Federal Funding Mechanisms
Many federal agencies have created and implemented new programs
for financing brownfield redevelopment, and have retooled existing
programs to assist in the effort.
Block/Formula Grants - payments made by a Federal Government
agency to States, counties, cities, or towns according to a statute-based
or regulation-based formula. The allocation formula typically is
based on the State's or other recipient government's population.
Some block/formula grant programs require the government receiving
the grant to allow residents to be substantially involved in developing
plans for using grant funds.
Direct Loans - loans from a Federal Government agency to
a borrower for a specific time period, with a reasonable expectation
of repayment. Terms of the loan may or may not require the borrower
to make interest payments.
Environmental Liability Releases - an environmental liability
release is a benefit (concession) granted by federal, State, and/or
local governments to owners or operators of facilities or businesses
(including commercial real estate properties) that frees them from
all or part of responsibility for environmental cleanup costs under
federal, State, and/or local laws. These liability releases may
be structured in advance for prospective purchasers of properties
or negotiated between the public sector and private owners/developers
with specified conditions delineating the extent of liability relief
granted and the degree of private contribution to any planned and/or
unanticipated cleanup effort. The most common types of environmental
liability releases offered by State governments include covenants-not-to-sue,
no-further-action letters, and certificates-of-release.
Guaranteed/Insured Loan - financial assistance from a Federal
Government agency in which the agency indemnifies a private lender
against the possibility that a borrower will not repay the loan.
Industrial Development Funds - Industrial development funds
are special funds established by state and local governments for
the purpose of improving real estate properties in order to make
them suitable for industrial development. These funds are economic
development tools that governments use to attract or retain industry.
Industrial Development Funds may be structured as direct pass-through
funds or as special purpose revolving funds. They draw funding through
a variety of mechanisms including special property and other taxes,
industrial development bonds, unappropriated surpluses in the controlling
government's budget, and the proceeds from the sale of real estate
and other property.
Insurance - financial assistance provided by a Federal Government
agency to ensure reimbursement for any losses that may result from
specified occurrences (such as a flood). Insurance coverage may
be provided directly by a Federal Government agency or through a
private insurance company.
Project Grants - payments made by a Federal Government agency
to another government such as a State, county, or city or a private
organization for a specific project or the delivery of a specific
service or product. Project grants include, but are not limited
to, demonstration grants, planning grants, technical assistance
grants, and construction grants.
Real Estate Investment Trust (REIT) - REITs are funds comprised
of revenues from private investors. REITs act as primary investors
when purchasing property. When applied to brownfields, the REIT
acts as the owner, thereby shielding investors from liability in
excess of the investors' initial monetary input.
Rehabilitation Tax Credits
Revolving Funds - a revolving fund is a source of money
that provides loans to specifies parties. The parties reimburse
the fund for the loan amount plus interest. Through payback of principle
and interest, the fund is able to maintain the same or increased
levels of funding. Revolving funds are typically developed through
revenue disbursement from a trust fund.
Sale, Exchange, or Donation of Property and Goods - an arrangement
in which a Federal agency provides for the sale, exchange, or donation
of Federal property or other goods including land, buildings, equipment,
food, and drugs.
State Grants - state grants can provide communities with
the funding needed for cleanup and development incentive packages
within brownfield programs. Also, grants can be made from State
trust funds for local establishment of revolving funds.
Superfund Trust Fund - the Superfund Trust Fund, also known
as the Hazardous Substance Response Trust Fund, was established
in 1990 to pay for cleanup and enforcement activities at waste sites.
Superfund Trust Fund monies are also being used to fund brownfields
national demonstration pilots as part of US EPA's Brownfields Economic
Redevelopment Initiative. This dedicated trust fund has historically
been financed primarily by petroleum excise taxes, chemical feedstock
excise taxes, and environmental income taxes. The fund has also
received monies through cost recoveries from parties determined
responsible for contaminating particular sites, penalties, income
taxes, and interest income.
The Superfund Program has cleanup activities, short-term removal
actions and/or long-term remedial actions, underway or planned for
the approximately 1300 seriously contaminated sites on US EPA's
National Priority List. Actions at Orphan Sites, where no responsible
party can be identified, are funded by the Trust Fund. The Trust
Fund also funds actions begun at sites with responsible parties
but prior to a final determination and acceptance of liability.
USEPA always tries to identify those responsible for contaminating
a site and then to make them pay for its cleanup. These responsible
parties may include the site past and current owner(s) and operator(s),
the original hazardous waste generator, and the transporters of
hazardous waste to the site.
Tax Abatements - Tax abatement is a temporary moratorium
on charging the usual tax rate on a new investment. It may take
the form of a full or partial exemption from taxes such as tangible
personal property and/or real estate. The exemption will only be
in effect for a specific period of time such as five or ten years.
The tax abatement granted might be restricted to new development
in special designated areas such as empowerment zone/enterprise
community, or it may be targeted on a case-by-case basis to particularly
desirable individual development. Tax abatements are individually
tailored regarding time and scope to allow the State or local government
to calculate the exact cost of the tax change, and thus, the exact
tax benefit offered as well. Tax abatements can make otherwise uneconomical
projects attractive to property owners, developers, and financial
supporters. These abatements can often provide a substantial incentive
for all parties to participate in particular projects. If the new
development is properly structured and successful, the community
tax base will grow at a rate, and to a size, that more than offsets
the loss of taxes due to the abatement.
Tax Incentives - tax incentives include a wide variety of
mechanisms used to encourage redevelopment of brownfields through
use of public taxation tools. These often take the form of tax credits
or tax deferrals. By crediting or deferring taxes to be paid on
property, income, or sales, governments can provide businesses with
the incentives needed to create redevelopment opportunities for
Tax Increment Financing - Tax increment financing is created
through local government's assessment of property values. Special
assessments are made on properties that are expected to accrue particular
benefits from a general improvement, or from environmental activity,
such as a cleanup. The incremental difference in tax revenues between
the original assessment rate and the new, higher assessed rate is
then used to finance the improvement activity.
Transferable Development Rights - In traditional transferable
development rights (TDR) programs, rural property owners are allocated
a specified number of TDRs in exchange for agreeing not to develop,
or to limit development on their land. These mostly rural property
owners are permitted to sell these TDRs to real estate developers,
who are then permitted to use them to exceed zoning requirements
on properties they own in other more developed areas. TDRs have
been used by local governments to preserve land for agricultural
uses, as forests, or as nature preserves. Since the landowners receive
all funds related to the purchase of development rights, existing
TDR programs are either revenue-neutral or are operated at-cost
to local governments.
Trust Funds - special accounts developed to receive and
disburse revenues from taxes and/or fees for dedicated purposes.
These funds differ from revolving funds in that they do not maintain
funding capacity through payback of loans, but through new injections
of revenue through taxes and/or fees.
Voluntary Cleanup Programs - State Voluntary Cleanup Programs
are structured to address the environmental and financing problems
associated with brownfields and other contaminated properties. These
State programs seek to encourage the cleanup of such sites in a
timely manner by eliminating many of the procedural and economic
barriers to successful cleanup and reuse. They provide a variety
of incentives for private companies and developers to voluntarily
clean up sites. These programs set clear environmental standards
and provide protection from future environmental liability. State
Voluntary Cleanup Programs include oversight, review, and approval
mechanisms to ensure that cleanup standards are met. While every
program is unique, many contain most or all of the following elements:
consolidated permits, financial assistance, land use-based cleanup
standards, flexible and clear cleanup procedures, liability release
mechanisms, professional certifications, proportional liability
provisions, tax incentives, and voluntary agreements.