Cherrytree Group LLC Blog

...by Warren Kirshenbaum

As part of $3.5 million in Brownfields grants that EPA is making available for Massachusetts communities, EPA has provided $600,000 for Somerville to clean up the former Kiley Barrel Property site. The funding is part of more than $76 million in EPA Brownfields investments across the country announced this week by EPA Administrator Lisa Jackson to protect health and the environment, create jobs and promote economic re-development in American communities.

EPA Brownfields grant money assists work to reclaim sites including old textile mills, sites containing hazardous substances and petroleum products and other abandoned industrial and commercial properties.  EPA’s Brownfields program encourages redevelopment of America’s estimated 450,000 abandoned and contaminated waste sites.

 “This EPA funding will help strengthen the economic foundation of these communities,” said Curt Spalding, regional administrator of EPA New England’s office. “Cleaning and revitalizing contaminated sites helps create jobs, providing a solid foundation for a community to create new businesses and neighborhood centers, while making our environment cleaner and the community healthier.”

"These federal funds will help transform the Kiley Barrel site, eliminating old contaminants and revitalizing it so that the land can be used for future development. Brownfields grants have had a tremendous impact here in Somerville and all over the country, giving communities the resources they need to revitalize old industrial sites," stated Congressman Michael Capuano.

The $12.55 million in grant and Revolving Loan Fund money awarded by EPA to a variety of New England communities and organization will provide substantial help around the region.  The EPA funding leverages over $46 million of other money to pursue brownfields cleanup and revitalization work. In New England, these projects have created 98 clean up jobs this year as well as 135 redevelopment jobs.

As of June 2011, EPA’s brownfields assistance has leveraged more than $16.3 billion in cleanup and redevelopment funding, and helped create more than 70,000 jobs in cleanup, construction and redevelopment. These investments and jobs target local, under-served and economically disadvantaged neighborhoods – places where environmental cleanups and new jobs are most needed.

Since the beginning of the Brownfields Program, in New England alone EPA has awarded 268 assessment grants totaling $67.1 million, 61 revolving loan fund grants and supplemental funding totaling $65 million and 174 cleanup grants totaling $39.3 million.  These grant funds have paved the way for more than $1.3 billion in public and private cleanup and redevelopment investment and for 8815 jobs in assessment, cleanup, construction and redevelopment.

Some of the money announced today falls under EPA’s brownfields revolving loan funding.  Since 1995, EPA RLF recipients have provided 53 loans and 63 grants in New England totaling more than $29 million for brownfields cleanup. The loan funds have paved the way for more than $189 million in public and private cleanup and redevelopment investment and for 1034 jobs in cleanup, construction and redevelopment.

by Warren Kirshenbaum

The Community Development Financial Institutions Fund (“CDFI Fund”), a program of the U.S. Department of Treasury released its 2010 Performance and Accountability Report on January 18, 2011, providing key insight into economic revitalization in 2010. The CDFI Fund promotes economic revitalization and community development through investment in, and assistance to community development financial institutions.

The Performance and Accountability Report demonstrated a continued level of interest in investment into low-income communities and showed a substantial increase in rewarded tax credits over 2009. In 2010, the CDFI Fund, which administers the New Markets Tax Credit Program (“NMTC”) distributed all $26 billion in its authority in 495 separate awards.

The NMTC was created as part of the Community Renewal Tax Relief Act of 2000 to provide a tax credit to taxpayers who provide investments to businesses in low-income communities.

Specifically, the NMTC stimulates capital investment in low-income communities by providing tax credits against federal income taxes to taxpayers who make equity investments (referred to as “QEI’s” or “qualified equity investments”) into a designated community development entity (“CDE”). Substantially all of the investments made by the taxpayer must be used to benefit low income communities in order to receive the tax credit, and that determination is made by reference to census tracts. The Performance and Accountability Report of 2010 announced that the demand for the NMTC is increasing. In 2010 over two thousand applications were submitted, containing requests totaling $202.6 billion in tax credit allocation. Accordingly, only 27% of applicants were selected to receive the awards with the average tax credit allocation award being $52.5 million. The tax credit allocations are limited, so they are approved by a competitive application process. This process of approving tax credit allocation is set up so that the most qualified organizations receive first consideration.

