United States General Accounting Office

GAO Report to the Chair, Committee on Small

Business, House of Representatives

June 1995 COMMUNITY

DEVELOPMENT

Reuse of Urban

Industrial Sites

GAO/RCED-95-172

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-261177 

June 30, 1995

The Honorable Jan Meyers

Chair, Committee on Small Business

House of Representatives

Dear Madam Chair:

Over the last several decades, many communities throughout the nation

have experienced a loss of manufacturing industries. As a result, urban

areas that once housed such manufacturing and served as major

employment centers now contain vacant, abandoned, or underused

industrial sites. As urban communities seek to revitalize their economies

and create jobs for their residents, these sites, widely known as

“brownfields,” are once again the focus of attention because of their

potential for redevelopment. One obstacle to redevelopment is that

brownfield sites are often contaminated or perceived to be contaminated

with hazardous substances.

This report responds to your request for information about brownfields

and federal initiatives to facilitate their reuse. Specifically, you asked us to

• determine what is known about the extent and nature of abandoned

industrial sites in distressed urban communities and the barriers

brownfields present to redevelopment efforts and

• provide information on federal initiatives aimed at helping communities

overcome obstacles to reusing brownfield sites.

Background In many cases, contamination on idle or underused industrial

sites—brownfields—is not identified until the sites are sold or an

environmental accident—such as a toxic substance seeping into drinking

water—occurs. Once contamination is identified, federal and state

environmental laws and regulations impose potentially broad pollution

cleanup liability. For example, under the Comprehensive Environmental

Response, Compensation, and Liability Act (CERCLA), commonly known as

Superfund, past or present owners of a site containing hazardous

substances may be liable for cleanup costs. Also, each party responsible

for cleanup costs may be held liable under CERCLA for the entire cost of the

cleanup. While the Environmental Protection Agency’s (EPA) policy is to

place only the worst sites on its National Priorities List for cleanup under

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B-261177 

Superfund1, federal environmental laws—including liability

standards—still apply to sites with lower-level contamination. This

report explores issues related to redeveloping brownfield sites with

lower-level contamination that are not on the National Priorities List. We

collected information on state and local initiatives in Boston,

Massachusetts; Union County, New Jersey; Chicago, Illinois; and

Pittsburgh, Pennsylvania, because these cities were identified by EPA

officials and brownfield researchers as having active site reuse programs.

Results in Brief While no national inventory of brownfield sites exists, states have

identified thousands of former industrial sites that lie abandoned and

possibly contaminated. Since these sites are typically not contaminated

enough to qualify for the federal Superfund’s list of the most seriously

contaminated sites, many offer greater potential to be redeveloped.

However, in part because of far-reaching and uncertain liability imposed

by federal and state environmental laws, developers and lenders have been

reluctant to get involved with industrial properties. Faced with this

situation, state and local governments across the nation have created

initiatives to speed redevelopment, such as offering loans for cleanup and

changing state and local laws to protect new purchasers from liability.

Although the issues related to redeveloping brownfields have remained

primarily state and local in nature, federal agencies—mainly the EPA, the

Department of Commerce’s Economic Development Administration (EDA),

and the Department of Housing and Urban Development (HUD)—have

begun assisting local efforts to reclaim sites. EPA has provided

demonstration grants to three jurisdictions to redevelop their industrial

properties and has recently acted to remove about 25,000 properties that

were not contaminated or had been cleaned up from its national data base

of potentially contaminated sites. EDA has provided financial support for

brownfield research and also acquired practical experience from cleaning

up properties it acquired through loan defaults. HUD has developed and is

now implementing a brownfield policy that includes emphasis on the issue

through its Empowerment Zone and Enterprise Community program. HUD

and EPA have also initiated a joint research project to study several

brownfield issues.

1

The National Priorities List is EPA’s list of sites designated for cleanup under CERCLA. As of

December 1994, there were over 1,200 sites on the National Priorities List.

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B-261177 

Cities With

Brownfields Face

Obstacles in

Redeveloping Them

While the precise magnitude and severity of brownfields is unknown

because there is no national inventory, the cities we visited had hundreds

of acres of brownfields. In trying to redevelop brownfields, local

governments and community organizations have faced reluctance on the

part of lenders and developers who fear having to pay for costly

environmental cleanups. To overcome this obstacle and others and to

speed redevelopment, state and local governments have created a variety

of initiatives.

