Financing Brownfield Cleanup and Redevelopment

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					 Lack of adequate and affordable financing is the most significant obstacle
to brownfield redevelopment. Governments can catalyze private investment
in these projects by leveraging available federal, state, and local resources.

            Financing Brownfield Cleanup
                 and Redevelopment
                                                             By Charles Bartsch

           ith as many as 600,000 potential sites nationwide,             plan, and the actual site cleanup. The purpose of the site assessment
           brownfields continue to be an important issue for local        is to determine the type and level of contamination by means of
           governments of all sizes. Brownfields come in all shapes       both primary (e.g., on-site sampling) and secondary (e.g., maps,
and sizes, including defunct or partially operating manufacturing         historical records, etc.) research by technical experts. The site reme-
plants, abandoned gas stations, dying or dead strip shopping and          diation plan is required for participation in a state voluntary clean-
commercial centers, agricultural operations, and even residential         up program, which can streamline the cleanup process and help
areas. They are found in urban, suburban, and rural locations. The        clarify the liability of prospective purchasers, lenders, property
cleanup and reuse of these sites has become the subject of consider-      owners, and others with regard to the site.
able government and political attention, with broad interagency              Other factors make brownfield remediation a financial twilight
and bipartisan support for such initiatives. More and more, the           zone for prospective developers. For starters, they will likely have
public and private sectors are forming partnerships to realize the        to pledge a higher rate of return to their investors or lenders to per-
economic and environmental benefits of brownfield redevelop-              suade them to take on a project with greater perceived risk. This so-
ment.                                                                                                  called “brownfield premium" may trans-
   The realm of brownfield finance is                                                                  late into an extra 10 to 20 percent return
rapidly evolving. To solve the brown-                     DEFINING BROWNFIELDS                         on investment, or one or two additional
field financing puzzle, local leaders          The Environmental Protection Agency                     interest points on a loan rate. Project
and agencies need to make imaginative          defines brownfields as abandoned, idled, or             underwriting needs are inherently more
use of the various public and private          underused facilities where expansion or                 extensive and, consequently, more expen-
financing tools, identifying new fund-         redevelopment is complicated by real or per-            sive. Before assuming the risks of such a
ing combinations and approaches that           ceived contamination. A brownfield site typi-           project, many lenders require environ-
make projects work. This article iden-         cally has active redevelopment potential for            mental data collection and analysis, addi-
tifies the financing barriers to brown-        commercial, residential, or recreational uses.          tional testing, and independent corrobo-
field reuse, discusses public-sector                                                                   ration of collateral value. These
approaches for facilitating brownfield                                                                 requirements complicate loan processing
redevelopment, and summarizes the litany of available brownfield          and review procedures and increase transaction costs. Some bank-
financing resources.                                                      ing analysts have estimated that these transaction costs have tripled
                                                                          since the emergence of the brownfield issue 10 years ago.
Barriers to Brownfield Reuse                                                 Finally, lenders tend to impose a number of conditions on the
   Lack of adequate and affordable financing is the most significant      financing that they provide for contaminated properties. For exam-
barrier to reusing contaminated sites. Lender liability concerns,         ple, they usually require developers to have at least 25 percent equi-
investor expectations for return on investment, and the creditwor-        ty in the project to make sure that the borrower has sufficient capi-
thiness of borrowers must all be addressed within the context of the      tal at risk—a seriousness threshold, so to speak. Most banks also
nature of the contamination, the costs of site preparation, the           adhere to an informal rule of thumb in evaluating the viability of a
impact of contamination on collateral value, and marketable reuse         project—cleanup costs should not exceed 25 percent of the fair
of the site. Site remediation and related preparation costs make          market value of the property once it is clean. All of the foregoing
many sites economically uncompetitive, placing too much pressure          considerations make brownfield redevelopment a thorny undertak-
on the bottom line—at least initially. Private parties often are not      ing for private developers.
able or willing on their own to invest the resources needed to take a
brownfield through its full redevelopment cycle.                          The Public Sector: Catalyst for Brownfield Redevelopment
   Developers often have trouble putting together a complete                 Clearly, many brownfield projects simply do not work without
financing package for brownfields. Specifically, developers have          some kind of public-sector involvement—especially at the local
difficulty acquiring the capital to pay for three activities unique to    level. Hundreds of successful brownfield reuse projects have
brownfield redevelopment: the site assessment, the site remediation       demonstrated that the public sector must make the first move to get

                                                                                                         similar strategies.
