Revitalization-Ready Guide - Chapter 4: Reuse Plan

Mapping and Visualization | Developable Area | Property Reuse Vision | Project Liabilities and Risks | Market Viability |  Project Economics and Financial Analysis |   Feasibility |   Property Disposition Strategy

Mapping and Visualization 

The first step in the reuse planning process is to clearly define the property and the area surrounding the property. This is an important component of the reuse visioning and planning process that will require technical expertise in the use of computer-aided design (CAD), geographic information systems (GIS) or other mapping applications to complete. 

Mapping and visualization are accomplished by developing a series of base maps that show the property boundaries and the surrounding area. Using maps to show the property and results of the reuse assessment is important during the visioning process. The mapping should include information generated during the reuse assessment such as:

• Aerial photography for the property and the area surrounding the property. 
• Property boundary, including tax parcel boundaries.
• Boundary of the study area or surrounding area significant to the property reuse.
• Roads in the surrounding area, including location of interstate highway access.
• Rail accessible to the property.
• Surface water features (e.g., river, stream, lakes) in the area of the property.
• Topography (contours) identifying significant slopes or depressions.
• Flood/flood plain (100-year and 500-year).
• Wetlands and endangered species or protected habitats.

  

• Significant features related to the environmental condition that would impact development, such as closed impoundments or landfills, location of existing or planned engineering controls such as capped areas, location of existing or planned remedial action systems, monitoring or recovery wells.
• Current zoning for the property and surrounding area.
• Current land use.
• Utilities available to the property. Easements on the property.
• Existing buildings and remaining foundations.
• Historical or archaeologically sensitive structures or areas (National Register of Historic Places or local designation).

Developable Area

Using the base mapping, the next step in the planning process is to determine the area of the property that can be developed. The developable area is the area that can be used for buildings and other structures or for parking and other activities not requiring a structure. 

Total developable acres are the result of the total acres of the property minus acres associated with restricted property features that cannot be disturbed or built on:

Total Developable Acres = Total Acres - Restricted Acres

Restricted features can include wetlands, areas containing endangered species and protected habitats, closed impoundments, areas with significant slopes, archaeologically sensitive areas, deed-restricted areas restricting the type of development, inaccessible areas of the property, or other features that would prevent the use of an area of the property.  

In addition to features that cannot be disturbed or built on, there are areas that can be incorporated into a reuse but may have restrictions that affect the type of development that can be placed in these areas. These use-limited areas can include easement areas (e.g., underground or aboveground utilities or pipelines), flood plain areas, deed-restricted areas limiting the type of development, and areas where the shape or accessibility limit the use of the area. These areas may be usable for parking, landscaping, storage and other uses that do not involve the placement of permanent structures. While the use-limited areas are included in the developable areas, the use limitations need to be delineated and considered when evaluating reuse scenarios.

Property Reuse Vision

Based on the reuse assessment and the developable area, the reuse visioning process identifies and evaluates various uses for the property. A site reuse vision should reflect the community's reuse priorities while integrating the physical, economic and environmental realities that affect implementation and success. 

The visioning process takes into account the community needs and concerns, environmental condition analysis, land use assessment, infrastructure assessment and the available area that can be developed to construct reuse scenarios.

The visioning process takes into account the community needs and concerns, environmental condition analysis, land use assessment, infrastructure assessment and the available area that can be developed to construct reuse scenarios. For brownfield properties, viable land uses may be impacted by the cleanup previously performed or planned for the property in the future. Cleanup activities, when completed, typically will result in one or more institutional controls being established, such as a deed restriction limiting land use (e.g., to commercial or industrial uses). Any proposed future reuse alternatives that would not comply with the institutional control may require additional cleanup activities. 

The Revitalization Ready Workbook identified potentially viable land uses for the subject property. In addition, the Workbook helped identify key property, demographic, and market information necessary to determine the size and scope of a reuse. With this information, the potential land use options should be considered, and a conceptual reuse plan developed which identifies the size, scope, and characteristics of a potential reuse. Each conceptual reuse plan should identify proposed buildings, pedestrian and vehicular circulation patterns, and parking needs. Consideration should be given to the type and square footage of new buildings and required parking. In addition, the assistance of planning, land use, legal, financial, and technical professionals is recommended.

The reuse planning exercise should take into account the following:

a) Property considerations

• Maximum acreage/area available for development
• Maximum lot coverage allowed
• Maximum height and floor to area ratios allowed by zoning
• Required setbacks
• Required parking

b) Property controls

•  Land Use
•  Environmental

c) Existing buildings (if applicable)

• Condition
• Potential reuses
• The market and its drivers
• Who will occupy this space and what will they pay?
• Maximized density may exceed demand

d) Property location, accessibility, and visibility

• Available workforce
• Energy costs

e) The location of the property

Is the development in keeping with the environmental setting, making maximum use of natural assets and controlling any contamination issues?

The result of the reuse visioning process is one or more viable reuse scenarios for the property for further evaluation and development of the reuse plan. The reuse scenarios should be documented, including illustrations of potential features that represent the scenarios identified. These illustrations can include sketches, renderings and plot plans to communicate reuse concepts to the community, regulatory agencies and the real estate market.

Documentation – Develop documentation of the reuse scenarios, including illustrations of potential features that represent the scenarios identified. Illustrations can include sketches, renderings, and plot plans that be used to communicate reuse concepts to the community, regulatory agencies and the real estate market.

Reference:
EPA:   Plan for Brownfields Redevelopment Success: Site Reuse Vision (pdf) (215.5 KB)

Project Liabilities and Risks

Considering the potential reuse scenarios developed during the visioning process,

each scenario should be evaluated to identify the potential associated liabilities and risks. This guide focuses on discussions related to liabilities that a local government or a potential purchaser may assume as a result of its actions related to the brownfields redevelopment process. 

For example, if the local government purchases the property without conducting due diligence or all appropriate inquiries or it is the current property owner, it may or may become the party responsible for cleanup under the applicable environmental regulations and also liable for damages associated with any environmental releases associated with the property. 

Risks are the potential adverse consequences to the potential reuse that may result from a particular constraint on the property. For example, the need for funding to complete cleanup is a risk associated with whether the property reuse can be implemented.

Liabilities and risks should be evaluated from the perspective of the community, property owner (if other than the community) and a potential developer. Evaluating project liabilities and risks involves the identification and prioritization of liabilities and risks that could adversely impact the achievement of the local government’s project goals. These project risks and liabilities are generally associated with the constraints identified during the reuse assessment:

• Environmental liability
  • Liability under federal and state environmental statutes and regulatory programs can be the most significant liability at brownfield sites.
  • Other legal liabilities (e.g., common law liability associated with a contractual dispute concerning an indemnity or an easement) may be present and should be evaluated. 
• Financial risks
  • Financial risks are the costs related to environmental liability (e.g., cleanup, third-party claims) and developing and maintaining the property (e.g., demolition, asbestos abatement, funding for the reuse or the cleanup, operation and maintenance of engineering or institutional controls, post-closure operation, monitoring, and maintenance). 
  • Legal liability also can present a financial risk. 
• Community issues
  • Issues raised by community members may pose a risk. This includes the concerns they express regarding the physical and environmental condition of the property and how they will be affected by the reuse. 
  • Consensus from the community on potential reuse scenarios is an important component of a successful reuse strategy. Lack of consensus is a risk.