The Number of Unused

Industrial Sites Is Large

State and local governments have estimated that they have thousands of

vacant industrial properties that could be redeveloped. In 1987, we

estimated that anywhere from about 130,000 to over 425,000 sites

throughout the nation contain some contamination.2

 This estimate

includes many vacant industrial sites. Our visits to the four states

confirmed the existence of numerous former industrial sites that were

once productive but now sit abandoned and probably contaminated:

• The state of Illinois has estimated that 5,000 abandoned or inactive

industrial/commercial sites exist throughout the state. In Chicago alone,

an estimated 18 percent of the industrial acreage is unused. This estimate

includes 1,500 acres spread among 2,000 sites.

• One Boston neighborhood, located around Dudley Street, covers just 1-1/2

square miles but has within its boundaries 54 state-identified hazardous

waste sites.

• A regional planning group study of Union County, New Jersey, identified

185 separate sites containing more than 2,500 acres of reusable land in the

county, all zoned for commercial or industrial development.

• Towns throughout the Monongahela Valley in Pennsylvania, once a major

steel-making center, contain hundreds of acres of land filled with vacant

steel mills and other manufacturing facilities.

Fear of Cleanup Liability

Has Slowed Revitalization

Efforts

As states and localities attempt to redevelop their abandoned industrial

sites, they have faced several obstacles, including the possibility of

contamination and the associated liability for cleanup. This situation is

caused largely by federal and state environmental laws and court

decisions that impose or imply potentially far-reaching liability. The

uncertain liability has encouraged businesses to build in previously

2

Superfund: Extent of Nation’s Potential Hazardous Waste Problem Still Unknown (GAO/RCED-88-44,

Dec. 17, 1987).

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B-261177 

undeveloped nonurban areas—called “greenfields”—where they feel more

confident that no previous industrial use has occurred.

Lenders, environmental attorneys, local officials, and community

development officials in the areas we visited and the documents we

reviewed reported that the general uncertainty about the costs of

environmental cleanup and who will pay those costs has delayed the

redevelopment of industrial properties. A lending official with a large

Pittsburgh-based bank, for example, stated that little redevelopment has

occurred on the former steel mill sites because of environmental concerns.

In some cases, the bank has chosen not to foreclose on properties because

it does not want to assume cleanup and associated liabilities. Furthermore,

some owners have preferred to keep properties idle rather than sell them

and take the risk that the environmental assessments required upon sale

will detect contamination that they will have to clean up.

A January 1995 EPA action agenda on brownfields stated that the fear of

contamination and its associated liability has left many investors wary of

buying properties that may be contaminated and is enough to stop real

estate transactions from moving forward. In its local strategic plan, EPA’s

Chicago Regional Office further concluded that lenders are often unwilling

to provide loans for property that could be contaminated because they are

concerned about their own liability, the reduced collateral value of the

land if it is found to be contaminated, and the ability of the property

owners to repay a loan if they must also pay for a major cleanup.

A variety of interest groups has also concluded that the potentially large

and uncertain liability thwarts efforts to revitalize communities. For

example, the U.S. Conference of Mayors has adopted the brownfield issue

as one of five priority areas and has publicly endorsed EPA’s efforts to

reduce the fear of and uncertainty about cleanup liability. The National

Association for the Advancement of Colored People testified before the

Congress in June 1994 that liability concerns have impeded the efforts of

communities to clean up brownfield sites. Furthermore, the Mortgage

Bankers Association of America has concluded that the redevelopment of

potentially viable properties has been obstructed by concerns in the

commercial real estate market that lenders will be held liable for

environmental contamination that they did not cause.

Rather than face the uncertain liability and potential delays associated

with an old industrial site, businesses have looked to

greenfields—previously undeveloped sites in rural and suburban

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B-261177 

areas—for expansion and new development. This trend, according to a

regional EPA official, has contributed to suburban sprawl and leads to

increased congestion and air pollution. Furthermore, such development

requires the construction of new infrastructure and results in reduced tax

bases and employment in traditional urban centers, according to state

officials and community development practitioners.

In addition to the fear of and uncertainty about the costs of environmental

cleanups, other factors have also contributed to the slow pace of

brownfields’ redevelopment. City and state officials and community

development practitioners told us that, often, unused industrial sites have

infrastructure weaknesses (e.g., poor transportation access), are perceived

to be areas of high crime, and have a general unattractiveness that reduce

their redevelopment potential.

State and Local

Governments Are

Responding With

Initiatives to Encourage

Redevelopment

Wanting to revitalize their communities and yet fearing environmental

cleanups, state and local governments and community groups have

responded with a variety of initiatives. These efforts address those state

laws and regulations that appear to hinder redevelopment. For example,

some of the provisions provide covenants not to sue so that innocent

purchasers are protected from liabilities, some clarify the lender’s liability,

and others seek to streamline the states’ regulatory processes. A few even

provide seed money and loans for cleanup and redevelopment.

