Great discussion to have going, and we need to keep it up, since the
issues raised are centralto brownfields policy-making, not just to the
specific issues of brownfield program policy revisions in New York. (I
should note that the discussion is tied to one we had earlier on this
listserv, dealing with appropriate allocation - tarting if you will -
of brownfields subsidies and assuring what our British cousins call
"value for money" in public spending to promore bropwnfield mitigation
and reuse.)
Some reactions to the comments since Larry so kindly shared preliminary
findings with us - -and on Larry's initial and later observations:
(1) The data collected, while better than gathered by most states that
provide some incentives (even if only in the form of some limited
liability relief with no cash attached), are not fully adequate to
determine the "effectiveness" of the NY program. (Note, I put the term
in quotes because, as others have commented, it can easily mean
different things to different stakeholders, as Lee has noted so well.)
Two glaring gaps stare me in the face:
(a) The characteristics of the neighborhood in which each
project is undertaken, including the local real estate market, the
socioeconomic condition of nearby residents, and the land use mixes
adjacent to, or near, the site; and,
(b) the extent to which any contaminated sites are being
mitigated and reused in the state without bothering to go through the
BCP (and, perhaps more importantly, the extent of brownfield cleanup
and redevelopment that took place in New York prior to the passage of
the law and provision of tax credits for attaining a CoC.
-- the first has implications for the question of the community
benefits, and, perhaps most importantly, for the extent to which the
available quantitative measures that Larry provided to us are adequate
proxies for those benefits, as Bruce suggests, or fall short, as Peter
has argued.
-- the second relates to the question of 'additionality' -- the
additional investment generated by the BCP as compared to what would
have happened in its absence. This is always hard to predict, but it
brings me to my second point.
(2) Larry states that, " In region 2 alone (which is where NYC is
located), it looks like the BCP has generated at least $100MM in
cleanup costs." I assume his numbers accurately show at least $100MM
spent on cleanup by projects in the BCP -- but that does not mean we
can conclude that NONE of them would have taken place without the
incentive. This is an especially problematic assumption in a high value
real estate context, where, as he also noted, the cleanup cost was a
smaller fraction of total redevelopment project cost than was true in
less positive real estate market contexts upstate -- so the incentive
has less value as a proportion of project cost than elsewhere (and the
investment reward to mitigating is vastly higher).
(3) The transaction costs to get into the BCP, ranging from $25,000 to
$50,000, actually range from astronomical to insignificant to the
developer, depending on the project scale. (I don't know how time
enters into the transaction cost calculation Larry and his
collaborators made, but it can be a significant factor, even if not
monetized in terms of carrying costs for debt incurred.) For those
upstate projects where mitigation was 40% of project costs, the
transaction costs might well have exceeded the value of the tax credit
by the time all timing factors are taken into consideration, but
$50,000 is not a major factor to a project with cleanup costs in the
millions.
(4) Bruce is completely correct in reminding us that tax credits ARE a
public expenditure (albeit a smaller on than fully publicly funded
cleanups), but his suggestion that we maximize leverage in prioritizing
allocation of tax credits to generate redevelopments means that the
projects for which the credits are a tiny percentage of total project
will score the highest -- and those may well be the projects that would
have gone forward with ZERO financial subsidy in those cases in which
the return on investment involves such superprofits that the deal might
have gone through even without liability releif. That is NOT generating
value for money,even if it is generatign the highest paper levwrage.
