ENVIRONMENTAL FINANCIAL ADVISORY BOARD
      UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                                  OCT   5
Honorable Carol M. Browner
Administrator
United States Environmental Protection Agency
401 M Street, SW
Washington, D.C. 20460

Dear Administrator Browner:

      The Brownfields Workgroup of the USEPA's Environmental Financial Advisory Board
(EFAB) has reviewed Section 198 Expensing of Environmental Remediation Costs, Public
Law 105-34, Title IX, Miscellaneous Provisions, Subtitle E - Brownfields (Brownfields Tax
Incentive) to evaluate its potential effectiveness and make recommendations concerning its
implementation. We have been assisted in this review by the California Center for Land
Recycling (CCLR).  In addition, members of our Brownfields Workgroup have met with
Assistant Administrator Tim Fields and his staff to discuss this and other work.

      Overall, the Workgroup agrees that tax credits and/or deductions can create powerful
incentives and should be ideal for application to Brownfields. The purpose of this letter report is
to make recommendations to maximize the benefits specifically within the context of the
Incentive's structure as a qualified deduction. We believe that the Brownfields Tax Incentive
could realize its highest potential value with modest regulatory guidance and/or legislative
amendment. The following recommendations would significantly enhance the potential for
fulfillment of the intended benefit of the incentive concept.

1.    Eliminate the sunset provision. We understand that legislation to eliminate the sunset
      provision is planned. We concur.

2.    EPA and the Department of Treasury should support legislation to amend Section
      198 to moderate the impact of recapture on the benefits of the tax incentive. The
      recapture of qualifying expenses as ordinary income upon the resale of the real property
      may significantly reduce the after tax net present value of the tax incentive unless the
      taxpayer is a corporation. We recommend expanding the usefulness of the tax incentive
      for non-corporate taxpayers by eliminating the recapture provision.

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3.     Support legislation to broaden the definition of hazardous substances to include
       those that otherwise would be excluded by the CERCLA petroleum exclusion.
       This definition would be applicable only for Section 198 provisions in order to spur wider
       use of these tax provisions for property remediation.

4.     Treasury should clarify by regulation "paid or incurred in connection with the
       abatement or control of hazardous substances." We are concerned that "paid or
       incurred in connection with the abatement or control of hazardous substances" could be
       interpreted broadly or narrowly, particularly when expenditures have a dual purpose.
       Treasury should issue regulations clarifying that the cost of any activity which abates or
       controls hazardous substances is a qualified environmental remediation expense, even if
       the activity also has another purpose.

5.     Treasury should issue regulations to clarify that "held" in Section 198 (c)(l)(A)(I)
       includes holding pursuant to a long-term ground lease. In some cases, a site may not
       be owned by the taxpayer in fee, perhaps to avoid the environmental liability associated
       with fee ownership. Treasury should clarify that "held" includes a lessee's interest in a
       long-term lease.

       We know that implementation of these recommendations may be challenging, given the
legislative and multiple-agency implications. If the Board can be of any further assistance to you
in crafting the Brownfields financial incentive package, please do not hesitate to call upon us.
For example, should you wish to share these recommendations with Treasury, we will prepare
the appropriate transmittal documents.

       In closing, I want to recognize and thank Brownfields Workgroup Chair, Evan Henry
from Bank of America, for his continuing leadership in evaluating this and other Brownfields
cleanup and redevelopment issues.
 lo6ertTJ*Lenna
Chair
Environmental Financial Advisory Board

cc:     Peter D. Robertson, Acting Deputy Administrator

       Timothy Fields, Jr., Acting Assistant Administrator for
       Solid Waste and Emergency Response

       John C. Wise, Executive Director, EFAB.

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