In Massachusetts, for example, the legislature changed environmental laws

to make it clear that a lender does not automatically become liable for

environmental cleanup when it forecloses on property, according to state

officials. The state law also authorizes state officials to take into account

future uses of the site and surrounding areas in determining the

appropriate cleanup level. And, among other things, for economically

distressed target areas, under a pilot program Massachusetts will provide a

covenant to new property owners: The state will not sue new owners who

have followed the procedures of the state’s voluntary cleanup program.

This provision, it is hoped, will reduce some property owners’ and lenders’

fear of liability for contamination identified in the future.

New Jersey recently made some similar legislative changes with the

Industrial Sites Recovery Act and the Lender Liability Act. One component

is a $55 million hazardous site remediation fund to provide grants and

low-interest loans for assessing and cleaning up sites. Also, the state

participated in a model industrial site redevelopment project in Union

Page 5 GAO/RCED-95-172 Reuse of Urban Industrial Sites
B-261177 

County that identified numerous sites having less contamination and more

development potential than most officials had thought.

Local governments and neighborhood groups, working with other

stakeholders, have also been trying to overcome obstacles and spur

redevelopment. For example, officials in Chicago have recognized that if

cleanup is not coupled with redevelopment, sites are likely to be

recontaminated through illegal dumping. The city has worked closely with

state and federal environmental protection agencies in assessing and

cleaning up five demonstration brownfield sites. The project has received

$2 million in city funds for the sites, several of which have specific

redevelopment plans.

In Boston, the Dudley Street neighborhood has been working to overcome

the negative impact of years of industrial contamination. A community

group, with the help of city officials, was recently successful in getting a

private developer to build a supermarket and shopping center on a large

former industrial tract. Not only does this shopping center provide

essential services for community residents, but its success has caused

adjacent vacant lots to become more economically viable.

Federal Efforts Are

Targeted Toward

Redeveloping

Brownfields

As state and local governments have shown increased interest in

redeveloping their industrial sites, several federal agencies have begun to

help them. Both EPA and EDA have gained practical experience through

redevelopment activities at several sites, while HUD has started a series of

projects to carry out its brownfield strategy. In addition, the agencies have

begun to coordinate their efforts and sponsor joint projects.

EPA Has Provided Aid

Through Demonstration

Projects and

Administrative Reform

While maintaining its chief focus on the National Priorities List, EPA has in

recent years become more involved with state and local governments in

efforts to redevelop less contaminated industrial sites. In January 1995, the

agency announced a multifaceted action agenda on brownfields, which

includes a variety of ongoing, enhanced, and new initiatives.

A major element of EPA’s agenda is the demonstration pilots funded under

the Brownfields Economic Redevelopment Initiative. The main intent of

these demonstrations, according to EPA, is to learn how environmental

hurdles can be overcome and urban communities restored. The first major

project started with the State of Ohio and Cuyahoga County (Cleveland) in

November 1993. EPA contributed $200,000, which the county used to

Page 6 GAO/RCED-95-172 Reuse of Urban Industrial Sites
B-261177 

identify contaminated areas for cleanup and redevelopment. According to

the Cuyahoga County Planning Commission, the project has generated

$625,000 in new tax revenues and resulted in 100 new jobs. The project

also includes plans to consult with communities surrounding these sites to

help decide on future uses. Two more cities, Richmond, Virginia, and

Bridgeport, Connecticut, were selected as demonstration projects in 1994,

and EPA expects to select 47 more locations by 1996. EPA plans to work

closely with EDA to make the transition from the cleanup to the

redevelopment stage of its demonstration projects.

Another item on EPA’s agenda was its announcement that it has removed

from its data base of potentially contaminated sites about 25,000 sites

where the agency planned to take no further remedial action. According to

EPA, many of these sites either were not contaminated, had already been

cleaned up under state programs, or were being cleaned up; still, potential

developers were reluctant to get involved with them because they

remained on EPA’s list. To further reduce the stigma associated with these

sites, EPA officials planned an outreach program to inform interested

parties about the true status of a purchaser’s federal liability in each case.

To assist in removing liability barriers, the action agenda calls for EPA to

develop a package of reforms to limit liability for brownfield sites. As part

of this package, EPA is developing guidance that is intended to expand the

circumstances under which the agency will agree not to hold prospective

purchasers liable for preexisting contamination on a property. In addition,

EPA plans to issue guidance explaining its policy of not pursuing lenders

for cleanup costs. EPA is also working to clarify municipal liability so that

local governments will be encouraged to start the cleanup process without

concern for liability under Superfund.

