FEATURE ARTICLE, SEPTEMBER 2004

PREPARING FOR EARLY TRANSFER
By taking the right steps, developers can find closed federal facilities that offer renewed economic activity.
Randall Shearin

The closure of a local federal facility can bring a devastating economic effect on its community. For that reason, in 1996 the federal government developed the Early Transfer Authority, a streamlined method of transferring ownership of closed federal properties to local governments and developers to foster economic development and employment.

The Early Transfer Authority is an effective tool to re-establish the economic opportunity once provided by a federal facility, according to Michael Comodeca, an attorney with Spencer Fane Britt & Browne LLP in Kansas City, Missouri.

Before Early Transfer, necessary environmental cleanup was a sticking point in transferring a federal property to the public, Comodeca says. The government was required to complete the cleanup before the transfer, which was time-consuming and frequently chilled any interest in development. With Early Transfer, the new developer is allowed to handle environmental remediation — a key factor to bringing a property to market more quickly. Equally important, the federal government remains liable for environmental remediation.

“The key to the success of any Early Transfer property is assuring that it can be commercially developed after complying with the governmental and environmental requirements. It is critical that someone oversees this complex process to be sure that when the property is transferred, the title and covenants enable it to be economically developed,” says Tim Wolf, a Spencer Fane real estate attorney.

A number of planning initiatives must be completed by the local government receiving an Early Transfer property from the federal government. The local government’s role begins the day the facility closure has been announced and is completed when its plan has been submitted to the federal landholding agency. Developing a comprehensive land-use and redevelopment plan is integral to a smooth transfer.

This phase of the process follows specific timelines and planning initiatives. The local government body must solicit interest in the facility to be transferred, conduct community outreach activities and maintain contact with the federal landholding agency.

The timely submission of both a redevelopment plan and any necessary property applications will facilitate the federal agency’s ability to make final property decisions that best meet the community’s goals.

Many environmental issues must be addressed to prepare for early transfer, and the local government body should be involved in this process.

“Because the final environmental cleanup decisions are based on how the land is going to be used, the federal landholding agency must know what the local government body is going to do as soon as possible so it can tailor cleanup actions that are consistent with the reuse plan,” says Baerbel Schiller of Spencer Fane.

“The federal policy is to consider the local government body’s reuse plan as a primary factor in the development of an environmental plan. However, the federal landholding agency is required to consider all reasonable alternatives and their respective environmental consequences,” Schiller says. “It will conduct an analysis concerning the environmental impact of the proposed plan, as well as alternatives. It may consult with other federal agencies before making a decision. If the property is likely to have a significant effect on the environment, the federal landholding agency is required to prepare an environmental impact statement, a lengthy and time-consuming process.”

“Once the federal government has completed its site investigation and evaluated the site-specific environmental and health risks, and once the federal or state environmental regulators have approved such investigation, the local government should approach the regulators to discuss site cleanup options considering site end use,” Schiller says.

The local government should attempt to obtain approval from the regulators regarding the most appropriate site cleanup alternative. This will allow the local government to provide some certainty regarding site cleanup and cleanup costs to developers interested in acquiring the federal property. Depending on site-specific circumstances, it also may be possible to obtain approval from the state regulators to transfer cleanup oversight responsibility to the state’s voluntary cleanup program, which should allow for a more flexible site cleanup approach.

The federal agency will require various land use covenants that will govern the property’s future, according to Wolf. These may include environmental requirements and responsibility to provide insurance. These rights and restrictions need to be negotiated so they comply with the regulations but do not adversely affect the ability to develop the property.

In many instances, a local government will acquire Early Transfer property with plans to transfer it to a private developer. It is necessary that requests for proposals to develop the property stipulate that the site’s ultimate use complies with the terms of the Early Transfer. A significant investment is typically required in preparing the land for development, and there must be a clear understanding that the risk justifies the potential reward. Also, the Early Transfer program states that “excess profits” must be returned to the federal agency, which is a potential trap for the unwary, Wolf said.

Depending upon the state, a number of economic incentives may be structured in the transaction and included in a development agreement, such as tax increment financing, tax abatement, tax credits, various grants and investment districts.

Local governments interested in participating in the Early Transfer projects often worry about liability for site cleanup since they will become owners of the contaminated property, even if only for a short time before passing it on to a developer. As a “pass-through owner” of contaminated federal property, a local government may be exempt from liability under the 2002 amendment to the Superfund law and under available Environmental Protection Agency policy. Upon transfer of the property to the developer, the local government usually seeks indemnification from the developer for site cleanup liability. The developer’s indemnities, in turn, may be backed up by environmental insurance to protect the local government from cleanup liability. The federal government remains liable for the site contamination even after transferring the site to the local government and after the local government transfers the site to a private developer.

The federal landholding agency will convey the property after the final disposal decisions have been made and the necessary applications have been submitted, reviewed and accepted. The conveyance will be in accordance with the agency’s documented disposal decision. This phase of the process lasts until the property has been conveyed and all the required environmental activities have been performed.

Communities interested in recapturing the economic benefit of a closed federal facility simply need to make a commitment, get good advice and begin the process.

©2004 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.