Sources of MoneyFeedback

The public sector plays multiple essential roles in real estate revitalization projects. Local governments, and to some extent state governments, typically create and enforce zoning and building codes, control the permitting process, and can offer financial incentives or infrastructure development to favorable projects. Fast-track permitting and the delivery of financial incentives are most common when a particular revitalization project meets community goals for environmental cleanup, urban revitalization, and job growth. Federal and state governments also provide grants, loans, or other contributions to projects that meet public goals. Financial incentives remain the mechanism of choice for the public sector to facilitate revitalization of sites. Frequently, the costs of land assembly, assessment, and cleanup make revitalization too expensive and risky for the private sector to assume a project without any public assistance. Hence, the public sector plays a valuable role in assisting developers to overcome some of the hurdles that can be encountered in the revitalization of potentially contaminated sites. The tools available to the public sector to catalyze revitalization expand each year, and are becoming more creative and sophisticated.

A key lesson from the success stories reviewed in preparing SMARTe is that in many cases public-sector financial assistance is needed to make revitalization of sites economically viable. Many of these projects do not proceed without some kind of financial incentive by the public sector. Site remediation and preparation costs make many sites economically uncompetitive, at least initially. Many project teams have trouble putting a complete financing package together – especially the capital needed for three specific activities that might occur on a potentially contaminated site: (1) carrying out an early stage site assessment; (2) defining a site remediation plan (necessary if the owner wants to take the site through a voluntary cleanup program (VCP) in order to get some finality on liability concerns, or to be able to use institutional controls); and (3) performing the actual cleanup itself.

The potential for excess site revitalization costs indicates that many revitalization sites have a financing gap because revitalization costs to the developer exceed market value as determined by the lender and other market forces (Davis, 1997). The project team’s challenge is dealing with financing gaps and situations that make revitalization sites economically uncompetitive – at least initially – and pulling together the technical and financial resources that can help them leverage the financial aspects of the project, so they can realize the full competitive advantage of their location and situation.

For decades, federal development and finance mechanisms have been used to stimulate economic activity in certain geographic areas or industries, or under certain types of situations, when private capital markets chose not to participate. Revitalization projects at potentially contaminated sites represent a logical extension of the mission of many of the programs that federal agencies currently operate. Federal financial assistance programs applicable to revitalization of potentially contaminated sites are listed in the Federal Financial Assistance Programs Applicable to Revitalization of Potentially Contaminated Sites Exhibit.

Special funding opportunities and information that have been created specifically for rural communities can be accessed through the USDA’s Rural Empowerment Zone and Enterprise Community (EZEC) Program. Smaller communities may face challenges with federal grant programs that require a matching contribution to the assistance. A complete list of public funding resources is available in the Catalog of Federal Domestic Assistance (CFDA) and can be searched by area, agency, and type of assistance.

The USDA Building Better Rural Places website offers an index of programs that discuss environmental issues and provide information resources, technical assistance, and funding sources related to sustainable communities, agricultural practices, food systems, nutrition and health, forestry, fisheries, wildlife & the environment, and small businesses and entrepreneurs.

Several of the Department of Housing and Urban Development’s (HUD’s) programs offer communities considerable potential resources and the most flexibility. Community Development Block Grants (CDBG) are provided to entitlement, or funding recipient communities. Central cities of Metropolitan Statistical Areas (MSAs), other metropolitan cities with populations of at least 50,000, and qualified urban counties with populations of at least 200,000 (excluding the population of entitled cities) may qualify as entitlement communities and receive annual grants. HUD determines the amount of each entitlement grant by a statutory dual formula that uses several objective measures of community needs, including the extent of poverty, population, housing overcrowding, age of housing, and population growth lag in relationship to other metropolitan areas. How the grant funds are spent is a local decision, within broad HUD guidelines. HUD’s Section 108 loan guarantee program is linked to the block grant program. Section 108 was authorized to help cities finance site clearance, property acquisition, infrastructure, rehabilitation, or related activities too large for single-year block grant funding. This can include removal of toxic contaminants as part of site preparation activities.

Entitlement cities and counties may leverage up to 5 times their annual grant for large, capital intensive projects — typically, economic development projects needing considerable up-front cash for site preparation. Cities have up to 20 years to repay these HUD-backed loans. Most cities use the income generated from the sale or revitalization of the site to pay off the debt. Both programs have great potential to support site revitalization.

Block grant funds can also be lent to private companies for economic development projects under some circumstances. Coping with contamination has been defined as an eligible activity, and specifically put into law in 1997 as part of appropriations language. Since then, more than 50 cities have used CDBG resources directly for revitalization of potentially contaminated sites. Cities ranging in size from Chicago, Illinois, to Somerville, Massachusetts, have used CDBG to clean up targeted city sites.

