As North Carolina transitioned to a 21^st-century economy, many former industrial and commercial sites were left behind. These sites, often former factories, mills, and fleet maintenance locations, may have soil or groundwater that has been contaminated by one or more hazardous substances. These sites, called “brownfields,” often remain undeveloped or underdeveloped even when they are in favorable locations. This blog examines what keeps these sites from being redeveloped and how federal and state government programs can help local governments and economic development officials overcome the obstacles blocking redevelopment. In addition to this post, Planning and Zoning Law Bulletin #34, titled Redeveloping Polluted Property: A Primer for Local Government and Economic Development, covers similar material in greater detail.

So what holds back brownfields sites that otherwise would be attractive for redevelopment? The answer is often potential liability and cost associated with soil or water contamination. State and federal laws can impose liability on a subsequent landowner even if they did not cause the original contamination. Consequently, even innocent landowners are incentivized to investigate and address contamination they find on their land. The risk, cost, and delay that comes with assessing and cleaning up environmental contamination may dissuade many from acquiring or developing an otherwise appealing property, but these properties often just need a nudge to unlock their potential. This nudge can come in the form of brownfields redevelopment assistance programs. To help owners of brownfields overcome the challenges associated with contaminated property, both the United States Environmental Protection Agency (US EPA) and the North Carolina Department of Environmental Quality (NC DEQ) operate brownfields redevelopment assistance programs.

US EPA Brownfields Assistance Grants

The federal and state programs differ substantially in their approach. US EPA offers a series of grants to government and nonprofit organizations to defray the costs of assessment, cleanup, and related activities. These grants are offered on a yearly cycle and include grants for (1) property assessment, including “community-wide” assessments that cover multiple sites; (2) cleanup of contaminated properties; (3) multiple purposes, including both assessment and cleanup actions; and (4) revolving loan funds that can even be used to finance private projects; among others. US EPA awards these grants in one cycle per year. This makes careful planning and alignment of the project timeline with the grant cycle an important part of leveraging US EPA grant assistance. US EPA brownfields grants have been important to the success of recent brownfields redevelopment projects in Wilmington (for assessment as part of a community-wide grant) and Raleigh (for assessment and cleanup), as well as an ongoing project in Salisbury (for assessment, remediation, and planning).

North Carolina Brownfields Program

NC DEQ, on the other hand, operates a program that focuses on limiting the potential risk of regulatory liability rather than direct payment. The North Carolina Constitution generally does not permit government entities to make gifts or provide financial aid (like assessment and remediation grants) to private enterprises (for more on this topic, see my colleague Tyler Mulligan’s blog post When May NC Local Governments Pay an Economic Development Incentive?). Accordingly, the state program must look to other methods for encouraging or facilitating brownfields redevelopment. The North Carolina Brownfields Program does so through a brownfields agreement between the developer of the property and NC DEQ.

The brownfields agreement is an agreement between NC DEQ and the prospective developer of the property that describes the contamination or potential contamination on the property and describes both the benefits the prospective developer will receive from NC DEQ and the obligations the prospective developer must undertake to remain in compliance with the program. If the prospective developer does not meet its obligations, it may lose out on the benefits described below.

When the developer and NC DEQ enter into a brownfields agreement, the property becomes entitled to the following three benefits: a property tax exclusion, a limited shield from regulatory liability, and the opportunity to pursue cleanup that is tailored to the needs of a particular site and project. Each is addressed in turn below:

• The partial property tax exclusion starts at 90% of the value of improvements made and drops to 75% in the second year, 50% in the third year, 30% in the fourth year, and 10% in the fifth year. Readers interested in understanding more about property tax exclusions and exemptions are encouraged to check out my colleague Chris McLaughlin’s recent post Property Tax Exemptions for Community & Economic Development and his 2018 post on Combining Multiple Property Tax Exclusions.
• The limited liability shield protects the prospective developer from liability for any contamination identified in the brownfields agreement. This removes a significant area of risk and cost associated with brownfields sites.
• The default regulatory standards for soil and groundwater cleanup are called “unrestricted use” standards and are designed to protect the most sensitive populations from maximum exposure to contaminated soil and water. These standards might be necessary for a residential use where residents will spend most of their day inside, children and pets will play in direct contact with the soil, and wells could tap into on-site groundwater. However, a commercial warehouse built on a slab might be just as safe for its intended use with an agreement that limits the permitted uses of the property and prohibits the use of on-site groundwater. This is the theory behind risk-based remediation, which (when properly applied) can significantly reduce cleanup time and cost without jeopardizing public health and safety.

Challenges and Keys to Success

Although each of these brownfields programs can offer significant benefits and frequently unlock the redevelopment of sites that can otherwise seem unattractive or even prohibitive for redevelopment, these programs have their own challenges and are not suitable for all contaminated sites. For instance, even with assistance, brownfields sites may involve costs and time demands beyond that of greenfield sites. In addition, each of the federal and state programs comes with some restrictions on property use or redevelopment operations. Any brownfields redevelopment project must anticipate and plan for these challenges. For instance, a project that seeks US EPA grants will need to make sure that its timeline will not be significantly impaired by having to wait for grant funds to be awarded and disbursed. The time and cost of pursuing a North Carolina brownfields agreement would need to be weighed against the property tax exclusion, and operating procedures would need to ensure compliance with land use restrictions and reporting requirements.

When a brownfields project is carefully planned and is coordinated with public (and often private) stakeholders, federal brownfields grants and state brownfields protections can help turn sites that seem like (or literally are) dumps into economic engines. Some common threads from recent successful projects include a site that would be valuable but for environmental contamination, coordination with other governmental and with private development partners, and careful planning to incorporate the additional time and cost involved in brownfields assistance programs. A few recent examples of successful brownfields projects include an abandoned factory site in Garner that has become a major distribution center thanks to early government action; a run-down parking deck and former industrial site in Wilmington that has been replaced with a mixed-use downtown development thanks to a public-private partnership; a former manufactured gas plant near the waterfront in Washington that has been reclaimed as a new police center; and a Raleigh bus depot that has become a fashionable food hall thanks to use of state and federal programs, as well as a private development partner. Each of these projects took a slightly different path to success, but each successfully leveraged state or federal brownfields opportunities, and several took advantage of public-private partnerships. These examples and more details of the relevant state and federal law are discussed in Planning and Zoning Law Bulletin #34, titled Redeveloping Polluted Property: A Primer for Local Government and Economic Development.