by Cynthia G H King, Guscin Partners LLC
If you are financing with federal money and this has not happened to you, it probably will: You find a beautiful site. The Phase I environmental is clean. It is in a desirable part of town, and construction starts in 30 days. Suddenly, someone from a government agency is asking questions and wants to rework everything from the way the buildings are oriented to the reinforcements in the showers. It seems like there are 50 issues they want to discuss. Actually, there are 68 ....
This is a federal Environmental Review; a wide-ranging review of any project that anticipates using even one dollar of federal money for new construction or substantial rehabilitation. The federal funds cannot be released, and no physical action can be taken on the project, until the entire process is complete.Passing a federal Environmental Review requires much more than a clean site; the review holds construction to a higher standard than building or zoning codes. Navigating one can be challenging, but being prepared can ease the thorough process. And the financial benefits of borrowing through the goverment outweigh the oversight.
Do’s, Do Not’s and Why’s
What is “federal money?”
For the Environmental Review, federal money includes Home, 202, 811, CDBG, USDA direct loans and HOPE VI programs. If your project uses any of these funds for new construction or substantial rehabilitation, there will be an Environmental Review. Some funds do not trigger this review, including Federal Home Loan Bank, HUD Interest Reduction Payments, housing vouchers, Section 8 HAP contract renewal, Low Income Housing Tax Credits, New Markets Tax Credits, Tax-Exempt Bonds and Tax Increment Financing. |
Where a standard, non-federal Phase I assessment from an Engineer reveals environmental situations that might create liability for the owners, a federal Environmental Review goes further to ensure federal money is directed in ways meant to create an optimum physical, social and cultural environment for the community. If Environmental Reviewers decide that something needs to be changed, they can often require those changes. This process of review and adjustment goes on until the funding agency believes it can issue a “Finding Of No Significant Impact” on the environment (FONSI). Being found “insignificant” is the only acceptable outcome if you want the federal funds.
The Environmental Review will take several months. Until the federal government has issued a formal Release of Funds, there can be no demolition or construction. If a developer jumps the gun, the property can lose the federal money and will be barred from replacing those funds in the project from any federal source.
Make sure the entire team understands this. Do not scrape the ground with machinery. Do not cut down trees. Do not clean up garbage. There is an exception for imminent dangers to public health and safety, but they should be documented in advance with the Environmental Reviewer. If the project involves acquisition and rehabilitation of a building currently in use, discuss the maintenance schedules with the Environmental Reviewers. They need to agree on what constitutes regular maintenance, or they might later decide that your “maintenance” was an early start on the rehabilitation in violation of the process.
Carefully consider your opposition to anything that is not ruinous. There is no statutory limit to how long this process can take. The government can ask for studies; it can require public hearings. Arguing minor issues may just make the process last longer.
Proactive Preparation
The federal or local agency that approves the funding is responsible for the review, but it pays to be proactive. The developer will be required to provide most of the information, pay for all professional studies, and pay for any project changes that the Environmental Reviewer deems necessary. Knowing what to expect can cut a month or two from the process and may allow the property to resolve a potential problem before the government creates a solution for them. Three of the major issues are:
1. Wetlands: If there is any doubt, do the study. You likely will have to prove that there are no wetlands.
2. Explosive Hazard: The distance required between a federally-funded project and an explosive hazard is much farther than other laws require. Be wary of projects near oil wells, gas transmission lines and propane tanks. The standards are in a book available only through HUD. Call your regional HUD office and ask the HUD Environmental Officer to get you a copy.
3. Historic Preservation: The State Historic Preservation Office reviews all projects, including non-historic projects and new construction, to make sure historic properties will not be adversely affected. They have a strict thirty day clock from the day they receive the request for a review, but every time they ask a question the 30-day clock either stops or starts over. Speak to the office directly to keep the process moving.
When all studies are complete and the developer and the agency have reached agreement on any issues, the 30-day public notice phase starts. This final process has a lot of steps and time-outs, like the last few minutes of a football game, so it will actually take 50 to 60 days. A document called the Environmental Assessment must be signed by the government agency, which then will publish a notice declaring a Finding of No Significant Impact (FONSI), and make the Environmental Assessment available for public comment for two 15-day periods. The funding agency then requests that the federal government issue a Notice of Release of Funds; the day after it is issued, construction can start.
Cynthia King is a consultant working on projects in the Katrina Hurricane Go Zone. She teaches Continuing Legal Education and Continuing Real Estate Education in planning for the effects of federal money on development projects. E-mail her at cynthiaking.oh@gmail.com
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