Law should spur brownfield investment.

Congress adds tax benefit to cleanup projects

The New Year might bring some pleasant surprises yet for entrepreneurs interested in brownfield redevelopment. On Dec. 15, 2000, Congress passed a law, which will make it easier for real estate developers to take advantage of tax deductions associated with brownfield clean-ups.

The new law, christened public law 106-554, will change the definition of a tax credit-worthy brownfield from a government designated empowerment area to basically any contaminated site in the country. The only exceptions to the law will be superfunds -- areas judged by the federal government to be polluted beyond remediation. According to brownfield experts, the new definition will be a very welcome change for the real estate community.

"The biggest advantage is that you can now use a site anywhere in the country and it could still qualify for a tax deduction," explained Ronald B. Bruder, chairman of Brookhill Properties, a company which, among other things, specializes in brownfield redevelopment. "The old law wasn't very valuable because no one could really use it."

According to Martin Lager, a tax partner at the accounting firm of Rubin & Katz LLP, many developers were reluctant to spend time and money on brownfields located in economically troubled areas. "The greatest change that the law brings is that it expanded the tax incentive beyond the economic zones designed by the state," he said. "Usually those zones are lower income areas of the municipality and developers are scared off by them. Now, however, they will get more encouragement."

As Larry Schnapf, director of Schnapf Environmental Center, sees it, what prompted Congress to take such a bold (in environmental terms) step was the lack of interest in redevelopment which resulted from guidelines that were far too tight. "Basically, this is an extention of the existing tax incentives that have been signed into law in August, 1997," he explained. "Congress thought that it would help redevelopment, but the rules proved to be too limiting. Now, they are hoping that the new law will really spur development and make such projects marginally profitable."

But no everyone is that enthusiastic about the change. According to Joan Byron, of Pratt Institute's Center for Community and Environmental Development, the new law is "not any kind of breakthrough." "There are some reasons why it's very difficult to use that tax credit and that's why it won't change the situation significantly," she said.

Bruder agreed that the government has still got a long way to go, but he is happy about the new legislation nonetheless. "We've never been able to use the old law," he said, "but now we will be able to use the new one. We could actually start redeveloping in New York State."