 Exhibit 1                                                                                                 Other localities have taken similar steps
                                                                                                         to promote brownfield reuse in their com-
      LOW- OR NO-COST LOCAL SUPPORT OF BROWNFIELD FINANCING EFFORTS                                      munities. Ocanto, Wisconsin, is facilitat-
  • Facilitate site assembly and title clearance                                                         ing practical reuse of a small site common
  • Connect site owners with state brownfield voluntary cleanup programs and help                        to all cities—an abandoned gas station.
    them negotiate a remediation strategy                                                                Working with the state's voluntary
  • Direct site owners to information on federal and state programs and other incen-                     cleanup program, Ocanto has converted
    tives                                                                                                the blighted site into a small landscaped
  • Offer local tax incentives or access to tax-exempt financing                                         parking lot serving main street retail.
  • Assist site owners in initiating institutional or engineering controls and land                      Another city—Moline, Illinois—has as-
    covenants, and monitoring these controls over time                                                   sumed a brownfields brokering role.
  • Help prospective site reusers secure private financing by facilitating loan packag-                  Recently, Moline coordinated the funding
    ing                                                                                                  and technical assistance efforts of federal,
  • Separate the environmental risk from the economic value of the property through                      state, and non-profit development part-
    mechanisms such as land leases, indemnities, and environmental insurance                             ners to redevelop a mostly abandoned
                                                                                                         riverfront industrial site into a residential
                                                                                                         and commercial complex complete with
                                                                                                         recreational facilities.
these projects off the ground. Indeed, some form of local, state, or           The bottom line is that many brownfield projects do not work
federal financial participation—even at seemingly miniscule levels          without some kind of local government involvement. As such, cities
of just a few thousand dollars—is often needed to jump start a              or development authorities are uniquely positioned to jump start
brownfield reuse project and to reduce the risk thereof to a level          the reuse process and move it through the critical make-or-break
that the private sector will accept. Public financing initiatives typi-     early phases. Creativity in meeting project needs is paramount.
cally employ one or more of the following four strategies:                  Exhibit 1 lists a variety of low- or no-cost initiatives local officials
1. Reducing the lender's risks can make capital more available.             can take to enhance the financing equation and thereby attract pri-
   Incentives such as loan guarantees or companion loans can                vate investment. These can be just as effective as writing a check or
   ensure a minimum return by limiting the borrower's exposure to           providing a grant.
   unforeseen problems that can affect the value of collateral or the
   borrower's ability to pay.                                               Brownfield Financing Resources
2. Reducing the borrower's financing costs can make capital more               More and more communities are devising creative solutions to
   affordable. To this end, local officials have subsidized interest        the brownfield financing conundrum by leveraging a combination
   costs through tax-exempt financing and low-interest loans, and           of available federal, state, and local resources. Unfortunately, many
   have reduced loan underwriting and documentation costs                   local officials are unaware of the breadth of these resources. This
   through loan packaging assistance and technical support.                 section is intended to provide a useful summary of federal, state,
3. Improving the borrower's financial situation through tax credits,        and local sources of brownfield funding.
   tax abatements, or re-payment grace periods can improve the
   project's cash flow and make it easier for the project numbers to        Federal Programs
   pencil out. Similarly, training and technical assistance can offset a       The numerous federal programs that can be used for the purpose
   user's start-up costs and allow available cash to be devoted to          of brownfield financing are summarized in Exhibit 2. The challenge
   meeting brownfield needs.                                                for local officials is to translate their funding needs into activities
4. Providing direct financial assistance for site assessment and            that meet the eligibility criteria of these programs, many of which
   cleanup in the form of grants and forgivable loans is an increas-        are intended to be used in conjunction with private funding sources.
   ingly popular strategy among local governments.                          Federal resources for brownfield financing are discussed below.
