The details of Governor Cuomo's $168 billion proposed budget for Fiscal Year (FY) 2019, which begins on April 1, 2018, and makes projections from FY 2018 through FY 2022, were released in January. As the State is facing a potential budget deficit nearing $4 billion, the Governor is keying important tax law changes that everyone should be aware, especially on environmental programs.
So there's good news and bad news...
The Good News
Governor Cuomo's budget includes proposed changes intended to streamline the Brownfield Opportunity Area (BOA) Program and maintain funding at $2 million for this program. The BOA Program provides grants to communities around the State to assist in the complex process of improving blighted and contaminated (a/k/a "Brownfield") properties. The BOA Program is an important tool and incentive for communities to clean up properties and put them back to beneficial use.
By streamlining the planning process under the BOA Program, community organizations and local governments will have greater access to tools and resources to help improve these sites and the larger community. Developers, property owners and non-profit organizations with properties located within designated BOAs are also eligible to access Brownfield tax credits from the State, in addition to the baseline credits afforded to developers under the State's Brownfield Cleanup Program BCP. New York State Secretary of State Rossana Rosado commented on the streamlining process by noting, "[w]ith these funds, localities are able to establish foundations to clean up contaminated sites, forge economic growth and instill a sense of pride."
To learn more about New York State's Brownfield Opportunity Area Program, click here.
The Bad News
Some of the changes proposed in the Governor's budget include tax credit deferrals for certain popular programs. You might remember this device being using in the 2010 budget during the Great Recession as a way for the State to delay issuing tax credits owed to developers. The tax credit deferrals would become effective immediately for a number of environmental or other programs including:
· Brownfield Cleanup Program;
· Green Building Credit;
· Alternative Fuels and Electric Vehicle Recharging Property Credit;
· Conservation Easement Tax Credit;
· Solar Energy System Equipment Credit; and
· Clean Heating Fuel Credit.
Also, taxpayers seeking such credits between 2018-2022 will be limited to receive $2 million per year. Taxpayers will be able to begin recovering the deferred amounts beyond the $2 million in 2021. Over the course of three years, the refundable credits would be claimed following a proposed schedule, specifically 50% claimed in 2021, 75% in 2022, and the remaining balance in 2023.
When a similar tax credit deferral plan became effective in August 2010, a developer sued the State claiming that the money he earned as an environmental tax credit was an unconstitutional "taking" because it was deferred until 2013 even though his project came into service in September 2010. That case was ultimately dismissed with the court holding that the developer's rights to claim the tax credit did not start until the property was put into service by receiving a certificate of occupancy authorizing the developer to have people use the building. The court noted that a Certificate of Completion, which is issued after an authorized property cleanup is conducted under the State Brownfield Cleanup Program, is not enough to avoid deferral of tax credits even if the Certificate of Completion is obtained before the deferral period becomes effective.
If you are expecting to file for tax credits under any of the programs listed above, we have a few suggestions: find out if the Governor's budget proposal became accepted, understand the deadlines and deferral options, and, most importantly, consult with your tax and legal advisors about taking appropriate steps.
Call the attorneys of Periconi, LLC at (212) 213-5500 if you are a real estate investor or developer or looking to take advantage of some of the State's tax credit programs, including the Brownfield Cleanup Program, and want more information about the Governor's proposed tax credit deferrals.