Evaluating liabilities and risks for a brownfield property generally starts with identifying potential environmental liabilities. Environmental liabilities and risks to a local government are driven, in a large part, by the local government’s current or past ownership or use of a property or the potential acquisition of a property.

Liabilities and risks to a potential purchaser are driven by their willingness to assume certain liabilities and risks and the impact of their actions during the development of the property.

Once potential environmental liabilities have been identified, risks associated with those liabilities should be evaluated. In general, the risk will be a function of the ability of the local government or future property owner/developer to address a liability. Other risks may not be associated with a specific liability but may be constraints that affect the ability to successfully implement a reuse strategy. In many cases, a risk can be translated into a financial need.

The liability or risk associated with each constraint may be minor, moderate or major. The evaluation of liabilities and risks should include how difficult it will be to overcome the liability or risk. Liabilities and risks will be unique to a property or a transaction. All liabilities and risks, however, will need to be considered and factored into the evaluation and decision-making process. The liability and risk management framework that is described in this guide should, however, apply equally well in evaluating those issues. The management of risk is discussed in detail in Appendix A: Risk Management Tools and Approaches. The following sections discuss the origins of some of the liabilities. 

Documentation – Document potential liabilities and risks for each constraint (refer to the Constraints tab in the Revitalization Ready Workbook)

Environmental Liability

Determining if there is environmental liability is an important first step in the evaluation of project risks. Environmental liability is the generic term used to describe the various obligations, costs, and responsibilities that can result from cleanup and management of an environmental impact to a property or not complying with federal, state or local environmental statutes and regulations. Environmental liability also may arise from violations of common law liabilities or be due to negligent behavior or illegal activities. Common law liability also encompasses contractual disputes arising through indemnification agreements, service contracts relating to the cleanup and management of a particular property, or other legal agreements. 

While environmental liability is a key consideration when evaluating the potential reuse of a property, it must be viewed in the context of the entire project since specific facts concerning the project will dictate the significance of environmental liability for a particular property or project. 

For example, if the environmental conditions associated with the property are limited or pose minimal risks to human health or ecological systems, environmental liability may not result in significant project risks. However, if contamination is extensive and not adequately addressed, the risks of taking on environmental liability may be much greater and need to be carefully managed. 

Identifying potential environmental liability should be looked at it from the perspective of ownership and control of the property, as well as any actions taken to arrange or transport a hazardous substance for disposal or treatment from a property. In general, a current property owner or prospective property owner may be liable for cleanup as a result of either its current or prior ownership of the property, or its acquisition of the property. The extent to which the environmental condition is being addressed or has been addressed will govern the extent of liability and risk that may be associated with the property. At a minimum, an environmental investigation that defines the type and extent of contamination on the property is necessary to make a reasonable evaluation of potential liability. 

Evaluating potential environmental liability requires a thorough understanding of the environmental condition of the property and the federal or state laws and regulations that apply to the property. 

In some cases, a party responsible for cleanup of a property may have been identified under a state or federal regulatory program. If there is a responsible party identified to conduct the cleanup, the local government should evaluate the viability of the responsible party, the responsible party’s objectives for the cleanup (land use restrictions, engineering controls, remedial action approach), the responsible party’s progress on cleanup, and the potential for the local government or a future property owner to step in to complete the cleanup. The local government also should consider what happens if the responsible party fails to complete the cleanup and whether it could incur liability by performing environmental investigations, cleanup, building demolition, or physical improvements on a property it does or does not own or lease.

Environmental liabilities to a local government can be driven by regulations or liabilities assumed under a property sale agreement: 

• If a local government owned a property while hazardous substances or petroleum products were managed at the property, or if a local government managed hazardous substances or petroleum products at a property owned by a third party, the local government may be liable for any releases or contamination that occurred during the period of time that it owned or used the property. 
• A local government or a purchaser also can incur environmental liabilities for past releases at a property, depending on how the property is acquired. 
• A local government or a purchaser can elect to assume certain environmental liabilities such as conducting and completing remedial action; long-term operation, monitoring and maintenance associated with a remedy; handling and disposing of contaminated materials encountered during construction; and installing and maintaining engineering controls such as vapor mitigation systems.

If the local government is not an owner of the property or a responsible party, but is interested in purchasing the property and retaining ownership or transferring the property to a third party, the local government should consider the following questions concerning liabilities that may be assumed as a result of becoming an owner of the property:

• Could the local government incur liability by acquiring or leasing a property?
  • Can the local government be found to be liable for contamination associated with its past uses or ownership?
  • Is the local government potentially exempt from environmental liability associated with past uses or owners (i.e., due to current ownership status or due to the type of planned acquisition of the property)? 
  • Does the local government need to demonstrate its claim to liability protection (e.g., innocent landowner, bona fide prospective purchaser, contiguous property owner)?
  • Has the local government conducted sufficient due diligence and all appropriate inquiries prior to acquiring the property to meet the liability protection requirements?
• Is contamination present on the property that originates from an off-property source?
  • Is there a responsible party addressing this contamination?
  • Will the contamination adversely impact the ability to reuse the property (e.g., require cleanup, engineering controls or restrict land use?
  • Will the local government or a future property owner need to address the contamination in order to reuse the property?
  • Does the contamination impede the ability to achieve cleanup objectives for environmental conditions on the property?
• Has contamination associated with an environmental condition on the property migrated (or is likely to migrate) off the property?
• Are there institutional controls, engineering controls, or operating treatment systems ongoing at the property that the local government or other future owner would be responsible for in operating, maintaining and monitoring?
• Could a local government be responsible for reimbursing EPA or the state for unrecovered response costs if Superfund liens have been placed on the property?
• Is the local government protected from past owners or third parties seeking to recover costs they spent to perform environmental investigations and cleanup involving the property?

Two important steps in determining potential environmental liability under federal and state statutes and regulations are: 1) identify the responsible regulatory agencies during the due diligence process; and 2) meet with these regulatory agencies to identify the potential liabilities related to cleanup activities on a property, and options for avoiding or mitigating those liabilities. The following sections provide a brief overview of regulatory programs that can apply to cleanup of a brownfield property. 

Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA)

CERCLA provides EPA with broad federal authority to respond to releases or threatened releases of hazardous substances, pollutants and contaminants that may endanger public health or the environment. It also allows EPA to compel responsible parties to perform cleanups or to reimburse the government for cleanups performed by EPA. 
There are many different types of contaminated or potentially contaminated properties subject to CERCLA. Some contaminated properties are Superfund sites where the federal government is, or plans to be, involved in cleanup efforts. Other properties are brownfield sites, which may be impacted by the presence or potential presence of a hazardous substance, pollutant or contaminant. Generally, the federal government does not oversee or become directly involved in the cleanup of brownfield properties. Local and regional governments, in partnership with state environmental agencies, often need to take the lead for overseeing the assessment and cleanup of brownfield sites. CERCLA provides EPA with the authority for EPA to provide grant funding to government entities and nonprofits for the assessment and cleanup of brownfield sites.

Environmental Liability under CERCLA

ERCLA established the “polluter pays” principle through a comprehensive liability scheme, which enables EPA to order certain categories of parties to conduct or pay for the cleanup of releases or threatened releases of hazardous substances. CERCLA’s liability scheme helps to ensure that wherever possible, “potentially responsible parties” (PRPs), rather than the general public, bear the costs to assess and clean up environmental contamination. Under CERCLA, the following categories of persons may be considered PRPs and held liable for the costs or performance of a cleanup and damages under CERCLA to address releases or threatened releases of hazardous substances:

• the owner or operator of the facility;
• any person who owned or operated any facility at the time of disposal of any hazardous substance;
• any person who arranged for the disposal or treatment, or arranged for the transport for the disposal or treatment, of a hazardous substance at any facility; or 
• any person who transported, or who accepted for transport to a disposal or treatment facility, any hazardous substance. 