   Because competition for public monies is increasingly fierce, local         Department of Housing and Urban Development. HUD pro-
officials need to recognize that resources devoted to brownfield            grams offer the most resources and the most flexibility. The agency
reuse represent an investment that often is recoverable from either         awards community development block grants to jurisdictions of all
the sale of the site or from new tax revenues. Public investment in         sizes, which can use the funds for any activity that meets one of
brownfield reuse also can be used to leverage private investment by         three broad national objectives: (1) benefit persons of low and
legitimizing the economic viability of an area. In essence, this is sim-    moderate income, (2) aid in the prevention or elimination of slums
ply putting a brownfield spin on the public sector's classic role in        or blight, or (3) meet other community development needs of par-
economic development finance—that of catalyst.                              ticular urgency. As of 1997, coping with contamination has been
   Some cities have overcome the financing barriers by simply pay-          defined as an eligible block grant activity. Since then, more than 50
ing for site assessment, cleanup, and preparation themselves and            cities have used CDBG resources specifically for this purpose. Cities
then delivering a clean, "shovel ready" parcel to a private developer       ranging in size from Chicago to Somerville, Massachusetts, have
for reuse. The City of Minneapolis, for example,                                                   used CDBG funds to clean up brownfields for
advanced its own goal of commercial develop-                                                       reuse. Other cities have used the money to cap-
ment of brownfield sites by assembling and                 Brownfields on the Internet             italize local revolving loan funds for brown-
cleaning up what is now known as the Quarry                                  field purposes. Youngstown, Ohio, is using
Retail Center and then turning it over to a devel-                             CDBG funds to pay first-year loan costs in-
oper for $1. The site, which now has nearly                              curred by a new manufacturing plant located
100,000 square feet of retail space, has created                      on a brownfield site.
1,170 jobs and generates more than $3 million                         HUD's Section 108 loan guarantee program
per year in new tax revenues—than justifying                          is linked to the block grant program. Section
the initial public outlay. Trenton, Portland,                     108 was authorized to help cities finance site
Chicago, and several other cities have pursued                                                     clearance, property acquisition, infrastructure,

                                                                                               GOVERNMENT FINANCE REVIEW       FEBRUARY 2002       27
rehabilitation, or related activities that are too large for single-year     ed to brownfield projects. First, the brownfield site itself may be a
block grant funding. An increasing number of cities are using                transportation facility (typically roads or rail yards) in need of
Section 108 to fund brownfield projects. For example, Denver is              upgrading. Second, transportation system improvements may be
using 108 for short-term construction loans on downtown projects,            needed to make a brownfield site more marketable, usually by
with the developers repaying the notes upon the sale of the proper-          expanding access for vehicles, freight, or passengers. And third, the
ties. Mid-sized cities such as Yonkers, New York, have used Section          transportation solution may contribute to the environmental solu-
108 proceeds to establish brownfield revolving loan funds. And San           tion, particularly where roads, parking lots, and other transporta-
Luis Obisbo, California, is using $1.5 million of Section 108 funds          tion structures are used as caps to limit exposure to hazardous
to build senior housing.                                                     materials.
   For the last three years, Congress has provided HUD with $25                  Emeryville, California, has connected various sources of trans-
million for its Brownfield Economic Development Initiative, one of           portation funding to its brownfield reuse strategies. The city suc-
only three programs specifically authorized for brownfield financ-           cessfully marketed an old Chevron tank facility to Amtrak for its
ing. These funds are awarded competitively. Buffalo is using                 new Bay Area main station, beating out Oakland and San
$240,000 in BEDI funds for site preparation and remediation at the           Francisco. Emeryville is promoting redevelopment of adjoining
Union Ship Canal commercial and office project. Provo, Utah, is              brownfields into office and residential uses, using roadways as con-
using $1 million in BEDI funds to complete environmental site                tamination caps to facilitate reuse. The city also used federal trans-
work and demolition at a former steel plant, which will be convert-          portation dollars to construct a pedestrian network linking all of
ed into a multipurpose facility that will include office and retail          these sites together.
