Redevelopment Rewind: a Look at the Current Status of Public and Private Brownfields Redevelopment

• Publication year: 2015
• Author: by Mark E. Elliott and Amy E. Gaylord

Redevelopment Rewind: a Look at the Current Status of Public and Private Brownfields Redevelopment

by Mark E. Elliott^* and Amy E. Gaylord^**

INTRODUCTION

In addition to being eyesores, contaminated properties are commonly believed to contribute to an increase in crime and the downfall of neighborhoods, often accompanied by the relocation of business and residential communities. Local agencies and communities have a strong interest in facilitating the redevelopment of Brownfields¹ to prevent the loss of business and the associated tax revenues. And blighted neighborhoods, often located in urban areas, can be prime locations for "infill development" as both commercial and residential developers seek proximity to downtown areas. But despite these very real incentives for Brownfields development, there is a natural tension between state and federal environmental laws designed to impose liability on responsible parties for contamination, and the desire of companies, communities and investors to take on the risk of redeveloping Brownfields.

Environmental laws typically seek to ensure innocent parties do not bear the burden of contamination for cleanup of contaminated properties, and therefore first and foremost impose liability on the contaminating party. This usually means the owners and/or operators at the time of a release of contamination are primarily responsible for cleanup.² However, in an effort to avoid placing the burden of remediation on the public at large, these laws also usually extend cleanup liability to current owners. As a result, when the contaminating party is gone or recalcitrant, the current property owner can be left holding the bag. This possibility makes buying or investing in a Brownfield a risky proposition.

In an effort to minimize the risk of liability, the California State Legislature has repeatedly endeavored to incentivize Brownfields redevelopment. One notable example is the Polanco Redevelopment Act³ and its successor statute AB 440 (Gatto).⁴ At the federal level, Congress has taken an interest in the issue by adding and elaborating upon defenses to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),⁵ such as the innocent landowner and bona fide prospective purchaser defenses. However, recent CERCLA decisions suggest the protections afforded by these defenses are difficult to obtain.

This article provides an overview of the current status of redevelopment in California after the demise of the Polanco Act, and explores the remaining risks of engaging in Brownfields redevelopment in light of the current status of CERCLA's defenses. We further explore some strategies regarding how to structure deals to provide a modicum of comfort to prospective Brownfields purchasers.

THE RISE AND FALL OF THE POLANCO REDEVELOPMENT ACT

In 1945, the California Legislature enacted the Community Redevelopment Act,⁶ to assist local governments in pursuing redevelopment and rehabilitation of blighted areas. In 1951, the legislature superseded the Community Redevelopment Act with the Community Redevelopment Law.⁷ The linchpin of these redevelopment laws was the power granted to cities and counties to establish redevelopment agencies ("RDAs") to facilitate redevelopment. A RDA is a separate legal entity, established by ordinance of the relevant local government,⁸ to facilitate redevelopment within the local government's jurisdiction.⁹ Pursuant to statute, a redevelopment agency was authorized, among other things, to "prepare and carry out plans for the improvement, rehabilitation, and redevelopment of blighted areas."¹⁰ In addition, RDAs were allowed to accept certain financial assistance from public or private sources.¹¹

The Community Redevelopment Law also provided funding from local property taxes to promote redevelopment. In particular, it established the authority for tax increment funding, which is a public financing method designed to subsidize redevelopment and community-improvement projects through future increases in property taxes.¹² Specifically, tax increment funding uses the future increase in property taxes generated by the redevelopment projects to fund those projects. Redevelopment agencies were required to pass a portion of their tax increments to local taxing agencies within their project areas.

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In 1990, the California Legislature adopted the Polanco Redevelopment Act,¹³ which enacted a hazardous substance release cleanup program as part of the California Community Redevelopment Law. The Polanco Redevelopment Act provided a means for redevelopment agencies and private parties to clean up contaminated properties within a redevelopment project area and to obtain immunity from liability under California law for doing so.