CERCLA Liability Protections 

Although a local government may fall into one of the classes of PRPs described above, there are liability protections that may apply to certain local government acquisitions of contaminated property. For example, protections from CERCLA liability may be applicable in cases where a local government becomes the owner or operator of a property previously contaminated by a third party.  

To retain protection from liability, local governments must not manage hazardous substances on the property after acquisition and must take “due care” or comply with “continuing obligations” following acquisition.

The following liability protections may apply to local governments and may provide the opportunity for local governments to establish that they are either exempt from liability or are eligible to claim protection from liability based upon the manner in which they acquired a property and have met continuing obligations. To retain protection from liability, local governments must not manage hazardous substances on the property after acquisition and must take “due care” or comply with “continuing obligations” following acquisition.

CERCLA (at section 101(20)(D)) relates to the liability of state and local governments that acquire ownership or control of a contaminated property through seizure or otherwise in connection with law enforcement activity, or through bankruptcy, tax delinquency, abandonment or other circumstances in which the government acquires title by virtue of its function as sovereign. EPA generally intends to exercise its enforcement discretion and treat a local government acquisition as “by virtue of its function as sovereign” only when a local government acquires title to a property via a function that can be effectively performed only by governments using a mechanism available only to governments. Liability as an “owner or operator” can be impacted if the government has caused or contributed to the release or threatened release of a hazardous substance from the facility.

Local governments may qualify for “bona fide prospective purchaser” (BFPP) liability protection (per CERCLA §§ 101(40) and 107(r)(1). A local government may qualify as a BFPP if it acquires ownership of or a leasehold interest in a property after January 11, 2002, and meets the following threshold criteria: 

• The local government performed AAI into the previous ownership and uses of the property prior to acquiring the property.
• The local government is not potentially liable for releases that occurred at the property before the acquisition and has “no affiliation” with any other party that is potentially liable for contamination at the property. 
• The local government must also meet certain continuing obligations for maintaining BFPP status after acquiring the property (CERCLA § 101(40)(B))

CERCLA (at § 107(b)(3)) also provides a “third-party” affirmative defense to CERCLA liability for any owner, including local governments, that can prove, by a preponderance of the evidence, that the contamination at the property was caused solely by an act or omission of a third party. CERCLA’s third-party defense also includes an “innocent landowner defense” as an exclusion to the definition of a “contractual relationship” in CERCLA §§ 101(35) that applies to a government that acquired the facility by escheat, or through any other involuntary transfers or acquisition, or through the exercise of eminent domain authority by purchase or condemnation. A local government asserting the third-party defense must show that the act or omission did not occur in connection with a contractual relationship, that it exercised due care with respect to the hazardous substance concerned, and that it took precautions against the third party’s foreseeable acts or omissions, and the consequences thereof.

Property Acquisitions and CERCLA Liability 

As summarized above, the method or type of property acquisition taken by a local government can determine the application of CERCLA liability protections. Additionally, a local government may consider layering any available CERCLA liability protections. For example, a local government may want to consider undertaking all appropriate inquiries prior to acquiring a property in an effort to qualify for the bona fide prospective purchaser protection, even in cases where the local government believes it qualifies for an exemption to liability based upon the type of acquisition undertaken (i.e., qualifies for the section 101(20)(D) exemption). Local governments also should understand that the liability protections do not shield government entities from any potential liability that they may have as "arrangers" or "transporters" of hazardous substances under CERCLA.

To maintain any BFPP liability protection following the acquisition of a contaminated property, local governments must comply with the “continuing obligations” provided at CERCLA (section 101(4)(B)) that include:

• Complying with land use restrictions and not impeding the effectiveness or integrity of institutional controls.
• Exercising appropriate care by taking “reasonable steps” to prevent the release of hazardous substances. These obligations are site-specific but may include stopping continuing releases, preventing threatened future releases, and/or limiting exposure to earlier hazardous substance releases. Institutional controls may play a critical role in complying with reasonable steps.
• Providing full cooperation, assistance and access to persons authorized to conduct response actions or natural resource restoration.
• Complying with information requests and administrative subpoenas. 
• Providing legally required notices.

For additional information on the liability protections afforded local governments under CERCLA, see Superfund Liability Protections for Local Government Acquisitions after the Brownfields Utilization, Investment, and Local Development Act of 2018. 

References:
EPA: Brownfields Laws and Regulations 
EPA: Superfund Liability Protections for Local Government Acquisitions after the Brownfields Utilization, Investment, and Local Development Act of 2018
EPA: Enforcement Discretion Guidance Regarding Statutory Criteria for Those Who May Qualify as CERCLA Bona Fide Prospective Purchasers, Contiguous Property Owners, or Innocent Landowners ("Common Elements")
EPA: Windfall Lien Administrative Procedures

Resource Conservation and Recovery Act (RCRA)

RCRA regulates the management of solid and hazardous waste and underground storage tanks (USTs). It applies to the generators, transporters and facilities that treat, store or dispose of hazardous waste. In many respects, RCRA serves as a complement to CERCLA by helping to ensure the proper management of waste that might otherwise result in releases requiring cleanup under CERCLA.

RCRA is composed of three primary programs (or RCRA Subtitles) that may affect redevelopment projects involving a brownfield property: 

RCRA Subtitle C - Hazardous Waste Program
Subtitle C establishes a federal program to manage the treatment, storage and disposal (TSD) of hazardous waste from cradle to grave (from generation to final disposition), and cleanup of contamination caused by the treatment, storage or disposal of hazardous waste. If the property under evaluation is currently or was a permitted TSD facility, it is necessary to consider three obligations under Subtitle C: closure/post-closure, corrective action and financial responsibility requirements. If closure/post-closure and corrective action requirements were not completed, a local government acquiring or leasing the property may, in certain circumstances, need to conduct those activities. Further, where hazardous waste will remain on-site in landfills or other disposal areas as part of the permanent cleanup, the local government could potentially assume the responsibility for monitoring and maintaining those areas. A local government acquiring or leasing a TSD facility that completed these required investigations will be able to do so with considerable knowledge of the environmental conditions of the entire facility, at least as it applies to hazardous waste and constituents (non-RCRA waste or materials may not have been addressed).

Because RCRA, like many other state and federal environmental statutes, is a complex law with an equally complex body of regulations, local governments are strongly encouraged to seek experienced counsel and technical consultants before engaging in activities for which RCRA might be applicable. (See Appendix B for additional information and resources.)

References:
EPA: Corrective Action Sites around the Nation 
EPA: Resource Conservation and Recovery Act (RCRA) Laws and Regulations 
EPA: State Authorization under the Resource Conservation and Recovery Act (RCRA) 
EPA: Underground Storage Tanks (USTs)
EPA: Oil Spills Prevention and Preparedness Regulations

RCRA Subtitle D - Solid Waste Program
Subtitle D establishes requirements for the management of non-hazardous solid waste, such as in municipal solid waste landfill facilities, solid waste disposal facilities, and construction and demolition landfills. When acquiring or leasing a property, a local government should consider the possibility that past disposal of solid waste may have taken place, particularly if the property has a history of commercial or industrial use. The local government could become responsible for making those facilities compliant with RCRA Subtitle D, including monitoring groundwater, conducting cleanup requirements, and addressing any releases that may have occurred. (See Appendix B for additional information and resources.)