More and more cities are targeting Section 108 for use in the revitalization of potentially contaminated sites. Chicago, Illinois, has used it to cover the costs of cleaning and assembling small parcels into 0.1 km2 (25 acres) and 0.2 km2 (50 acres) tracts for new industrial development. Denver, Colorado, is using Section 108 for short-term construction loans on downtown projects, with the developers repaying the notes upon sale of the properties. Mid-sized cities such as Yonkers, New York, have used Section 108 proceeds to create a brownfields revolving loan fund. However, stakeholders should consider that cities take similar risks with Section 108 loans that developers take with revitalization.

Small cities with less than 50,000 people are not eligible on their own to apply. They should apply through their state or an urban county. To date, Glen Cove, New York, is the only small city to gain access to this program. At this time, the states of Washington, California, and Connecticut are exploring greater use of Section 108 for small town revitalization projects, perhaps by setting up financing pools, or a conglomerate of financial providers. More information on Section 108 can be found at www.hud.gov/offices/cpd/communitydevelopment/programs/108/index.cfm.

The Entitlement Communities Grants Program provides annual grants on a formula basis to entitled cities and counties to develop viable urban communities by providing decent housing and a suitable living environment, and by expanding economic opportunities, principally for low- and moderate-income persons.

Entitlement communities develop their own programs and funding priorities. However, grantees must give maximum feasible priority to activities which benefit low- and moderate-income persons. A grantee may also carry out activities which aid in the prevention or elimination of slums or blight. Additionally, grantees may fund activities when the grantee certifies that the activities meet other community development needs having a particular urgency because existing conditions pose a serious and immediate threat to the health or welfare of the community where other financial resources are not available to meet such needs. CDBG funds may not be used for activities which do not meet these broad national objectives.

Additional information on eligibility, eligible activities, requirements, and citizen participation can be found here.

Generally, CDBG recipients are unable to use their entire block grant allocations in the year received; long-term, larger projects (such as infrastructure construction) approved for funding take more than a year to plan and carry out. According to HUD rules, funds not needed to meet current project costs remain in the federal treasury until the city actually needs them. It is not unusual for CDBG funds awarded one year to be drawn down a couple of years later as big capital projects move towards completion.

When a city can show that previously awarded CDBG funds will not be needed in the near term, it may tap its block grant account on an interim basis – using what HUD calls a CDBG “float” – to finance short-term, low interest construction financing for projects that create jobs. Any developer, not-for-profit agency, or private company that can obtain an irrevocable letter of credit from a lender is eligible to apply for such financing. (The letter of credit satisfies HUD’s concern that the funding will be available for its originally planned purpose.)

Proceeds may be used to pay all costs for the purchase of land and buildings, site and structural rehabilitation – including environmental remediation – or new construction. Float funds can also finance purchase of machinery and equipment. Maximum loan size is determined by the amount of funds in a jurisdiction’s CDBG account available to cover the float. Float loans cannot be extended for more than two years; the interest rate is limited to 40 percent of the prevailing prime rate. A few municipalities, notably Chicago, Illinois, have financed cleanup activities via the CDBG float mechanism.

Another financing tool that is available is HUD’s Brownfield Economic Development Initiative (BEDI). Congress provided $25 million for BEDI in fiscal year 2000. These funds were awarded competitively. Winners included: Buffalo, New York, which will use $240,000 in BEDI funds and a $3 million in Section 108 funds for site preparation and remediation at the Union Ship Canal commercial and office project; and Phillipsburg, New Jersey, which will use $500,000 in BEDI funds and $2.5 million in Section 108 to acquire and revitalize 0.4 km2 (100 acres) of the 1.6 km2 (385 acres) former Ingersoll Rand site into a modern industrial park, doing soil remediation as part of site preparation work that will include road, rail, and utility upgrading.

These grants are intended to improve the viability of projects financed with HUD’s Section 108 loan guarantee program. BEDI funds can be used for any activity also eligible under CDBG. For example, cities may use BEDI funds to pay interest on the 108 loans, thereby rendering the loan interest free. But BEDI grants must be used in conjunction with new Section 108 loan guarantees, with at least a dollar-per-dollar ratio — they will not be granted independently. This is proving to be a stumbling block for cities that have reached their limit on Section 108 — either in real dollar terms, or because of local political and community pressures. And again, small cities, in practice, are largely shut out of the BEDI process.

An amendment was made in 2005 increasing grants available under HUD’s Community Development fund by $24 million. The money would be directed toward brownfield redevelopment activities. BEDI grant funds are primarily targeted for use with a particular emphasis upon the redevelopment of Brownfields sites in economic development projects and the increase of economic opportunities for low-and moderate-income persons as part of the creation or retention of businesses, jobs and increases in the local tax base.

