New Jersey is rolling out a new tax incentive program for the redevelopment of underused, contaminated properties, known as “brownfield sites.” In fact, on January 7, 2021, Governor Phil Murphy signed into law the New Jersey Economic Recovery Act of 2020, P.L.2020, c.156 (the “Economic Recovery Act”), a broad piece of legislation that provides support for a variety of programs and policies related to jobs, small businesses, sustainable energy, and many other areas. Sections 9 through 19 of the Economic Recovery Act establish the Brownfields Redevelopment Incentive Program Act (the “Program”), which supplements the existing Brownfield and Contaminated Site Remediation Act. Put simply, the Program allows the New Jersey Economic Development Authority (“EDA”) to award up to $50 million in tax credits annually for six years to redevelopment projects in need of financial assistance to address environmental contaminants or hazardous building material, such as asbestos.
This article provides an overview of the Program and certain issues that developers may face based on our experience with similar incentive programs, including the predecessor to the Brownfields Redevelopment Incentive Program.
Projects will be eligible for tax credits only if the redeveloper demonstrates the following in its application:
- The redeveloper has not conducted environmental remediation work at the site other than preliminary assessments or site investigations. However, and while this concept will need to be more accurately defined through regulations or guidance, redevelopers who have begun remediation are eligible for tax credits if they can certify that they could not reasonably have known the extent of the contamination when they began the project;
- The project is located on a brownfield site;
- The project needs tax credits to be economically feasible;
- The project has a finance gap, which means the redeveloper itself has contributed at least 20 percent of the capital for the project, but is unable to raise the necessary funds for the project without tax credits;
- The municipality in which the project is located must provide a letter of support;
- Redevelopers must pay a prevailing wage to every worker performing remediation or construction on the project; and
- The redeveloper is not responsible for causing the contamination.
Available Tax Credits
Redevelopers who are awarded tax credits and complete their redevelopment projects in compliance with the Program requirements will be awarded a tax credit equal to 40 percent of the remediation costs or $4 million dollars, whichever is less. As noted above, however, only $50 million is available to be awarded on an annual basis.
Competitive Application Process
The EDA and the New Jersey Department of Environmental Protection (“NJDEP”) will adopt regulations describing how to submit applications requesting tax credits for brownfield redevelopment projects, and will set an annual application due date. The EDA and the NJDEP will jointly review all applications and will consult with the Department of Labor and Workforce and the Department of the Treasury as to whether redevelopers seeking tax credits are in good standing with the respective departments. We expect that there will be more applicants than available tax credits and, therefore, that the Program will be competitive. In evaluating and prioritizing certain projects, the EDA and the NJDEP are authorized to use any of the following factors: the economic feasibility of the project; the degree to which the project promotes economic development and addresses environmental concerns in communities disproportionately impacted by environmental hazards; and, if the redeveloper has a board of directors, the extent to which the board of directors is diverse and represents the community in which the project is located.
Lessons from Prior Experiences
Based on our prior experience with similar programs, developers that are interested in the Brownfield Tax Incentive Program should begin planning early in the development process, especially given how competitive we expect the application process to be for these tax credits. Developers also should ensure that they conduct a thorough environmental investigation in connection with acquisition of brownfields for which they plan to seek tax credits, as such an investigation may be a prerequisite to eligibility for such tax credits. Lastly, early planning also is important under the Program because of its focus on community support and environmental justice. Developers that want to be ready to seek tax credits as soon as the Program comes online fully may want to begin outreach to community groups now.
The Program is in its infancy, but the Brownfields Redevelopment Incentive Program Act builds on a legacy of incentives for remediation projects in New Jersey and promises to foster redevelopment projects that may change the course of many communities across the Garden State.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.