RCRA Subtitle I – Underground Storage Tank Program
Subtitle I established requirements for the management, closure and corrective action of underground storage tanks (USTs) in states, territories and tribal lands that contain petroleum and hazardous substances. USTs are generally regulated by state UST programs with EPA providing support to tribal governments. 

If the local government is an owner or operator of an UST or purchases or leases a property with an operating or abandoned UST, the local government may become responsible under Subtitle I for the closure of the UST system and investigation and cleanup if a release is found. While there are no innocent purchaser provisions in RCRA Subtitle I, some state brownfields laws provide relief from state liability for unknown tanks and unknown tank releases for purchasers that conduct appropriate due diligence prior to taking title to a property. The Underground Storage Tank Lender Liability Rule also provides certain exemptions for lenders and other parties that maintain indicia of ownership in an UST primarily to protect a security interest. (See Appendix B for additional information and resources.)

Polychlorinated Biphenyls (PCBs)

Local governments that acquire or lease a property may encounter PCBs in equipment or products that were manufactured prior to 1979 (such as transformers, capacitors and other electrical equipment; paints; caulk; and hydraulic fluids), or as contamination arising from past use or disposal. The cleanup, management and disposal of PCBs and PCB-contaminated waste in a redevelopment context is regulated under the Toxic Substances Control Act (TSCA).

Under TSCA, a property contaminated with regulated levels of PCBs must be cleaned up or decontaminated in accordance with certain specified requirements. Similarly, equipment or products containing PCBs at regulated levels that are not authorized for use, no longer in use or leaking must be properly disposed of or decontaminated. 

TSCA is a strict liability statute. Persons responsible for addressing PCB contamination under TSCA may include past and new property owners and operators, and other parties that caused or contributed to the PCB contamination. (See Appendix B for additional information and resources.)

Asbestos

Any institutional, commercial, public, industrial, or residential structure, installation, or building that will be undergoing demolition or renovation must be first properly inspected for regulated asbestos-containing materials regardless of the age of the facility. Before initiating demolition and renovation activities, the owner or operator must notify EPA or the delegated state or local agencies, remove all regulated asbestos-containing materials from the affected areas, and properly dispose of them into an asbestos NESHAP-approved landfill. Privately-owned residential buildings having four or fewer dwelling units are generally excluded; however, if these buildings are demolished or renovated as part of a commercial or public project (e.g., urban redevelopment, highway construction, or any commercial or industrial development), they would be regulated.

The processing, handling and disposal of asbestos and asbestos-containing material when a building is being demolished or renovated are regulated under the Clean Air Act NESHAP. NESHAP also regulates asbestos in active and inactive waste disposal sites. (See Appendix B for additional information and resources.)

State Voluntary Cleanup Programs

EPA does not oversee cleanup activities at brownfields. Instead, brownfields often are cleaned up in accordance with and under the oversight of state “voluntary cleanup programs” (VCPs) or state response programs. 

State VCPs play a significant role in assessing and cleaning up brownfields. The benefits of enrolling a brownfield in a state VCP include guidance and oversight provided by the state program, including guidance related to risk-based cleanups and constituent-based cleanup levels, as well as guidance on the use and long-term monitoring of institutional controls. 

State response programs laws also provide certain protections from environmental liability for sites cleaned up in accordance with VCP requirements. Actions taken by a local government to fulfill liability protection requirements are often documented as a “no further action” (NFA) decision or NFA letter. 

Individual states often use their own terms to refer to these NFA decisions or NFA letters. Generally, states make a “no further action” decision after determining that a brownfield site, or one part of a brownfield site, that is enrolled in the state response program, poses no unacceptable risks to human health or the environment. This usually follows investigative or cleanup activities taken by the property owner or prospective purchaser under state program oversight or following a state’s comprehensive review of the cleanup actions taken at a brownfield. Obtaining a “no further action” decision generally means that the state will not require additional remedial action, based on the state agency’s knowledge of site conditions when it issues the NFA. Some NFA decisions are conditioned on compliance with institutional or engineering controls that are designed to prevent exposure to contaminants left in place following risk-based cleanup activities. 

EPA can support state VCPs through grant funding to establish and enhance VCPs and may enter into non-binding memoranda of agreements (MOAs) with individual states. MOAs include general enforcement assurances to encourage the assessment and cleanup of sites addressed under VCP oversight. 

CERCLA limits EPA’s authority to take enforcement and cost recovery actions against persons who conduct a response action at a brownfield site in compliance with a state response program. That limitation is referred to as an “enforcement bar.” There are significant exceptions to the enforcement bar, including when a state requests EPA assistance to perform a response action; when contamination has migrated across state lines or onto property subject to the jurisdiction of the federal government; when contamination presents an imminent and substantial endangerment to public health, welfare or the environment; or when previously unknown information indicates that further remediation is necessary to protect public health, welfare or the environment. 

References:
EPA:  Cleaning Up Brownfields Under State Response Programs – Getting to “No Further Action” 
International City/Council Management Association and Public Entity Risk Institute: A Primer for Local Governments on Environmental Liability 
EPA: State Brownfields and Voluntary Response Programs

Financial Risk

Financial risk is present in all development projects. 

For a private developer, financial risk generally relates to profitability (i.e., whether its investment will be able to provide a reasonable rate of return). For a local government looking to facilitate the redevelopment of an underutilized or abandoned property, the main focus is often to limit the amount of local government funds that are needed and to ensure those funds are used to maximum public benefit. 

The specific financial risks to the local government that are associated costs may be significantly higher than predicted or expected, or worse: that despite the local government’s investment, the desired redevelopment does not occur. 

For this reason, a local government’s financial risk is often closely tied to the financial risk of a potential developer. A project that carries a high financial risk to a developer is far less likely to be pursued or ultimately successful. Impaired marketability of a property contributes to the local government’s financial risk. Environmental issues, left unaddressed, can adversely affect marketability.

There is a relationship between a local government’s environmental liability and its financial risk. EPA’s memorandum Superfund Liability Protections for Local Government Acquisitions after the Brownfields Utilization, Investment, and Local Development Act of 2018 discusses a local government’s potential liability under various federal environmental statutes, and explains the provisions under which they may minimize or avoid liability. 

A local government’s real concern often boils down to the financial risk resulting from its environmental liability. Will the environmental liability result in costs to the local government that exceed what they are willing or able to assume for cleanup, redevelopment and other costs? In this regard, financial risk may be more likely to influence the local government’s decision on whether or not to proceed with a property disposition strategy.

For these reasons, understanding the project economics from the perspectives of both the local government and potential developers is necessary to assess financial risk. The Project Economics and Financial Analysis section provides an overview of some of the factors that influence project economics and describes a useful tool that can be used to estimate the financial viability of potential redevelopment scenarios.

Community Needs and Concerns

Community needs and concerns regarding the current conditions of the property, and the status of cleanup and the redevelopment need to be considered and addressed. These needs and concerns often relate to environmental justice issues such as the social, economic and health effects of contamination and economic blight experienced by community members and potential added burdens such as increased pollution, traffic, congestion or gentrification resulting from the redevelopment.

A positive project pro forma will not matter if the needs and concerns of the community are not being met and the community stakeholders oppose the project.

