Dan Kolberg, P.E. Local Governm ental Specialist W isconsin DNR, - - PDF document

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The Strategic Roles of WIS Counties in Brownfields Redevelopment – May 1, 2008

Presented for WACCC by: Dan Kolberg, P.E., LGU Specialist Wisconsin DNR, Brownfields Section Bruce Keyes, Partner Foley & Lardner LLP Presenters

Dan Kolberg, P.E.

Local Governm ental Specialist W isconsin DNR, Brow nfields Section

( 6 0 8 ) 2 6 7 -7 5 00 dan.kolberg@w isconsin.gov

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Presenters

Bruce Keyes, Partner

Foley & Lardner LLP Environmental Regulation and Real Estate Practices (414) 297-5815 bkeyes@foley.com

Today’s Presentation

Brownfields Intro. - Dan County Experiences – Dan Example Projects – Bruce Tools Available to Cos. – Dan Economics & Issues – Bruce Q & A and Discussion - All

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Wisconsin’s Brownfields Initiative

Budget initiative reflected:

Brownfields is an economic development initiative with an environmental component.

Brownfield Basics

A brownfield is … An abandoned or under-utilized industrial or

commercial property

With real or perceived contamination That hinders the reuse of the property WDNR estimates up to 10,000 brownfield

properties in the state

Many are known to be tax delinquent The RR Program’s goal:

To assist local governments with the reuse of contaminated properties.

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Environmental contamination is….

A hazardous substance that has been

discharged into the water, land or air.

It can come from industrial, commercial,

transportation or other sources.

Significant environmental contamination

has the potential to impact human health, safety, welfare, and/or the environment.

Benefits Of Brownfields Redevelopment

Blight Elimination Environmental Clean-up Protect Health and Safety Infrastructure Re-use Job Creation Tax Generation Smart Growth Setting Positive Examples Creation of Teamwork

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County Experiences

How have Wisconsin’s counties been dealing with brownfields?

Summary of County Activities

Comprehensive

planning & zoning

ID brownfields Promote economic

development

Acquire properties Develop lands Create parks/ trails Obtain grants Partner with rede-

velopment teams

Assist other LGUs Tax foreclosures Tax cancellations Property transfers

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County Accomplishments

50 SAG Grants to

3 2 different cos.

Douglas Co. 4 Chippewa,

Outagamie, and Winnebago 3 ea.

Acquisitions with

LGU exemptions

Numerous GLCL 11 Tax cancella-

tions (s. 75.105)

16 Tax foreclosure

assignments (s. 75.106)

Tax foreclosures

and transfers (s. 75.17)

Example County Projects

Adam s County

Idle 15 years

• Co. $30K SAG
• Co. acquired -

Taxes as match

Assess, tanks,

demolition - Sold

Assessed value -

$9000 - $161,000

2 Vacation Homes

Colum bia Co.

Work w/ WI Dells Green team mtg. Address liabilities–

LGU exemptions

Tax foreclosure City SAG w/ taxes Assess dry cleaner Possible work w/

• ther LGUs

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County Roles with Brownfields

Tax Authority Address Tax Delinquent Properties Comprehensive Planning & Zoning Identify Brownfields Establish Land Use Directions Encourage Economic Development Partner with Redevelopment Teams

(Incl. LGUs & Developers)

Key Points for County

• Corp. Counsels

Liability Protection/ Civil Immunity Tax Incentives for Clean-ups SAG and other grant programs LGU Cause of Action – Strong Tool Laws to Help Counties! Talk with DNR for Assistance. Talk with other counties to share

experiences!

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Example Brownfield Redevelopment Projects

By Bruce Keyes

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Why should I take the first step?

Pros

Smart growth Infill efficiency Tax base It’s the right thing to do Com m unity health Availability of responsible parties Conditions w orsen over tim e

What keeps me from acting?