Low-income housing tax credits are a federal tool with the potential to support revitalization of potentially contaminated sites. With a low-income housing tax credit, a taxpayer may be able to deduct qualified remediation expenses incurred to clean up a property. There is growing interest in reusing potentially contaminated sites for residential purposes, an interest that will be further fueled as state voluntary cleanup programs become more established.

Low-income housing tax credits can play an important role in attracting the necessary capital for completing housing projects on potentially contaminated sites. One of the first success stories can be found in Trenton, New Jersey, where the Circle F project was developed on a contaminated manufacturing site. Trenton officials selected a long-time local non-profit developer to undertake the project that included senior housing and low-impact manufacturing. The developer fronted the $500,000 for site cleanup and preparation, and applied for and received an allocation of $8 million in federal low-income housing tax credits through the state of New Jersey. These credits attracted a private lender, who helped finance the project and assumed the role of a limited partner in the project in order to get the benefit of the tax credits. In the case of Circle F, the credits were linked to site contamination considerations without undermining the bank’s profitability.

The U.S. Economic Development Administration (USEDA) provides grants to communities to support public works activities. Since approximately 2001, USEDA has made revitalization of potentially contaminated sites one of its program funding priorities, spending nearly 20 percent of its project resources on these activities. USEDA’s public works program supports industrial development activities. US EDA’s goal in brownfields redevelopment is to create value by returning non-productive, blighted and/or formerly contaminated real estate to local tax roles while fostering capital investment and creating higher-skill, higher-wage jobs. USEDA’s economic adjustment and defense economic adjustment programs can provide capital for locally run revolving loan funds to enhance business development activities in distressed areas. USEDA resources can work well in the revitalization of potentially contaminated sites, but in practice it can be very difficult to get USEDA to provide revolving loan fund resources to communities that have ever received them before – even if “before” was 10 or 15 years ago, and for vastly different purposes. Some states may also have State EDAs whose programs can also be leveraged to assist with revitalization of potentially contaminated sites.

Congress created the EB-5 Green Card through Investment immigrant investment visa category in the Immigration Act of 1990 in hopes of attracting foreign capital to the US and creating jobs for American workers in the process.  There are 10,000 visas available in the category each year, 5,000 of which are reserved for people who participate in an EB-5 pilot program designed to target low employment areas.

There are three basic requirements for an EB-5 visa:

1.      the alien must establish a business or invest in an existing business that was created or restructured after 11/19/1990;

2.      the alien must have invested $1 million (only $500,000 when investing in a USCIS (INS) designated regional center) in the business;

3.      the business must create full-time employment for at least 10 US workers.

To encourage immigration through the EB-5 category, Congress created a Regional Center program in 1990. 3,000 visas have been set aside each year for people to invest at least $500,000 in designated Regional Centers. The Regional Centers program does not require the immigrant investor enterprise itself to employ 10 U.S. workers. Instead, it is sufficient if 10 or more jobs are created indirectly as a result of the investment. Regional Centers are designated as "any economic unit, public or private, which is involved with the promotion of economic growth, including increased export sales, improved regional productively, job creation, or increased domestic capital investment."

Some communities have made creative use of Department of Transportation funds to contribute to the revitalization of potentially contaminated sites. As a growing number of case studies show, transportation projects can be connected with these revitalization projects in three ways:

Some federal loan assistance is delivered by the Small Business Administration (SBA), either directly or through local economic development agencies or community-based corporations. While SBA retains much of the broad decision making authority, specific projects are locally determined and driven. SBA can prove especially helpful to new or small firms that usually lack access to affordable capital from conventional sources. However, to date, SBA programs have not directly addressed revitalization of potentially contaminated sites; in fact, some bank officials and local economic developers have complained that SBA tends to be more conservative with respect to contamination and liability concerns than private lenders themselves. SBA generally only looks at clean deals.

A loan is money that must be repaid in a specified amount of time at a negotiated interest rate. Revitalization projects may be able to identify state and federal finance programs that will provide capital at subsidized rates for projects that meet their eligibility criteria. Some debt finance programs are revolving, meaning that the program is partially financed by repayment of earlier debt. Many revitalization projects have been successful in exploring funding opportunities from a wide variety of sources to create an economically viable project.

Subsidized low-interest loans can be used to reduce the cost of capital for project sponsors. They also provide full or partial financing for projects that otherwise might be unavailable on the private capital markets or that would be available only at an interest rate higher than the prevailing rates to compensate for the potential additional risk involved in the revitalization of potentially contaminated sites. Many projects have made use of existing state and local loan programs for revitalization. Others have made use of loan programs specifically targeted to assessment, cleanup, and revitalization of potentially contaminated sites.

