Financing Brownfields Redevelopment

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Cities and older suburbs represent America's emerging markets - markets reflected in locally unmet consumer demand (America's distressed communities possess more than $85 billion in annual retail purchasing power), underutilized labor resources and developable, well-located land that is rich in infrastructure. Brownfields redevelopment is the vehicle to unearth the development potential of our urban communities. It is also the means for metropolitan areas to grow smarter - recycling our Nation's land to promote continued economic growth while curtailing urban sprawl and cleaning up our environment.

From Remediation to Reuse

Communities must often overcome serious financial and environmental barriers to redevelop brownfields. The availability of greenfields, concerns with liability, the time and cost of cleanup, and a reluctance to invest in older urban areas deters private sector investment and prevents brownfields reuse. Public investment combined with private financing can provide incentives for redeveloping brownfield properties and level the economic playing field between greenfields and brownfields.

The Department of Housing and Urban Development's Community Development Block Grant(CDBG) and Section 108 loan guarantee programs along with the Brownfields Economic Development Initiative (BEDI) are flexible sources of funding for brownfields redevelopment.

HUD Economic Development Funding for Brownfields

Community Development Block Grants

Section 108 Loan Guarantees

Brownfields Economic Development Initiative

Economic Development Initiative Grants

Renewal Communities/Empowerment Zone/Enterprise Community Initiative

HUD's economic development programs can stimulate economic development by leveraging private investment -- making brownfield projects feasible. These programs along with other federal resources and the Brownfields Tax Incentive can provide communities with the financial assistance necessary to return brownfields to productive uses.

Eligible Activities for CDBG/Section 108/BEDI Funding

Economic Development

Land Acquisition

Site Preparation and Assessment

Demolition and Clearance of Property/Remediation

Acquisition and Construction of Public Facilities

Rehabilitation of Public Real Property

Community Development Block Grants

The Community Development Block Grant (CDBG) program is one of the first tools cities turn to when trying to revitalize distressed communities. HUD awards CDBG funds directly to metropolitan cities and urban counties (entitlement communities), or to States for distribution to nonentitlement communities. Any activity undertaken using CDBG funds must meet one of the program's three national objectives:

1. Benefit low and moderate income persons.
2. Prevent or eliminate slums or blight.
3. Address conditions that present a serious and immediate threat to the health and safety of the community.

Brownfields redevelopment activities are eligible uses for CDBG funds; however, these activities must be incorporated into local government priorities through the community's Consolidated Plan and annual action plan.

CDBG Float - CDBG recipients often do not use their entire block grant allocation in the year it is received. CDBG funds not used to meet current project costs remain on the community's line of credit until needed. Such funds are referred to as the "float" since they seem to be just floating there, waiting to be used. Therefore, CDBG funds awarded in one year may be drawn down for several years as long-term projects move to completion. An entitlement community may tap its CDBG account on an interim basis to finance short-term, low-interest projects.

CDBG floats may be used for any CDBG eligible activity. The maximum loan size is determined by the amount of funds in a jurisdiction's CDBG account available to cover the float. Float loans cannot be extended for more that two and one-half years.

Section 108 Loan Guarantee Program

To support economic development projects, local governments can use Section 108 Loan Guarantees. This economic development loan guarantee program provides communities with a source of financing for economic development, public facilities and large scale physical development projects and other brownfields redevelopment activities. Activities funded from loans guaranteed under Section 108 must meet the basic requirements of the CDBG program.

Communities can apply at any time on a non-competitive basis for Section 108 loan guarantees. The Section 108 Program requires local governments to pledge annual CDBG funds along with additional security as collateral for the loan guarantee. Eligible applicants may apply for up to five times their CDBG entitlement amount, minus any outstanding Section 108 commitments and/or principal balances on Section 108 loans.

Brownfields Economic Development Initiative

The Brownfields Economic Development Initiative (BEDI) provides communities with funds for the clean-up and economic redevelopment of brownfields. BEDI funds are used to support and enhance the financial viability of projects assisted with Seciton 108 loan guarnatee funds by helping to ensure that the project is finicially successful and able to repay the related Section 108 loan guanantee.

BEDI grant funds may be used for any eligible activity under the Section 108 program including property acquisition, economic development, public facilities and related activities. BEDI grants are awarded on a competitive basis and must be used to enhance or improve the viability of projects financed with Section 108 loan guarantees.

Renewal Communities, Empowerment Zones and Enterprise Communities

In Empowerment Zones (EZs) and Enterprise Communities (ECs), residents are working together to create economic opportunities for their neighborhoods and to build public-private partnerships for sustainable community development.

Many EZs and ECs identified brownfields redevelopment as a critical element of their local revitalization strategy. EZs and ECs offer significant economic incentives that may be used for brownfield cleanup and redevelopment.

• Federal grant funds are available for brownfields redevelopment activities.
• Brownfields located in EZs and ECs are eligible for the Brownfields Tax Incentive. The tax incentive reduces the cost of cleaning up of contaminated, abandoned sites, in economically distressed areas by permitting clean-up costs to be immediately deducted for tax purposes, rather than require the expense to be capitalized.
• Businesses locating in EZs and ECs can also take advantage of tax-exempt bond financing, Section 179 Expensing, the Work Opportunity Tax Credit and the Welfare-to-Work Tax Credit.