space, a warehousing and distribution operation, and a minor                     Economic Development Administration. EDA provides grants to
league baseball stadium. Phillipsburg, New Jersey, is using                  communities in support of public works activities. During the past
$500,000 in BEDI funds to acquire 100 acres of the Ingersoll Rand            three years, EDA has made brownfield redevelopment one of its
site, which it plans to redevelop as a modern industrial park.               funding priorities, spending nearly 20 percent of its project
   Department of Transportation. Some communities have made                  resources on brownfield-related activities. EDA's public works pro-
creative use of Department of Transportation funds for brownfield            gram supports industrial development activities, while its economic
purposes. As a growing number of case studies demonstrate, there             adjustment and defense economic adjustment programs capitalize
are three specific ways that transportation projects can be connect-         locally run revolving loan funds to enhance business development
                                                                                                   activities in distressed areas. Uniontown,
 Exhibit 2                                                                                         Pennsylvania, used $923,000 in public works
                                                                                                   funding to renovate an old factory into a multi-
         FEDERAL PROGRAMS APPLICABLE TO BROWNFIELD FINANCING                                       tenant facility. Rome, New York, used $2.5 mil-
  Equity Capital                                                                                   lion in defense adjustment assistance for a busi-
  • SBA's Small Business Investment Companies                                                      ness park expansion. These are just two recent
                                                                                                   examples of brownfield-related EDA projects.
  Grants                                                                                              Environmental Protection Agency. Three key
  • EDA Title I (public works) and Title IX (economic adjustment)                                  EPA programs have helped finance various
  • EPA assessment pilot grants                                                                    aspects of brownfield reuse. EPA's assessment
  • DOT (various system construction and rehabilitation programs)                                  pilot program provides $200,000 grants to
  • DOT's transportation and community system preservation (TCSP) pilot grants                     cities, towns, and other governmental entities
  • HUD's Brownfield Economic Development Initiative (BEDI)                                        to cover site assessment and pre-development
  • HUD's Community Development Block Grants (for projects locally determined)                     costs. To date, EPA has made nearly 400 such
  • Army Corps of Engineers (cost-shared services)                                                 pilot awards. Because of its public-sector focus,
  Loans                                                                                            prospective site owners wishing to use this pro-
  • EDA's Title IX (capital for local revolving loan funds)                                        gram need to work closely with their com-
  • EPA capitalized brownfield revolving loan funds                                                munities.
  • EPA capitalized clean water revolving loan funds (priorities set/programs run                     EPA provides capital to local revolving loan
  by each state)                                                                                   funds for the purpose of financing site cleanup.
  • HUD funds for locally determined CDBG loans and "floats"                                       Revolving loan fund resources must be used at
  • SBA's microloans                                                                               sites that are owned by government agencies or
  • SBA's Section 504 development company debentures                                               quasi-public entities like industrial development
                                                                                                   authorities. Still, private parties may tap into
  Loan Guarantees                                                                                  these funds as long as they did not contribute to
  • HUD's Section 108 loan guarantees                                                              or cause the contamination. The program has
  • SBA's Section 7(a) and Low-Doc programs                                                        not been used much to date, but recent changes
  Tax-Advantaged Zones                                                                             make it much more attractive. The agency now
  • HUD/USDA Empowerment Zones (various incentives)                                                provides capitalization grants of up to $1 mil-
  • HUD/USDA Enterprise Communities (various incentives)                                           lion to state and local governments—double the
                                                                                                   former ceiling—and allows a five-year time-
  Tax Incentives and Tax-Exempt Financing                                                          frame for obligating the funds. Eligibility
  • Targeted expensing of cleanup costs (through December 31, 2003)                                requirements have been liberalized so that recip-
  • Historic rehabilitation tax credits                                                            ients need only demonstrate that they have an
  • Low-income housing tax credits                                                                 established brownfield program to qualify for
  • Industrial development bonds                                                                   funding. The new policies also give state and
  For a complete description of all these programs and how they can meet specific brownfield       local governments greater flexibility in how they
  needs, click on "brownfields" at                                                       use their revolving loan fund capital.