In some cases, state and local loan programs operate revolving loan funds, under which future loans are financed through the repayment of current loans. The mechanism may be particularly appropriate for assessment, cleanup, and revitalization of potentially contaminated sites, since repayment terms tend to be more flexible than the terms of commercial loans.

Bonds can extend payment for new projects over a period of 15 to 30 years allowing time to generate sufficient income to repay the capital invested. Typically, states and local governments repay bonds with revenues from taxes, fees, or other sources. For revitalization projects, bonds backed by tax increment financing can be particularly popular because they rely on tax revenues anticipated from the economic impacts of the revitalization property after the project has been completed.

Tax exempt bonds provide income to bond purchasers that is exempt from federal and state taxes. Tax exemption bond funds can be used for government purposes including airports, docks and wharves, mass commuting facilities, facilities for furnishing water, sewage disposal, and facilities for solid waste disposal, including large investment for infrastructure, small issuer manufacturing facility bonds, and multifamily housing bonds for affordable housing. Security and sources of repayment for bonds need to be identified (property taxes, revenues, limited tax, tax increment financing [TIFs], local improvement district [LID], certification of participation [COP], lease purchase of obligation [using lease revenues to pay back debt]). Types of project bonds include open space projects, parks, housing, golf courses, assisted living facilities, hospitals, convention centers, libraries and mixed use projects.

Some communities find that revitalization projects can be stimulated by using a public agency to buy the sites (or take title to abandoned property), assess and cleanup the contamination, and then lease the property to private developers. The lease shields the developer from environmental liability as an owner (but not as a transporter or generator of hazardous waste), and gives the community a source of revenue. Depending on the length and terms of the lease, a community could use the payments to service bonds issued to support the project, or to pay off loans that the community had secured. In some cases, the local government finds a lessor before starting the project. In others, it pursues the project before identifying tenants.

A second option that should be evaluated is to assess, cleanup, and revitalize a site as a publicly-owned parcel. After the local government has assembled the property and begun the first stages of cleanup, it can either sell the property to the private sector or retain ownership on its own behalf, and potentially set up lease arrangements as discussed in the previous paragraph. Public ownership can qualify sites for additional funding not available to privately-owned sites.

Some communities use land reclamation banks, which take title to revitalization sites through the use of property tax foreclosure, eminent domain, or purchase. They typically assess and clean up the site, then sell the property to a developer. Some communities use the proceeds from the lease or sale of the property to finance future projects. Use of land reclamation banks is usually applicable only to sites that would otherwise be profitable were it not for environmental impacts, or to sites where the grouping of several sites creates an economy of scale that makes the sites together potentially profitable.

On January 11, 2002, President Bush signed the Small Business Liability Relief and Brownfields Revitalization Act into law. The Brownfields Law expands potential federal financial assistance for site revitalization, including grants for assessment, cleanup, and job training. The new law also limits the liability of certain contiguous property owners and prospective purchasers of revitalization properties, and clarifies innocent landowner defenses to encourage revitalization and reuse of sites.

The Brownfields Law requires EPA to develop regulations establishing standards and practices to conduct assessment of the environmental conditions of a property prior to its acquisition, known as All Appropriate Inquiries (AAI). Brownfield property owners who comply with the AAI requirements and become “bona fide prospective purchasers” can secure CERCLA liability relief, which will remove uncertainties in the eye of a private lender or investor. This may make private capital more available. Contiguous property owners can also get the same relief.

The Brownfields Law also includes provisions to establish and enhance state and tribal response programs, which will continue to play a critical role in the successful cleanup and revitalization of sites.

The Brownfields Revitalization and Environmental Restoration Act authorizes $200 million per year (thru fiscal year 2006) for grants to states, local governments, and tribes, as well as entities such as quasi-public revitalization agencies and authorities for the early stage activities such as site assessment, remediation planning, and the actual cleanup itself.

The EPA Grant Funds Eligibility Exhibit indicates, by grant program, what types of entities are eligible to receive EPA funds for revitalization assessment, revolving loan fund (RLF), and cleanup grants.

1 To be eligible for a cleanup grant or an RLF subgrant, the applicant must own the site for which they seek funding by the time the award is made.

2 For purposes of the brownfields grant program, EPA defines general purpose unit of local government as a “local government” as that term is defined under 40 CFR Part 31.

3 Intertribal Consortia are eligible for funding in accordance with EPA’s policy for funding intertribal consortia in the brownfields program to be published in the Federal Register. This policy also may be obtained from your Regional Brownfields Contact.

4 Alaska Native Regional Corporations and Alaska Native Village Corporations are defined in the Alaskan Native Claim Settlement Act (43 U.S.C. 1601 and following).

