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The Economics of Brownfields and Watershed Health In Portland, Oregon

January 9, 2014

Prepared for Environmental Economics, Reed College, Fall 2013

Adriana Escobedo-Land ‘15, Nick Fiore ‘16, Kevin Gallagher ‘14, Allison Giffin ‘14, John Iselin ‘14, Maya Jarrad ‘14, Bryan Kim ‘14, Anadi Kulkarni ‘16, Rennie Meyers ‘15, Ana Montgomery ‘14,

Mathew Olson ‘15, Eleanor Parmentier ‘15, Natalie Pong ‘16, Mia Reback ‘14, Jacob Robertson ‘15, Alan Tuan ‘14, Joan Wang ‘14, Andrew Watson ‘14, Chris Weber ‘15, Austin Weisgrau ‘15, Helene

Wierzbicki ‘15, John Young ‘15, Phoebe Young ‘14

Project Supervised by

Noelwah R. Netusil, Ph.D.

Stanley H. Cohn Professor of Economics Reed College

(503) 517-7306

netusil@reed.edu

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Executive Summary Brownfield remediation is a complex process that involves many different considerations,

particularly when considering industrial land use in Portland, Oregon. A comprehensive analysis of a

brownfield remediation project should consider the effects on the economic health of the

community, on urban watershed health, on carbon emissions, on housing values and other metrics

of environmental valuation. In the following report we draw heavily on the literature related to

brownfield remediation in the United States and conclude that a paired tax- or subsidy-based

incentive might be best to motivate the availability of viable industrial brownfield sites. In addition,

we find that local initiatives in touch with municipal policies and community needs continue to

produce successful remediation sites by effectively involving local governments.

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1. Introduction

1.1 What are Brownfields? Brownfields, as defined by the EPA (Revitalization 2013), are plots of land for which “expansion,

redevelopment, or reuse…may be complicated by the presence or potential presence of a hazardous

substance, pollutant, or contaminant.” Contamination might be spurred by localized commercial or

industrial use that leaves contamination or perceived contamination on the site, natural disaster,

struggling business site abandonment due to economic conditions, and more sporadic random

contamination. Brownfields lower nearby property values, stifle local investment, and often threaten

public health through direct or indirect pathways (Bromberg, L.M., and T. Spiesman. 2006). The

decline of the manufacturing industry sector in the United States, the enactment of policies to

protect environmental and public health, and continuing tension between the need for

environmental quality and safety and the need for economic development, are primary contributors

to the spread of brownfields in the United States (Bannon 2009). The tension between the need for

environmental quality and for economic development is especially difficult in the industrial cities

hardest hit by the loss of their industrial job base (Brachman).

Brownfield remediation refers to the process of removing hazards and contaminants from

brownfield sites. For urban planners faced with limited area for development, brownfield

remediation is one of the tools at their disposal. Brownfield remediation can reduce trip lengths,

make more efficient use of existing infrastructure, support transit systems, and make walking and

biking viable mode choices (Environmental Protection Agency 2001), especially when brownfields

are located close to existing areas of development. Local and state governments see the potential for

redevelopment to bring in jobs, increase the local tax base, and expand the use of existing

infrastructure. Brownfields are also often located in lower- or middle-income neighborhoods, and

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redevelopment provides more accessible employment opportunities to the neighborhood

(Environmental Protection Agency 2001).

However, many barriers hinder the redevelopment of brownfield sites. The most pressing

question is about economic feasibility - will the costs of rehabilitating and redeveloping this land

exceed potential benefits? This question becomes more complicated than for normal real estate

projects because brownfield sites require extensive environmental cleanup. Environmental cleanup is

often considerably more expensive than other costs of development, such as land, rent, and

construction.

1.2 Brownfields in Portland, Oregon

Portland has a unique opportunity to develop its brownfield sites, and particular pressures to do so.

Given the metropolitan area’s strict urban growth boundary (UGB), increasing residential

population size, and subsequent concerns about the increasing housing density, space for industrial

development in particular is not available in the amounts required by state law. Section 4 provides a

visualization of brownfields in Portland through maps overlaid with relevant information.