Cons Low value of land Low demand/ economy Potential costs High brain damage

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The “Brownfield” Deal – Categories of Properties

Market driven – intrinsic value is greater than

impairments – redevelopment occurs with no additional intervention

Marginal – environmental, geotechnical, site or

• wnership issues – market driven as costs reduced
• r values increased

Brownfields – environm ental and site problems are

so great that property will not be redeveloped without a major infusion of public or responsible party funds

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Clintonville - Wisconsin Clock

Tax delinquent Suspect contamination Asbestos deteriorating EPA assisted with removal action Tax enhanced elderly housing

developer interested in site

Lisa Kotter – the City champion

Clintonville

Grant Funds County Funds In-kind Contribution by City Phase II 2,000.00 $

• $

2,000.00 $

• $
• $
• $

Phase II 18,000.00 $ 18,000.00 $

• $
• $

9,000.00 $ 9,000.00 $ NR 716 Investigation 30,000.00 $

• $
• $
• $
• $

30,000.00 $ Demolition 95,000.00 $ 64,799.00 $

• $

30,000.00 $

• $
• $

Asbestos Abatement 60,000.00 $ 17,000.00 $

• $
• $
• $

43,000.00 $ Petroleum Tank 5,000.00 $

• $
• $
• $
• $

5,000.00 $ Payment/Cancellation of Deliquent Taxes 55,000.00 $

• $

55,000.00 $

• $
• $
• $

Acquisition Cost

• $
• $
• $
• $

100,000.00 $ (100,000.00) $ Site Maintenance 2,000.00 $

• $
• $

2,000.00 $

• $
• $

Legal 45,000.00 $

• $
• $
• $
• $

45,000.00 $ Inventory & Equipment Sales

• $
• $
• $
• $
• $
• $

TOTALS 312,000.00 $ 99,799.00 $ 57,000.00 $ 32,000.00 $ 109,000.00 $ 32,000.00 $ Mortgage

• $

U.S. EPA Costs

• $

TOTALS

• $

** City Costs & (Revenues) Current Sources and Uses Estimate Redevelopment Project

Buyer Funding Liens Total Cost Total Cost (Estimated) Description City General Funds State & Local SAG Funding

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Central Wisconsin Site

Industrial Park Bankrupt prior owners/ causers Low intrinsic value But…

Contamination is spreading Proactive current owner Located user for site Strong support from state

Racine

Obsolete structures

But favorable economics on demolition

Interim user until redevelopment is

ripe

City controlling cleanup schedule Environmental issues not as bad as

feared

Final remedy will be implemented in

context of redevelopment

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Lessons learned

The best solutions come when there

is a viable seller – don’t let it become a brownfield!

Identifying an end use is helpful; Every project will have heroes and

villains

The heroes get projects done despite

the villains

Lessons learned

True Brownfield deals are very complex

and take time

There are resources at your disposal-

EPA, DNR, Commerce, and statutory tools (condemnation, cost recovery, foreclosure, etc.).

Any of the “tools” will work for small

projects

The right project team is worth its weight

in gold.

The transaction costs can total 30% of

project cost

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Budget – $14M Project $3.5M Extraordinary Costs

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Additional Lessons Learned

Developers often need certainty; If not certainty, then a commitment

and confidence in their public partner;

What Tools are Available to Help Counties? By Dan Kolberg

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Wisconsin’s Brownfields Initiative

Assisting local Governm ents ( incl. cos.) w ith the reuse

• f properties.

Goals of BF Initiative

Help LGUs to understand that they

are the key to successful redevelopment

Encourage more parties to cleanup

their properties

Move properties through system

quickly

Achieve redevelopment without

sacrificing public health and environmental protection

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Legal Tools for Cleanup and Redevelopment

Liability Exemptions (ss. 292.11 & 292.23

SS.)

Ability to Recover Costs (s. 292.33 and

292.35 SS.)

Civil Immunity (s. 292.26, SS.) Delinquent Property Tax Tools

Inspection Authorities (Chs. 66 and 75, SS.) Cancellation of Taxes (s. 75.105, SS.) Assignment of Foreclosure Judgment

(s. 75.106, SS.)

County Property Transfer (s. 75.17, SS.)

Overview of the LGU Exemption

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Overview of the Exemption

Eligible acquisition includes:

• tax delinquency
• bankruptcy proceedings
• condemnation
• eminent domain
• escheat
• slum clearance or blight

elimination

• using Stewardship funds, if

signed cleanup agreement

VOLUNTARY PARTY LIABILITY EXEMPTION (VPLE)

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Who can enter the VPLE Process?

