Developer Peter Krog is gearing up to spend $50 million to transform the historic Trico Products Corp. plant on Washington Street into a pair of hotels, office space and stores.
It’s an ambitious project for an iconic industrial building that has stymied developers for years. But Krog said his plans could be derailed, too, if the state doesn’t extend its program that offers lucrative tax credits to projects on environmentally contaminated sites.
“We have to know what kind of shape the program’s going to be,” said Krog, who warned that two other Buffalo projects he’s involved with – he won’t say which ones – could be jeopardized if the Brownfield Cleanup Program goes away or is watered down too much.
If there’s one thing the Buffalo Niagara region has in abundance, it’s brownfields – an unfortunate and costly legacy of our great industrial heritage. Those properties are harder to redevelop because the environmental cleanup required makes the overall costs higher – often too high to make the project financially viable.
Developers usually can find cheaper alternatives on greenfields in the suburbs, but that only encourages sprawl and leaves the contamination in place at the old industrial sites.
That’s what makes the state’s Brownfield Cleanup Program so important to the Buffalo Niagara region. It provides lucrative tax credits to developers who undertake challenging projects to clean up old industrial sites and put them back to good use.
“It’s the best thing to do for the people who live in these neighborhoods and there’s no other way to get it cleaned up,” said developer Sam Savarino. “It’s been a primary reason why there’s been underdevelopment in these neighborhoods.”
But developers like Krog and Savarino are worried because the state program that provides brownfield tax credits is set to expire next year. If that happens, turning the multitude of old factories and contaminated sites will be a lot harder to do. And even if the program is extended, but watered down, they worry that the costs of cleaning up those sites will prove to be too much of a burden for projects to be viable.
The longer the uncertainty lingers, the more damage it does.
“It’s one of the most important things to continue the momentum we’re seeing in development,” said Dottie Gallagher-Cohen, the president of the Buffalo Niagara Partnership.
In fact, no county has benefited from the Brownfield Cleanup Program more than Erie County, which has put 28 projects into the program over the last six years. Niagara County has put 10 projects in the program since 2008, the seventh-most in the state.
“The City of Buffalo has seen a tremendous amount of success with this program,” said Brendan R. Mehaffy, executive director of the city’s Office of Strategic Planning. “There are many projects that would not have happened but for this program.”
Savarino’s $31.7 million project to turn the former F.N. Burt box factory on Seneca Street into high-end office space and apartments is one of them.
The project, which is expected to be ready for its first tenants later this year, will give a nice boost to an old industrial building on the edge of Larkinville. But Savarino said it wouldn’t be happening if it weren’t for the brownfield tax credits.
Savarino’s project is safe because it will be completed before the program is set to expire. But for projects that are just getting underway or on the drawing board, the fate of the brownfield tax credits are up in the air.
A pair of reports last year lambasted the program for showering more than $1.1 billion in tax credits on just 146 projects, including some lavish downstate developments, such as a new Ritz-Carlton Hotel in White Plains. A report from state Comptroller Thomas DiNapoli criticized the brownfield program as being poorly targeted and too generous to projects that probably would have been done even without incentives.
Gov. Andrew M. Cuomo said he wants to keep the Brownfield Cleanup Program in place. “I believe in the brownfields program,” Cuomo said during a stop in Buffalo last week.
But the governor doesn’t share the development community’s sense of urgency. “There’s less pressure in some ways because it doesn’t expire until next year,” he said. “For the legislature, next year is a long time away.”
The Cuomo administration earlier this year proposed extending the brownfield program, but also called for a series of reforms. Cuomo’s proposal would allow remediation tax credits only for “actual cleanup costs.” The Cuomo plan also would put new eligibility restrictions on the program, limiting it to properties that have been vacant for at least 15 years or vacant and tax-delinquent for 10 years or more. Other projects deemed to be “priority” developments or where the cleanup costs exceed the property’s value also could qualify.
Brian T. McMahon, the New York State Economic Development Council’s executive director, opposes the requirement that eligible sites be vacant for a decade or more. He argues that any project that cleans up a contaminated site is good for the community.
He didn’t want to discuss Cuomo’s proposed reforms in detail last week, saying only that his group would only support a modest reduction in the incentives. But he thinks the current program works just fine, with most of the cases cited by critics joining the program before the 2008 reforms put a cap on the incentives.
Those reforms capped the tax credits at $35 million for nonindustrial projects and $45 million for manufacturing projects. About 75 percent of the tax credits granted under the program went to the 20 biggest projects, all of which came into the program before the 2008 reforms took effect. Since then the average project has received $1 million in tax credits.
Local developers say time is of the essence in determining the fate of the brownfield program. That’s because developers don’t receive any of the tax incentives until they complete the project, and it takes an average of just under four years from the time a site is accepted into the brownfield program until it’s finished.
The brownfield tax credits can be worth a lot, too. Excavating contaminated soil from the site of the new Conventus medical office building on the Buffalo Niagara Medical Campus added $9 million to the project’s cost, said Dennis Pennman, executive vice president at Ciminelli Real Estate Corp. The brownfield tax credits for the site will help offset that added expense.
“The Brownfield Cleanup Program levels the playing field and makes these brownfield sites viable properties,” Werthman said.
When you live with the legacy of a dirty industrial past, that means a lot.