This past year also saw another record for investments raised – in the first three quarters of 2010, $3.1 billion in qualified equity investments were raised, surpassing the $2.8 billion raised for all of 2009. Furthermore, tax credit recipients reported making $3.5 billion of loans and investments in Qualified Active Low Income Community Businesseses – 64% of which went into real estate businesses. Lastly, in 2010, recipients also reported making over $168 million in direct investments into other CDE’s, and providing $12 million in financial counseling and other services to 7,139 businesses in low-income communities.

The 2010 report announced by the CDFI Fund shows the growing demand for investment capital in low-income communities. In sum, since the program’s inception, there has been a total of $15.8 billion of cumulative investments made via the New Market Tax Credit Program. If you are interested in how to qualify for these or any other potential tax credits, please call Warren today or fill out a Contact Us form.

... By Warren Kirshenbaum

In order to jump-start the economy and defuse some of the economic hardship caused by the recession, the American Recovery and Reinvestment Act of 2009 (the “Act”) attempted to infuse financial benefits and incentives into the economy. One of the sections of the Act benefits supporters and investors of renewable energy. The US is determined to be in the fore front of the renewable energy industry, and the government hopes that the industry continues to prosper despite the volatile economic times. Specifically, Section 1603 of the Act (the “grant” or “grants”) provides grants from the federal government to eligible “persons” (a legal construct including entities) who develop renewable energy systems during the recessionary period. The Federal government already provides tax credits that benefit the renewable energy industry that is credit that reduces dollar for dollar an eligible tax payer’s tax liability, if the taxpayer engaged in a qualifying renewable energy program. However, fearing that investors in renewable energy will not be able to successfully monetize tax credits, Section 1603 provides grants in lieu of the tax credits to interested investors. The purpose of Section 1603 is to temporarily fill the gap that was created by a lack of demand for tax credits from investors and simultaneously decrease American’s dependency on non-renewable energy sources while creating or retaining jobs.

The grant is for qualifying persons who install specified energy system on property during 2009 or 2010. The Treasury will provide grants up to 10% or 30% (depending on the energy system) of qualifying expenses. Persons eligible for the grant include government agencies, 501(c) organizations (non-profits), entities as qualified under IRC sec 54(j) paragraph 4, and partnerships or other pass-thru entities, or any direct or indirect partner of such entities.

Specified energy systems include large wind, closed-loop and open-loop biomass facilities, geothermal, landfill gas facility, trash facility, qualified hydropower facility, marine & hydrokinetic, solar, fuel cells, microturbines, combined heat & power, small wind, and geothermal heat pumps. Qualifying persons will continue to be eligible for the grant even when the renewable energy project is completed after 2010, for so long as the qualifying project began in 2009 or 2010. Beginning a qualifying project is defined as conducting physical work of significant nature either on or off site, costing at least 5% of the total cost of the project. Furthermore, the original use of the energy system must begin with an applicant. Accordingly, a person will not be eligible for the grant by simply purchasing an already installed renewable energy system. The applicant, however, may use pre-owned parts in the facility, but their costs may not exceed 20% of the total cost of the facility.

If less than 5% of the total cost is incurred during the 2009 or 2010 period or only preliminary work was completed during that time, the persons seeking the grant will be disqualified. Preliminary work includes planning or designing, securing financing, exploring, researching, clearing a site, test drilling, or excavation to change the contour of the land. On the other hand, excavation for the foundation or the pouring of the concrete pads of the foundation will be considered as the start of construction. The start of construction also includes the start of manufacturing components, even though the manufacturing is completed off-site.

The Act includes a powerful tool for businesses and individuals who support and are involved in the development of the renewable energy industry. The grant, although currently offered for a temporary period of time, offers an incentive to continue to build renewable energy systems in one’s community. For those who began constructing a renewable energy facility in 2009-2010 period, applying for the Section 1603 grant should be a priority. Although the application for the grant is complicated and often confusing, obtaining up to 30% of the eligible expenses offers a significant resource to assist in making your project a success. Cherrytree Group LLC and Kirshenbaum Law Offices can provide to you the expertise needed to decipher whether you qualify for the renewable energy grant and assist you in applying for and obtaining the grant as well as assist you in monetizing your tax credits.

...By Warren Kirshenbaum

Renewable energy is not yet able to be produced in quantities that will satisfy global energy demand, and renewable energy is more expensive than energy produced from fossil fuels, but great strides have been made in recent years in these areas. Furthermore, the costs that the production of fossil fuels are imposing, both on our environment, and financially on the companies producing oil and gas are not factored into the cost per gallon or kilowatt hour of energy production, and perhaps this is a line item that we should start to factor into the cost of the production of energy from fossil fuels if we are going to make a push toward serving the world’s energy needs with renewable resources.

