April 2004
The Metropolitan Corporate Counsel
Page 11
Restoration And Redevelopment Of Urban Rivers:
Averting A Paradigm Shift
William H. Hyatt
and Jennifer L. Allaire
KIRKPATRICK & LOCKHART LLP
I. Introduction
For years, attention has been focused on
returning old abandoned industrial properties
to productive use.1 These “Brownfields”
properties are common throughout the industrialized areas of the country.2 In 1987, the
United States Government Accounting Office
estimated that anywhere from 130,000 to
425,000 sites throughout the nation contain
some amount of contamination.3 More
recently, the estimate has risen to 450,000 to
600,000 Brownfields sites nationwide.4
Restoring Brownfields can produce multiple benefits for the community, not only eliminating blight on the surrounding areas, but
also providing increased real property tax
revenue, job creation and economic stimulation. The benefits to communities become
more pronounced when the Brownfields
property is located on prime real estate with
attributes that make the property attractive to
commercial developers, such as proximity to
markets, transportation and labor.
Frequently, however, damages to natural
resources on Brownfields properties, including property along urban rivers, is attributable to historic contamination.5
Inevitably, the rehabilitation of urban
rivers, including containment of sources of
contamination adjacent to those rivers and
collection of natural resource damages will
result in tension between the movement to
restore Brownfields properties and collective
efforts to rehabilitate urban rivers and collect
related NRD. The challenge is to identify
approaches that accommodate both programs
and prevent a paradigm shift that interferes
with, or even defeats, one of the programs.
II. Tension Between “Brownfields”
Redevelopment And New Environmental
Initiatives May Cause A Paradigm Shift
A. Brownfields Redevelopment
Federal and state laws provide financial
and legal incentives to Brownfields redevelopment.6 At the federal level, the Small Business Relief and Brownfields Liability Act
(“Brownfield Amendments”), 7 formally
authorized landowner liability protections
and funding mechanisms are designed to
facilitate the redevelopment of Brownfield
properties.8
Brownfields incentives lessen the financial and legal risks of acquiring and redeveloping contaminated properties.9 The impact
of Brownfields incentives has been positive.
Many communities have witnessed revitalization. The direct impacts include an
increased tax base for economically disadvantaged communities, decreased reliance on
“greenfields” and more immediate resolution
of environmental problems at contaminated
properties. Clearly, these incentives are working and a paradigm has developed in which
transactions involving contaminated properties do not pose uncertain risks.
B. Urban River Restoration Initiatives
Pursuant to the requirements of the Water
Resources Development Act (WRDA) of
1992, the United States Environmental Protection Agency (“USEPA”) identified ninetyWilliam H. Hyatt is a Partner and Jennifer
L. Allaire is an Associate at Kirkpatrick &
Lockhart LLP, resident in the Newark, NJ
office. Mr Hyatt chairs the firm’s Environmental and Natural Resources Practice
group, of which Ms. Allaire is a member. Mr.
Hyatt may be reached at (973) 848-4025. Ms.
Allaire may be reached at (973) 848-4021.
six watersheds that pose potentially significant risks to human and environmental
health.10
Urban rivers frequently suffer from high
levels of sediment contamination, despite
efforts to address the pollution sources contributing to such contamination. Restoration
of urban rivers affected by sediment contamination is complicated, given the number of
responsible parties, the interests of surrounding communities and authorized government
agencies, as well as the complexity and
expense of restoring contaminated sediments.
The URR Initiative seeks to remedy the
problems associated with the restoration of
urban rivers. Utilizing the cost-sharing provisions of the WRDA of 1986 in conjunction
with CERCLA’s restoration provisions, the
Army Corp of Engineers (“ACOE”) and the
USEPA work together to complete the
restoration of urban rivers,11 the goal being to
utilize WRDA’s cost-sharing projects to provide effective and timely environmental
restoration of the most contaminated urban
rivers.12
More specifically, the URR Initiative
implements the ACOE’s project development
process through WRDA’s environmental
restoration authorities, in cooperation with
the USEPA, natural resource trustees
(“Trustees”), local entities, and potentially
responsible parties under CERCLA.13 This
venture may provide the most viable means
of resolving sediment contamination, which
requires a watershed approach.