5 For the purposes of the brownfields grant program, EPA will use the definition of nonprofit organizations contained in Section 4(6) of the Federal Financial Assistance Management Improvement Act of 1999, Public Law 106-107. The term "nonprofit organization" means any corporation, trust, association, cooperative, or other organization that is operated primarily for scientific, educational, service, charitable, or similar purpose in the public interest; is not organized primarily for profit; and uses net proceeds to maintain, improve, or expand the operation of the organization.

The money can be used for the following:

Three competitive revitalization grant programs are discussed in these guidelines: assessment grants, RLF grants, and cleanup grants. Eligible applicants, including those with existing revitalization grants, may apply for one, or all, of the grant programs. Contact your EPA Regional representative for assistance.

Assessment grants provide funding for a grant recipient to inventory, characterize, assess, and conduct planning and community involvement related to revitalization sites. For more information, contact the EPA Regional representative or look for updates at http://www.epa.gov/swerosps/bf/pilot.htm.

Revolving Loan Fund (RLF) grants provide funding for a grant recipient to capitalize a revolving loan fund and to provide subgrants to carry out cleanup activities at revitalization sites.

Existing Brownfields Cleanup Revolving Loan Fund (BCRLF) recipients may choose to “transition” their grants to the requirements of the new law. BCRLF recipients who choose to transition must comply with all requirements of the new law. BCRLF recipients who do not choose to transition will continue to operate pursuant to the terms and conditions of their existing cooperative agreements. Information about this transition option to existing BCRLF grant recipients is provided at www.epa.gov/brownfields/html-doc/bcrlf-0.htm. The performance period for these grants generally will be five years.

Case studies highlighting Brownfield sites that have successfully utilized grants and RLFs can be found at www.epa.gov/brownfields/success.htm.

Cleanup grants provide funding for a grant recipient to carry out cleanup activities at revitalization sites. For more information, contact the EPA Regional representative or look for updates at http://www.epa.gov/swerosps/bf/pilot.htm.

Following are several resources available to assist pilot participants. These resources are located on EPA’s Office of Solid Waste and Emergency Response, Brownfields Web Site.

EPA Region 8 has also developed Workplan Templates to assist brownfields cleanup grantees (Example 1, Example 2).

EPA, other federal agencies, local job training organizations, community colleges, labor groups, and others have established partnerships to develop long-term plans for fostering workforce development through environmental training, ensure the recruitment of trainees from socio-economically disadvantaged communities, provide quality worker-training, and allow local residents an opportunity to qualify for jobs developed as a result of brownfields efforts.

The Brownfields Job Training Grants will each be funded up to $200,000 over two years. There Grants will bring together community groups, job training organizations, educators, labor groups, investors, lenders, developers, and other affected parties to address the issue of providing environmental employment and training for residents in communities impacted by brownfields. EPA’s Brownfields Program is an organized commitment to help communities revitalize brownfields properties both environmentally and economically, mitigate potential health risks, and restore economic vitality to areas where brownfields exist. For more information go to: www.epa.gov/swerosps/bf/job.htm.

EPA and its 40 partners from industry, non-government organizations, and other government agencies, offer this student design competition to respond to the scientific and technical challenges in moving towards the goal of sustainability.

P3 is a partnership between the public and private sectors to achieve the mutual goals of economic prosperity while protecting the natural systems of the planet and providing a higher quality of life for its people. The P3 competition will provide grants to teams of college students to research, develop, and design sustainable solutions to environmental challenges. More information is located at www.epa.gov/P3 .

As part of the EPA Superfund Redevelopment Initiative, the Return to Use program is intended to help communities reclaim former Superfund sites and restore them to beneficial use. The Initiative is designed to remove barriers to reuse that are not necessary for the protection of human health, the environment, or the remedy at those sites where remedies are already in place.

The Initiative focuses on National Priorities List sites that were cleaned up prior to EPA’s current emphasis on considering reuse during response activities. Many of these sites have remained vacant. With appropriate oversight, communities can reclaim these vacant sites. Returning these sites to beneficial use will provide local communities with valuable green space, recreational amenities, or commercial property. Removing the stigma associated with fenced and vacant Superfund sites may also increase local property values and the tax base.

EPA can fund activities that facilitate reuse, as long as those activities are designed to project the future land use. Anticipating the probable future use of a Superfund site after it has been cleaned up is of key importance in selecting and designing a remedy that will be consistent with that use. Activities that are appropriate for funding under Superfund include the following:

Additional EPA grant resources as well as EPA Regional Programs can be found on the following web sites.

Brownfields Program: Grants – Brownfield sites are abandoned, idled, or under-used industrial and commercial facilities where expansion or revitalization is complicated by real or perceived environmental contamination.

