) DECD selects SCPRIF recipients based on its evaluation of the environmental impact, community enhancement, and economic feasibility of a proposed project. Recently, DECD awarded the town of Manchester a $62,700 SCPRIF loan to conduct a Phase II Assessment and Phase III Site Investigation at the former Morland Valve property on Tolland Turnpike, a site that had been abandoned and blighted for several years. Once the assessment was complete, the town was able to sell the tax lien on the property, the property was subsequently foreclosed, and it is currently slated for redevelopment.

4. Dry Cleaning Establishment Remediation Fund

Under the Dry Cleaning Establishment Remediation Fund, DECD, working in conjunction with DEP, provides grants to eligible dry cleaning operators for use in the cleanup, containment, or mitigation of pollution from releases of tetrachloroethylene, stoddard solvent³⁵ or other dry cleaning solvents. The program is financed through a surcharge on gross receipts from dry cleaning services within the State and in recent years has had approximately $600,000 available annually for grants.

To be eligible for program funds, operators may not have litigation pending against them and must prove that they cannot secure conventional financing. To receive a grant, an operator must identify (1) the party responsible for site investigation and remediation and (2) the sources of funding designated to complete the project, over and above state sources of funding. DECD chooses recipients based on an evaluation of the risks the site poses to the public and the magnitude of environmental contamination at the site, among other factors. Grants may not exceed $50,000 annually for a maximum of $150,000 over three years. The DECD also requires operators to bear a portion of project costs in the amount of either $10,000 or $20,000, depending on when a release at the site was initially reported to the DEP.

5. Urban Sites Remedial Action Program

The Urban Sites Remedial Action Program³⁶ commits public funds for the planning and implementation of site remediation at potentially polluted commercial and industrial properties in Connecticut and for the acquisition of those properties by DECD. The program provides for expedited remediation of polluted properties, aims to enable the private sector to invest in property development without concern for past environmental contamination, and is funded through state bonding of more than $30 million.³⁷ DECD directs Urban Sites Remedial Action funds to sites that would otherwise remain vacant or economically unproductive. Program funds are restricted to sites located either in Distressed Municipalities,³⁸ as defined in Connecticut General Statutes § 32-9p, or in Targeted Investment Communities.³⁹

As described below, two types of projects qualify for the Urban Sites Remedial Action Program. In both cases, DECD must first identify a site as a potentially contaminated property that is significant to the State's economy. There is no formal application process for Urban Sites funds. DECD generally selects projects internally through its review of applicants to other relevant programs or by referral. DECD will consider the resources available to the site owner or potential developer in considering them for priority within the program. Further, although the statute that authorizes the program does not exclude "PRPs," DECD is not likely to accept such a party into the program.

The first project type within the Urban Sites Remedial Action Program, the Economic Development Initiative (Type 1), encompasses contaminated properties with property owners and developers who are willing and able to conduct site investigation and remediation under the oversight of DEP. With Economic Development Initiative projects, DECD first identifies and selects a Connecticut property with a willing owner/developer based on its determination that the property is significant to the State's economy. After DECD has selected a Type 1 property, DEP expedites the review, inspection, and approval of the remedial investigation, planning, and implementation for that property. Dozens of sites funded by responsible parties with DEP oversight have taken advantage of this program.⁴⁰ These include: remediation projects at Pitney Bowes in Norwalk and U.S. Repeating Arms Company in New Haven.

With the second type of Urban Sites Remedial Action project, the Unwilling or Unable Party (Type 2), DECD also selects properties that it deems significant to the State's economy. In the case of Type 2 projects, however, property owners cannot be identified or are unwilling or unable to perform a remediation. Consequently, these become state funded projects. As with Type 1 sites, Unwilling or Unable Party sites must be located either in Distressed Municipalities,⁴¹ as defined in Connecticut General Statutes § 32-9p, or in Targeted Investment Communities.⁴² For Unwilling or Unable Party project types, the DEP itself will investigate and, if necessary, will also perform remediation at the selected property. In such cases, the State reserves the right to seek to recover expended public funds. Type 2 projects have included the Colt Manufacturing, Inc. site in Hartford and the Windham Mills site in Willimantic.

The federal government has more than 20 programs over a variety of agencies that may provide financial assistance for various aspects of brownfield development. The Northwest-Midwest Institute, a Washington, D.C. based research organization whose mission surrounds the economic vitality of states in the Northeast and Midwest, has identified the following federal programs:

FEDERAL FINANCIAL ASSISTANCE FOR BROWNFIELD REDEVELOPMENT ACTIVITIES⁴³

Loans

• HUD funds for locally determined CDBG loans and "floats"
• HUD Section 108 loan guarantees
• EPA capitalized brownfield revolving loan funds
• EPA capitalized clean water revolving loan funds
• SBA microloans
• SBA Section 504 development company debentures
• SBA Section 7(a) and Low-Doc programs
• EDA Title IX (capital for local revolving loan funds)

• HUD Brownfield Economic Development Initiative (BEDI)
• HUD Community Development Block Grants (for projects locally determined)
• EPA assessment pilot grants
• EDA Title I (public works) and Title IX (economic adjustment)
• DOT transportation and community system preservation (TCSP) pilot grants
• DOT (various system construction and rehabilitation programs)
• Army Corps of Engineers (cost-shared services)

• SBA Small Business Investment Companies

• Historic rehabilitation tax credits
• Low-income housing tax credits
• Industrial development bonds

• HUD/USDA Empowerment Zones (various incentives)
• HUD/USDA Enterprise Communities (various incentives)

Only a handful of these programs, including those discussed below deal directly with brownfield; the others have purposes and contain elements, such as general economic and environmental improvement, that lend themselves to brownfields development.⁴⁴ The programs of most general applicability to brownfields are those of the Environmental Protection Agency, The Department of Housing and Urban Development, and the Economic Development Administration of the U.S. Department of Commerce.⁴⁵

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