Aside from the brownfield activities led by EPA’s headquarters offices,

several regional offices have formed partnerships with local governments

to work on industrial site redevelopment issues. EPA’s Region 5 office in

Chicago, for example, has developed a strategy aimed at developing

partnerships with key stakeholders, encouraging voluntary cleanups,

promoting broad community participation in the cleanup processes, and

disseminating information to prospective purchasers and lenders involved

in brownfield sites. EPA has also loaned staff to local governments to

further assist efforts to redevelop brownfields.

Page 7 GAO/RCED-95-172 Reuse of Urban Industrial Sites
B-261177 

EDA’s Projects Have

Provided Operational

Experience

EDA’s involvement in industrial sites’ redevelopment has two primary

aspects: The agency, according to its environmental officer, has had direct

experience in cleaning up and developing its own properties, and it has

sponsored projects to educate and inform state and local entities about

redevelopment issues.

The agency’s direct experience stems largely from loans that EDA

guaranteed in the 1970s and early 1980s to improve industrial facilities.

When several borrowers defaulted on the loans, EDA acquired title to the

sites and was thus faced with the responsibility for cleaning them up

before they could be sold and redeveloped. The sites, which include a

176-acre steel mill in southeast Chicago and a 22-acre foundry in Two

Harbors, Minnesota, have undergone environmental assessments and are

now in the cleanup phase.

EDA officials have used this practical experience to help communities as

they attempt to redevelop their industrial sites. The agency has provided,

among other things, funds for independent research into the issues related

to reusing industrial buildings. EDA has awarded a grant to develop and

publish a booklet aimed at helping communities deal with their abandoned

industrial sites. In addition, EDA has developed a cooperative relationship

with EPA on its pilot initiative concerning brownfields, which has included

providing help in selecting projects and assisting EPA on technical matters.

HUD Has Begun Several

Brownfield Projects

While HUD has become active in brownfield issues relatively recently, it has

developed a strategy with several ongoing and planned components. The

Department’s Empowerment Zone and Enterprise Community program

may provide, among other things, opportunities for the agency to learn and

disseminate information on how selected communities deal with issues

related to reusing industrial sites. And in addition to its own initiatives,

HUD has formed a cooperative relationship with EPA to pursue research and

other mutually beneficial objectives.

One of HUD’s first major activities in brownfield issues was a

December 1994 conference on “The Relationship Between Environmental

Protection and Opportunities for Inner-City Economic Development.” The

meeting, attended by a wide variety of federal, state, and local officials,

researchers, and community development practitioners, was aimed at

advising and informing HUD on programs’ obstacles and policy options

associated with reusing industrial sites.

Page 8 GAO/RCED-95-172 Reuse of Urban Industrial Sites
B-261177 

In 1994, almost 300 communities applied for six federal Urban

Empowerment Zone and 65 Enterprise Community designations that

provide tax incentives. Empowerment Zones also provide other benefits to

businesses that locate in these economically distressed communities.

Several cities that received designations in late 1994 included industrial

and commercial sites’ redevelopment as part of their Empowerment Zone

strategies:

• Chicago cited its own brownfield program as an element of its

revitalization plan and listed several “environmental waivers” that could

speed the cleanup and redevelopment of sites in the zone.

• Boston, which contains an Enhanced Enterprise Community, proposed a

strategy including plans to redevelop a 175-acre former hospital site and

create a center for emerging industries at the site of a former

computer-manufacturing facility.

• For the two-state Empowerment Zone contained in Philadelphia/Camden

there is a plan to clean up and redevelop a former oil company site with

help from Pennsylvania’s program to clean up industrial sites.

Another important brownfield project, according to HUD officials, is a

research project sponsored jointly with EPA. Although the project started

out with HUD, the two agencies have since combined resources and plan to

contract for a study that will explore the reasons why businesses locate in

certain areas. The study is designed to provide knowledge that will be

useful to both agencies as they look for ways to help communities

redevelop industrial sites.

HUD officials also told us that brownfield issues are mentioned specifically

in two major initiatives: HUD’s own plan to transform or reinvent itself and

a strategy announced in March 1995 targeted to achieving environmental

justice. In the reinvention plan, HUD proposes to consolidate its grants for

community economic development into a single Community Opportunity

Fund. A bonus pool in this program would be used to give good

performers the opportunity to compete for additional funds for large-scale

job creation projects and environmental cleanup of brownfield sites. HUD’s

environmental justice plan, which is part of a larger strategy approved by

the President, designates brownfields’ redevelopment as one of four

priority initiatives.