Community Action for a Renewed Environment (CARE) Cooperative Agreements – This EPA program empowers communities to form collaborative partnerships, develop a comprehensive understanding of all sources of risk from toxics, set priorities, and identify and implement projects to reduce risks through collaborative action at the local level.

Environmental Education Grants Program – The goal of this program is to support environmental education (EE) projects that enhance the public’s awareness, knowledge, and skills to make informed and responsible decisions that affect environmental quality.

Environmental Justice Grants – Information on various EPA environmental justice (EJ) grant programs including the Small Grants Program, the EJ Community/ University Partnership Grants Program, and the Environmental Justice Through Pollution Prevention Grants Program.

Directory of Technical Assistance for Land Revitalization (large file) - Provides information about technical assistance available from federal agencies to assist regional, state, and local government personnel in assessment and cleanup decisions at brownfields, reuse, and revitalization sites.

National Center for Environmental Research and Quality Assurance – Grants, Fellowships, Research Associateships, and the Small Business Innovative Research (SBIR) Program

Natural Resources Conservation Service – Conservation Partnership Initiative - The Conservation Partnership Initiative (CPI) is a voluntary program established to foster conservation partnerships that focus technical and financial resources on conservation priorities in watersheds of special significance. Under CPI, funds are awarded to state and local governments and agencies, Indian tribes, and non-governmental organizations that have a history of working with agricultural producers.

EPA/NOAA Coastal Brownfields – EPA and the U.S. National Oceanic and Atmospheric Administration (NOAA) agreed to work together to help coastal communities grow in ways that benefit the economy, public health, and the environment. Grants are available through the NOAA Portfields Program for revitalization of brownfields in port and harbor areas.

Office of Wastewater Management (OWM) Clean Water Financing – Includes guidance and information about the Clean Water State Revolving Fund (CWSRF) program, Water Pollution Control Program Grants for states, Water Quality Cooperative Agreements, and Clean Water Indian Program Grants.

One Stop Reporting Program – The One Stop Program is designed as a long-term effort to develop a coherent overall environmental reporting and data management “system” that effectively serves all stakeholders, including the public, regulators, and industry. EPA hopes to extend One Stop grant offers to all 50 states by the end of Fiscal Year 2003.

Pollution Prevention Incentives for States – The Pollution Prevention Incentive for States (PPIS) grant program provides about $5 million annually to state and tribal programs to help develop and sustain state pollution prevention (P2) program activities and pioneer new P2 approaches in the states.

Water Grants – Information on national grant programs, including the State Revolving Funds for drinking water and wastewater, grants for water pollution prevention and wetlands protection, and tribal grants.

The Empowerment Zone and Enterprise Communities (EZ/EC) program is designed to empower communities across the nation by inspiring people to work together to create jobs and opportunities. An EZ or EC is a distressed community that the federal government has targeted to receive substantial investment of federal technical resources to encourage private sector development, job growth, and entrepreneurship.

In December 1994, HUD designated six urban EZs and 65 urban ECs, and the Department of Agriculture (USDA) designated three rural EZs and 30 rural ECs. This first round of EZ/EC applications and selections was guided by four key principles: economic opportunity; sustainable revitalization; community-based partnerships; and a strategic vision for change. A second round of designations occurred in 1998.

Designated EZs and ECs have a range of tools available to maximize the flow of private capital and investment to their nominated areas. Since its inception, the EZ/EC authority has provided more than $2.5 billion in tax incentives and $1.3 billion in grants to 104 urban and rural communities in 42 states.

In September 1996, EPA and HUD signed a Memorandum of Understanding (MOU) to work cooperatively on revitalization strategies. The agreement states that the agencies will work together to identify and implement actions that link revitalization activities with economic development and neighborhood revitalization. Actions as a result of that agreement include:

HUD re-energized this Initiative in 2001 and 2002 by designating new EZs and Ecs,. The new designees have access to a $22 billion tax-incentive package to open new businesses, provide thousands of new jobs, rehabilitate and build new housing, and change lives in urban and rural areas throughout the nation. HUD added renewal communities (RCs) to the program as well. The RCs were developed to spark job growth and economic renewal in these areas.

The RC/EZ/EC Initiative offers residents and businesses the opportunities and resources to overcome seemingly insurmountable problems. What have been vacant lots or abandoned buildings have been turning into new business complexes and affordable housing. Employment opportunities for residents have expanded and support services including childcare, education and health care have been strengthened, thus enabling residents of our nation’s poorest communities to participate more fully in the workforce.

Although this program is not making new designations, there are still many designated communities who are entitled to these benefits. Further information is available from USDA and HUD.

