Most urban parcels in the middle of Northeast or Midwest cities have some form of environmental contamination caused by a previous use. Would-be developers of these parcels typically face a long and unpredictable regulatory cleanup process that leaves many properties languishing for years in a state of neglect.
So it was big news last month when New York City Mayor Michael Bloomberg gathered with a group of city and state officials in the Williamsburg neighborhood of Brooklyn for a development groundbreaking. The big news wasn't the development, but the fact it was being built on a contaminated site. Home to a former gas station, it had been vacant for four years -- the type of site most developers avoid because of the fear of environmental red tape.
Instead, the contaminated dirt will now be removed. The new development, which includes a diner, 50 new apartments and several small retail shops, will not only energize the neighborhood, but also add to the city's tax rolls. It was the first municipally run "brownfield" development in the nation. Hopefully, it won't be the last.
The project's success was possible because environmental regulators came to see their role as, "How can we enable environmentally beneficial development?" In this case, city and state regulators worked together with the developer to create a clear path to cleanup and rebuilding.
This is an important shift. Historically, environmental officials have imposed unrealistic demands on developers. Overlapping environmental agencies can grind a developer down with their inconsistent rules and goals. Most states assign remediation of contaminated "brownfields" to environmental enforcement agencies, which are philosophically removed from economic development concerns.
Ironically, the primary reason these contaminated areas remain barren, ugly and often dangerous is not because the cleanup costs are too great, but because regulatory uncertainty jeopardizes the developer's business models and financing arrangements.
Over the past 20 years, I can think of no other area that better illustrates where the perfect has been the enemy of the good. To me, excessive mandates on would-be developers creates a situation where public officials earn reputations for being environmentally friendly at the expense of economically downtrodden and environmentally compromised communities.
Finding a way to redevelop a contaminated site is often the best solution, both environmentally and economically. To make redevelopment possible requires dropping vendettas against long-gone former polluters, and insulating newcomers from some of the risks of decontaminating and rebuilding on these sites.
Risk on brownfields comes in three flavors:
- Environmental risk: These arise because the actual field conditions and ultimate cleanup requirements may be unknown prior to investigation and cleanup.
- Liability risk: These include both the threat of government enforcement under environmental law, and third party personal injury or property damage claims brought by individuals.
- Regulatory risk: These arise through burdensome processes established by states to approve a cleanup plan, and the possibility that future regulators will further change the standards.
It is regulatory risk, however, that creates the greatest barrier to cleanup and redevelopment of contaminated sites. Regulatory risk stems from the uncertainty about the future and the unpredictability of the time and cost of navigating the environmental regulatory process. This risk poisons development and cripples land transactions.
Regulatory risks include confusing, conflicting and often overwhelming amounts of guidance on regulatory processes -- guidance that is often poorly calibrated and promulgated in a way that does not match environmental severity. This problem is complicated by inefficient or non-existent processes for negotiation, conflict resolution and approval of documents, coupled with a typical lack of urgency on the part of the regulators to keep projects on schedule.
Unfortunately, regulators lack development experience and awareness of the impact of regulatory risks on the development project and on its economic and societal value. Staff are often poorly schooled in efficiency and the use of time-saving methods that would benefit developers.
New York City's new Brownfield Cleanup Program is an attempt to minimize a developer's risk, especially the regulatory risk. In NYC, the director of Environmental Remediation, Dr. Daniel Walsh, has decoupled cleanup regulation from state oversight by establishing a municipally run brownfield cleanup program that adopts state standards but not the state regulatory process. Instead, he has introduced innovative approaches to efficient project management that shorten reviews, speed the cleanup and give developers confidence in the regulatory process.
This joint program is possible because the New York State Department of Environmental Conservation, now led by Commissioner Joe Martens, took the unusual and commendable step of allowing the city to negotiate liability protection on behalf of both jurisdictions. Now, developers can get the liability protection they need and can count on a regulatory program that delivers the predictability and support that fosters their development plan.
The rebirth of a neighborhood in Brooklyn was made possible because enlightened state and local officials envisioned a new way of looking at an old problem.
Without any government regulation, contaminated areas undoubtedly would be improperly developed. Absent private investment, contaminated lots stay contaminated and dangerous. Creating the conditions to enable environmentally sound development should be the goal. In Brooklyn, we've seen how environmental improvement and economic development can work hand in hand.
