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Brownfields Redevelopment Tax Incentives for Preservation Projects
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Rehabilitation projects, especially those that involve rehabilitating and repurposing older industrial buildings, often run into contamination issues. Over the years, chemicals from former mills and factories soaked into the ground and leaks from underground storage tanks contaminated the surrounding soil. Cleanup costs for these industrial sites can be daunting. And understanding how to negotiate brownfields-related landmines, especially related to liability and regulatory issues, can be challenging. However, there are opportunities to enhance the project’s financing by using brownfields-related incentives. By combining these incentives with federal and state historic credits, developers have been able to bring new life to older industrial projects and the surrounding community.

This article explores corporate and income tax incentives for brownfields redevelopment and discusses how these incentives can be layered with rehabilitation projects to provide multiple public benefits.

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Brownfields-Preservation Synergies

Former mills and industrial lofts are often excellent candidates for projects that combine brownfields elements with preservation. Many of these buildings are outmoded relative to their original use; however, they are often attractive for new residential or commercial uses because of engaging architectural elements and locations adjacent to residential or commercial corridors, often near rivers or canals. The Environmental Protection Agency (EPA) paid particular attention to the tie-ins between brownfields and mill projects in preparing a 2006 report, Revitalizing America’s Mills. The report found that 351 former mills had benefited from EPA site assessment or cleanup funds. Some other indications of the brownfields-preservation overlap:

  • ■   Baltimore: A review of the Baltimore Development Corporation’s brownfields “site pipeline, 1997–2005” revealed that 9 out of 23 completed or under construction brownfield projects were also preservation projects, and at least 6 of those 9 projects benefited from the federal and state historic tax credits. It might be noted that the Maryland historic tax credit was the single most important urban redevelopment incentive (for both brownfield and non-brownfield sites) in Maryland up until 2002, when the state began to institute a series of restrictive project ceilings and an overall program cap.

  • ■   Missouri: Missouri tracked the funding sources for 50 brownfield projects from 2000 to 2009. Researchers found that 9 of the 50 projects used state and federal historic tax credits, totaling $86 million in tax credit subsidies and comprising 30 percent of all public dollars going into the brownfields inventory.

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Brewer’s Hill in southeast Baltimore is one of at least six Baltimore brownfield projects that also benefited from historic tax credits. Brewer’s Hill is a $120 million mixed-use project, featuring 2 million square feet of green/energy-efficient commercial space.

Photo: Brewer’s Hill, LLC

The limited evidence is that between one-fourth and one-third of brownfields projects are also rehabilitation projects, and that around 20 percent of brownfield projects are being assisted by state and federal historic tax credits. I have yet to find information as to the reverse, i.e., the number of preservation projects that are also getting brownfields assistance, but one might speculate that the same proportions hold: At least 20 percent of historic tax credit projects are also getting brownfields incentives.

Brownfields incentives that might come into play in these industrial conversion projects include grants and loans, property tax abatement, tax increment financing, and tax credits. This article will explore opportunities for preservation projects to take advantage of brownfields tax credit incentives. In general, developers view tax incentives as the most advantageous of these various incentives, because they are usually designed to be fairly predictable and automatic, involving less delay, uncertainty, and bureaucracy than grants and loans.

Preservation planners’ reference point on tax incentives is the federal historic tax credit, which many states supplement with their own parallel programs. These state historic tax credit programs differ from each other on many critical details (transferability, statewide caps, per project caps, etc.), but there is usually considerable commonality with the federal tax credit in relation to eligible projects, eligible expenditures, and procedures to get the certification. Unfortunately, there is not a parallel federal brownfields cleanup tax credit program, and, with nothing to mirror, the states that have adopted brownfields tax credits have done so...

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