Many states have grant programs that provide funding for localities and agencies that undertake assessment, cleanup, and revitalization of potentially contaminated sites. In seeking grants, project sponsors should know that grant assistance can be attained from a number of agencies including non-environmental agencies. For example, communities may be able to finance revitalization projects through a state economic development agency. As an alternative, localities can seek grants not traditionally used for site cleanup, such as groundwater protection grants, which could be awarded for protecting groundwater from contamination from a site being revitalized. For example in Clermont County, Ohio, the Clermont County Community Housing Improvement Program offers grant opportunity to preserve and rehabilitate existing housing.

Tax incentives are one method local governments use to encourage institutional and private investment in revitalization of potentially contaminated sites. For example, local governments are easing the financial burdens of developers and owners by offering tax credits that can improve the cash flow of the project. Local governments also are becoming partners in revitalization projects by allocating public works resources for site preparation and cleanup, or by allocating tax revenues or loan payments from other programs to fund specific project activities. In some cases, special improvement districts (SID) are created to offer task incentives for revitalization within the district.

The tax increment financing (TIF) mechanism, available in nearly 40 states, has traditionally been used for numerous types of economic revitalization efforts, usually in economically distressed or abandoned areas. The TIF process uses the anticipated growth in property taxes generated by a revitalization project to finance public sector investment in it. TIFs are built on the concept that new value will be created – an essential premise of most revitalization initiatives – and that the future value can be used to finance part of the activities needed now to create that new value. The key to TIF is the local commitment of incremental tax resources for the payment of revitalization costs. This funding mechanism may not be suitable for parks or other public projects that do not generate property tax, and it may compete with other programs that use tax revenues as incentives.

TIF bonds are issued for the specific purpose of revitalization – acquiring and preparing the site; upgrading utilities, streets, or parking facilities; and carrying out other necessary site improvements. This makes them an ideal financing tool for site revitalization projects, in fact, many cities with success stories helped bring them about with TIF financing. TIF programs are easily used with other types of funding, such as grants or loans.

However, many jurisdictions have been hesitant to use TIF mechanisms for revitalization of potentially contaminated sites; if projected revitalization fails to materialize or unanticipated complications arise, it can be difficult to retire the bonds. Some local economic development practitioners also cite the complexity of many TIF initiatives as a practical disadvantage. They can require a lot of time to put into place and high levels of technical expertise and negotiating savvy to move a project from concept to implementation, especially one made more difficult by environmental concerns.

Real estate transfer taxes are charged to the buyer or seller of a contaminated property at the time of transfer. These taxes are a percentage of the assessed value of property transferred, a flat deed registration fee, or a combination of the two. Both state and local governments use this planning tool to fund land-related initiatives, including acquisition of natural lands.

Tax abatements include deferments or reductions in tax obligations and are commonly used to stimulate investments in building improvements or new construction in areas where property taxes or other conditions discourage private investment. States must usually grant local governments the authority to offer tax abatement programs, and most allow only certain areas to participate, such as economically distressed communities or deteriorating neighborhoods.

Tax abatement programs should be carefully designed to target intended beneficiaries without offering unnecessary subsidies. The key advantage of tax abatements is that they give local governments a workable, flexible incentive that helps influence private investment decisions. This can be important in efforts to promote reuse of revitalization sites.

On August 5, 1997, President Clinton signed the Taxpayer Relief Act, which included a new tax incentive to spur the cleanup and revitalization of potentially contaminated sites in distressed urban and rural areas. This tax incentive expired December 31, 2003. An extension was passed through Congress and at the time of this publication has not yet been signed by the President of the United States. The Brownfields Tax Incentive, passed as part of the Taxpayer Relief Act and built on the momentum of the Brownfields National Partnership Action Agenda. The national partnership outlined a comprehensive approach to the assessment, cleanup, and sustainable reuse of revitalization sites, including specific commitments from 15 federal agencies. It was anticipated that the Brownfields Tax Incentive would help bring thousands of abandoned and under-used industrial sites back into productive use, providing the foundation for neighborhood revitalization, job creation, and the restoration of hope in our nation’s cities and distressed rural areas.

This Federal tax law generally required that those expenditures that increase the value or extend the useful life of a property, or that adapt the property to a different use, be capitalized, and, if the property is depreciable, that those expenditures are depreciated over the life of the property. Therefore, the full cost cannot be deducted from income in the year in which the expenditure occurs. Such capitalization treatment also applies to the cost of acquiring property. In contrast, repair and maintenance expenditures generally can be deducted from income in the year they are incurred. In the past, it was required that many environmental remediation expenditures be capitalized over time rather than fully deducted or expensed in the year in which they were incurred. Redevelopers that incurred such expenditures were at a disadvantage because they were not able to fully deduct their remediation costs in the year in which they were incurred.