Addressing community needs and concerns requires first identifying those most meaningful to the community and how the community wants to resolve those issues. Continued community engagement is a critical tool for accomplishing this goal. Having an ongoing dialogue with the community throughout the project is necessary to maintain a spotlight on its priorities and ensure community input is included as part of the cleanup and redevelopment decision-making process. The support of the community becomes especially important if the local government plans to access the property to conduct environmental assessments, acquire or lease the property, or take other actions that might require the local government to expend public funds or incur significant financial and other risks.

Building a community-supported redevelopment approach reduces the likelihood that community opposition will delay or even derail a project. If the potential for community opposition is high enough, developers and investors may be driven away. Simply put, a positive project pro forma will not matter if the needs and concerns of the community are not being met and the community stakeholders oppose the project.

Market Viability 

A community will typically start with a visioning process to determine the viable land use options. Incorporating community feedback throughout the visioning process is critical to prioritize redevelopment options for an area. It is critical that the redevelopment vision is based in market and economic realities for the area. Understanding what reuses the market will support, and being able to communicate those findings as they relate to community priorities, are fundamental to project success.     

Determining market viability of a specific land use involves focusing on market information that is specific to that use and using that information to create a financial analysis for that use. The findings of the financial analysis will help alleviate further financial risks. 

Using the results of the market study that already detailed many attributes of an area’s market (see the Market Study section in Chapter 3), market viability for a specific land use is based on the following:   

• Potential viable land use options: Industrial; office/commercial; retail/restaurant/hotel; green space.
• Overall (area) market climate.
• Building demand/vacancy.
  • Optimal size (square footage).
  • Tenant requirements. 
• Lease rates/rents.
• Building costs (per square foot).

It is important to reach out to local and regional industry experts to ascertain both quantitative and qualitative market information. This information is critical to establishing optimal and best use for a site and will help to further develop the financial analysis. Some potential questions to help guide your community toward a better market understanding and financial analysis are:

• What are the market opportunities/challenges for the area?
• What type(s) of building and configuration(s) are in greatest demand?
• What triple net rents (tenant or lessee promises to pay all the expenses of the property, including real estate taxes, building insurance and maintenance) are achievable for each type?
• What is the average cost per square foot or range of cost per square foot to build each type?
• What industries or companies are generating requirements at present (also known as market clusters)?
• What is the potential demand for a specific building type (residential, commercial, industrial, warehouse) versus vacancy rates for that building type in this location?
• What are the potential triple net rent and potential user or industry for any existing buildings on-site?  

Project Economics and Financial Analysis

Local governments should perform a basic financial analysis for each of the viable land use options identified to better understand the potential return on investment and overall viability of the project. While an interested party (developer or investor) is unlikely to develop the property exactly as described in the land use vision, going through the financial analysis process with your community will help everyone understand economic concerns. In addition, the financial analysis allows the development community to better understand the reuse possibilities and alleviate overall risks in regard to potential return.  

From a local government perspective, a financial analysis will assist in weighing the financial risks and benefits of local government involvement in the redevelopment project. This evaluation may include estimating the potential costs to the local government of undertaking the identified reuse (e.g., property acquisition costs) and identifying potential sources of revenue and other funding to implement the project. 

A general understanding of the financial viability of a desired redevelopment will help in determining whether the project goals are realistic and likely to attract private investment. Having an understanding of the potential property uses enables the community to construct a sources and uses chart for the viable land use scenarios, and use the chart to build a pro forma spreadsheet to conduct an analysis. The pro forma analysis will help identify:

• potential financial viability of different redevelopment scenarios;
• relative effect of various cost and revenue assumptions on profitability; and 
• amount of subsidies or incentives needed to attract investment. 

Preparing a sources and uses chart, and pro forma requires an understanding of the market (see the section on Market Viability) and the intended property uses (which serve as the basis for potential costs and project revenue).

Sources and Uses

A sources and uses chart is a tool used often by local governments to evaluate public-led redevelopment projects and/or facilitate private development. The chart helps identify, organize and balance potential expenses, funding needs and sources of funding.

Essentially, the sources and uses chart includes two lists: 

• a list of the funding requirements broken down by the type of activity or expenditure required for a reuse project; and
• a list of the known or potential sources of funding that can be used to offset an expenditure.

Since federal, state and local funding may have specific limitations to the site’s use (e.g., site assessment, remedial action, construction), the sources of funding should match the needed expenditure. Private funding may not have these types of limitations; however, in developing the sources and uses chart, it is valuable to match the sources of funds with the planned expenditures to keep track of the funded and non-funded expenditures. 

A template of a working sources and uses chart detailing possibilities of known or potential funding for a redevelopment project is provided in the Revitalization Ready Worksheet. Local governments are encouraged to incorporate the information appropriate for the specific project. 

Documentation – Document sources and uses of funds for the project (refer to the Sources and uses tabs in the Revitalization Ready Workbook).

Pro Forma 

A pro forma is a tool used to predict a project’s financial viability. The tool is designed as a set of calculations that projects the financial return that a proposed real estate development is likely to create. It is a basic “go/no-go” analysis that local governments and developers use to decide whether to move forward with a project. 

A developer will use a pro forma to alleviate quantifiable risks that can be calculated through the analysis. A local government can use a basic pro forma analysis to prepare financial estimates to assess how a developer might look at various redevelopment scenarios, and to evaluate the general impact of various cost and/or revenue assumptions. Generally, the more certainty a local government can bring to a property, the better positioned it will be to attract development.

The first step in developing a pro forma is to identify assumptions for modeling the analysis. These key assumptions are based on expected costs and revenue for the project. There are few absolutes as to how such analyses can be constructed, but there are common practices and techniques that nearly all pro forma attempt to provide in one form or another. At the center of these calculations is a set of assumptions based on the overall revenue and costs for the project. The components for these assumptions are derived from the market, and environmental and infrastructure assessments previously discussed.  

Basic cost assumptions include:  

• Cost of land – acquisition costs of purchasing the property if needed.
• Infrastructure/property development cost – site preparation costs based on findings of the infrastructure assessment.
• Building construction costs – costs associated with best use scenarios for buildings determined through the market study. 
• Soft costs – costs that are not considered hard development cost, such as legal fees, permit fees, and architectural drawings.
• Costs of capital – interest and fees assumed through debt.
• Environmental costs: 
  • Investigation and cleanup action determined through the environmental assessment.
  • Legal or consulting fees, soft costs associated with investigation and cleanup. 
  • Maintenance of institutional or engineering controls. 
  • Environmental liability insurance. 

Basic revenue assumptions include: 

• Selling shovel-ready property – when appropriate for project success, as a whole or as divided parcels.
• Constructing and selling individual building or units within building – sales price determined by the best use conceptual scenarios and regional market.
• Constructing and leasing buildings or units within building – lease rates determined by the best use conceptual scenarios and regional market.
• Creating and selling/leasing pad sites – driven by the regional market.
• Tax revenue. 
• Other revenue (e.g., advertising signage, renewable energy production, cell towers).

A pro forma is most useful when it is well-structured and contains all the elements that pertain to revenue and cost. This includes everything from the base rental income to all the potential costs that are associated with investment properties. Pro forma inputs can be adjusted to run various reuse scenarios that will give the local government rough estimates of the potential revenue. 