C. Natural Resource Damage
Natural resource damage (“NRD”) has
been referred to as a “sleeping giant.”14
Although liability for NRD has existed under
state and federal law for decades, only
recently have widespread efforts been taken
by Trustees to assert claims for NRD.15 The
process of assessing the value of natural
resources and then compensating for the loss
or damage to such natural resources is a difficult task, wrought with economic, legal and
technical issues.
Redevelopers who are not responsible for
historic releases that damaged natural
resources should have limited, if any, exposure to liability for NRD under federal law, as
the federal NRD assessment regulations
incorporate a causation requirement for
recovering damages. Those regulations provide: “a natural resource trustee . . . may
recover: [d]amages . . . calculated based on
injuries occurring from the onset of the
release through the recovery period, less any
mitigation of those injuries by response
actions taken or anticipated, plus any increase
in injuries that are reasonably unavoidable as
a result of response actions taken or anticipated.”16
Nevertheless, the potential for NRD exposure will likely have a negative impact on
redevelopment along urban rivers within the
URR Initiative and thus force redevelopers,
as well as Trustees, to assess the impact of
redevelopment on the natural resources.
D. The Potential Paradigm Shift
Despite the existing paradigm in which
the redevelopment of contaminated properties is encouraged, the URR Initiative and
associated efforts to bring NRD claims have
the potential to shift that paradigm. Both initiatives have the potential to increase uncertainties associated with the redevelopment of
contaminated properties along urban rivers.
So how will this uncertainty affect
Brownfields redevelopment? The total anticipated cost of a real estate transaction determines whether the transaction is viable,
increased uncertainty would decrease the cost
and viability of a transaction.
First, under the environmental liability
schemes of federal and state law, redevelop-
ers risks are being held jointly and severally
liable for contamination on their property,
although the contamination preceded their
ownership. Although the laws provide for
contribution from other responsible parties,
redevelopers cannot be assured of full or even
partial recovery of their expended cleanup
costs. Further, the cost of contribution litigation can be prohibitive.
Second, the time necessary to conduct
restoration of natural resources would delay
redevelopment and natural resource restoration would not necessarily be based upon
intended use. Additionally, the requirements
necessary to secure a no further action determination from the authorized regulatory
entity are not always outlined in advance.
Another uncertainty is an apprehensive
regulatory environment. The uncertainties
related to the technology for restoring urban
rivers and establishing the value of natural
resources will be exacerbated if the authorized
regulatory entities are unsure of a program’s
objectives and the process for implementing
that program. Thus, regulators may delay
decision-making to avoid the precedential
effect of an erroneous decision.
These uncertainties increase the projected
cost of a redevelopment project. Any
increased risk in Brownfields redevelopment
will decrease the likelihood that a redeveloper
will be able to obtain the necessary financing
and thus, decrease the viability of a Brownfields redevelopment project.
III. Averting the Paradigm Shift
In order to avert a potential shift away
from Brownfields redevelopment, parties
interested in redeveloping contaminated properties need to address challenges early in the
process. Although there is no single solution
for redeveloping contaminated properties
along urban waterways, these recommendations may assist redevelopers in identifying
and resolving potential hurdles early in the
process, to maximize their return and ensure
the continued success of Brownfields, especially on properties along valued urban waterways.
1. Identify the Risks. Assess the interests
of the current landowner(s) to determine their
willingness to participate or provide assistance. Evaluate the condition of the property.
Be aware of the differences between the current industry-standard for assessing the condition of property and the requirements under
the all appropriate inquiries standard. Identify
ways to minimize future environmental
impacts. Conduct additional studies if more
information is needed to identify the scope of
contamination on the property. Determine the
scope of potential liability and liability protections under state and federal laws.17 Ensure
the maximum amount of protection is provided contractually.