This year, the Deepwater Horizon oil spill (which was both the biggest oil spill in U.S. history and the largest accidental marine oil spill in the history of the petroleum industry) released 185 million gallons of crude oil into the Gulf of Mexico for about three months and has inflicted devastating environmental and psychological damage on the coastal communities in the Gulf, affecting tourism, fishing and drilling, as well as subjecting residents to ongoing restrictions on fishing and shrimping that have affected the livelihoods of thousands of people. BP’s Gulf Oil Spill resulted in the deaths of 11 workers on the rig and injuries to 17 others. BP’s financial expenditures from the oil spill have so far reached $3.12 billion, excluding the $20 billion compensation fund they have set up to reimburse residents and businesses for their losses. Also this year we endured the Copiapo mining accident in Chile, which occurred when the copper/gold mine owned by San Esteban Mining Company collapsed and 33 men were trapped 2,300 ft below ground for 69 days. Fortunately, all of the 33 men were rescued with only one man suffering from pneumonia, and a few others experiencing dental problems. The cost to rescue the men was $20 million. The San Esteban Mining Company has allegedly violated mining regulations previously, and 8 of its employees have died at the mine in 12 years. Adding to the year’s disasters at fossil fuel production sites is the Pike River Mine accident in New Zealand where an explosion at the coal mine has left 29 miners trapped 4,900 feet from the mine’s entrance. The miners are still trapped in the mine and may not be alive. Gas sampling is being tested to ensure that any accidental spark will not ignite the mine when search and rescue operations are undertaken. The Gulf Oil Spill, Copiapo mining accident, and Pike River Mine accident were stark reminders that our pursuit of energy derived from fossil fuels is causing an irreversible deterioration of our planet, its natural resources, our environmental balance, and is subjecting us to unacceptable losses in human life.

There are a multitude of renewable resources, but this post will focus on solar and hydro energy production, as these methods of renewable energy production are, in my opinion, poised to experience significant growth in the next few years.

Solar energy production is significantly more expensive than hydro, due to the cost of the solar panels themselves. Hydro has languished for decades as a method of creating renewable energy, mainly due to the environmental objections that a hydro project creates, and the expensive federal regulatory requirements of such projects. However, both forms of renewable energy are attractive. Solar projects, unlike wind projects do not create a danger to birds, cattle, and other animals, solar fields are not large and aesthetically displeasing, and do not generate loud whirring sounds that intrude on people’s quality of life. Consequently, as solar installations have very little negative environmental effect, they are generally easy to permit. Solar energy is, however, expensive to produce, as the technology that underpins the solar panels have traditionally made the installation of solar fields expensive enough to impede their development as a commercial enterprise. As with all technology, as solar technology develops, its cost has begun to decline, which should make solar projects more viable. Hydro, is very clean and unobtrusive to the environment, and is relatively safe to produce, but it can affect the migratory pathways of fish, and a dam breach could be detrimental to downstream human habitats. Consequently, new dams have not been constructed in many years. In fact, the stock of dams has decreased over the decades. Moreover, the prospect of new dams being built is relatively slim (due to the environmental challenges and the time period involved in getting Federal Energy Regulatory Commission (FERC) approval). Inorder for hydro production to increase, the capacity of existing facilities would need to be expanded. Legislative changes that limit environmental objections to the process of FERC approval, renewal, and re-licensing would need to be implemented to help to stimulate hydro production, this will require intensive lobbying, but it can be done.

Nevertheless, the point being made here is that, despite the higher cost of producing renewable energy, the cost of energy production from fossil fuels is enormous,not only the monetary cost, but the environmental cost as well as the cost of human life. This is more of an IOU being tagged to the planet than a current cost, which leads to the conclusion that we have no choice but to pay the higher monetary price for renewable energy now and retire the bigger IOU that future generations will inherit.

Reprint of an article that I wrote for the LSPA (Licensed Site Professionals Association), published on April 20, 2010 - ... by Warren Kirshenbaum

This article is intended to serve as a follow-up to an article that appeared in the February 2010 Newsletter in which Ned Abelson, a prominent Boston environmental attorney, discussed the Brownfields Tax Credit (the “BTC”), and detailed how the BTC may be helpful for LSPs and their clients. However, further explanation of how the BTC may be fashioned to operate as an instrument of reimbursement for remediation expenses becomes necessary once a client concentrates on exploring its eligibility for the BTC. This month’s article will therefore focus on how your clients can obtain and sell the BTC, thereby obtaining a cash reimbursement for a large part of their remediation expenses.

