Brownfields in Worcester, other Gateway Cities stuck in red tape from state, advocates say

Cyrus Moulton, Worcester Telegram & Gazette

Proponents called it “an unsung hero” for redevelopment in Worcester and “critical” for local economic development projects.

But the state’s package of incentives for cleaning and redeveloping contaminated sites — specifically, the financial incentives in the Brownfields Redevelopment Act — are not being used as frequently as in the past, and developers and local officials worry that may have a big impact on the future redevelopment of Gateway Cities such as Worcester.

“From an economic development and environmental point of view, this is a successful program,” former Lt. Gov. and Worcester Regional Chamber of Commerce President and CEO Tim Murray said in an interview. “We should be building and strengthening it, not letting it die on the vine.”

But why is this happening? It’s difficult to know for sure. 

Some of those interviewed said many developers who use these incentives are reluctant to criticize the program, as they don’t want to jeopardize their chances of receiving these incentives in the future. 

But those advocates willing to be interviewed said that enacted and proposed regulatory changes from the state — which has convened a working group to review and consider changes to the program — are to blame. 

And they have lots of questions.

“What we’re trying to get to is to figure out why this program is being delayed and why some of these applications aren’t being processed,” Alex Guardiola, director of government affairs and public policy at the Worcester Regional Chamber of Commerce, said.

Guardiola wrote a letter in November to state officials at the Executive Office of Housing and Economic Development, Executive Office for Administration and Finance, and Executive Office of Energy and Environmental Affairs relaying concerns about the decreased use of the brownfields program. 

“The question is, How can we come together to get this program back online to how it was in previous years in order to continue development in Gateway Cities?” Guardiola asked. 

What is a brownfield?

Contaminated sites, or brownfields, are a common feature in postindustrial Gateway Cities like Worcester.

Typically abandoned or for sale or lease, these properties have usually been used for commercial or industrial purposes in the past and may have been reported to the state Department of Environmental Protection, because contamination has either been found at the site or the site may not have been assessed because of fear of unknown contamination conditions.

This contamination makes them an obstacle to redevelopment, as it must be remediated for environmental and health reasons before the property can be put back to use.

Remediation can be expensive.

For instance, the cleanup of Gateway Park was an $8 million effort, while the cleanup at the Fidelity Bank Worcester Ice Center cost $3 million, according to Craig Blais, president and CEO of the Worcester Business Development Corp., which collaborated with developers to redevelop these sites. 

To help the redevelopment of such brownfields, the state passed the Brownfields Act in 1998. 

Bob Cox, a managing partner at Bowditch and Dewey who practices environmental law, said this act provided “a toolbox” for developers and property owners to facilitate the redevelopment of contaminated sites. The act included certain liability relief, provided insurance subsidies and provided two sources of money for cleaning up brownfield properties.

The first is the Brownfields Redevelopment Fund. Overseen by MassDevelopment, this gives eligible applicants up to $100,000 for site assessment and/or up to $500,000 for cleanup of brownfields. Eligible applicants include municipalities, businesses, nonprofit organizations, economic development organizations and individuals.

The second is the Brownfields Tax Credit, where individuals, nonprofits and business corporations are eligible to receive tax credits equal to either 25% or 50% of the cost of the cleanup once it is completed. It is administered by the Massachusetts Department of Revenue. 

The incentives — often used in conjunction for projects — are good investments. 

A 2014 study of the tax credit program by NAIOP, the Commercial Real Estate Development Association of Massachusetts, concluded that the brownfields program over a 10-year period yielded $7.74 million in new tax revenue for the commonwealth for each credit dollar and $13.56 million in direct and indirect new tax revenues. 

“Additionally, these cleanups have significantly assisted municipalities with job creation, direct and indirect spending, and tax base expansion,” Guardiola wrote in the November letter.

For instance, according to city records, the Fidelity Bank Worcester Ice Center went from paying $35,062 in real estate taxes in 2016 and, after redevelopment, paid $195,216 in 2018.

But neither the tax credits nor the redevelopment funds are being used as frequently as in the past.

And they have changed statutorily or administratively over the years, according to several people interviewed. 

Brownfields redevelopment fund concerns

After increasing for several years to a high of 76 projects in 2013 receiving $19.8 million in redevelopment funds, 20 projects received $4.9 million in 2018, the latest year available.

MassDevelopment spokesperson Kelsey Schiller cited several reasons why the number of projects was increasing before 2013. These include two Notices of Funding Availability advertised in 2006 and 2008 targeting municipalities’ “most large-scale and challenging sites.”

“These projects take some time to come to fruition in the best of circumstances, and were awarded just prior to the 2008 financial crisis,” Schiller said. “Many of these projects did not begin in earnest and begin closing on their funds until 2011 as the economy began to show signs of recovery. In addition, in 2008 and 2010 a Brownfields Support Team Initiative was rolled out to provide targeted multiagency support to municipalities dealing with challenging brownfield sites; this initiative resulted in several more large-scale projects seeking access to fund resources during this period.” 

But then the funding went down. 

One reason those interviewed cited for the ensuing decrease was a change made by the Baker administration in 2016 that made the fund a loan program rather than a grant program, meaning the money had to be repaid. 

“This provision has added additional bureaucratic, regulatory and financial burdens to brownfields economic development projects, and in addition uncertainty, to projects which are economically challenging and fragile from the onset,” Guardiola wrote in his November letter.