                                                                                                     A third program has great potential but has
                                                                                                   been little used to date. Each state has been

given capital to operate clean water revolving fund programs,            Exhibit 3
which are used to make low- or no-interest loans of up to 20 years
for projects with water quality impacts, including those that deal            STATE INNOVATIONS IN BROWNFIELD FINANCING
with petroleum contamination. State revolving funds can be used
for the excavation and disposal of underground storage tanks; the          Direct financial assistance: 13 states, including:
capping of wells; the excavation, removal, and disposal of contami-        • Brownfield/environmental general obligation bond issues
nated soil or sediments; well abandonment; and Phase I, II, or III           in Michigan ($255 million), New York ($200 million), and
assessments. Subject to broad EPA guidelines, each state determines          Ohio ($200 million)
who may use its revolving fund resources. EPA specifically allows          • Low-interest cleanup loans in Delaware, Minnesota, and
local governments, citizen groups, non-profit organizations, and             New Jersey
individuals to participate in these programs.                              • Wisconsin's $40 million package of grant and loan
   Brownfield projects with a water component can access these               programs
clean water revolving loan funds. To date, however, only a few
states—notably New Mexico, New York, and Ohio—have encour-                 Targeted financial assistance: 19 states, including:
aged the use of these funds for brownfield-related projects. Ohio-          • Florida's loan guarantees/loan loss reserves
based Grant Realty Company used one of these loans to remedy                • Indiana's RLF remediation loans (up to 20 percent
contaminated groundwater and soil at a 20-acre industrial site in             forgivable)
Cleveland and to prepare it for commercial development.                     • Illinois' Redevelopment Loan Program for private parties
   Tax Incentives. Two federal tax incentives can be used to make           • Massachusetts' Reclamation Payback Fund guarantees
brownfield projects more attractive and less risky to developers,           • Wisconsin's earmarking of state CDBG funds
lenders, and investors. The first—low-income housing tax credits—          Tax incentives: 22 states, including:
capitalizes on the growing interest in reusing brownfield properties        • Colorado's sliding-scale remediation tax credit
for residential purposes. All states receive an allocation of federal       • Illinois' transferable 25 percent remediation tax credit
low-income housing tax credits that can be used to attract financing        • Michigan's 100 percent single business tax abatement
for these projects. Milwaukee, Portland, and a growing number of            • New Jersey's Environmental Opportunity Zone property
other cities are linking brownfields and housing projects with these          tax abatement/rebate
tax credits.                                                                • Ohio's 10 percent/$500,000 assessment and cleanup
   Trenton, New Jersey, provides a good example of the use of low-            cost tax credit
income housing tax credits in brownfield redevelopment. In that             • Minnesota's hazardous waste sub-district TIFs
city, the Circle F housing project was developed on a contaminated
manufacturing site dating back to 1886. Working with a local               Other brownfield financing initiatives: 10 states,
neighborhood organization, the city subdivided the site and target-        including:
ed the older front half of the parcel for senior citizen housing.           • Michigan's "brownfield redevelopment authorities"
Officials selected an established local non-profit developer to             • Wisconsin's Brownfield Environmental Assessment
undertake the housing project. The developer fronted the $500,000             Program and back-tax forgiveness
for site cleanup and preparation, and applied for and received $8           • Pennsylvania's Key Sites Initiative, which provides
million in federal low-income housing tax credits through the state.          funding for contractors to do site assessments and
These credits attracted a private lender, which helped finance the            prepare cleanup plans
project. The lender assumed the role of a limited partner to benefit        • Massachusetts' Access to Capital Program, which
from the tax credits, which made the rate of return on the invest-            includes $15 million to cover environmental insurance
ment acceptable. Circle F is now the core of a reviving neighbor-             premiums on state-negotiated policies with AIG
hood in Trenton.                                                              insurance company
   The brownfield tax expensing incentive is directly targeted at          For more information on each state's programs, click on
contaminated sites. Developers can deduct environmental cleanup            "brownfields" at
costs for the year in which they are incurred instead of capitalizing
them over time. Eligible costs include site assessment and cleanup,
operations and maintenance, and state voluntary cleanup program
oversight fees. In December 2000, Congress eliminated several           costs. Tax incentives enhance a project's cash flow by redirecting
restrictions from the original 1997 legislation, making it possible     revenues from state coffers back into the project itself. This, in turn,
for virtually any owner of a brownfield to take advantage of the        enhances a project's financial viability in the eyes of potential
incentive. The signature example of the application of this incentive   lenders. Historically, tax initiatives have been used to channel capi-
to brownfield redevelopment is Pacific Bell Park in downtown San        tal investment and to promote economic development. Brownfield
Francisco. Quick recovery of the considerable cleanup costs at this     redevelopment is a natural evolution of this tool.
