The state of Tennessee’s new Brownfield legislation, proposed by Governor Bill Lee, provides significant incentives for acquisition of contaminated property.
The legislation envisions three new areas of concentration for brownfield redevelopment: The amendments to Tenn. Code Ann. § 7-3-312 and 316 include changes to eligibility for the tax increment financing (TIF) funding and additional qualified costs.
It will remove the restriction that the TIF is available only for urban brownfield projects in eligible zones. It will also include the cost of acquisition and cost related to demolition and preparation of brownfield sites.
The changes to the credits for franchise and excise tax for brownfield projects will allow greater flexibility for existing brownfield credit opportunities and provides an enhancement for projects in class III and IV counties by allowing additional money to be credited.
Finally, the legislation establishes the Brownfield Area Redevelopment Fund which will be front-loaded with $5,000,000 for the next fiscal year. It will provide grants to local governments for local investments in brownfield sites up to $500,000 per year. The grants will be targeted at investigation and remediation/mitigation at brownfield sites.
Tax Increment Financing
The legislation expands the universe of sites that can receive tax incentive financing (TIF) for brownfield redevelopment funding to remove any requirement for the site to be in a redevelopment zone. It is not restricted to economically disadvantaged areas like the current law.
In addition, it adds as a “qualified expense” the acquisition cost of the project site and costs of improvements to the project site, including, but not limited to, demolition, clearing, grading, and utility connections to public or private utilities, buildings constructed on the project site, landscaping for the project site, and stormwater facilities on the project site.
While the legislation drops the requirement of locating it in development zones, it keeps the current requirement that the economic plan includes at least one brownfield site or a site of at least 10 acres that has remained vacant or substantially unoccupied of at least five years, and at some point in the past 20 years included manufacturing or industrial distribution containing at least one million square feet.
Industrial development corporations typically prepare and submit to the municipality of their creation (which can be a county, city or combination of both) an economic impact plan. Tenn. Code Ann. § 7-53-312. The plan must identify the boundaries of the economic impact area affected by the plan as well as identify the industrial park or project located within the economic impact area.
The definition of “project” is found at Tenn. Code Ann. § 7-53-101. The plan must discuss the expected benefits to the municipality from the development of the economic impact area subject to the plan and provide that the property taxes collected on property in the plan area, including how taxes on personal property, above the base year amount (the increment) will be allocated to a separate fund of the industrial development corporation and used for industrial development purposes or to pay debt service on the industrial development corporation’s obligations. The legislation requires the Brownfield TIF to be part of an economic development plan.
Waiver of Franchise and Excise Taxes
Current law allows for a brownfield project tax credit of 50% of the purchase price of a Brownfield Project undergoing investigation, mitigation or remediation at a brownfield site.
Under current law, if the investment is in a Class III or IV county remediation costs could be included and up to 75% of the qualified costs. However, the legislation establishes a new credit for investment in projects in class III and IV areas of up to $500,000 per fiscal year and must not exceed 100 percent of the combined franchise and excise tax liability shown on the return before a credit can be taken:
(iv) “Remediation costs” means costs that are directly related to the investigation, remediation, or mitigation of a brownfield property as required by a voluntary agreement or consent order pursuant to § 68-212-224.
The legislation continues the definition of a qualified development project as one that must involve a capital investment of 5,000,000 for the brownfield property. The credit is not available until the minimum capital investment has been met.
Competitive Brownfield Area Grants
The legislation establishes a “Brownfield Redevelopment Area Fund” which will be set aside for redevelopment purposes. Funds remaining are added to the remaining funds such that none of the dollars revert. The General Assembly appropriated $5,000,000 for the 23-24 fiscal year for these projects.
To implement the program TDEC will develop criteria and guidelines such that an eligible entity could not obtain a grant in excess of $500,000 per site, per year, and, of that, no more than 5% can be used for administrative expenses.
Sites approved are known as “brownfield redevelopment areas.” In discussion with administration officials, eligible entities will be local governments, industrial development boards and other local entities, though they typically will have an interested buyer in mind.
Application to Multifamily Projects
This legislation provides a significant incentive or advantage for investing in brownfield projects for multifamily projects. The term “Brownfield” is not necessarily a positive connotation, however, many existing sites covered under the brownfield program have been able to be safely converted into multifamily or mixed uses purposes across the state.
The author appreciates the help from Steve Sanders, Director of Remediation for TDEC in helping him understand this legislation.
Brownfield photo courtesy of the State of Tennessee.
This article by William L. Penny, a partner at the law firm of Burr & Forman, LLP originally appeared on the Burr & Forman blog site. Reprinted here (with minor edits) by permission.