UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20460
MAR 26 2002
OFFICE OF THE
CHIEF FINANCIAL OFFICER
NOTE
SUBJECT: Update on Environmental Financial Advisory Board
Brownfields Work
FROM: Linda M. Combs
Chief Financial Officer (27 10 A)
TO: Linda Fisher
Deputy Administrator (1 102 A)
When the leadership of the Environmental Financial Advisory Board (EFAB) briefed you
on its work earlier this month, you indicated a strong interest in the finance-related aspects of
brownfields cleanup and redevelopment. At that time, you asked that the Board share with you
its past work on brownfields financing issues, particularly with regard to tax incentives.
Accordingly, I am attaching for your review a copy of EFAB's April 19, 2001 letter to
Administrator Whitman recommending the use of tax incentives as a powerful approach to
financing brownfields redevelopment. This letter outlines a number of provisions which would
make a tax incentive, particularly a tax credit, most effective. I am including with the letter a
copy of the Agency's response.
This letter represents only the most recent product in an ongoing series of brownfields
redevelopment financing work that the Board has pursued over many years. During that time,
EFAB has analyzed a wide variety of finance issues relating to brownfields cleanup and
redevelopment and issued ten advisories, reports, and letters. I am attaching for your information
a list of the documents comprising this body of work. The documents can also be viewed on the
EPA web site at http://www.epa.gov/efinpage/efabpub.htm.
If you have any questions about the attached letter or would like additional information
on the Board's brownfields work, please let me know.
Attachments
cc: Marianne Horinko (5101)
Claudia A. McMurray (1 102 A)
Michael W. S. Ryan (2710A)
A. Stanley Meiburg
Internet Address (URL) • http://www.epa.gov
Recycled/Recyclable • Printed with Vegetable Oil Based Inks on Recycled Paper (Minimum 30% Postconsumer)
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
ENVIRONMENTAL FINANCIAL ADVISORY BOARD
APR I 9
Honorable Christine Todd Whitman
Administrator
United States Environmental Protection Agency
1200 Pennsylvania Avenue, NW
Washington, DC 20460
Dear Administrator Whitman:
The Environmental Financial Advisory Board, through its Brownfields Workgroup, has
been monitoring federal legislative proposals intended to help spur investment in brownfields
redevelopment. Those initiatives that address funding have proposed some variation of one or
more of the following: 1) direct public funding (grants); 2) capitalization of revolving loan funds;
3) loan guarantee programs (such as those of the Small Business Administration); and 4) tax
incentives. We believe that the fourth alternative has significant advantages over grant and loan
approaches because tax incentives would most effectively attract capital from the private sector.
The 1998 Brownfields Tax Incentive (which the Board commented upon in previous
correspondence) was a beginning, but a bolder approach is necessary to bring significant private
investment to brownfields redevelopment. We believe the following provisions could provide
the core of a new legislative initiative that would help to bring the still-reluctant private sector
into the brownfields remediation financing arena. We encourage EPA to propose and/or support
legislation that is aimed at attracting private investment to this important area.
Specifically, the Board proposes the following for brownfields tax incentive legislation:
• Create a transferable tax credit equal to the cost of the environmental investigation and
remediation incurred on a "qualifying site." This would enable cities to assess and clean
up property and transfer the credits to the next purchaser. We believe that the nature of
the real estate development process makes the transferability of the tax credits necessary
to make the tax incentives truly meaningful. Tax credits drive real estate transactions,
particularly in low income and redevelopment lending which is attracted to areas with
already existing infrastructure, like brownfields. We think that general objections to
affording benefits to parties other than the taxpayer are both inapplicable and invalid for
the type of tax credit envisioned.
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• Define "qualifying site" as contaminated property within an Urban area as defined by the
Census. This definition includes most brownfields, but importantly, precludes greenfield
sites, development of which should be discouraged. We believe that the low usage of the
current Brownfields Tax Incentive is due, in part, to its restrictive site qualification
criteria. Budgetary concerns that led to a narrow definition have proven to be unfounded.
The tax credit should be available only after certified commencement of redevelopment
to avoid claiming the credit and then "warehousing" the property without actually starting
the cleanup. Since large projects can take years from investigation to redevelopment,
taxpayers should be able to claim the credit when there is evidence that the project
legitimately has begun and will proceed on an identifiable timetable to completion.
• Property "redevelopment" should be defined to include open spaces, parks, residential
living spaces, commercial use, schools and any other uses that are of benefit to the
community. This definition may be specific to the application of this tax incentive.
