January 19, 2021

CSG Law Alert: What Real Estate Developers Need to Know About the 2020 New Jersey Brownfields Tax Credit

On January 7, 2021, New Jersey Governor Murphy signed the New Jersey Economic Recovery Act of 2020. P.L. 2020 c. 156. Included within the statute is the Brownfields Redevelopment Incentive Program Act. This section of the law creates a tax incentive program for a redeveloper of a brownfield site to obtain a tax credit to close a “project finance gap” and provide needed financing for the remediation and redevelopment of a brownfield site. The program, which is administered by the New Jersey Economic Development Authority (“EDA”), is summarized below.

1. The tax credits available under the legislation are set at $50 million annually for six years.

2.  Eligible costs include both traditional remediation expenses for soil and ground water and costs for abating hazardous conditions in a building, such as asbestos or lead paint removal, and certain demolition costs.

3.  Tax credits will be awarded through an application process for developers that demonstrates:

   • The developer has not commenced remediation or clean up beyond preliminary assessment or site investigation prior to applying for tax credits unless the developer can certify that it did not know or could not have known the extent of cleanup at the time remediation was commenced

   • The project is on a brownfield site

   • The project is not economically feasible without the tax credit

   • A project financing gap exists

   • The governing body of the municipality submits a letter supporting the project

   • Each worker engaged in performing remediation or construction work is paid at prevailing wage rates.

4.  The tax credits are to be awarded through a competitive process to developers in good standing with the department of Labor and Workforce Development. The factors to be considered in reviewing applications include the economic feasibility of the project, whether the project promotes job creation and whether the project reduces environmental and health stressors in an economically disadvantaged community.

In addition to the “but for” test, there are other limitations in the Act which will make the tax credit of limited utility. The tax credit is only awarded when the remediation is complete and is limited to forty percent of the remediation expense or $4 million, whichever is less. The costs will be based upon a review by the Department of Environmental Protection (“DEP”). The Act seems to require that the developer be subject to a Memorandum of Agreement or other oversight document with the DEP, but also contains references to the Site Remediation Reform Act which did away with the Memorandum of Agreement requirement upon the creation of the Licensed Site Remediation Professional Program. The Act also includes a provision that any project that has a retail component with more than ten employees or a distribution component with more than 20 employees enter into a “labor harmony agreement”, for as long as the State has a “proprietary interest” in the project absent a finding by the EDA that such an agreement will make the project not be feasible.

Much of the details on how the program will work are to be specified in EDA regulations, which hopefully will bring clarity to some of the seemingly conflicting provisions. The Act authorizes EDA in consultation with DEP to issue short term emergency regulations to make the program operative for 180 days pending a more formal adoption.

It remains to be determined whether the program will provide real incentives for brownfield developers or, as with prior programs, it will be of little utility because of the limitations on reimbursement and non-environmental requirements.