In 1994, the Internal Revenue Service (IRS) issued a ruling that stated that certain costs incurred to cleanup land and groundwater could be deducted as business expenses in that same year. However, the ruling addressed only cleanup costs incurred by the same taxpayer that contaminated the land. It did not address cleanup costs incurred by a party that had purchased contaminated property or an owner that was interested in putting the land to new use. Further, the IRS ruling was unclear about whether other remediation costs not specifically addressed in the ruling would be deductible in the year in which they were incurred or whether capitalization would be required.

Those unresolved issues created potential financial obstacles in the contaminated properties market. Specifically, owners of contaminated property could cleanup their property and sell the clean property at its full market value, enabling them to fully recover the cost of remediation. However, prospective purchasers of contaminated property had to purchase the property at its impaired value, attributable to the contamination, and capitalize the remediation costs. As such, in some cases, prospective purchasers are left at a disadvantage in terms of environmental remediation expenditures.

The Brownfields Tax Incentive is applicable to properties that meet specified land use, contamination, and geographic requirements. To satisfy the land use requirement, the property must be held by the taxpayer that incurred the eligible expenses for use in a trade or business or for the production of income, or the property must be properly included in the taxpayer’s inventory. To satisfy the contamination requirement, hazardous substances must be present or potentially present on the property. To meet the geographic requirement, the property must be located in the one of the following areas:

Both rural and urban sites may qualify for the tax incentive. The taxpayer must obtain a certification from the state environmental agency that the property is in a targeted area.

In October 2004, the Working Families Tax Relief Act of 2004 extended the incentive, which expired on December 31, 2003, through December 31, 2005. Entities interested in the tax incentive must receive a certification of eligibility from their state contact.

PILOT Programs provide a mechanism by which States may pay to a municipality a “grant in lieu of taxes with respect to real property owned by any private nonprofit institution of higher education or any nonprofit general hospital facility or free standing chronic disease hospital.” Each year, a municipality assesses the value of such property and provides this information to the State. On the basis of this valuation, the State awards a grant to the municipality that is typically equal to a percentage of the property taxes which would have been paid with respect to the real property on the assessment list as it appeared for the assessment date for some period prior to the commencement of the state fiscal year in which the grant is payable.

Federal agencies also support PILOT Programs. These programs allow payment in lieu of taxes intended to offset the loss of tax revenue caused by the presence of tax-exempt federal lands and/or dormant and abandoned federal facilities within municipalities and counties.

Equity participation is a loan that includes conditions under which the lender shares in the increase in equity of the business or development. Many communities consider equity participation an excellent tool for stimulating projects. That effort can take the form of lease arrangements, establishment of reclamation banks, or municipal ownership and revitalization of property on its own behalf. The important aspect of equity participation is that the public sponsor assumes part of the risk of the project. For many communities, the risk is worthwhile because the assessed, cleaned up, and revitalized property will provide a source of new tax revenue. In addition, although state and local governments enjoy only a statutory liability exemption when acquiring property involuntarily, federal regulators have historically been more reluctant to pursue legal action against public agencies than against private landowners, a fact that reduces the risk. Even where it may not be appropriate to provide local funds for a private revitalization, local governments can contribute by upgrading utilities, providing streetscapes, and providing other improvements to adjacent public areas.

Virtually all communities can issue General Obligation (GO) bonds for (in the terms of one city attorney) “any proper public purpose which pertains to its local government and affairs.” Economic development practitioners can make a strong case that a bond pool to support cleanup and reuse projects could create jobs and enhance the local tax base, which are appropriate public purposes. Cities traditionally issue GO bonds for acquiring land, preparing sites, and making infrastructure improvements – key elements in a revitalization strategy. Moreover, the city’s ability to repay this bond debt would be enhanced by the growth in property tax revenues as more potentially contaminated sites are brought back to productive uses. One example of the use of general obligation bonds for revitalization of potentially contaminated sites, is the Trenton, New Jersey, Lafayette Yard Hotel, a Phoenix-award winning revitalization effort that was largely funded by these bonds.

Every local government already uses a variety of financial assistance programs and incentives to promote economic and business development. Like federal and state programs, local offerings can be more explicitly packaged and promoted for potential developers and lenders to use to clean and rehabilitate potentially contaminated sites. A growing number of cities are examining ways to do this. Alternatives being considered in some places include:

In addition, cities can explore other low- or no-cost techniques to stimulate the flow of capital to promising revitalization undertakings. For example, Chicago, Trenton, and Cleveland are a few of the cities that are considering ways to more easily convey tax-delinquent properties to new owners with viable reuse plans. Other cities are contemplating modifications in their zoning requirements, in specific cases, to provide developers with the opportunity to earn a greater return on their investment and offset site preparation costs.