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The Economic and Social Impacts of Brownfield Redevelopment

 

ABSTRACT

At an alarming number of 450,000 in the United States (as estimated by the United States Environmental Protection Agency (USEPA)), brownfields have become an important part of urban redevelopment. Out of the 450,000 brownfields estimated, Detroit, Michigan is home to about 1,000 of them (MDEQ 2017). This paper aimed to lay out the basics behind brownfield policy using Detroit, Michigan, as a backdrop. Brownfield sites are often contaminated with hazardous pollutants, which hinder their full potential usage. Revitalizing these sites would prove to be beneficial for the surrounding neighborhoods, positively impacting the environment and society. Under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and Brownfield Law, the redevelopment and revitalization of these brownfield sites is actively promoted through grant funding. However, the environmental remediation and redevelopment of brownfields is not an easy task. Liability and regulation reliefs, along with economic incentives are needed to attract the interest of communities, policymakers, and public and private organizations. However, the result of the remediation is beneficial. Cleanup of brownfield sites increases nearby housing values and positively impacts the welfare of the communities nearby (Haninger 2017). It also helps provide space that fosters community, which increases the perceived value of properties in that community (Kotoval 2016). Additionally, a case study conducted in New Jersey (Greenberg et al 2000) showed that brownfields located in neighborhoods with high crime rates and poor and unsafe living conditions, seriously impact their surrounding neighborhoods and residents’, as well as the governments’, perception of these sites. Cleaning up brownfields would have a clear positive impact socially for those who live around them.


THE ROLE OF PUBLIC SECTOR IN DETROIT BROWNFIELD REDEVELOPMENT

Henry Ford’s invention of the assembly line changed the automotive industry forever, and the identity of the state of Michigan changed along with it. The start of mass production of Ford’s Model T on Piquette Avenue in Detroit in December 1913 marked the beginning of an age of prosperity for Southeast Michigan. A century later, it has left a legacy of contamination in its place. As of 2016, Detroit was home to over 1,000 brownfield sites according to the Michigan Department of Environmental Quality (MDEQ 2017). Detroit’s abandoned factories and overgrown lots have given the city a reputation across the world as a city lost to the age of manufacturing.

Those in Michigan see the future of Detroit a little differently. Public, private and community partners across Michigan see the remediation of Brownfield sites as essential for revitalizing this area blighted by industrial decay and urban sprawl. In the past decade community partners, both private and public, have demonstrated a strong commitment to incentivizing the cleanup of these sites. The role of the public sector in the recycling of brownfield sites in southeast Michigan is essential to the redevelopment of Detroit. However, many see this role as public money going into the pockets of private investors (Perkins 2017). The public-private partnership, as it is referred, is essential to the redevelopment of Detroit.


HISTORY OF INCENTIVIZING BROWNFIELD CLEANUP AT A NATIONAL LEVEL

The United States Environmental Protection Agency (USEPA, or commonly noted as EPA) defines a brownfield site as “a parcel of real property at which expansion, redevelopment, or reuse may be hindered by the presence, or potential presence, of hazardous substances, pollutants, or contaminants” (EPA 2017). These sites are typically areas that are contaminated by low concentrations of hazardous materials and pose a lower risk to human health than other hazardous waste sites. Brownfield sites are excluded from the National Priorities List (NPL) – “list of sites of national priority among the known releases or threatened releases of hazardous substances, pollutants, or contaminants throughout the United States and its territories” (EPA 2017) – and the Toxic Substances Control Act of 1976. The EPA estimates that there are 450,000 brownfield sites nationwide.

The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) established liability of contaminated brownfield sites to those who historically created the problem and those who now own the land, regardless of their role in the original contamination (Smith 2001). This is a significant deterrent to investors as they could be liable for any contamination on land they purchase, and is especially concerning since the extent of contamination is usually unknown. As a result, incentivizing the cleanup of Brownfield sites is a main roadblock in redeveloping these lands. It is thus necessary for the public sector to step in and make brownfield sites a real option for those looking to invest in land.

The Brownfield Program, initiated by the EPA in 1995, aimed to help the public and private sectors in revitalizing these brownfield sites by providing grant funding. By initiating this Program, the USEPA anticipated an improvement for the environment along with an increase in social and economic investments for these sites. It was not until the Small Business Liability Relief and Brownfields Revitalization Act of 2002, known as the Brownfield Law, that  the policies set forth earlier by the EPA were formalized. This issue was addressed by creating funding sources through which brownfield redevelopment could be financed.