The Massachusetts Department of Revenue also adopted a policy for two years that required municipalities to repay future incremental property tax revenue realized from the redevelopment of the site. In early 2019, that policy was revoked retroactive to its adoption and is no longer in effect.

“I think they saw that was probably not a provision that would help developers, and am glad to see that they reassessed it internally and removed the clawback provisions,” Guardiola said.

Schiller acknowledged that the repayment of future property tax revenue likely caused numbers to be low in 2017 and 2018, but noted that the numbers are “beginning to trend upward” with more projects being approved in 2019 (18 projects) and 2020 (20 projects).

She also noted that brownfields funding from the Environmental Protection Agency for Massachusetts projects has decreased from approximately $5.6 million total over the last three years versus approximately $12.3 million total in the previous three years. 

“This is significant as many of these sites require more than one environmental funding source, with funding through Massachusetts’ Brownfields Redevelopment Fund supplementing EPA funding,” Schiller wrote in an email. “Without a full complement of funding secured, communities may be less likely to undertake one of these challenging redevelopment sites.”

But the loan structure remains. And those interviewed suggested that was keeping numbers of Redevelopment Fund participants low. 

“I understand the state couldn't just continue doing grants to projects - you can’t give a grant to a private developer,” Blais said. 

“But brownfields are very difficult to finance and make the numbers work,” Blais continued. “They are very limited as to what they can use (direct loans) for, and therefore a lot of projects don’t qualify because they don’t make the numbers work.”

Advocate concerns on tax credits 

As for the tax credits, their use has also decreased. In 2011, 83 tax credits worth a total of $51.3 million were issued, according to MassDOR. In 2018, the latest year available, five credits were issued worth a total of $10 million. 

Those interviewed suggested several reasons behind the trend.

All of those interviewed also said that the application process for the tax credits has taken longer than usual.

“It used to take a few months, now it takes a year and a half to two years,” Developer and attorney Hal Davis said. Any appeal of the credits awarded can also take another year, he added. 

“As we know, time is money,” Guardiola said. “As time was running up, it wasn’t feasible for developers to do these projects if they did not know tax credits would be approved.”

Davis said the credits are awarded by right, not competitively: if you meet eligibility, the credits should be granted, and it shouldn’t be a complicated process.

But the Massachusetts Department of Revenue has also scrutinized the tax credit application process more closely in recent years, those interviewed said.

“(Applications) used to take a few months, now they take longer and DOR is much more deliberate, questioning eligible costs involved,” Cox said. “It’s supposed to be simple, and now it’s getting very, very complex.”

One of the disputed eligible costs that developers repeatedly mentioned was asbestos removal in buildings to be demolished.

“In the past you could include the cost of removing asbestos prior to demolishing the building,” Davis said. “In the last year and a half or so, they have said they don’t think it’s an eligible cost.”

DOR declined an interview request or to respond to written questions, but issued a statement that addressed the timeline and eligible costs concerns.

“The Department of Revenue is committed to thoroughly and expeditiously reviewing all Brownfields Tax Credit applications, and fairly and consistently administering Brownfields Credit Applications,” DOR spokeswoman Naysa Woomer said in a statement. “These applications are each based on unique facts. They are often high-dollar claims, raising numerous technical considerations, and requiring verification of incurred allowable expenses. Examiners must carefully review applications, cost by cost, to ensure that only “net response and removal costs” are allowed. Issues can arise from the ownership structure and history of the property, the nature and circumstances of the release, the remediation costs incurred, payments to vendors, and a host of other areas.”

“Given that Brownfields Applications involve unique projects, require a significant amount of documentation, and often require follow-up with the applicant, examiners must spend considerable time reviewing and verifying all aspects of each application to guarantee full compliance with state law,” Woomer continued.

But developers aren’t the only ones who want changes to the program — the state does, too.

“The state has convened a working group to review concerns raised by stakeholders and consider ways to improve the program,” Woomer noted.

On Jan. 8, the DOR proposed changes to the tax credits.

However, those interviewed had concerns with these proposals as well. 

For instance, the cost of removing contamination on a property must reach a threshold of 15% or more of the property’s assessed value to be eligible for the tax credits.

For large sites, which often have multiple areas of contamination — for instance, a leaking oil tank here, asbestos-covered pipes there — that threshold can be met pretty easily. 

But according to the proposed changes, those costs can be cumulative for multiple instances of contamination on a property only if discovered within a year. 

As the ongoing saga of the cleanup for the Worcester Regional Transit Authority’s Maintenance and Operations facility showed, this one-year limit could be a problem for large sites with multiple contaminated areas and a phased development plan.

Matching Legislative intent?

But while these concerns — asbestos, increased application time, multiple “release sites” — are pretty technical and very specific (and these are the easier ones to explain), the bigger picture question of those interviewed was whether the program was working as intended.

“It’s cutting out people,” said Cox. “It’s not fair and seems to be against legislative intent. This program is to encourage cleanup and we want to maintain that. Let’s keep it that way rather than seek a way to limit what a party may use it for.”

Murray notes that the program has been reauthorized five times by different legislatures under different administrations. 

“I think it comes down to ‘if it ain’t broke, don’t fix it,’ " Murray said. “Don’t undermine the whole program and the success it’s been because of potential concerns about bad actors out there. Don’t throw the baby out with the bathwater.”