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| Governor Fletcher signs House Bill 272, the most extensive reform of Kentucky’s tax code in more than fifty years. |
By Herb Petitjean
Kentucky’s brownfield program, though fairly new, has already had a number
of successes — including three projects that have won prestigious Phoenix
Awards. Action by the 2005 Kentucky General Assembly promises to bring even
greater achievements.
Kentucky is blessed with an abundance of greenfields. But this blessing has been a curse for brownfield redevelopment. With an absence of incentives, it was much easier for a developer to build on farmland rather than tackle a brownfield.
Tax Incentives
Tax reform legislation enacted this year establishes the first state incentives
for brownfield redevelopment in Kentucky. It is hoped that this will level the
playing field between brownfields and greenfields and reduce the estimated 130
acres of farmland lost per day in the commonwealth.
A goal in designing the incentives was to ensure that “the polluter pays.” A property is not eligible for incentives if there is a responsible party financially able to conduct the cleanup.
Also, the recipient of incentives must be a “bona fide prospective purchaser.” This requirement ensures that the redeveloper has no affiliation with the responsible party, is purchasing the property with full awareness of contamination likely to be encountered and is committed to acting in a responsible manner.
Recipients of the brownfield incentives must pass through Kentucky’s
Voluntary Environmental Remediation Program (VERP). In this program, an applicant
and the Environmental and Public Protection Cabinet enter into an Agreed Order.
Upon satisfaction of the provisions of the order, the cabinet issues a “covenant
not to sue.”
For three years following the issuance of the covenant, the property will not
be subject to local ad valorem property taxes and will have its state ad valorem
property tax reduced from 31.5 cents per $100 of assessed value to 1.5 cents
per $100 of assessed value.
In addition, qualified parties will receive up to $150,000 in tax credits for expenditures made in order to meet the requirements of the VERP Agreed Order. The allowable credit for any taxable year is a maximum of 25 percent of the credit authorized. The credit may be carried forward for 10 successive taxable years.
Other Changes
The 2005 legislative session also brought other changes related to contaminated
properties. The state Superfund law was amended to provide liability protection
for bona fide prospective purchasers and for owners of properties contaminated
by releases on adjacent properties. This updates Kentucky law to make it closer
to federal law, as amended by the Small Business Liability Relief and Brownfield
Revitalization Act.
The legislature also enacted the Uniform Environmental Covenant Act (UECA), making Kentucky the third state to do so. The National Conference of Commissioners on Uniform State Laws developed the UECA.
In general, U.S. property law has not provided a good mechanism for ensuring protective measures remain in place at properties where contamination is being managed on-site rather than removed.
The environmental covenants created by the UECA are more enforceable and easier
to maintain over time than existing institutional control mechanisms.
This greater assurance benefits nearly all of the parties involved — state
environmental regulators, property owners, local governments, environmental
groups, developers, lenders and title insurance companies.
BFN
Herb Petitjean is brownfields coordinator for the Commonwealth of Kentucky.