Since CERCLA was passed in 1981, the EPA has provided economic incentives for brownfield remediation in various forms. From 1997 to 2011, the EPA offered a tax break to investors. Today, the EPA offers 5 different types of brownfield grants: assessment grants, revolving loan fund (RLF) grants, cleanup grants, area wide planning grants, and Environmental Workforce Development and Job Training (EWDJT) grants (EPA 2017) (Table 1). 

Table 1. Types of Brownfield Grants as defined by the USEPA (USEPA 2017).

epa 5 grants table

 

Along with creating new funding opportunities, the Brownfield Law also addressed part of the issue surrounding liability of contamination. If the prospective owner did their due diligence in determining the extent of site contamination and addressed problems that needed addressing, they were no longer liable for any contamination identified subsequently due to the legacy use of the site.


ROLE OF LIABILITY, REGULATION, AND ECONOMIC INCENTIVES

Promoting the environmental remediation and redevelopment of brownfield sites is not an easy task. Market-based mechanisms and incentives are needed to attract communities, policymakers, and public and private organizations. Though there are already good reasons that attract redevelopment of brownfield sites, most investors still shy away from these potentially contaminated sites due to fear of becoming liable for the cost of cleanup as established by CERCLA. Alberini et al (2005) considered the point of view of key economic agents – private real estate developers - involved in making the decisions to brownfield redevelopments, and whether economic incentives and liability or regulatory reliefs would increase these brownfields redevelopment. It is apparent from this study that developers value liability relief and they perceive contaminated sites, however big or small, as less attractive compared to regular sites. It is not a surprise to note that developers with prior experience are much more responsive and likely to deal with brownfields redevelopment than those without, but it is interesting to also note that developers without prior experience are more likely to deal with redevelopment once presented with liability relief. The main determinants of a brownfield redevelopment came down to the revenues and costs of the project. These two factors appear to drive the decision of the real estate developers whether to invest or not on these brownfield sites.


ECONOMIC IMPACT OF REDEVELOPMENT

On the surface Brownfield Redevelopment funding appears to be based on the subsidization of private-for-profit entities through taxpayer dollars. There are many reason where this public-private partnership serves the public good.

Most immediately, helping private developers reuse brownfields brings land back into the local tax base. This increases the funds available for local government services such as schools, roads, and fire departments. It also increases the value of surrounding land parcels. One EPA study reported an increase in residential property values of 5.1% to 12.8% after a nearby brownfield was assessed or cleaned up (USEPA 2014). By repurposing this land, the entire area becomes more appealing, which increases the land value and thus the tax rate.

For this same reason, if brownfields are converted to public lands such as parks or other community spaces, the redevelopment indirectly increases tax revenue by increasing surrounding property values (DeSousa 2009). Even if the investment by local governments is not partnered with private entities, redevelopment can help provide a space that fosters community, which increases the perceived value of properties in that community (Kotoval 2016).

For investors the alternative to redeveloping brownfield sites is to develop greenfields, which are defined as previously undeveloped land. Greenfields are located in suburban and rural areas, and have typically previously been used for agricultural purposes. Developing greenfields contributes to suburban sprawl, and leads to increased infrastructure costs to municipalities (Paul 2012). It is also often more expensive for investors in the instance of  residential development (DeSousa 2000).


EFFECT OF CLEANUP GRANTS ON HOUSING VALUES

The cleanup grants provide up to $200,000 to address hazardous substances and/or petroleum contamination at a brownfield site (EPA 2017). Grants given by the Program are seen to provide liability relief, which provided more assurance for the public and private organizations to redevelop these brownfield sites. Since the passing of the Brownfield Law, the EPA has awarded 924 cleanup grants totaling approximately $241.5 million (up to FY2017) (EPA 2017).

Haninger (2017) showed that these brownfield cleanups conducted under the Brownfield Program “yield a large, statistically significant, positive but highly localized effect on housing prices.” After cleanup, property value increases between 5% to 11.5%. This range falls within the range of estimated impacts (3% to 36%) based off previous studies and literatures (Ihlanfeldt and Taylor 2004; Mihaescu and vom Hofe 2012; Linn 2013; Savchenko and Braden 2014; USEPA 2014). One thing to note, however, is that Haninger (2017) limited this study to houses near at most one site within 5-kilometer and included sites taken from multiple states. The study concluded that “benefits for the majority of the cleaned sites … far exceed the cost” (Haninger 2017). On average, cleanup of a brownfield site “passed the cost-benefit analysis by an order of magnitude based on the expenditures from the Brownfield Program.” Overall, cleanup of brownfield sites increased nearby housing values and positively impacted the welfare of the communities nearby.