(5) The issue of job creation versus investment leveraged is a
problematic one for brownfields and other publicly supported property
development projects. Larry gives us some numbers for the NYC projects,
and accurately notes that the permanent jobs created will be lower for
residential than other types of property reuse. Lee adds the question
of the accuracy and reliability of the "new jobs" generated. But no
one in this discussion has dealt with the basic issue with this
measure: whether the jobs are new or simply relocated? Is the
redevelopment project genuinely additional construction that would not
have taken place otherwise -- or is the brownfield redevelopment taking
place at the expense of some alternative construction project at the
edge of an urban area? There may or may not be new construction jobs
involved, depending on the answer to this question -- and the answer
may not be obvious. Then, with respect to the permanent jobs, the same
point applies: if the new project has generated Class A office space --
or new retail premises -- are the jobs on site NET new jobs, or merely
jobs that have relocated from less attractive premises elsewhere? The
jobs generated ON SITE may be completely accurately reported,
notwithstanding Lee's fears, but may still distort our understanding
of the value of the project.
(6) Larry's explanation of why his team looked at cleanup cost relative
to project cost makes a lot of sense, since the proportion itself is
not necessarily a meaningful measure -- and one can well believe that
the percentage alone would not be a measure of the extent of cleanup.
(In the superprofit case I offered as an example above, a more complete
cleanup would be more readily affordable than in a mor marginal
project.) The problem he posed with respect to a more thorough
excavation than required by the state that might be undertaken to gain
extra prospective liability protection (arguably an implementation of
the Precautionary Principle by a developer) is resolvable for the
purposes of tax credits by simply stating that the credits can only be
claimed for costs consistent with satisfying state minimum requirements
....
My problem with his discussion of the difference between a large
and small cleanup job is his claim that, "the massive cleanup
at a large project poses significantly more risk to a developer because
of uncertainty of costs, the numerous variables that can change the
scope of the cleanup and the associated project delays which can be
extremely costly than a site where there are less variable and less
things to go wrong since the developer only has to pull out some
tanks, remove contaminated soil and do some groundwater monitoring for
a few years."
-- if this statement were true, then there would be little
explanation for the retreat of the insurance industry from the
provision of cleanup cost cap coverage for projects with site
mitigations projected to cost under $1 to $2 million. Coverage for
smaller cleanups is less available because the potential for cost
overruns is so high, and the overruns can be so great relative to the
estimated mitigation costs. In other words, the percentage cost overrun
possibly associated with just pulling tanks, removing contaminated soil
(how many cubic yards of contaminated soil?), and engaging in
groundwater monitoring (for how many years? how many wells?) appears,
from the behavior of insurance underwriters, to exceed that associated
with $20+ Million cleanups.
(7) Larry's sliding scale argument in his second e-mail, suggesting
that the tax credit might be variable depending on the intended land
use, appears to suggest that he sees the potential for community
benefits not captured by ratios or quantitative measures, but by land
use types. The question for state policy as New York revisits the BCP,
is whether the criteria for what earns the most on the sliding scale
should be dictated/determined by the state, or whether localities
should have some voice in stating what their preferences/priorities are
for intended land uses on certain sites. (It is easy to think of a
depressed area that has suffered outmigration for which new retail
premises to promote better local shopping options would be a higher
priority than additional low income housing. ...)
(8) I can recommend Kris Wernstedt's piece to you as a useful look at
how others have tried to address some of the measurement problems this
listserv has started to discuss.
... but now I have to go and read that report that Marty told us about
... while I wait to see how I get clobbered for the comments above.
Best to you all, and let's see if we can't collaboratively build a
better mousetrap in New York,
Peter
- - - - - - - -
Peter B. Meyer
Professor Emeritus of Urban Policy and Economics
Director, Center for Environmental Policy and Management
School of Urban and Public Affairs
University of Louisville
- - - - - - - -
Director of Applied Research
Institute of Public leadership and Public Affairs
Northern Kentucky University
- - - - - - - -
President, The E.P. Systems Group, Inc.
Senior Advison, E2 Inc.
Managing Member, Ecofun, LLC
- - - - - - - -
cell +1-502-435-3240
phone +1-859-491-9298
- - - - - - - -
3205 Huntersridge Lane
Taylor Mill, KY 4101
USA
|
_______________________________________________
Brownfields mailing list
Brownfields@list.cpeo.org
http://www.cpeo.org/mailman/listinfo/brownfields
|