A pro forma analysis can range from a very simplified approach to one that is very detailed and evaluates complex factors. The pro forma provided in the Revitalization-Ready Workbook is a simplified or “back-of-the envelope” version of a pro forma that allows a local government to quickly evaluate the viability of a reuse option. It also helps evaluate the general impact of various cost and/or revenue assumptions. However, the pro forma in this guide will not substitute for a detailed financial analysis, is not applicable to complex projects, and should not be used to make investment decisions. Where the local government does not have the in-house expertise to appropriately use a pro forma, it should consider obtaining an outside party with that expertise.

The pro forma worksheet provides default values (such as per-square-foot construction costs and lease revenues for various types of reuses) that can be used to calculate each line item. These default values are examples of the types of values to be input; they may not reflect current economic and market conditions or account for regional variations from national averages. Local real estate brokers, economic development officials, lending institutions or developers should be able to provide appropriate values for a particular geographic area. A range of values can be used where estimates are uncertain.

It is important to understand and evaluate all assumptions included in the analysis, particularly those that can dramatically affect results. For example, a small change in the capitalization rate (Image) can quickly cause the project to become less financially viable. Keep in mind that the rate of return in the pro forma worksheet also does not reflect the number of years the project will take. Developers, investors and lenders use discounted cash flow and other methods to adjust for the time value of money.

The pro forma worksheet provides an estimate of profitability, but just because the project appears to be profitable, that does not necessarily mean that developers will be willing to acquire and redevelop the property. Individual developers and investors will have their own view of what is considered an acceptable return on investment that takes into account project risk. As a general rule, higher project risk carries the expectation of higher potential returns. Developers will use other tools as well, such as market analysis, highest and best use studies, and other investment-related information, to determine the viability of a project.

There are a variety of ways that the pro forma worksheet can help guide the reuse evaluation process, including:

• A local government can evaluate whether a desired reuse is financially viable, assuming the property is free of contamination. This best-case scenario will provide a baseline for estimating the minimum number of public incentives or other assistance that might be needed to make the property marketable. Based on that analysis, the local government can begin to make some judgment on questions such as to whether certain reuse options are impractical, whether additional resources to conduct a Phase II ESA would be justified, and how to prioritize information gathering efforts.
  
  Even before verifiable information on the environmental conditions is available, the local government can build on those baseline estimates by making certain assumptions regarding the environmental conditions (i.e., that asbestos insulation will be present in all or certain buildings). This can help determine the relative contribution of those added costs should they prove to be true.
• If the Phase I ESA determines that the property has already been extensively investigated and that information is available, or the local government has conducted its own Phase II ESA, the pro forma worksheet can be used to estimate how various cleanup alternatives could affect the costs and profitability of reuse scenarios should those costs be passed on to the developer of the property.
  
  Likewise, where cleanup has already occurred, the financial analysis can take into account the associated costs that might be passed on, such as operation and maintenance costs, settlement of environmental liens, and any costs to modify the existing cleanup, if necessary, to accommodate a proposed reuse.
• Added interest costs resulting from protracted delays in construction, rehabilitation and remediation activities can be considered.
• The impact of parceling the property under different scenarios can be evaluated. For example, it might be that the revenue generated by selling off portions of the property could be used to finance cleanup or property improvements on the other portions.
• Local governments can estimate the revenues they would receive from a project. Real estate taxes and permit fees can be estimated based on the size and type of the redevelopment project. Retail rents generally reflect sales volume and can be interpolated to calculate sales tax revenue.

Documentation – Develop a pro forma for the project (refer to the Pro Forma tabs in the Revitalization Ready Workbook).

Feasibility

After reviewing the project economics and financial analysis, the local government needs to understand project feasibility. This includes identifying key assets and opportunities to attract investment to the redevelopment area. 

Each reuse scenario identified during the reuse visioning process should be evaluated - taking into account the project risks and liabilities, overall market viability, and economics of the potential reuse - to determine whether it should move forward with the development of a reuse implementation strategy, be redesigned, or be abandoned altogether. 

Determining overall feasibility of a proposed reuse is not dependent on resolving all identified constraints, risks or liabilities. Rather, feasibility depends on resolving the constraints, risks and liabilities that would make the implementation of a reuse scenario impossible (or extremely difficult) to implement. The presence of constraints, risks or liabilities is not necessarily a reason to remove a reuse scenario from further consideration. 

Risk management tools and approaches will be evaluated as part of the development of the implementation strategy. Other examples of issues that may affect the feasibility of a reuse include minimal or non-existent markets for a reuse, significant economic constraints, or significant land use restrictions due to environmental issues.  

Property Disposition Strategy

PROPERTY DISPOSITION

Disposition of a property is the retention, sale, transfer or lease of a property for purposes of positioning the property for sustainable reuse and cleanup of the property.

 As used in this guide, disposition of a property is the retention, sale, transfer or lease of a property for purposes of positioning the property for sustainable reuse and cleanup of the property. A disposition strategy is a framework for deciding ownership and development of the property, and how to achieve it in a manner that supports established project goals for sustainable reuse and provides value to the property owner, potential buyer and developer. The strategy should include an analysis of pros and cons that help characterize risks associated with the range of ownership and transfer options. 

The process of developing a property disposition strategy involves preparing a document that evaluates and compares disposition alternatives for the project site, such as property sale, ground lease, or lease with option-to-purchase. The strategy also discusses benefits and challenges, liabilities, obligations and risk transfer options. Finally, the strategy will help to identify a preferred alternative and associated actions for implementation. 

A property disposition strategy is focused on property ownership and sustainable reuse. Essentially, it defines the local government’s role and involvement in the implementation of a reuse strategy. There are a variety of property disposition strategies available to local governments that can be used to facilitate the redevelopment of brownfield properties. These typically fall into two general categories: 

• acquisition approaches, in which the local government takes title to the property for some period of time; and 
• non-acquisition approaches, in which the local government encourages and participates in the reuse effort.

Each action carries its own set of issues that must be understood in order to develop a strategy for managing project risks and, ultimately, achieving a successful project. Development of a property disposition strategy requires a multi-disciplinary team, including an environmental professional, real estate professional, insurance consultant, planner and/or other related professionals. 

Property Owner Evaluation

The property disposition and risk management strategy for a property could differ somewhat depending on whether or not there is an existing owner who may be willing to work cooperatively with the local government. 

In cases where the strategy will involve the purchase of a property or the involvement of a property owner, it is important to understand the viability of a property owner and the property owner’s willingness to participate in the reuse process before selecting a property disposition and risk management strategy. The following sections discuss how the development of a property disposition and risk management strategy might be shaped by whether or not there is a viable property owner that may be willing to work cooperatively with the local government, or an unknown or uncooperative property owner.

Properties with Cooperating Owners

Owners of mothballed properties may have an incentive to improve the property or remove unusable structures in order to reduce their maintenance costs or insurance premiums, improve their corporate image, or reduce liability from potential fires or other safety hazards. For many owners, however, a variety of concerns may trump these potential benefits. These concerns include, but are not limited to:

• Prohibitive demolition or property preparation costs.
• Environmental investigations that might identify contamination issues and trigger action to address those issues under federal, state or local laws.
• Lack of expertise in dealing with environmental liability and cleanups.
• Transfer of the property, which could lead to uses that aggravate existing environmental conditions and cause the owner to incur greater liability and expense.

By recognizing that these types of concerns exist, the local government and the property owner may be able to work collaboratively to advance the interests of both parties. This cooperation could enable the local government to gain access for conducting due diligence, avoid a contentious and time-consuming eminent domain taking, or avoid altogether the burden and risk of acquiring the property or taking on the demolition and cleanup activities. It may even be possible to fashion an agreement or structure financial incentives so that the local government has some control over the future use and timing of property development. 

