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Proposed Changes to Part 375 Remedial Program Regulations: Implications for Real Estate Developers and their Financing Institutions

By Kevin Rogers and Rachel Henke (Roux)

On February 14, 2024, NYSDEC (the Department) issued a Notice of Proposed Rulemaking for amendments to its regulations at 6 NYCRR Part 375 (Part 375), which govern New York State remedial programs, including the Inactive Hazardous Waste Disposal Site Program (State Superfund), the Brownfield Cleanup Program (BCP), and the Environmental Restoration Program. The public can submit written comments on the proposed Part 375 amendments until 8:00 p.m. on May 21, 2024. However, when NYSDEC will promulgate final Part 375 regulations following the public comment period is still unknown.

These proposed regulatory revisions mark a continuation of NYSDEC’s efforts to amend Part 375, which began in December 2021. The current proposal reflects feedback received from various stakeholders following the initial proposal; however, many provisions remain unchanged. A discussion of certain noteworthy changes to the Part 375 regulations that are expected to have significant impacts on real estate developers follows.

  1. BCP Conditional Track 2 instead of Conditional Track 1

NYSDEC proposes to effectively replace the existing “Conditional Track 1” cleanup track with a new “Conditional Track 2” cleanup track for the BCP, consistent with its initial December 2021 proposal. Under the existing Part 375 regulations, a BCP site achieving the Unrestricted Use Soil Cleanup Objectives prior to issuance of the Certificate of Completion (COC) but requiring post-COC remediation of residual groundwater and/or soil vapor contamination would initially be granted a Conditional Track 1 COC. If the applicant subsequently demonstrates the achievement of remedial action objectives for groundwater and/or soil vapor within five years of COC issuance, then NYSDEC would remove the condition and modify the COC to an unconditional Track 1 COC.

However, under the proposed revisions, NYSDEC would initially grant a “Conditional Track 2” COC to the applicant in the same set of circumstances. If the applicant demonstrates achievement of the post-COC remedial action objectives, then NYSDEC would convert the original Conditional Track 2 COC to a “Modified Track 1” COC. The proposed regulations state that NYSDEC would view a BCP site as having achieved a Track 2 cleanup upon issuance of the Conditional Track 2 COC and would only recognize the site as having achieved a Track 1 cleanup when the Department converts the COC to a Modified Track 1 COC.

The conversion from a Conditional Track 2 COC to a Modified Track 1 COC complicates the calculation and claiming of BCP tax credits. The tax credits for Track 1 cleanups are greater than for Track 2 cleanups. A Conditional Track 2 COC holder would only be permitted to claim site preparation credits for a Track 2 cleanup, even though it had completed a soil remediation to Track 1 standards. Even if the applicant successfully petitioned NYSDEC to convert its Conditional Track 2 COC into a Modified Track 1 COC within five years, the New York State Department of Tax and Finance (NYSDTF) currently lacks a mechanism or authority to allow the applicant to claim the incremental tax credits for a Modified Track 1 COC. This uncertainty in an applicant’s ability to claim the Track 1 tax credits may discourage investors from supporting such projects.

  1. Site Cover System Definition

NYSDEC proposes a new definition for “cover system or site cover” under the BCP, recognizing it as a form of engineering control and specifying cleanup level-specific design requirements.

Notably, compared to NYSDEC’s 2021 proposal, the Department eliminated a previously proposed requirement to estimate the cost of a site cover system in the Remedial Action Work Plan (RAWP). NYSDEC’s previous proposal would have limited the applicant’s site preparation tax credits associated with a site cover system to the estimate provided in the RAWP, even if the incurred site cover costs exceeded that initial estimate.

In addition, the proposed definition of site cover system recognizes that soil or hard scape (e.g., foundation elements, paving) may comprise the site cover system. This is a welcome change compared to NYSDEC’s 2021 proposal, which would have recognized only soil for site cover systems and precluded the availability of site preparation tax credits for any hard scape serving dual remedial and development functions. BCP project teams should be careful when preparing the RAWP to distinguish between remedial and development-related elements of any proposed hard scape.