The city is expected to expand by approximately 280,000 people in the next 22 years,

highlighting an urgent and growing need for jobs (Bureau of Planning and Sustainability 2013b). As

the Comprehensive Plan (City of Portland, Oregon Bureau of Planning and Sustainability 2013)

states, “jobs in industrial districts, such as the port and airport, are a core part of the city’s living

wage job base.” The Economic Opportunity Analysis for the City cited a 630-acre shortfall for

buildable industrial employment land (City of Portland, Oregon Bureau of Planning and

Sustainability 2012), and the Portland Brownfield Assessment claims a shortfall of 740-acres (Maul

Foster & Alongi, Inc. 2012). Because of the Urban Growth Boundary and the limited access to key

trade lines (the Willamette and Columbia Rivers), it is not feasible for the City to expand its

industrial land outwards. The City must look instead to lands that it can adapt and reuse for

industrial purposes.

According to the Portland Brownfields Assessment, “there are approximately 910 acres of

potential brownfield properties in Portland. This includes 558 industrial acres…” (Maul Foster &

Alongi, Inc. 2012). A full redevelopment of all brownfield sites could go a long way towards

offsetting the industrial land shortage, and would be expected to create 31,000 new jobs and provide

over $40 million more in property taxes paid to the City (Maul Foster & Alongi, Inc. 2012).

Furthermore, brownfields may help Portland reach its environmental and “smart growth” goals,

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including a reduction of CO2 emissions and improvement in watershed health. While Section 7

includes a much more in depth study of the issues relating brownfield redevelopment and carbon

emissions and reductions, the Portland Brownfield Assessment claims that a complete remediation

and redevelopment of all brownfield sites would “represent a reduction in 39,000 metric tons of

CO2 annually” (Maul Foster & Alongi, Inc. 2012). There are numerous benefits to be seen from

brownfield redevelopment in Portland, but costs and liability concerns are important

considerations.

The Portland Brownfields Assessment includes an in-depth report on issues of financial

feasibility, providing feasibility gaps for six land typologies: downtown high density, mixed use hubs,

main street west, main street east, central city industrial, standard industrial, Superfund shadow, and

harbor waterfront (Maul Foster & Alongi, Inc. 2012). These numbers take into account the cost of

remediation and redevelopment, offset by the site’s potential value. According to the assessment,

remediation costs for industrial sites comprise 77 percent of the overall feasibility gap, and this

number increases to 84 percent when accounting for Superfund liabilities.

The redevelopment of some brownfield sites is certainly more feasible than others. For example,

the demand for land in downtown Portland implies that costs of remediation and construction will

be quickly absorbed (Maul Foster & Alongi, Inc. 2012). Other sites will be considerably more

expensive to redevelop, especially those that are a part of the Superfund shadow, where EPA

regulations will increase the costs of remediation as well as restrict future development.

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A large proportion of brownfield sites can be redeveloped for only a moderate investment. The

Brownfields Assessments refers to them as “low-hanging fruit” that could help the city of Portland

meet the industrial land supply shortfall. In their own words, “Closing the estimated financial

feasibility gap on 50 percent of the brownfield requires approximately $36 million. That investment

doubles to achieve an additional 20 percent of redevelopment, then doubles again to achieve 90

percent.” (Maul Foster & Alongi, Inc. 2012). In section 5, a literature review of the economics of

brownfields further addresses the issues of economic feasibility.

The Comprehensive Plan recognizes and addresses the economic feasibility of brownfield

redevelopment in its policies 3.10 and 3.40. The former calls for an increase in public investment to

overcome the feasibility issues of brownfield redevelopment, hoping for cleanup and redevelopment

of 80 percent or more brownfield sites by 2035 (City of Portland and Sustainability 2013). Policy

3.40 looks to encourage the redevelopment of brownfield sites for industrial use and thus help meet

the industrial land supply shortfall that will become salient in the coming years as population

increases call for more living-wage jobs. Section 2 further explores local, state, and national policies

surrounding brownfield redevelopment.

Despite its shortcomings, Portland is actually considered exemplary in its reuse of brownfields.

In 1998, Portland was selected as a Showcase Community in the EPA’s Brownfields National

Partnership program for Portland’s strong history of successful redevelopment. The city-run

Portland Brownfield Program’s onus to provide “resources for neighborhood brownfields on

commercial corridors is driven by the goals of environmental justice and sustainable development”

(Fish and Marriott 2013). Section 8 describes Portland’s most successful projects, like Esperanza

Court, Arciform, and PortCity Development, which have provided rehabilitated land for commercial

and residential purposes, but few of Portland’s projects thus far have been sold as industrial land.

Rehabilitating industrial brownfields is a key step for both economic growth and environmental

concerns within the City of Portland.

