Joe Cavaluzzi is a contributor to Real Estate New Jersey, from which this article was excerpted.

This should be a critical year for both New Jersey's environment and the ability of its real estate development community to meet the demands of economic development. Indeed, it is a critical year for economic development.

A number of environmental issues are on the table, either as new legislation or regulatory changes that could significantly reduce the land supply for development, raising the question of tighter regulation generating more smart growth initiatives--or making it more difficult to accomplish them. As this issue went to press, the New Jersey Department of Environmental Protection was rewriting its sewer hookup regulations and reworking the state water supply master plan, while the state Department of Energy was writing an energy plan that could significantly impact where new infrastructure is built in the years ahead, according to George Hawkins, executive director of New Jersey Future in Trenton.

"I think both the water supply and wastewater treatment are coming up this year. There have been initial public hearings on wastewater, so I would say that is coming in months. The water supply plan is being worked on, but I don't have a clear notion of that deadline," Hawkins says.

Many real estate professionals give DEP's office of site remediation and waste management, which handles brownfield regulations, high grades, although they're watching several areas of regulation with concern. DEP has proposed new soil cleanup regs and public notice requirements for the cleanup of contaminated sites.

The new soil cleanup regs address 110 contaminants broken down into a residential scenario, a non-residential scenario and by their impact on ground water. The mix of more-or-less stringent is about 50-50. The increases and decreases relate either to new toxicity numbers set by the scientific community outside of the DEP or changes that increase exposure, such as an increase in the number of trucks going through a site, says assistant DEP commissioner Irene Kropp, who overseas site remediation and waste management.

"On a positive note, I think people will be happy there are actually predicable standards," Kropp says. "But any time we develop standards, people always ask for the ability to have an alternative or waiver. There will be some limited ability to get an alternate cleanup standard, but most of the time we would only be looking at that if it deals with impact on water, where in some cases the soil makeup and consistence may justify an alternate."

.DEP also plans to propose new public notification standards for cleanups at contaminated sites that include notifying property owners within 200 feet, the same standard followed for a variance application at a local planning board.

Flood hazard regulations setting stream buffers at 300 feet now under review by the DEP could have substantial and unintended impact on new development in urban areas, says Joseph J. Maraziti, an attorney specializing in environmental and development law who chaired the State Planning Commission that adopted the current state master plan.

"That's a powerful thing, a 300-foot buffer along both side of streams. I don't know what the cumulative effect is statewide, but I have to believe it's significant," Maraziti says. "I am a believer in strong policies, but there can't be just a balanced rule that is applied everywhere. For example, you could not have a rule like that in our cities. Even in developed towns it could be a detriment to having redevelopment."

The impact of the Highlands Act, on which the Highlands Council has postponed action to take more public comment, continues to create concern in the development community and continues, in general, to raise new questions about its impact on more than 50 municipalities in the 800,000-acre region that is one of the state's most important watersheds.

"The communities involved have a lot of Republican governments and the act is implemented by a Democratic Legislature. Morris, Hunterdon and Warren county freeholders are all considering legal challenges to the statute itself," says Sean Monahan, an attorney and partner at the Florham Park office of Drinker Biddle. "Municipalities are starting to think about whether they should be opting into the plan or not and the council has extended the public comment period."

The biggest impact of changes in the Highlands Act is the proposal to add protection, preservation and planned community zone overlays to current planning and preservation designations. Another uncertainty in the proposed Highlands Act changes is whether they will be mandatory.

On the subject of "smart growth," developers are also feeling the push and pinch of environmental law changes. While there seems to be little question whether the regulations and legislation being addressed this year will put new emphasis on smart growth, brownfield rehabilitation and redevelopment in the cities, it is less clear how much harder they will make the process.

"Smart Growth is on the radar screen of every active developer in New Jersey. It doesn't matter where you are," says Ed Russo, president and COO of Russo Development. "People are looking at it regardless of things like the proposed changes to the Highlands Act. But if the changes go through, it will push people farther in the direction of smart growth."

Many agreed that the biggest hurdle for both developers and environmental regulators is the DEP caseload, with more than 18,000 sites in some stage of the regulatory process. There is also a sense in the development community that many of the changes are driven by an anti-development bent. "If the hostility toward redevelopment, which is infused in all of the legislative proposals being considered, makes its way into law it will have a profound, chilling effect on redevelopment," says Maraziti.

Still, Maraziti and others say the state's handling of brownfield sites has made New Jersey's site remediation program a model for other states. With many of the earlier sites for which developers sought approvals now cleaned up and some redeveloped, the perception of brownfields has changed entirely from a decade ago.

Ken Kloo, administrator of DEP's Office of Brownfield Reuse, says the Hazardous Discharge Site Remediation Fund is the largest source of grants for developers and municipalities. While the fund makes matching grants to both private parties and municipalities, the brownfield grants are really municipal grants.

"They were designed specifically to assist municipalities with the redevelopment obstacles and with the redevelopment process, because one of the biggest obstacles to redevelopment is attracting a developer," Kloo explains. "Without knowledge of a contaminated site, it's really difficult to market the site. A lot of that upfront investigative work has to be done to allow a prospective purchaser to make an informed decision. If they don't execute the purchase, all that money is lost."

The fund gives municipalities grants up to 100% of the cost of investigating a site and to collect detailed information that allows them or a developer to do some calculations to determine the liability. There are grants for various steps such as testing to determine the extent of contamination and research a property's history, and there are requirements as well. To qualify for the grants, a municipality must own the property or hold a tax sale certificate showing it plans to pursue a voluntary acquisition.

Municipalities are eligible for up to $3 million a year under the program. Currently, there is about $100 million available for grants in the Hazardous Discharge Site Remediation Fund.

Cleaning up brownfields is a high priority for Gov. Jon Corzine, and the state plans to expand that office to help farther economic development, according to DEP's Kropp."Brownfields development is all about environmental protection, but it's also about economic revitalization. Both are key, but they have to be balanced," Kropp says.

Developers are going to have to be creative as they pursue growth through rehabilitating contaminated properties as many of the more desirable sites were snapped up during the first round of brownfield cleanups.

"The ones remaining aren't necessarily more complicated, but they are small," Maraziti says. "The relative relationship between the size of the property and return on investment hasn't been as significant. For example, gas stations on busy corners will get cleaned up, but it will happen more slowly than the multi-acre tracts, which would have been shunned in the past. But it's only a matter of time as property values rise and natural attrition occurs."

Another major change is the type of projects being proposed for contaminated sites."I think the whole concept of putting homes or schools and day care centers on contaminated sites such as landfills has gotten more of them out in the public eye," Kropp says. "That has raised concerns on a lot of different fronts. The bottom line is uses such as residences, day care and schools on landfills and contaminated sites is making things more complicated. If we were just talking about ball fields, golf courses and maybe warehouses and industrial buildings, it wouldn't be as complicated as putting townhouses on a landfill that might be producing methane gas and leaking."

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