site had an impact of several million dollars on the project.              Targeted financial assistance programs, which typically involve
                                                                        revolving loan funds or loan guarantees, accomplish several objec-
State Programs                                                          tives. They help reassure lenders by limiting the risk of potential
   States continue to be at the forefront of creative brownfield        losses. They also can improve the borrower's cash flow by plugging
financing efforts. Almost half of the states have developed pro-        financing holes or offsetting the up-front costs of site cleanup.
grams that have proven effective in overcoming brownfield reuse         During 2001 state legislative sessions, lawmakers focused more on
barriers. The programs, which are summarized in Exhibit 3, fall         this category of brownfield financing than any other.
into four broad categories: tax incentives, targeted financial assis-      Nearly one-third of the states have dedicated resources to directly
tance, direct financial assistance, and other brownfield financing      finance brownfield activities that the private sector avoids, such as
initiatives. Each of these categories is briefly discussed below.       site assessment and cleanup. Most often, direct financial assistance
   Nearly half the states offer some kind of tax incentives for         comes from bond proceeds or dedicated state revenues.
brownfield projects, most often in the form of either credits or           A handful of states have developed other brownfield financing
abatements. Most of these incentives are targeted to offset cleanup     initiatives that are intended to level the economic playing field

                                                                                          GOVERNMENT FINANCE REVIEW       FEBRUARY 2002      29
     On December 20, 2001, Congress approved a brownfields bill that will strengthen local efforts to facilitate the redevelopment of
     contaminated sites by providing more regulatory finality and project resources. The bill, highlights of which are summarized below,
     was passed more than eight years after Congress first considered brownfield proposals.
     Title I: Brownfield Revitalization Funding
     • Provides for $200 million per year (through 2006) in grants to states, local and tribal governments, and quasi-public redevelop-
        ment agencies and authorities.
     • Funding is to be used for (1) site assessment grants of up to $200,000 (EPA has discretion to increase this amount to $350,000
        under some circumstances) and (2) cleanup grants of up to $200,000 for direct remediation (up to $1 million for revolving loan
        fund capital).
     • Funding criteria include the extent to which the money will be used to protect human health and the environment; spur redevel-
        opment and create jobs; and preserve open space and parks. Projects also should be distributed fairly between urban and rural
        areas and involve the local communities.
     • $50 million (or 25 percent of appropriation if less than $200 million) may be used for sites with petroleum contamination.
     • Insurance premiums are an eligible use of funds.
     • Authorizes EPA to operate a brownfield program that includes training, research, and technical assistance activities.
     Title II: Liability Clarifications
     H.R. 2869 provides Superfund liability relief to:
     • Contiguous property owners who provide cooperation and access for the cleanup.
     • Prospective purchasers who are not responsible for contamination at the site and who do not impede its cleanup (the bill
        includes windfall lien provisions for sites where the government pays for cleanup, thus enhancing the fair market value of the
     • Innocent landowners.
     Title III: State Response Programs
     • Authorizes $50 million per year (through 2006) in grants to states and tribal governments to establish and enhance state VCPs
        and response programs.
     • Requires states to maintain—and to update annually—a "public record of sites" addressed through their programs.
     • Establishes "finality"—sites addressed through state programs are protected from EPA enforcement and cost recovery actions
        under CERCLA, with a few narrow exceptions.

between greenfield and brownfield sites by limiting risk or offset-        improvement stage. The key advantage of tax abatement programs
ting critical costs. Most of these programs were enacted as a way to       is that they give local governments a workable, flexible incentive
leverage private investment while limiting public spending.                that helps influence private investment decisions—a useful tool for
                                                                           promoting brownfield reuse. However, tax abatements must be
Local Programs                                                             carefully designed to target intended beneficiaries without offering
   The state initiatives described in this article provide a solid foun-   unnecessary subsidies, a feat that can be difficult to accomplish. As
dation upon which local governments can build their own brown-             a result, tax abatement programs have numerous critics.
