Paul Hyde, president of Real Estate Recycling, has tapped environmental response funds to build on formerly polluted sites like this one in Brooklyn Center.

Richard Tsong-Taatarii, Star Tribune

Brownfield development efforts set to lose key revenue source

  • Article by: DON JACOBSON
  • Special to the Star Tribune
  • August 2, 2012 - 11:09 PM

Those involved in the cleanup and return of polluted "brownfields" to productive use say they're preparing for the loss of a key tax revenue stream that has been used to pry loose millions of dollars for private investment in contaminated urban sites.

But they are vowing to fight at the next state Legislature for its reinstatement, calling it a boon for metro-area cities as employers and multifamily housing developers are increasingly seeking convenient sites for their new buildings.

The tools consist of "environmental response funds" (ERF) administered by Hennepin and Ramsey counties. Since 2001, the money has come from mortgage registry and deed fees paid by buyers when properties are transferred or sold within the counties, amounting to 0.01 percent of the property's assessed value -- about $15 for a $150,000 transaction.

The funds are used to perform the costly cleanups of polluted sites before they can host new development.

The fee had been renewed by the Legislature every four years -- until the last session, when its renewal was opposed by the Minnesota Association of Realtors. The group asserted it was an unfair burden on home buyers at a time when affordability was paramount in efforts to break the residential housing slump.

The association won the argument, and as a result, Hennepin and Ramsey counties are preparing their last rounds of ERF grants to cities and developers, and leaders in the brownfields restoration movement are mourning its loss, which is set for Jan. 1.

Paul Hyde, president of Minneapolis-based Real Estate Recyclers, says the ERF grants have been vital in his company's work to redevelop polluted sites in St. Louis Park, Brooklyn Center and Minneapolis and elsewhere into hundreds of thousands of square feet of new office and warehouse space.

"It's so important because we've used it as local funding match, which is required to access the much larger pool of cleanup funds available from the state and Metropolitan Council," Hyde said. He added that the group's latest project -- the 90,000-square-foot France Avenue Business Park IV office-warehouse building on what was once a heavily polluted Superfund site in Brooklyn Center -- wouldn't have been possible without the ERF program.

"These cleanup efforts aren't getting any cheaper, so if you're going to create jobs, create tax base, and clean up the environment, you need this money," he said. "We have another project in Brooklyn Center, a 60,000-square-foot office-warehouse, which is approved but the site needs a $2.5 million cleanup. If the ERF is gone, we won't be able to leverage enough from the other funds to do it."

Hennepin County officials say the nearly 300 grants totaling over $41 million awarded over the years has resulted in an increase of $433 million in property values. Ramsey County claims the $5.6 million it has distributed has helped produce 4,370 permanent jobs and 1,154 units of housing.

One of the users of the Ramsey County funds has been the St. Paul Port Authority, which tapped the ERF for its redevelopment of polluted former railroad shops in the city's North End into the Great Northern Business Park. Lorrie Louder, its director of business and intergovernmental affairs, said it was "critical" in the creation of hundreds of jobs there.

"We took land that was essentially vacant and we were able to attract four businesses that have invested $11.8 million in new buildings and nearly $500,000 in equipment," she said. "Every year those properties are paying almost $580,000 a year in property taxes."

Louder promised she and other members of the brownfields community would be back at the Legislature to push for its reinstatement.

"I'm ready to roll for the next session," she said. "It has a lot of support from the commercial real estate industry, and the chambers of commerce. When you're looking at such a small amount of tax, the benefits far outweigh the modest costs."

Don Jacobson is a St. Paul-based freelance writer.

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