Agency Comments We requested comments on a draft of this report from EPA, the Department

of Commerce, and HUD. We met with the Director for Outreach and Special

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B-261177 

Projects Staff in the Office of Solid Waste and Emergency Response, EPA;

and the Director of the Building and Technology Division in the Office of

Policy Development and Research, HUD, to discuss their agencies’

comments on our report. EPA and HUD generally agreed with the

information provided in the report; however, both agencies said that they

had made substantial recent progress on brownfield issues. We

incorporated information that EPA and HUD provided us about their new

initiatives into the report where appropriate.

The Department of Commerce, in written comments that are contained in

appendix I of this report, suggested that we include additional information

on EDA’s initiatives. In response, we added to our report information about

EDA’s current activities and partnership with EPA. We did not address

several other issues raised in the comments—such as rural brownfields

and existing businesses’ relocations—because the issues were beyond the

scope of this assignment.

Scope and

Methodology

To determine what is known about the extent and nature of abandoned

industrial sites in distressed urban communities and the barriers that

brownfields present to redevelopment efforts, we reviewed previous GAO

reports on Superfund issues and other reports on the subject, such as the

Northeast-Midwest Institute’s report entitled New Life For Old Buildings

and Resources for the Future’s report entitled The Impact of Uncertain

Environmental Liability on Industrial Real Estate Development. To find

out about state and local initiatives, we visited Boston, Massachusetts;

Union County, New Jersey; Chicago, Illinois; and Pittsburgh, Pennsylvania,

because they were identified by EPA and brownfield researchers as having

active site reuse programs. While there, we obtained information from

directors of state and local government environmental and community

development efforts, environmental attorneys, developers, and community

development practitioners, such as those at the Jamaica Plain

Neighborhood Development Corporation in Boston and Bethel New Life,

Inc., in Chicago. We also interviewed public interest group officials,

including the Directors of the Coalition for Low Income Community

Development, the National Council for Urban Economic Development,

and the Urban Land Institute and researchers and analysts at the

Northeast-Midwest Institute, the Environmental Defense Fund, and

Resources for the Future to obtain their perspectives on the issue.

To provide information on federal initiatives aimed at helping

communities overcome obstacles to reusing brownfield sites, we

Page 10 GAO/RCED-95-172 Reuse of Urban Industrial Sites
B-261177 

discussed brownfield programs and issues at three federal agencies—EPA,

HUD, and the Department of Commerce—that were identified by public

interest group, state government, or local government officials as having

brownfield programs. We interviewed EPA’s Director of Outreach and

Special Projects, Office of Solid Waste and Emergency Response, and her

staff; HUD’s Director of the Building and Technology Division in the Office

of Policy Development and Research and the Director, Office of Block

Grant Assistance, and their staffs; and the environmental officer and staff

in the Department of Commerce’s EDA’s Office of Research and Technical

Assistance. We also reviewed programs’ guidance, policy statements, and

reports on the programs at these agencies. Finally, we also contacted

officials at other federal agencies, such as the Small Business

Administration, the Department of Agriculture’s Farmer’s Home

Administration, and the Department of Transportation, to determine

whether they had any initiatives under way. We conducted our review

between November 1994 and May 1995 in accordance with generally

accepted government auditing standards.

As arranged with your office, unless you publicly announce its contents

earlier, we plan no further distribution of this report until 14 days from the

date of this letter. At that time, we will send copies to the appropriate

congressional committees and subcommittees, the Secretaries of HUD and

Commerce, the Administrator of EPA, and the Director of the Office of

Management and Budget. We will also make copies available to others on

request. If you would like additional information on this report, please call

me at (202) 512-7631.

Sincerely yours,

Judy A. England-Joseph

Director, Housing and Community

 Development Issues

Page 11 GAO/RCED-95-172 Reuse of Urban Industrial Sites
Appendix I 

Comments From the Department of

Commerce

Page 12 GAO/RCED-95-172 Reuse of Urban Industrial Sites
Appendix I 

Comments From the Department of

Commerce

Page 13 GAO/RCED-95-172 Reuse of Urban Industrial Sites
Appendix II 

Major Contributors to This Report

Erin Bozik, Assistant Director

Wendy Bakal

Susan Beekman

Frank Putallaz

Tom Repasch

(385443) Page 14 GAO/RCED-95-172 Reuse of Urban Industrial Sites
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