While we know that the former administration's Better America Bonds proposal was
aimed at similar properties, the financial mechanisms of the tax incentive and bonds
should not be confused. Irrespective of other programs, an open space component should
be included in any new tax incentive proposal.
• "Qualifying remediation costs" should include the capitalized costs of ongoing
remediation, including pump and treat systems. We urge this definition be established in
legislation or regulation to avoid the unnecessary progress-inhibiting uncertainty that
would accompany leaving this to after-the-fact, case-by-case determination by IRS.
• Insurance premiums covering post-remediation liabilities should qualify for the tax credit.
Insurance has become one of the most effective tools to remove the uncertainty that is
such an impediment to brownfields redevelopment. We see insurance as a valuable
addition to the definition of qualifying costs that should be set in legislation or regulation.
The Board thanks you for the opportunity to provide our comments and recommendations
to you. We hope they will promote legislation that reflects a strong commitment to the recycling
of developed areas and that effectively mobilizes private capital in the redevelopment of cities.
Sincerely,
Robert O. Lenna, Chair
Environmental Financial Advisory Board
cc: Michael W.S. Ryan, Deputy Chief Financial Officer
Dona DeLeon, Deputy Associate Administrator for Policy, Economics, and Innovation
Joseph L. Dillon, Acting Comptroller
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFlCeOF
.,,-, _ _ SOLID WASTF ANU LMCRGENCY
AUG • 6 ' 2001 WSOOMSC
Mr. Robert 0. Lcnna, Chair
Environmental Financial Advisory Board
Office of the Chief Financial Officer
U. S. Environmental Protection Agency
1200 Pennsylvania Avenue, N W (MC 2731R)
Washington, DC 20460
Dear Mr. Lcnna:
. Thank you for your letter regarding brownfields tax incentives. I share your support for
these tax incentives as valuable tools for encouraging the cleanup and reuse of brownfields.
As you know, the current Brownficlds Tax Incentive provides an accelerated deduction
for cleanup expenses. In December 2000, the Rrownfields Tax Incentive was improved by
deleting geographic restrictions and by extending the incentive to December 31, 2003. The U.S.
Environmental Protection Agency (EPA) is working with both the U. S. Department of the
Treasury arid the states to implement these changes.
In your letter, the linvironmental Financial Advisory Board proposes several new
approaches to brownfields tax policy including a transferable tax credit, extension of the current
incentive to non-economic reuses, and inclusion of insurance costs. Currently, the
Administration is committed to implementing the December 2000 improvements to the existing
tax incentive and supports making the incentive permanent. We would like to work with you to
encourage use of the current tax incentive, explore further improvements of tax policy, and
develop other tools that promote private sector investment in brownfields cleanup and reuse.
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Thank you again for your comments and recommendations. Please feel free to contact
me or Linda Garczynski, Director ofEPA's Brownfields Program, at 202-260-4039 to discuss
these issues farther.
Sincerely,
Michael 11. Shapiro
Acting Assistant Administrator
cc: Linda Garczynski
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
ENVIRONMENTAL FINANCIAL ADVISORY BOARD
List ofBrown fields Advisories. Reports and Letters
1. Updated Brownfields Tax Incentive Letter to Administrator Christine Todd Whitman,
April 2001
2. Second Brownfields Tax Incentive Letter to Administrator Carol M. Browner, March
2000
3. First Brownfields Tax Incentive Letter Report to the Administrator, October 1998.
4. "Expediting Clean-Up and Redevelopment of Brownfields:
Addressing the Major Barriers to Private Sector Involvement —
Real or Perceived", Advisory, December 1997
5. Letter to EPA Administrator on Recommendations Based on EFAB's Five Brownfields
Reports, March 1997
6. "Barriers and Incentives to Financing Brownfields Cleanup and Reuse", Brownfields
Report No. 5, February 1997
7. "EFAB Indianapolis Meeting on Financing Brownfields Redevelopment", Brownfields
Report No. 4, March 1996
8. "Financing Strategies for Brownfields Redevelopment. Brownfields", Report No. 3,
March 1996.
9. "Financing Brownfields Redevelopment: Linkages to the Empowerment Zone/Enterprise
Community Program", Brownfields Report No. 2, March 1996
10. "Information Needs of Capital Providers in Brownfields Redevelopment", Brownfields
Report No. 1, September 1995
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