State revamps grant, loan programs for environmental cleanup
New legislation making its way through the Michigan legislature could make it easier for developers to secure the funds to pay for environmental cleanup needed before building or renovating on contaminated property.
Senate Bill 1328 proposes key modifications to the Department of Environmental Quality grant and loan program for remediation of contaminated sites. In the past, projects could receive up to $1 million — in some cases, more — from the state to handle environmental investigation and cleanup, demolition, lead and asbestos abatement and other activities to prepare a site for development.
The grant or loan must flow through the local unit of government, such as a city, county or brownfield redevelopment authority. The local unit is technically the applicant, but generally works closely with the private developer.
When taking out a loan, the statute currently requires that the governmental entity pledge its “full faith and credit” to re-pay the loan. In turn, the local unit typically requires the private developer to provide financial security such as a letter of credit to guarantee repayment of the loan.
Loan terms are very favorable: no principal or interest for the first five years. The loan is then paid off over the next 10 years and carries a very low interest rate. Right now, such loans are available at 1.5 percent.
Grants and loans provided in the context of private development normally result in new capital investment that will create new property taxes. Consequently, tax increment financing from the project can be used to repay the loans — meaning neither the developer nor the local unit of government ever has to write a check.
The grant and loan program has helped developers secure upfront monies for remediation and abatement. Without the DEQ program, developers would either have to dig into their own pockets or borrow money for the clean-up phase — and banks have been increasingly hesitant to make such loans.
Currently, there is virtually no balance remaining for grants, and there is approximately $25 million available for loans. The proposed legislation will change that:
- It will shift $12.5 million from the loan program to the grant program. Grants have always been more popular than loans. This fix puts the funds where developers want and need them most.
- It will eliminate the need for the local unit of government to pledge “full faith and credit” for loans. While details still need to be worked out, the hope is that there may be some flexibility on the terms of the loan between the state and the local unit, such as relying solely on TIF from the project to repay the loan.
The DEQ grant and loan program has long been an extra tool for developers who are willing to build on the most contaminated sites. When the changes to the program are approved, that extra tool should be more responsive and useful.
John V. Byl is a partner at the law firm of Warner Norcross & Judd LLP. He chairs the Michigan Chapter of the National Brownfield Association and is vice chair of the National Board of the National Brownfield Association. He can be reached at email@example.com.