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Godfrey & Kahn Updates

Wisconsin Reforms and Initiatives Promote Brownfield Redevelopment

November 08, 2005

Over the past few years, the Wisconsin legislature has created a broad array of programs and enacted a variety of legislative initiatives designed to promote the redevelopment of “brownfields” and to stem the tide of “greenfields” development. For example, Wisconsin’s Land Recycling Act (LRA), codified at sections 292.11 21 of the Wisconsin Statutes, provides an exemption from liability for certain qualified parties as an incentive to develop contaminated property in Wisconsin. In addition, Wisconsin has expanded its tax incremental financing law to encourage use of innovative financing for environmental cleanups in urban areas. Furthermore, the Wisconsin Department of Commerce (DComm) implements a brownfield grant program to fund both site assessments and remediation. These programs provide effective and affordable mechanisms for brownfields redevelopment.

The primary statutory authority used by the Wisconsin Department of Natural Resources (DNR) for environmental cleanups is the Wisconsin Spill Statute. The Spill Statute gives DNR broad authority to require environmental remediation after a discharge has occurred. The obligations of notification and cleanup under the Spill Statute attach to a person who “possesses or controls a hazardous substance” in addition to the person who “causes the discharge of a hazardous substance.” Thus, historically, parties have avoided purchasing contaminated brownfield properties, as ownership of contaminated property alone may be enough to create liability for cleanups. However, in light of the state’s brownfield legislation and numerous changes in Wisconsin cleanup requirements, many parties can effectively limit the liability associated with the development of contaminated properties.
Redevelopment Burdens Eased

Changes in Wisconsin cleanup requirements have eased the burdens associated with redevelopment, and cleanups have become less onerous largely because cleanup efforts can be tailored to the individual demands of a specific property. Remediation efforts are now met with some administrative flexibility. For example, depending on the nature of the project, a developer may be allowed to leave contaminated soils on site if removal is not required in order to prevent groundwater contamination. This type of site specific determination may require protective features such as asphalt caps or other engineering mechanisms but can potentially eliminate the need for costly remediation. In addition, in most instances site closure can be achieved through natural attenuation of contaminated groundwater, thus avoiding costly groundwater treatment measures.

The Land Recycling Act is an example of legislation that eases the burdens associated with brownfields redevelopment by providing purchasers with protection against liability from changes in cleanup standards and undiscovered/undetected contamination. For example, the LRA includes the Voluntary Party Liability Exemption (VPLE) program, which is an effective tool for managing environmental liabilities associated with the redevelopment of contaminated properties. Specifically, under the VPLE program voluntary parties that perform an investigation to determine the extent of the contamination and remediate the identified impacts to the DNR’s satisfaction are protected from liability from changes in the law and the risk of unidentified contamination. The program can be utilized by individuals, corporations and certain governmental entities and is undertaken in cooperation with DNR input and oversight. The program is very beneficial to developers because the liability exemption can be passed on to successors and assigns, easing the concerns of future owners and improving the marketability of the property.

Lenders Realize Liability Exemptions
In addition to the benefits afforded to purchasers, lenders that are engaged in traditional lending activities are exempt from liability under the Spill Statute. To qualify for this exemption, the lender must engage in lending activities as its primary business, or be an
insurance company, pension fund, or governmental agency engaged in secured lending. However, a lender cannot take advantage of the liability exemption if the lender actually caused the discharge or, under certain circumstances, if the lender exacerbates a discharge.

There are also special liability exemptions provided for lenders under the Spill Statute when the lender acquires title to, or possession or control of, real property through enforcement of a security interest. Lenders intending to take advantage of this liability exemption should consult legal counsel, as there are certain requirements they must meet to be protected by the exemption. Finally, with respect to lenders, there is a special liability exemption under the Spill Statute for lenders that enforce a security interest in personal property or fixtures at a particular location. To maintain this liability exemption, the lender must not obtain title, possession, or control of the real property at that location for any purpose other than to protect and remove personal property or fixtures.

Redevelopment and TIF Funding
In addition to these flexible cleanup requirements and liability exemptions, there are brownfield grants and loan programs which can be used to help fund the costs associated with redevelopment. As an example, in 1997, a grant program was created to assist in the redevelopment of brownfields. Brownfields are defined under this program to include abandoned, idle or underused industrial or commercial facilities or sites, the expansion or redevelopment of which is adversely affected by actual or perceived environmental contamination. Wis. Stats. §560.13. DComm administers this grant program and is authorized to make a grant to any person for the purposes of redevelopment and remediation provided that the party responsible for the environmental contamination cannot be located or is unknown.

The grant program exhibits a great deal of flexibility in the amount of grants available and the types of entities that can utilize the awards. DComm administers grants in a variety of amounts up to $1,250,000. Grant recipients are expected to contribute a percentage of the project cost in either cash or in-kind contributions (work associated with remediation and redevelopment) between 20 and 50 percent of the total cost of the project depending on the amount of award offered by DComm. Grant applications are judged according to several criteria including the potential for the project to promote economic development in an area, whether the project will have a positive effect on the environment, the amount and quality of the contribution of the potential recipient and the originality and potential for success of the proposal in terms of the end use, the development arrangements and various other factors. Thus, redevelopment and remediation planning and the relevant grant applications should be innovative and well thought out.

Developers can also obtain special benefits for projects located within certain recognized environmental remediation development opportunity zones and tax incremental financing districts (TIFs). For example, a credit of 50% of the amount expended for environmental remediation in a development opportunity zone may be applied against taxes imposed on a person’s business activity income. Development opportunity zones occur in certain larger cities within the state and the remediation activities can include the removal of pollutants and the restoration of the site. In addition, governmental units can now create environmental remediation TIFs which allow for the recoupment of certain remediation and development costs associated with the redevelopment of contaminated properties.

Redevelopment Offers Public-Private Partnership Opportunities
In addition to the many tools and mechanisms available to private organizations there are a number of tools available solely to certain governmental units. Brokers, lenders, developers and other entities that work with municipalities and other governmental units should be aware of these mechanisms and may want to consider creative ways of partnering with municipalities to benefit from them. For example, certain government units can be exempt from a number of the Spill Statute’s requirements to investigate and remediate contamination at properties provided that the property is acquired through various enumerated means and the municipality did not cause or otherwise exacerbate the discharge.

Funding for municipal projects can be achieved through a variety of mechanisms such as an interest free loan program administered under the LRA and certain brownfield grant programs. LRA loans are available to political subdivisions and are intended to provide financial assistance to eligible applicants to remediate contamination that has or threatens to impact groundwater or surface water. In addition, the brownfield site assessment grant program can be used exclusively by local governmental units for certain investigation activities associated with potential redevelopment of a site when the responsible party is unknown or cannot be located. Developers considering the purchase of municipal property may want to encourage municipalities to obtain site assessment grants and ascertain the impacts at a property or perform initial demolition to alleviate some of the costs that the developer will face.

The multitude of changes in Wisconsin law and the creation of the various brownfield liability exemptions and grant programs have significantly reduced the uncertainty surrounding the legal liability and costs relating to remediation and redevelopment of contaminated sites. We encourage developers, lenders, brokers and others involved in the redevelopment process to learn about the various exemptions and loan programs and to take advantage of the opportunities they provide.

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