Any person who submits application and pays fees. A person may be an individual, business, developers, or government unit A contaminant release must be documented on the property

What must a VP do?

VP is required to:

• Investigate

property & discharges that migrate off-site

• Remediate

discharges

• Maintain property

as required

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What is reward at end of VPLE process?

Certificate of Completion:

• Awarded once DNR approves site

investigation and cleanup.

• Provides “finality” to person’s liability.
• Exempt from spill law and certain

provisions in other state laws.

Local Government Cost Recovery Tool

A tool to give local governments clear authority to recover environmental costs.

(s. 292.33, Stats.)

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Local Government Cost Recovery Tool

How does it work?

• Property must be

acquired through:

– escheat – condemnation – slum or blight – stewardship funds – tax delinquency – bankruptcy

Local Government Cost Recovery Tool

What costs are recoverable?:

• investigation
• remediation
• administration, except

legal fees

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Local Government Cost Recovery Tool

Who can LGUs recover costs from?:

• persons who caused

contamination, &

• last owner of property

(in this order…)

Tax Issues

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Cancellation of Delinquent Taxes

• Law (s.75.105, Stats.) allows Counties and

City of Milwaukee to cancel all or portion

• f back property taxes if:

– property is contaminated – purchaser enters into an agreement with DNR to cleanup property

Transfer of Tax Delinquent Property to Municipality

Under law (s. 75.17, Stats.), County must transfer property to municipality for no consideration if:

– Municipality makes written request – Property is contaminated – Request occurs within 2 years of redemption period – County does not want to take title

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Assignment of Contaminated Tax Delinquent Property

• Applicable to in rem foreclosure process
• County or City of Milwaukee pursues

foreclosure on tax lien

• Proposed new owner must enter into

agreement with DNR to cleanup property

• Court assigns judgment for tax delinquent

brownfield to new owner

Liability Clarifications, Exemptions and Assurance Letters

Letters to limit the liability of public and private parties at brownfields:

Local Government Liability Letters Voluntary Party Liability Letters Lender Liability Letters Off-site Exemption Letters Negotiated Agreements Assurance Letters (s. 292.55 SS.)

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Negotiated Agreement

• Legal contract among one or more parties,

including DNR

• Clarifies legal & environmental

responsibilities: ‘Who does what’

• Establishes an agreed upon schedule
• Good tool for complicated transactions

Green Team Meetings

Green team meetings:

multi-agency help

sessions

aimed at starting

project on positive note

identifying roles &

responsibilities

assist with problem-

solving

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Financial Tools Available for Cleanup and Redevelopment

Brownfield Site Assessment Grant (SAG) Brownfields Green Space and Public Facilities

Grant

Commerce Brownfield Grants US EPA Grants and Loans Land Recycling Loan Environmental Remediation Tax Incremental

Financing (ER TIF) & Tax Incremental Financing (TIF)

Stewardship Funds Dry Cleaner Environmental Fund / PECFA Federal Tax Deductions for Remediation

Where’s the Information?

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Five DNR Regions

Northern West Central South Central Southeast Northeast

Need More Info?

(Contact your Regional DNR Office, or…)

Web Site: http://dnr.wi.gov/org/aw/rr / (Includes BRRTS and RR Sites Map to track

• contam. Sites)

http://dnr.wi.gov/org/aw/rr /clean.htm

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So, you’ve found a property...

Before you proceed, you need to:

understand your liability

and acquisition options – talk w / DNR

find financing estimate scope of

necessary environmental work

establish partnerships TALK w ith DNR!!!

Managing the Public Private Partnership!

By Bruce Keyes

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Multi-Party, Multi-Parcel Transactions

• Conventional transactions are

between a buyer, a seller and financing partners

– New variations on tradition have arisen in an effort to foster redevelopment

• Public/funding role
• Campus development teams
• Sellers of contaminated property taking equity

positions to maintain long-term control

Common Issues

• Allocating budget
• Controlling liability
• Making sure the project is built
• Profitability for developer
• Public purpose for municipality

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Public Cooperation

• Many developers feel a municipality

will be more cooperative in processing applications, issuing permits, etc. if the municipality or campus development team is a partner in the project.

Environmental Cleanup – Common Issues

• How clean is clean? The developer may not

be around in 10 years.