A comprehensive plan with clear benefits to the local government can help build support among those within the community and local administration concerned with using public resources to bring about improvements on private property. A cooperative arrangement with the property owner, along with the property access that may entail, also may help the local government and property owner become eligible to receive federal and state brownfields funding to offset the environmental investigation and cleanup costs.

Parceling or subdividing a property is an option that can sometimes help address some of the property owner’s concerns and provide other strategic benefits in facilitating redevelopment. These benefits may include:

• Freeing up areas of the property for earlier development.
• Creating a source of revenue through the sale of a portion of the property, which can then be used to clean up other contaminated areas or improve the safety, appearance or marketability of the remaining areas (e.g., by demolishing buildings or making other improvements).
• Helping to ensure that the components of a permanent cleanup remedy (e.g., an area capped with a protective cover) remain protective by retaining control over the use of those areas. In some cases, it may be possible to use these areas in a manner that ensures protectiveness while supporting the reuse of the surrounding properties (e.g., by installing a parking lot or pocket park over the areas).
• Evaluating the potential use of parceling, which requires not only the knowledge of the environmental conditions for the entire property, but also its effect on legal liability (which may differ depending on applicable statutes). For example, parceling a portion of a property may not change the legal status of those parcels under CERCLA or RCRA; however, where the buyer of a portion of a property has no relationship with the responsible party and contamination is completely contained on the remaining portion of the property, the buyer may not be considered an owner or operator under CERCLA or RCRA. Consequently, parties involved in the transfer or leasing transactions need to discuss any regulatory implications with EPA, the authorized state, or other federal/state agencies as needed before proceeding.
• Where the local government agrees to conduct or participate in environmental investigations, building demolitions, cleanup or other activities on the property, the local government will need to assess whether that involvement could subject it to unacceptable legal, financial and other risks. The local government also should consider whether risk management tools, such as those outlined in this chapter and in Appendix A, might be appropriate.
• In conducting these types of activities, the local government must be careful that doing so does not worsen conditions on or surrounding the site, which could subject the local government to liability under environmental laws, or negligence and other common law liabilities. 

Even building demolition can carry environmental liability risk if not carefully planned and executed. For example, demolition may release asbestos from insulation into the air or surrounding soils. The removal of building foundations or slabs could alter groundwater flow or allow contaminants in the underlying soil to leach into groundwater or migrate to the surface. Burying demolition debris and other materials on the property could create additional sources of contamination or create a pathway for volatile contaminants to migrate to the surface. Other issues could arise from the temporary placement of contaminated demolition debris, which if not conducted properly could create a contaminant release.

Before proceeding with on-site activities, the local government will need to have sufficient understanding of the property’s environmental conditions in order to develop measures to minimize the potential for causing or contributing to a release. Keeping a building slab or foundation in place might be one way to avoid releasing underlying contaminants or altering groundwater flow. Placing demolition debris on an impermeable surface and covering the debris piles to control airborne releases also could help prevent releases.

Other measures could include analyzing soils below areas that will be used for debris storage to support a defense against potential future claims that the storage activities caused or contributed to a release.

Properties with Unknown Owners or with Non-Cooperating Owners

Gaining access at abandoned properties or those with an uncooperative owner in order to assess environmental conditions, let alone conduct demolition and cleanup, can be problematic. In situations where a fire or other public safety threat exists, most local governments and states have the authority to enter the property to address those specific issues, but these authorities may be limited and may not extend to other areas of the property. Very few states have laws in place to enable local governments to access a property to perform an environmental assessment or conduct cleanup, or to allow it to seek cost recovery for those activities. Where access is available, the local government needs to consider the environmental liability and other project risks associated with undertaking any activities on the property.

If the results of a Phase I ESA conducted on an abandoned property provide reason to believe that significant contamination issues do exist, it is advisable to notify EPA or the state. This will help protect the health and safety of the community and could potentially help the local government avoid legal and political risks.

If EPA or the state believes that there is a sufficient basis for these concerns, the Agency may initiate its own investigation into the environmental conditions. EPA and state agencies can use various authorities to obtain information relevant to that investigation and, if necessary, to gain access to the property. Should the situation dictate, they may be able to take further steps to address these issues or compel the responsible parties to do so. While this may not always occur in the timeframes desired by the local government due to federal and state resource constraints, procedural issues and other reasons, the end result might be that the cleanup and revitalization of the property moves forward with less direct involvement by the local government.

If the property is a high priority for the local government, and obtaining access for investigation, building demolition or cleanup is not a viable option, acquisition may be the only available means of dealing with abandoned properties. There are no absolute guidelines for making this decision. It will depend on how much information is known about the environmental conditions and other pertinent factors, how risk-averse the local government is, whether the potential project risks can be adequately managed, and other considerations specific to the situation.

It is important to consider which federal and state environmental statutes may apply. For example, under certain state and federal environmental statutes and state property transfer laws, some level of environmental investigation and, if necessary, cleanup might be automatically triggered and transferred to the local government upon acquisition or leasing. Even if the primary intent of the local government is to acquire the property to demolish buildings or make other improvements, the local government may find that it must then address other areas of the property as well. The type of acquisition (e.g., eminent domain taking, property tax foreclosure, direct acquisition) may affect liability protections under federal and, possibly, state environmental statutes.

Acquiring a property that has already been investigated or remediated will reduce the uncertainty and therefore make the project risks more predictable. A property where these activities have occurred, even where some contamination remains on the property as part of the permanent remedy, can often be the preferable acquisition over a property where the environmental conditions are largely unknown. This decision will depend on whether the investigation and cleanup were comprehensive and occurred under the proper level of oversight. If the property is acquired, long-term continuing obligations will need to be met in order to preserve any liability protections that may be available to a local government under CERCLA and other applicable statutes.

A local government considering the acquisition of a property may be able to access federal and state funds or other resources to cover some of the costs of environmental assessment and cleanup. EPA’s Brownfields website is a starting point for identifying potential sources of assistance. 

Selecting Property Disposition Strategies 

The disposition strategy will outline the assets of the property, the liabilities and responsibilities to be assumed by a purchaser or developer, and the liabilities and responsibilities to be retained by the local government. Some of the more common property disposition strategies include:

• Acquisition and long-term ownership.
• Acquisition and interim ownership with subsequent transfer to a third party.    
• Leasing by the local government.
• Acquisition and simultaneous transfer to a third party.    
• Collaboration with the current property owner.
• Transfer of tax liens.
• Incentives to promote redevelopment.

These actions and the issues they raise are broadly representative of most real-world situations.

In a generalized way, these property disposition strategies are organized in descending order of local government control over the property. Often, having more control comes with an increased potential for incurring project risk.

To establish the proper baseline for evaluating these property disposition strategies, local governments should compare them to a no action option in which the local government does not directly intervene to facilitate redevelopment. When considering the acquisition of a property, the method of acquisition (e.g., tax foreclosure, escheat, eminent domain, purchase, inheritance, abandonment, donation) may be important.

Acquisition and Long-Term Ownership 

Taking title provides control over the property to the title holder. Local governments often take and retain title to an underutilized property if there is a public reuse planned, such as a park or local government facility. Ownership also may allow the local government to have a greater role in the cleanup and reuse of the property. By controlling the land uses, local governments also can better ensure that land use restrictions are being met and cleanup components (e.g., groundwater monitoring wells, landfill caps) are properly maintained and not compromised.