A. The Polanco Redevelopment Act Provided Redevelopment Incentives and Protections

While the early laws were clearly designed to encourage redevelopment, the Polanco Redevelopment Act specifically authorized RDAs to undertake actions "consistent with other state and federal laws," "to remedy or remove a release of hazardous substances on, under, or from property within a project area," whether or not the RDA owned the property.¹⁴ This power was granted to RDAs only in circumstances where (i) there was no identified responsible party, (ii) the identified responsible party was notified by either the RDA or another government agency with environmental oversight responsibilities that it was responsible to provide a remedial action plan and to agree to implement that plan within a specified period, but the responsible party failed to agree, or (iii) the responsible party entered into an agreement to prepare a remedial action plan, but failed to comply with that agreement.¹⁵ Thus, consistent with the requirements of the oversight agencies—usually the California Department of Toxic Substances Control or the California Regional Water Quality Control Boards¹⁶—the Polanco Redevelopment Act provided RDAs a specific tool to either undertake the redevelopment of contaminated property, or to force the "responsible party"¹⁷ to do so. "While redevelopment agencies have used their powers in a wide variety of ways, in one common type of project the redevelopment agency buys and assembles parcels of land, builds or enhances the sites' infrastructure, and transfers the land to private parties on favorable terms for residential and/or commercial development."¹⁸

Perhaps the most important feature of the Polanco Redevelopment Act was its immunity provision. The Polanco Redevelopment Act provided RDAs who undertook cleanup, or caused a responsible party to undertake appropriate cleanup pursuant to the Act, with immunity from liability from most potentially applicable State environmental cleanup laws.¹⁹ This immunity extended to purchasers of the property who had entered a redevelopment agreement with the agency, as well as those providing financial support to the person acquiring the property for redevelopment.²⁰ Thus, the Polanco Redevelopment Act took affirmative steps to reduce the risk of developing Brownfields. However, being a State law, the scope of Polanco's immunity provisions were limited. In particular, nothing in the Polanco Redevelopment Act protected against CERCLA liability.

"Responding to a declared state of fiscal emergency, in the summer of 2011 the Legislature enacted two measures intended to stabilize school funding by reducing or eliminating the diversion of property tax revenues from school districts to the state's community redevelopment agencies."²¹ Assembly Bill X1-26 dissolved all RDAs, barring them from engaging in new business and requiring their windup and dissolution.²² Assembly Bill X1-27 offered an alternative, allowing RDAs to continue to operate if the local agencies that created them agreed to make payments into funds benefiting schools and special districts.²³ The constitutionality of these bills was challenged through litigation. The California Supreme Court determined that ABX1-26 was constitutional, while ABX1-27 was not.²⁴ Pursuant to the California Supreme Court's decision, all of the State's RDAs were officially dissolved as of February 1, 2012.²⁵ Without RDAs to implement it, the Polanco Redevelopment Act was rendered largely meaningless.

To help facilitate the dissolution of the State's numerous RDAs, Successor Agencies were established to manage ongoing redevelopment and the obligations of the RDAs.²⁶, ²⁷ As the Successor Agencies went about their work of dissolving the RDAs, the State Legislature went to work on a successor statute to fill the shoes of the Polanco Redevelopment Act. Introduced by Mike Gatto, Chair of the State Assembly Committee on Appropriations, Assembly Bill 440 (Gatto) was approved by the Governor on October 5, 2013 as an amendment to the California Health and Safety Code.²⁸

AB 440 made no pretense of being anything other than a reworked version of the Polanco Redevelopment Act: "The Legislature finds and declares that this chapter is the policy successor to the Polanco Redevelopment Act ... and shall be interpreted and implemented consistent with that act. It is further the intent of the Legislature that any judicial construction or interpretation of the Polanco Redevelopment Act also apply to this chapter."²⁹

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B. Redevelopment Redux - AB 440 (Gatto) Perpetuates, and Potentially Expands, the Polanco Redevelopment Act

Conceptually, AB 440 and the Polanco Redevelopment Act are very similar. Much like Polanco, AB 440 permits a local agency³⁰ to: "take any action that the local agency determines is necessary and that is consistent with other state and federal laws to investigate or clean up a release on, under, or from blighted property that the local agency has found to be within a blighted area within the local agency's boundaries due to the presence of hazardous materials following a Phase I or Phase II environmental assessment . whether the local agency owns that property or not."³¹ Also like...