field financing strategies. In general, local governments could better        Some abatement programs feature sliding scales that offer full
position themselves to support brownfield reuse projects by putting        abatements initially, when business cash needs are the greatest.
a new twist on existing economic development finance programs.             Several states allow their political subdivisions this option, includ-
This could involve something as simple as recognizing site assess-         ing Connecticut, Idaho, Maryland, Ohio, and Texas. Local govern-
ment and remediation needs as legitimate project development               ments in these states address the issue of remediated brownfield
activities within the scope of such programs. The most common              property re-valuation by allowing several years to lapse before the
forms of local government involvement in brownfield financing are          property is fully assessed at the value of its new use. This type of
discussed below.                                                           abatement provided the necessary cash flow to allow the owner of
   Tax Increment Financing. Tax increment financing uses the antic-        the 26-acre Vinson Street site in Dallas to pay for the cleanup him-
ipated growth in property taxes from a development project to              self. He later invested $1.2 million into a new wood pallet recycling
finance public-sector investment therein. Traditionally, TIF has           operation.
been used for a variety of economic revitalization efforts, usually in        Locally Capitalized, Locally Operated Revolving Loan Funds.
economically distressed or abandoned areas. Tax increment financ-          Several cities have established local revolving loan funds for brown-
ing is the most common form of local support for brownfield reuse,         field redevelopment, including Rochester and Yonkers, New York,
and it can be easily packaged with other funding sources.                  Los Angeles, and Baltimore. Initially funded in 1997 with $2.5 mil-
Jurisdictions of all sizes have successfully used tax increment            lion in empowerment zone funds, Baltimore's Brownfield Loan
financing for the purpose of brownfield redevelopment. Tiny                Fund has enjoyed tremendous success thus far. To date, the fund has
Frankfort, Michigan (population 1,500), for example, is working            made $2.4 million in loans to seven different brownfield projects,
with a county-wide brownfield redevelopment authority to link TIF          creating 233 jobs. Already, $475,000 has been repaid and is avail-
bond financing to cleanup efforts at an abandoned lumber mill and          able for new projects. This amount includes $340,000 from the
at decades-old orchards contaminated by pesticides.                        Lancaster Square mixed-use office and residential project in the
   Tax Abatements. Abatements are reductions of or forgiveness             city's Fells Point neighborhood, where the loan paid for the cleanup
from tax liabilities. Tax abatements usually take one of two forms:        and removal of several underground tanks. The loan was retired
(1) a reduction in rates for a specific period of time, usually 5 or 10    using historic tax credit receipts.
years, or (2) the freezing of property values, usually at a pre-              General Obligation Bonds. Economic development practitioners

can make a strong case for using general obligation bond proceeds      affecting site reuse requires a deliberate, multi-dimensional
to support brownfield cleanup and reuse projects. Brownfield rede-     approach that does not always conform to the rules and proce-
velopment, which creates jobs and enhances the local tax base, is an   dures of federal, state, and local economic development or envi-
appropriate use of public resources. For the purpose of brownfield     ronmental programs. The lack of adequate and affordable financ-
redevelopment, cities typically issue general obligation bonds for     ing has emerged as the most significant barrier to brownfield
acquiring land, preparing sites, and making infrastructure improve-    redevelopment. Site assessment and cleanup requires financial
ments. Many cities have used general obligation debt to support        resources that many private firms either lack or cannot easily
some aspect of their brownfield redevelopment strategies. Chicago      secure. The public sector can act as an important catalyst for
used bonds to pay for assessment and cleanup at several key indus-     brownfield redevelopment by leveraging the programs and
trial park sites. Bridgeport, Connecticut, used bond proceeds to       resources identified in this article to encourage private invest-
finance a minor league baseball stadium on a contaminated site,        ment.
using its share of gate and concession receipts to service the debt.
                                                                       CHARLES BARTSCH supervises brownfield financing studies at the Northeast-
Conclusion                                                             Midwest Institute in Washington, D.C. He lectures widely on brownfield
  Underused or abandoned industrial facilities remain a national       financing, and has published dozens of articles and reports on this issue. He
concern. Confronting the environmental and economic issues             can be reached by phone at 202/544-5200, or at

                                                                                          GOVERNMENT FINANCE REVIEW         FEBRUARY 2002        31

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