Brownfields bloom green
Developers cash in on tax breaks for pollution cleanup from Pataki administration

By BRIAN NEARING, Staff writer
First published in the Albany Times Union Sunday, June 10, 2007

In its final days, the Pataki administration gave high-profile developers millions of dollars in tax breaks for pollution cleanup to convert tainted land into lucrative real estate.

While the tax incentives for brownfield cleanup have been a magnet for major developers, state officials say the program could cost much more than expected without major changes and that too many of the breaks are being used to erect high-end buildings rather than clean the sites they're on.

Critics fear the tax deals are not being used effectively for their prime intent: to convert polluted sites in poor neighborhoods to industrial, commercial and residential space.

In adopting the program in 2003, the state offered very attractive financial incentives: tax credits for 10 to 22 percent of the cost of cleaning and -- what turned out to be even more important -- all new construction without limitation. Property-tax credits are also offered for 10 years.

Tax credits are as good as cash for five years. In any year, if a recipient's tax bill is less than the credit, a refund is issued from the state treasury.

Now the brownfield bill is coming due. Some are wondering whether taxpayers can afford it -- and whether those who need help the least are benefiting the most as they conduct relatively easy and inexpensive cleanups.

Among the recipients:

Real estate mogul Louis Cappelli, popularly known as the Donald Trump of Westchester County, for a $250 million hotel, condominium and office project in White Plains. Cappelli, a major backer of Republican Jeanine Pirro's unsuccessful bid last year for attorney general, had a no-bid state contract to provide charter jet flights for former Gov. George E. Pataki. Cappelli has been pursuing state approval for a casino in the Catskills.

Cappelli's project qualifies for the full 22 percent tax credit, so he could get a credit worth $55 million -- or more.

Media magnate Barry Diller, owner of Home Shopping Network, Ticketmaster and on-line mortgage service Lending Tree, for a new $140 million headquarters tower in Manhattan. In 2006, Diller was the highest paid CEO in America, receiving $469 million, according to published reports.

Stearns & Wheler, a Syracuse-based engineering company with a history of supporting GOP causes, which had credits for seven of the 25 projects approved by DEC. During debate over a $13 million project for high-end loft apartments in a former plastics factory in downtown Syracuse, local advocates for neighborhood revitalization were so outraged during a public meeting that they pelted city officials with coal and empty holiday present boxes.

The future of the program is now is flux. Last week, Eliot Spitzer, a Democrat, proposed changes that would limit the size of the tax credits to $5 million, prevent developers from speculating by reselling credits, and direct more assistance to cleanup costs instead of construction.

The tax credits already approved, along with another 29 projects where cleanups have begun, could cost the state "hundreds of millions of dollars over the next few years," according to Spitzer's bill.

And most of the credits will subsidize bricks-and-mortar projects, like Diller's tower, designed by renowned international architect Frank Gehry, and Cappelli's luxury hotel, which was built on a site that had been polluted by underground petroleum storage tanks.

Of the downstate projects, 85 percent of credits will cover construction costs. Upstate, the imbalance was even more pronounced, with 95 percent going toward construction, according to figures provided by the state Budget Division.

"There are applications for 150 more sites in the pipeline now. The hit on the state could be humongous," said Judith Enck, Spitzer's deputy secretary for the environment.

"We want to change the program so tax dollars go toward actual cleanup, and not for things that have little to do with remediation," she said.

Denise Sheehan, who was DEC commissioner when the majority of the tax breaks were approved, and Dale Desnoyers, director of the division of environmental remediation who signed the approvals, both said politics played no part in what happened.

Nineteen of the 25 approvals were granted during the last three months of the Pataki administration. Desnoyers signed 10 of those on Dec. 19 or later.

"There was no concerted effort from the administration to push them through," said Sheehan on Friday. "There were a lot of projects in the queue that were completed in a similar time frame.

Sheehan, now development and planning director for the town of Colonie, said she had "no idea" whether tax break recipients were also GOP contributors. She said she could not recall the Cappelli hotel project.

Attempts to reach Cappelli's offices for comment were not successful late Friday. A call to Stearns & Wheler's offices was not returned.

"I can't say whether any projects were mostly redevelopment, not cleanup," Sheehan said. "Without this program, there is not enough incentive for developers to take a brownfield. Sometimes there is a fine line from creating an incentive and opening the door wider than you intended."

Spitzer's proposed fix also would close the door on developers selling tax credits by flipping properties after July 1.

That's already happened in a Buffalo project, where the developer, Krog USC Associates-I LLC, sold a cleaned 25-acre site along a former ship canal -- already approved for the tax credit -- last July for $12.4 million to another company, Ship Certain LLC, according to Buffalo real estate records.

That corporation is affiliated with Cardinal Industries, a Los Angeles real estate brokerage owned by George Hicker, a former basketball star from Syracuse University from the 1960s. Hicker is a business partner in another venture with former teammate Jim Boeheim, who coaches the university's basketball team.

"One of the big questions is what is going to happen to these properties and will they be grandfathered? Years from now, if they decide to build something even bigger, that blank check is going to be even bigger," said Jody Kass, co-director of New Partners for Community Revitalization, a New York City not-for-profit organization that had pushed for the 2003 tax credit program and now wants changes.

Kass said the tax credits are being skewed toward big developers, while smaller projects, like a proposal for low-income housing for senior citizens in Harlem, faced denials from DEC.

Lucille McEwen heads a Harlem church consortium trying to build 53 apartments for the elderly on the polluted site of several film production companies.

DEC rejected $1.1 million in tax credits for the project in November 2006, saying the pollution likely resulted from contaminated fill used on the site years ago.

"Nobody wants to kill good projects," said Kass. "One size does not fit all when it comes to brownfields. We need something that looks at the real economic needs of these projects.

"We understand why the governor is trying to stop the hemorrhaging," said Kass. "If he is going to fix it, this is our one and only opportunity."

Kass said Spitzer should link tax breaks to the Brownfield Opportunity Area program, which creates a community-based planning process for proposals. Developers have not been willing to embrace the program.

"The way it works now, why should developers talk to the community? They can do whatever they want and get a zillion dollars in tax credits," Kass said.