SOCIAL IMPACT OF REDEVELOPMENT

The most obvious benefit of investing in brownfield redevelopment is environmental, but there are more social benefits to increasing the number of brownfields that are redeveloped than improving habitat.

Brownfields have a real and adverse impact on the health of those who live by them (Lit 2002). Legacy contamination on brownfield sites impacts those who live around them. Wayne County is ranked as the least healthy among Michigan’s 82 counties, and is home to the most brownfields. Though no study has made a definitive connection between these two statistics, based on the known impact contaminants like heavy metals and petroleum byproducts, as well as definitive connections between health problems and brownfields elsewhere (Lit 2002), it is safe to say that cleaning up brownfields would have a positive impact on the health of those who live around them.

When the public sector invests in the cleanup of brownfield sites, it can ensure that the community has a say in how the land is to be used. Local agencies like the Detroit-Wayne County Brownfield Redevelopment Authority Coalition make sure the social needs of communities surrounding brownfield sites that are to be redeveloped are addressed. Public funding of brownfield sites ensures that public interests are considered. On a national level, EPA grants have requirements for community outreach built into them. These stipulations help ensure that communities have a long-term plan and infrastructure for making decisions regarding redevelopment. This is especially clear in the RLF Grant program. These grants give capital to an entity that loans money locally, and require that a board is in place to ensure projects align with the community’s future.


CASE STUDY: STRUGGLE FOR NEIGHBORHOOD REDEVELOPMENT IN THE STATE OF NEW JERSEY

Almost every municipality in New Jersey contains at least one contaminated site as provided by the New Jersey Department of Environmental Protection (NJDEP), that maintains a list of potential brownfield sites. The study conducted by Greenberg et al (2000) included landfills and agricultural sites, but removed single gasoline stations to capture the serious neighborhood impacts due to these sites. The study also focused on a special type of brownfield site – temporary obsolete abandoned derelict site (TOADS). These sites are known to complicate brownfield redevelopments because they include contaminated buildings and land that can potentially adversely affect the surrounding neighborhood through pollution of the local environment. Also, TOADS are not regulated nor secured, which lead to the occurence of illegal activities, including dumping and illegal drug sales, driving the already negative perception of the site even lower. Due to these illegal activities, these sites are perceived as non-livable and dangerous by the government and local residents“TOADS … can destroy neighborhoods, lowering property values in the surrounding community, affecting property transactions, and requiring local government to change zoning in the surrounding neighborhoods” (Greenberg et al 2000). Some cases of TOADS include partially abandoned neighborhoods populated with the poorest and most vulnerable people with limited access to services and opportunities. Additional financial resources are needed to reestablish these TOADS and keep them from ruining a neighborhood.

Demographic characteristics of the 450 municipalities, divided into four sets: (1) without brownfields, (2) with brownfields but no off-site impacts, (3) with limited off-site impacts, and (4) with major off-site impacts, are compared in Table 2 below.

Table 2. Demographic Characteristics of New Jersey Municipalities with and without Brownfields (Greenberg et al 2000).

case study new jersey table 1

 

Table 2 shows the striking differences due to socioeconomic status and race. Out of the 46 municipalities with TOADS, 15 municipalities (dubbed as major-impacts brownfields) consisted of the “poorest populations, the least expensive housing, and the lowest proportion of white residents” (Greenberg et al 2000). These 15 municipalities are also the most populated jurisdictions. On the other hand, the 303 municipalities without TOADS, are those with the “most affluent residents, the most expensive housing, and the highest proportion of white residents” (Greenberg et al 2000).

The study showed that major barriers to brownfields redevelopment are indeed fear of liability and lack of capital investment. Stigmatization of the site also negatively impact the investment of these brownfield sites. Brownfield sites with major economic and social impacts are typically associated with neighborhoods with high crime rates and unsafe living conditions.


CASE STUDY: ILLUMINATING THE IMPACTS OF BROWNFIELD REDEVELOPMENTS ON NEIGHBORING HOUSING PRICES IN CUYAHOGA COUNTY, OHIO

Cuyahoga County, Ohio, where the city of Cleveland is located, is one of the counties in the declining rustbelt region. It was incorporated into the steel belt with its diverse industry of steel and iron manufacturing, machine tool companies, and chemical production. However, the post-industrial decline drives Cuyahoga County into severe population loss and an increasing number of vacant manufacturing facilities.