The Statutes
As you are aware, Massachusetts General Laws Chapter 21E (“21E”) forces clients that own or operate a site that has environmental contamination to clean up the site, which is a risky, time consuming, and very expensive process. The law generally considers the current owner or operator as one of the parties responsible for the cleanup, but if the current owner or operator is an “eligible person,” as defined in Chapter 206 of the Acts of 1998 (the “Brownfields Act”), under certain conditions he or she can be absolved of liability, and, once the cleanup is completed M.G.L. Chapter 63 §38Q (i.e. the BTC) provides for a tax credit of 25% (for a site closed with an AUL or with ROS status) or 50% (for a site closed without the need for an AUL) of the eligible costs incurred to clean up the site. The owner can then monetize the credits by transfer to a buyer.

The Economic Environment
We are in an era in which more and more sites being considered by developers will be Brownfields sites, and in order to continue to foster economic growth, the creation of jobs, increase tax revenue by stimulating the production of housing, commercial, and retail spaces for our workforce and citizens, the Commonwealth has a decided interest in ensuring that Brownfields sites be remediated, and the BTC is an effective tool to achieve that goal. Since the 1986 Internal Revenue Code first created tax credits for low income housing, such tax based incentives have been utilized very effectively by government to outsource to the private sector a public function and allow the development of a competitive marketplace to fashion an economic solution to a societal need. Since 1986, government has created historic tax credits, new markets tax credits, renewable energy tax credits, motion picture tax credits, and the BTC.

Brownfields Tax Credits (“BTC”)
The BTC is available to certain taxpayers in Economically Distressed Areas who commence and diligently pursue a response action and maintain a permanent solution or remedy operation status in compliance with 21E and the Massachusetts Contingency Plan. The BTC Program acts as a direct or dollar-for-dollar credit against a taxpayer’s tax liability to the Commonwealth of Massachusetts. The tax credits may be used all at once in a given tax year, or the buyer can use as much as they can in the current year and then carry excess credits over to a subsequent tax year for a period of five (5) years. Because the tax credits are certificated (as opposed to other tax credits where a buyer needs to be part of the ownership entity), they are attractive to Buyers and may be transferred by application to the Massachusetts Department of Revenue (the “DOR”). Once issued, each certificate has a unique number and is associated with the certificate holder by tax identification number, so upon transfer the certificate is redeemed and a new certificate is reissued to the buyer. The buyer attaches the certificate to its tax return and claims the credit, or a part of it, for 5 years.

BTC Procedure
Many times, once a cleanup has been achieved and the LSP’s engagement is concluded, the client moves forward with their development of the site without consideration of the BTC. To effectively obtain and utilize the BTC, a client will have to engage one or more firms to help apply for and obtain the BTC, secure a buyer for the BTC, and execute the purchase transaction. The risk of the RAO being invalidated by DEP is effectively a risk of recapture of the tax credits by the Dept of Revenue. A buyer will usually require that the seller indemnify the Buyer from this in the purchase agreement. Depending on the dollars involved, bonding against recapture is an option, but usually the indemnification will be based upon the seller’s financial ability. In terms of the risk of recapture from this type of recurrence, it is actually very low.

The Buyers
The market for the BTC is growing and stabilizing, and, being a certificated tax credit, the BTC is attractive to an increasing pool of buyers due to its dollar-for-dollar credit against Massachusetts taxes, low risk of recapture by the DOR (as the environmental solution precedes the BTC’s issuance), and the statutory language that allows buyers to not be affiliated or connected with the project in any manner whatsoever.

Conclusion
Philosophically, the BTC is no different from other tax credits, but practically speaking, it is a “certificated” credit which makes transfer more efficient, the risk of recapture is low, and there are no ongoing compliance and accounting requirements, all of which are elements that are prevalent in, and serve to complicate, other types of tax credits. As LSPs working on remediating Brownfields sites, expanding your focus to advocate that your clients utilize and take advantage of the BTC amounts to the performance of an important industry service. You will be assisting in the development of an efficient marketplace, a market that can trade and monetize these credits, and you will be sustaining and assisting the development process which creates our employment opportunities, while allowing the field of environmental remediation to continue beyond LSP involvement, thereby raising the tide for all boats.