2. Community Outreach.18 Investigate,
identify, and understand the interests of the
community. Integrate community objectives
into the redevelopment project. Develop a
comprehensive information and outreach
strategy to maximize community support.
Continue interacting with community representatives and stay committed to the community objectives throughout the process.
Coordinate with community representatives
to arrange for additional public financing for
the redevelopment project.
3. Develop a Plan. Outline constraints on
the redevelopment project, given the needs of
the community, the condition of the property,
and its location, especially when the property
is adjacent to a river being addressed under
the URR Initiative. Identify a reuse, which
takes into account historic conditions. Draft a
redevelopment proposal, which accounts for
community needs, technical constraints, and
legal obligations. Identify immediate and
continuing environmental obligations.
Develop a business plan and a marketing plan
to support the redevelopment upon completion of the cleanup, if appropriate.
4. Communicate with Federal and State
Regulators.
a. Strong Proposal. Draft a compelling
proposal for restoration and redevelopment.
Clearly delineate the risks and the benefits.
Ensure the validity of the technical components of the proposal. Identify potential ways
to minimize future environmental impacts.
Articulate the environmental and economic
benefits of the proposed redevelopment.
b. Communication. Communicate with
authorized regulatory entities, particularly the
Trustees for potentially impacted natural
resources immediately and maintain lines of
communication throughout the process.
Coordinate with the Trustees to identify alternative ways to manage damaged natural
resources.
c. Agreements. Assess liability protections available under the law and obtain additional protections contractually. Draft
agreements with the authorized regulatory
entities. Assess the terms of each agreement
in light of the risks and benefits of the project.
Ensure compliance with continuing requirements for liability protection.
5. Determine Financing Options.
a. Evaluate Public Financing Options.
Identify federal, state and local sources of
financing, including tax incentives, grants,
loans, and bonds.19 Identify funding gaps and
the timing of such gaps under the redevelopment proposal. Assess the federal, state, and
local financing options to determine the most
appropriate funding sources. Consider the
condition and location of the property when
assessing the financing alternatives. Obtain
the necessary applications and compile information for the specific public funding source.
Prepare the application, communicating with
the appropriate representatives to ensure
compliance with the appropriate requirements. Identify and provide information
related to community needs and involvement,
reliance on existing infrastructure, economic
impacts, and environmental benefits. Submit
application and follow-up on submittal as
process moves forward.
b. Financing. Articulate the redevelopment proposal to prospective lenders, outlining the technical and legal risks. Identify
ways to minimize the technical and legal
risks associated with the redevelopment project. Continue communicating with lenders
throughout the process. Notify lenders of the
negotiated requirements for completion of
the cleanup. Provide lenders with information about risk management strategies,
including environmental insurance and contractual protections. Provide additional information to lenders, upon request. Notify
lenders of additional risks identified throughout the process. Notify lenders of additional
funding sources that become available.
c. Manage the Risks. Confirm validity of
all technical data supporting proposed redevelopment and cleanup. Furnish insurance
providers with necessary information to
determine point of attachment and premium
for cleanup cost cap policy, pollution legal
liability policy, or other environmental insurance. Communicate with insurance providers
to maximize their understanding of the site
and the risks. Review proposals
IV. Conclusion
The viability of a Brownfields redevelopment project depends upon the environmental
condition of the property. This is especially
true along urban rivers where, although the
uncertainties are not insignificant, the
rewards can be limitless.
Please email the authors at whyatt@kl.com or jallaire@kl.com with questions about this article.
“Brownfields” are properties with real or perceived
environmental contamination that hampers redevelopment efforts and encourages development in
suburban “greenfields.” See GAO, Report to the
Chairman, Committee on Commerce, House of
Representatives, Brownfields: Information on the
Programs of EPA and Selected States (Dec. 2000).
2 Population Growth and Decline in City Neighborhoods, Urban Institute (Dec. 2002); Community
Development: Reuse of Urban Industrial Sites (Letter Report, 06/30/95, GAO/RCED-95-172).