  1. Change of Use Definition & Associated Work Plan Requirement

NYSDEC still proposes to modify the definition of “change of use” to include any alteration to the tax lot designation or boundary of a BCP site. In comments to the 2021 proposal, stakeholders had opposed the addition of tax lot modifications to the regulatory definition of “change of use,” as tax lot modifications do not appear to fit neatly under the statutory definition of “change of use.” Questions remain regarding precisely when an advance change of use notice for tax lot modification should be submitted to the Department if this change is ultimately implemented.

NYSDEC’s proposed regulations would also mandate the submission of work plans for all change of use notices, unless the proposed activities are already covered by an existing approved BCP work plan or Site Management Plan—in which case, the existing work plan should be identified to NYSDEC. Alternatively, a waiver of the work plan requirement may be granted by the Department for a change of use that does not involve any physical alteration of the site.

Should these proposed changes be finally adopted into the Part 375 regulations, developers and their project teams should remain cognizant of the impact that the change of use notice and associated work plan requirement may have on their construction schedules.

  1. Codified Limits on Tangible Property Credit Eligibility

NYSDEC seeks to incorporate into the Part 375 regulations two existing limitations on tangible property credit eligibility under the Environmental Conservation Law.

First, if the contamination at a proposed BCP site is comprised exclusively of groundwater and/or soil vapor contamination that is emanating from an off-site source, then the site is ineligible for the tangible property credit component of the BCP tax credits.

Second, any properties that have “previously been remediated under one of the Department’s remedial programs so that it may be developed for its then intended use” are ineligible for the tangible property credits. The proposed Part 375 regulations effectively mirror the statute and specify that the applicable remedial programs include the Inactive Hazardous Waste (RCRA) Site Program, the State Superfund Program, the Environmental Response Program, and the Spill Response Program under Article 12 of the Navigation Law.

NYSDEC commonly invokes the “previously remediated” exclusion to limit or outright deny tangible property credits to BCP sites linked to a closed spill case or other form of arguably completed remedial action. However, a key consideration is whether the prior remediation of the property achieved a cleanup level appropriate for its “then intended use” as reflected in the zoning of the property at the time of the prior remediation. If further investigation of the property demonstrates that the prior remedy did not achieve the then-applicable remedial standards, the applicant may petition NYSDEC to recognize its eligibility for tangible property credits before the Department issues the COC.

  1. Responsibility for Off-Site Groundwater Contamination 

In its 2024 proposal, NYSDEC seeks to clarify the obligations of BCP volunteers relating to off-site contamination. The proposed revisions state that volunteers may need to conduct “off-site field investigation and sampling” to identify and assess potential areas of contamination to complete a qualitative exposure assessment. These off-site investigations may entail evaluating nearby structures for soil vapor intrusion and sampling off-site soil vapor, groundwater, and/or soil if there are potential off-site exposure pathways. The proposed language greatly expands upon the current regulatory requirement, which only mandates that volunteers perform a qualitative exposure assessment without requiring any off-site investigation. However, volunteers would still be exempted from any obligation to implement a remedy to address potential off-site impacts.

This proposed change to volunteer off-site investigation requirements may impact project costs and scheduling, as it may be difficult to estimate the appropriate scope of off-site investigation and the volunteers may need additional time to negotiate access to third-party properties. As this investigation work must extend beyond the designated boundaries of the BCP site, there are also open questions about whether the incurred off-site investigation costs would qualify for BCP tax credits.

In conclusion, the proposed amendments to NYSDEC’s regulations at Part 375 present both opportunities and challenges for stakeholders involved in New York State remedial programs. While the revisions aim to enhance clarity and effectiveness in addressing environmental concerns, they also introduce new complexities—particularly regarding tax credit eligibility and the management of off-site contamination. As the public comment period comes to a close, it would be prudent for all interested parties, including developers, environmental consultants, and counsel, to engage constructively with the public comment process to ensure that the final regulations are balanced and workable for the regulated community. Ultimately, these Part 375 regulatory changes have the potential to shape the future landscape of remediation efforts and land redevelopment in New York State for years to come.