• The “Partner” (such as a municipality, an

institution or an industrial corporation/former owner) will be around and may represent a deep pocket.

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Environmental Cleanup – Common Issues

• Maximizing contributions:

– What entity can use tax credits? – Grant eligibility may depend upon lack of availability of a responsible party - reflected in foreclosure, bankruptcy, etc., but once property is acquired, new owner may be seen as RP. – Tax treatment and expensing of remediation costs.

Environmental Cleanup – Common Issues

• Budget

– Budget allocation – In multi-phase development, developer will want budget front

• loaded. Partner will want budget back loaded to

assure performance. – Maximizing contribution from historic property insurance. – Municipal cost recovery authority may be broader than private party cause of action.

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Are You Afraid of Commitment?

• Development Agreements – striking an

appropriate balance

Development Agreements – Striking an Appropriate Balance

• Developer must agree to build

something specific in a specific timeframe

• Provide a detailed, property-specific

and flexible means of land use planning and control

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Development Agreements – Striking and Appropriate Balance

• Convenient framework to

coordinate the rights and responsibilities of various public and private parties

• Commits public entities to specific

course of action

Developer Requirements

• Financial Requirements

– Public participation: often share of cash flow; probably necessary to gain political support for project

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Developer Requirements

• Financial Requirements

– Evidence of financial capacity to construct and operate project

• Loan commitments from lenders
• Personal financial statements. Limit to

extent possible, especially with open records law

• Operating pro formas – Caution: May be

used for tax assessment

Developer Requirements

• Financial Requirements

– Guaranties of tax incremental financing

• Developer can only control what is built – i.e.,

guaranty of minimum assessed value;

• Especially dangerous if the uniformity clause is

modified (e.g., multifamily residential taxes may decline and fall short of TIF projections)

• Not an issue with developer financed TID

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Developer Requirements

• Regulatory or policy requirements

– Disadvantaged business enterprise requirements – Employment density or job creation minimums – Sustainable development guidelines

Sustainable jobs, sustainable development

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Developer Requirements

–Municipalities may challenge certain terms as improper developer incentives

• Overstated construction estimates
• Overstated financial costs
• Understated revenue projections
• Overstated or unnecessary construction and

financing reserves

• Overstated soft costs
• Public funds (infrastructure) used for private

purpose

Development Agreements

• Forms of development agreements

– Preliminary development agreements – Agreement to undertake development

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Terms and Conditions of Development Agreements

• Zoning approvals
• Architectural plans and specifications
• Construction contract
• Construction financing
• Permits
• Title
• Guaranties
• Project timetable
• Project costs

Development Agreements – Guaranties Sought by Municipalities

• If title is to transfer, municipality

might retain title until conditions met

• Assignment of all documents and title

to land to an escrow agent to ensure construction of project

• If title does pass initially to the

developer, reversionary clause to assure completion of project and/or deed restrictions encumbering the use

• f land during respective period

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Development Agreements – Guaranties Sought by Municipalities

• Performance bonds: Developer

and contractor – costly to each

• Irrevocable letter of credit: Less

costly

• Personal guaranties: May be

limited

• Mortgage on land in favor of

municipality

• Phased municipal participation

Development Agreements – Guaranty of Tax Increment

• Development of project to certain

specifications

• Restrictions on use of project during life of

TIF district

• Waiver by developer of right to challenge

tax assessments if below estimates needed for increment

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Development Agreements – Municipal Concerns

• Require developer to contribute equity

before the municipality contributes money

• When municipal money is contributed,

the municipality wants to ensure that:

– The developer needs the money – The project is built – The project remains in existence throughout the payback period – Public benefits are realized

Development Agreements – Developer Conditions

• Make all obligations conditional, with

developer having trigger

• Allow developer to tie up municipality

while taking financing packages to market

• Require municipality to undertake all

necessary or helpful actions for project

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Developments Agreements – Developer Conditions

• Cooperate with developer in dealing with

all other governmental authorities

• Accept dedication of public improvements

when completed

• Make a good faith effort to reach an

appropriate agreement regarding modifications necessitated by changing circumstances

THE END

(for now!) Contact DNR to Discuss Your New Projects or Questions!!!