Table 3. Descriptive profile for Cuyahoga County and Cleveland (Woo and Lee 2016).

case study cuyahoga county table 1

Based from the profile of Cuyahoga County (Table 3) in 2000 and 2010, the County has a high percentage of non-Hispanic whites. On the other hand, Cleveland, the core of the county, has a high percentage of ethnic minorities and lower median family income and housing value. This descriptive profile shows that Cleveland is inhabited with the disadvantaged, while the advantaged population are along the border of the city.

A study conducted by Woo and Lee (2016) examined the impacts of brownfield redevelopment across different neighborhoods stratified by family income. Woo and Lee focused on isolating the causal impacts of developing these brownfields. From their initial countywide model, these brownfield sites showed a negative impact on surrounding housing prices. When compared to the control sales prices, the housing price level for impact sales was significantly lower. However, after the redevelopment of the brownfields, no observed evidence of negative impact was present. Additionally, the post-price level showed no significant difference between the control and impact areas. The study indicated that “public investment in brownfield redevelopment helps erase the negative impacts of brownfields due to deindustrialization and helps increase housing prices for single-family income” (Woo and Lee 2016).

Woo and Lee also found that the impacts of brownfield redevelopments varied across different neighborhoods. They saw positive impacts of brownfield remediation on surrounding neighborhood prices especially in low- and middle-income neighborhoods (Figure 1).

case study cuyahoga county figure 1

Figure 1. Low- and middle-income neighborhood results (Woo and Lee 2016).

Figure 1 shows the result for low- and middle-income neighborhoods. The housing price level for low-income neighborhood before development was in the negative (-9.5), indicating that the price level for impact sales was 9.5 percent lower than that of the control sales. However, after development, the variable was positive (+11.5), indicating that the price level for impact sales was 11.5 percent higher than that of the control sales. This result showed that brownfield remediation in the low-income neighborhoods increased the housing price level from -9.5 percent to 11.5 percent.

As other studies have indicated (Farber 1998, Garvin et al. 2013, LaGrange 1999, Ley and Cybriwsky 1974, Park and Ciorici 2013, Stucky and Ottensmann 2009, Suresh and Vito 2009), disadvantaged neighborhoods, those containing low-income populations, are more sensitive and benefits greatly from brownfield redevelopments. Woo and Lee proved that brownfield redevelopments in disadvantaged neighborhoods provided the greatest benefit to surrounding housing prices.


CONCLUSION

On the surface, brownfield remediation in the context of engineering practice seems like a relatively straight-forward scientific issue. In practice, scientists and engineers who work in this field must have a strong handle on the far reaching social and economic impact these sites have on the surrounding community. To effectively help private and public interest groups work together to navigate the landscape of brownfield remediation, both environmental scientists and engineers must work in the framework of local and national brownfield policy. They are required to consider the cost of cleaning up brownfield sites, while also looking out for the interest of the communities as required by funding sources. This paper aimed to lay out the basics behind brownfield policy using Detroit, Michigan, as a backdrop. This paper looked at how public-sector involvement in brownfield remediation can help communities grow economically and socially. The complex impact brownfield sites have on communities are demonstrated by looking at case studies. Without understanding the context of how these sites came to be, the often-disadvantaged communities in which these sites are located, and the plans local communities have for their future, both environmental scientists and engineers cannot advise private-public partnerships effectively on how to go about redeveloping these lands.


REFERENCES

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DeSousa, C. (2000). The Brownfield Problem in Urban Canada: Issues, Approaches, and Solutions (Published PhD thesis). University of Toronto.

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Garvin, E.C., Cannuscio, C.C., & Branas, C.C. (2013). Greening Vacant Lots to Reduce Violent Crime: A Randomised Controlled Trial. Injury Prevention, 19, 198-203.

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Perkins, T. (2017). Detroit City Council approves $250M in taxpayer money for Dan Gilbert. Detroit Metro Times. Retrieved November 2017, from https://m.metrotimes.com/news-hits/archives/2017/11/21/detroit-city-council-approves-250m-in-taxpayer-money-for-dan-gilbert.

Savchenko, O. & Braden, J. B. (2014). Economic Value of Sustainable Brownfield Redevelopment. Working paper, University of Illinois at Urbana-Champaign.

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(2017, September). FY18 Guidelines for Brownfields Cleanup Grants. Retrieved November 2017, from https://www.epa.gov/sites/production/files/2017-09/documents/17-09.pdf.

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