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 brownfields.

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.

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