3 Superfund: Extent of Nation’s Potential Hazardous Waste Problem Still Unknown (GAO/RCED88-44, Dec. 17, 1987).
4 From Brownfields to Housing: Opportunities,
Issues, and Answers, Northeast-Midwest Institute
(Oct. 2003).
5 An estimated 5 to 10 percent of the nearly
500,000 existing Brownfields are located beside a
waterway. See Integrating Sediment Cleanup and
Brownfields Redevelopment, Northeast-Midwest
Institute (2001).
6 New Jersey Spill Act (“NJ Spill Act”), N.J.S.A. ß
58:10-23.11g(d) (2003); NY Environmental Conservation Law (“NY ECL”) ß 15-3109 (2003); NY ECL ß
27-1409 (2003); Conn. Gen. Stat. ß 22a-433 (2003);
Conn. Gen. Stat. ß 22a-452b (2003); Conn. Gen.
Stat. ß 22a-452e (2003).
7 Pub. L. No. 107-118, 115 Stat. 2356 (Jan. 11,
2002).
8 Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”), 42 U.S.C.
ßß 9601(39); 9604(b)(k) (providing funding);
9601(35) (landowner liability protection); 9601(40)
(bona fide prospective purchaser liability protection); 9607(q) (contiguous property liability protection); 9607(r) (bona fide prospective purchaser
liability protection); 9628(a) (providing funding
assistance to states).
9 egal incentives include liability protections for
prospective purchasers, contiguous property owners and innocent landowners intended to counter
the effect joint and several liability schemes had on
redevelopment of contaminated property. See generally CERCLA ß 107(a). And financial incentives
range from tax benefits for innocent parties that
incur environmental restoration costs to grants for
innocent parties undertaking the environmental
restoration of contaminated properties
10 See generally, The Incidence and Severity of
Sediment Contamination in Surface Waters of the
United States, Volume I, National Sediment Quality
Survey (EPA 823-R-97-006) (evaluating data from
sixty-five percent of the 2,111 watersheds in the
continental United States).
11 See Memorandum of Understanding between
ACOE and USEPA, July 2, 2002.
12 See WRDA of 1996, 104 P.L. 303, ßß 203 (cost
sharing for feasibility studies), 210 (cost sharing for
environmental projects).
13 WRDA of 1996, 104 P.L. 303, ß 204 (restoration
of environmental quality); WRDA of 1999, 106 P.L.
53, ßß 209 (beneficial uses of dredged materials),
210 (aquatic ecosystem restoration), 211 (wastershed management, restoration and development),
224 (environmental dredging).
14 Hyatt, William, Won, Emily, Natural Resource
Damages, the Sleeping Giant Awakens (Feb. 2003).
15 ee generally NJDEP, Policy Directive 2003-07,
Subject: Natural Resource Damages (September
2003); Ceour d’Alene Tribe v. ASARCO Inc., 280 F.
Supp. 2d 1094 (D. Idaho 2003).
16 43 C.F.R. ß11.15 (2004); see also NJ Spill Act,
N.J.S.A. 58:10-23.11g(c)(1); NY ECL, ß 27-1421
(2003); Conn. Gen. Stat.ßß 22a-6a, 22a-16a
(2003).
17 See supra, note 7; see also supra note 6.
18 See generally, Community Involvement in Brownfields Redevelopment, Bartsch, Charles (March
2003).
19 or example, the USEPA Programs include the
Brownfield Cleanup Revolving Loan Fund (funds to
governments to create revolving loan funds), Site
Assessment and Cleanup Grants (fund a variety of
pre-cleanup environmental activities), Clean Water
State Revolving Loan Funds (used by states to
obtain loans of up to 20 years); United States Dep’t
of Housing and Urban Development (“HUD”) Programs include the Community Development Block
Grants (CDBG), Section 108 Loans, Brownfield
Economic Development Initiative (BEDI), Home
Investment Partnerships Program; Economic Development Administration Programs include the Public
Works and Economic Development Program, the
Economic Adjustment Program; and ACOE Programs include the Continuing Authorities Program
(the authority used to conduct the URR Initiative).
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