NYSDEC Proposes New Definition of “Underutilized” for Tangible Property Tax Credits at New York City Brownfield Sites

On March 9, 2016, the New York State Department of Environmental Conservation (NYSDEC) proposed a new definition of an “underutilized” site for purposes of claiming tangible property tax credits for sites in New York City under the New York State Brownfield Cleanup Program (BCP).

As noted in prior blogs, the 2015 amendments to the BCP established new restrictions on the ability of sites in the five boroughs of New York City to obtain tax credits related to expenditures for site improvements. One of the criteria which would allow a site to qualify for such credits was that the site be “underutilized.” That term was left undefined by the Legislature, with instructions to NYSDEC to finalize a definition by October 1, 2015.

NYSDEC proposed a definition in June and held a hearing on its proposal on July 29 in New York City. The proposal attracted many comments, including those submitted by the New York State Bar Association’s Environmental Law Section, the New York City Brownfield Partnership, the Real Estate Board of New York, the South Bronx Overall Economic Development Corporation, and New York City. Most of the commenters strongly criticized NYSDEC’s proposed definition as being unworkable and unduly restrictive as to the types of sites that would qualify.

NYSDEC subsequently withdrew its proposed definition and has spent the last several months revising it. The results of that process are reflected in NYSDEC’s new proposal.

The revised proposal is a marginal improvement on the earlier definition. It reduces the time period during which a property must have been “underutilized” and removes the requirement that such underutilization be certified by the municipality in question (i.e., New York City). It softens the absolute prohibition on residential uses contained in the earlier proposal, but only slightly – the site use must be at least 75% commercial or industrial. For sites which are not at least 75% industrial, it retains the requirement that, in order to qualify as “underutilized,” development of property must require substantial governmental assistance. It also retains, for such sites, requirements relating to non-payment of taxes or structural deficiency of onsite buildings.

While the revised proposed definition is somewhat less Draconian than NYSDEC’s prior proposal, it is still extremely restrictive. Furthermore, it relies in part on criteria that have nothing to do with whether a site is currently underutilized – e.g., whether the proposed future use of the site is commercial or industrial. Those criteria, among others, will make the proposed definition subject to legal challenge as being impermissible policy-making on the part of NYSDEC.

The revised proposed definition will be subject to public comment through April 8, 2016. Comments should be submitted to Michael Ryan, NYS Department of Environmental Conservation, 625 Broadway, Albany, NY 12233-7011 or by email to derweb@dec.ny.gov.

David J. Freeman is a Director in the Gibbons Real Property & Environmental Department.
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