A Case for Public Funding for Brownfield Redevelopment Projects

By Chad Farrell of Encore Redevelopment, December 2008

Tax credits and other forms of public funding are often used to “level the playing field” regarding the increased costs associated with redevelopment projects in established, previously developed areas in comparison with projects undertaken on raw, unencumbered land.  Tax credits are generally available to address historical preservation concerns, downtown redevelopment initiatives, infrastructure issues and renewable energy components.  In addition, brownfield tax credits are also available in many states and at the federal level to attract interest in these complicated, higher risk sites and provide them with additional capital to bridge the gap between the seller’s expectation of property value and the buyer’s need to both cleanup and redevelop the property.  In fact, in many cases brownfield tax credits are absolutely necessary to address the financial realities of properties that are “upside down”, where the cost of cleanup exceeds the value of the property. 

The following facts regarding the effect of public investment on leveraging private investment and improving viability of brownfield redevelopment deals were published by the Northeast-Midwest Institute in an article titled “A Proposal to Increase Grants for Brownfields Redevelopment” in March, 2008.

• 80% of all completed brownfield redevelopment projects have required some form of public subsidy for viability.

• The EPA Brownfields Program reports it has leveraged 48,238 jobs and $11.3B in new investment for cleanup and redevelopment since 1995 using slightly more than $800M of federal funding (greater than 10:1 return).

• The results of eight studies of other publicly funded brownfield assessment programs (city and state funding) indicate an average return of 8:1 ($1 public investment leverages $8 of total investment).

• Studies indicate that public brownfield investment of between $10K and $13K will leverage one job.  For reference, the standard used by HUD and the US Small Business Administration for judging the viability of public investment in job creation is $35K per job.

• Cleanup and redevelopment of brownfield sites leads to property value increases on the order of 5 to 15% for properties up to 3/4 mile from the redeveloped brownfield site, with property value increases of greater than 100% for "impact projects" such as the conversion of industrial facilities to parks and mixed-use properties.

• Public investments in brownfields redevelopment projects are generally recouped from local taxes generated by the redeveloped property within 5 years (although tax credits may extend this period).