If a local government intends to acquire the property by exercising eminent domain, it should determine if state law allows adjustment of the purchase price to reflect cleanup costs. Otherwise, the local government may be forced to pay considerably more for the property than its actual discounted value. A May 2008 report by the Northeast-Midwest Institute provides a summary of how different states address this issue (see Northeast-Midwest Institute: Mothballed Sites and Local Government Acquisition: How State Liability Protections, Eminent Domain Reforms, and Cost Recovery Authority Can Spur Local Government Action to Acquire and Redevelop Difficult Brownfields Sites, May 2008). 

While different responsibilities may apply depending on state and federal laws, in general, the specific responsibilities of taking title to a brownfield property may include:

• Responsibility for carrying out the cleanup action on the property.    
• Responsibility for cleanup action beyond the property boundaries.
• Responsibility for responding to third-party suits related to the contamination on the property or emanating from the property (unless otherwise protected from these suits through, for example, a settlement agreement with EPA and/or the state).

Other parties, including former owners and operators of the property, also may be responsible for a property’s environmental issues.

Acquisition and Interim Ownership with Subsequent Transfer to a Third Party 

Acquisition by the local government followed by a transfer to a third party is a way to involve private developers in the redevelopment process while potentially shielding them from some of the uncertainties and difficulties of property acquisition. 

Some local governments have redevelopment authorities or land banks that will take title to properties and hold them while parcels are assembled, and redevelopment proposals are evaluated. Typically, the properties are then leased, sold or transferred to a developer who will implement an agreed upon redevelopment plan. An advantage to the local government is that the private entity performs the redevelopment and, in many cases, the cleanup action as well. A disadvantage to the local government is that it may have limited control over the cleanup and the future use of the property. 

Leasing by the Local Government 

In this action, the local government enters into a long-term ground lease with the owner that allows for the development and use of the property (e.g., establishing a library on the property) without taking title. 

One potential advantage is that the current owner may assume some or all of the responsibility for conducting cleanup and maintaining the remedy components (such as treatment systems or landfill covers). Alternatively, the local government may agree to take on those obligations. In either case, the terms of the lease would typically need to cover these roles and responsibilities.

Leasing does not necessarily shield the local government from environmental liability. For example, as discussed later in this guide, a party leasing a brownfield property may, depending on the circumstances, be liable as an operator under certain federal and state environmental statutes. Some courts also have held that long-term leases can be equivalent to ownership for the purposes of establishing liability. 

A local government also may incur legal liability for causing or contributing to the environmental contamination as the result of its use of the property or by a party that sublets the property from the local government. Conducting due diligence to understand the environmental conditions can therefore be as important when leasing a property as it is with acquiring a property.

Before entering into a lease, a local government should carefully consider its environmental liability risk, including whether it might qualify for any liability protections under specific statutes.

Acquisition and “Simultaneous” Transfer to a Third Party 

Acquisition and simultaneous transfer to a third party is similar to the above approach, except that the local government and the third party recipient of the property prearrange their agreements for the property, and the property’s transfer can be accomplished immediately after the acquisition by the local government. This has the potential advantage to the local government of minimizing expenditures and property maintenance responsibilities; however, control limitations may be similar to those where the local government acquires the property and transfers it to a third party months or even years later.

Collaboration with the Property Owner 

In some situations, the property owner may be unwilling or unable to perform environmental investigation, cleanup or other activities needed to improve the marketability of the property or address health and safety issues but may allow or work with the local government to do so. To gain support for this approach, local government officials may need to build a convincing case that such collaboration is in the best interests of both the property owner and the local government.

Collaborative partnerships may be one way to deal with mothballed properties, where the owner continues to pay property taxes, but does not do anything to clean up or improve the property. Cooperative owners can provide property access for environmental assessments and other investigations without involving the local government in the chain of title. 

Depending on the nature of activities performed by the local government, the local government may need to consider obtaining indemnifications and other agreements with the property owner. As with other property disposition strategies that lead to direct involvement in activities on the property (e.g., investigation, cleanup, construction), the local government should consider whether this carries an unacceptable risk of legal liability.

Transfer of Tax Liens 

Where allowed under state law, the local government may transfer or sell tax liens for the property to a third party who then forecloses on the property and takes title. This action can be used where the property is abandoned or where the current title holder is in arrears on tax payments. State laws governing the right of redemption by the owner or other party with a vested interest in the property also will need to be taken into account.

While this process can take a year or longer to complete, it may be worth considering in situations where the local government can attract qualified developers and exercise sufficient control over development. Many local governments also auction portfolios of tax liens.

Sometimes, however, a party will acquire the portfolio with the intention of taking action on only certain properties in the portfolio. This may actually delay or inhibit redevelopment on the remaining properties.

Incentives to Promote Redevelopment 

Generally, incentives and incentive packages pose fewer project risks to a local government but provide it with less control over the development of the property. For example, certain financial incentives, such as those that involve forgiving back property taxes, could carry few environmental liability risks, but may result in significant financial risk and lack support within the community. Still, local government incentives can sometimes be viewed as a more attractive alternative than property disposition strategies that require more direct and active local government involvement in the brownfield property.

Other examples of local government incentives are:

Zoning and Use Exemptions
The local government may increase a property’s attractiveness to developers by changing zoning or creating zoning and use exceptions prior to the developer talking title, as zoning and land use often represents a great source of uncertainty for developers. However, the local government can run the risk of establishing an unwanted precedent by granting such exceptions.

Tax Increment Financing (TIF)
TIFs can be a tool to attract developers to properties that are otherwise financially unappealing. TIFs encourage development of many types of underutilized properties, not just those with environmental issues. As with non-brownfield properties, the development needs to result in an increase in the value of the property for this technique to make economic sense. The local government also should carefully consider future obligations and tax revenues to make sure it can afford to grant this type of incentive. (See Council of Development Finance Agencies [CDFA]:  Tax Increment Finance (TIF) Resources for additional information on tax increment financing.)

Infrastructure Improvements
The local government can make a project more financially attractive by providing infrastructure normally paid for by the developer. A local government’s investments on new infrastructure will generally have to be made before any tax revenues are realized.

Screening Property Disposition Strategies Based on Project Goals

The local government should screen its property disposition strategies to determine compatibility with project goals and risk management considerations to identify one or more strategies that warrant further consideration. 
The first question is whether the local government needs to intervene at all. If developers are willing to reuse the property in a way that the local government supports, the local government may be advised to step out of the way and let the development proceed. On the other hand, if no one has brought forward a proposal that is acceptable to the local government, or financially attractive to a developer, more proactive involvement by the local government may be appropriate.
The screening process eliminates a property disposition strategy from further consideration when it is apparent that it will not reasonably achieve the project goals. Screening avoids spending resources unnecessarily and provides an early reality check for the project.

Documentation:  Identify and document the key elements of the disposition strategy for the project.

References:
EPA: Plan for Brownfields Redevelopment Success: Site Disposition Strategy (pdf) (233.79 KB)
Northeast-Midwest Institute: Mothballed Sites and Local Government Acquisition: How State Liability Protections, Eminent Domain Reforms, and Cost Recovery Authority Can Spur Local Government Action to Acquire and Redevelop Difficult Brownfields Sites, May 2008
Northeast-Midwest Institute: Commentary - Overcoming Impediments to Public Agency Acquisition of Brownfield Sites, September 2009