1.3 The Effect of Brownfield Remediation on Urban Watershed Health in Portland For many years, Portland has viewed the urban watershed as a vital infrastructure that must be

restored and maintained. This is because, according to the 2012 Five-Year Implementation Strategy

for the Portland Watershed Management Program, the community and city of Portland believes that

“healthy watersheds are the solution to many urban problems including stormwater management,

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flooding, air pollution and urban heat effects” (Saltzman and Marriott 2013). The adoption of the

Portland Watershed Management Plan in 2006 was a significant step towards the conservation of the

urban watershed.

The Portland Watershed Management Plan defines a healthy urban watershed as a watershed

with “hydrologic, habitat, and water quality conditions suitable to protect human health, maintain

viable ecological functions and processes, and support self-sustaining populations of native fish and

wildlife species whose natural ranges include the Portland area.” (“2005 Portland Watershed

Management Plan” 2013) The Portland Watershed Management Plan laid out a roadmap for

improving watershed health by recognizing four watershed health goals for the Portland area, and

outlining six general strategies to achieve these goals.

The two watershed health goals relevant to brownfield remediation:

● Habitat: Protecting and restoring aquatic and terrestrial habitat

● Water and sediment quality: Protecting public health and native fish by improving surface

water and groundwater quality

The four general strategies to attain these goals that are relevant to brownfield remediation:

● Stormwater management: Reducing stormwater runoff into the watersheds

● Aquatic and terrestrial enhancement: Restoring or creating healthy habitats for the

benefit of native species

● Protection and policy: Managing erosion, sediment, pollutant discharge, as well as

stormwater from land development in order to protect important watersheds

● Education: Promoting watershed awareness, and providing pollution prevention education

as well as technical assistance to help maintain watershed health

Brownfield remediation has the potential to encourage healthy watershed function in the

Portland community through addressing the ‘Water and Sediment Quality’ watershed health goal in

the Portland Watershed Management Project by reducing polluted storm water runoff from the

brownfields, as well as by improving sediment quality in the various Portland watersheds. Section 3

investigates current policies related to urban watershed health in the United States, while Section 6

analyzes the importance of urban watershed health from an economics perspective.

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According to the 2012 Five-Year Implementation Strategy for the Portland Watershed

Management Plan, toxic pollution in the sediment (which would include pollution from brownfield

areas) is currently limiting healthy watershed function for the Columbia Slough, Johnson Creek, and

the Willamette River watersheds in Portland. And according to the Portland Brownfields

Assessment, there are approximately 910 acres of potential brownfields in Portland. Given this,

brownfield remediation has the potential to make a significant positive impact on the urban

watershed health.

1.4 Opinions on Brownfield Remediation The success of brownfield redevelopment projects relies heavily on public opinion, particularly in

cases where public investment is necessary to cover remediation costs. Public investment is

contingent upon public interest and support. If individuals do not see brownfield redevelopment as

a viable job-creator, or a good use of their tax dollars, then it is unlikely that remediation and

redevelopment will occur. Furthermore, other concerns regarding watershed health and

environmental quality may affect support for brownfield remediation. There have been a number of

opinion polls in the US related to the issues of brownfield remediation and

watershed/environmental health. These help us to think about the kinds of support and opposition

brownfield redevelopment policies may face in Portland.

A Gallup Politics poll conducted in March 2012 found that 50% of Americans worry a great deal

about contamination of soil and water by toxic waste, and that a further 28% worry a fair amount

about the same issue (Jones 2012). On top of this, the same Gallup poll found that 48% of

Americans worry a great deal about the pollution of drinking water, and that a further 30% worry a

fair amount about the same issue. Given that brownfield sites contribute to both contamination of

soil and water by toxic waste and the pollution of drinking water, the Gallup poll suggests an interest

in the US for brownfield remediation.

The Nation League of Cities (1998) mailed a survey to 1,300 municipal elected officials and

asked, “How useful could brownfields conversion be in making your city more economically

competitive?” 41 percent of respondents felt that brownfield conversion could be somewhat useful,

34 percent thought they were of little use, and 25 percent found them to be very useful (National

League of Cities 1998). This gives us an idea of how aware elected officials may be of this untapped

resource.

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A survey conducted by Sustainable Long Island, a non-profit based in Long Island, New York,

polled brownfield officials and stakeholders, including municipal and government employees,

elected officials, developers, legal professionals, engineers, and others across Long Island, and asked

them to rank the top impediments to brownfield redevelopment on Long Island. Overall,

respondents felt that market conditions, the need for environmental assessment, environmental

regulations, inadequate infrastructure, cleanup funds, and liability issues were, in order, the greatest

barriers to redevelopment, from strongest on down (Sustainable Long Island 2011). To these

individuals, the brownfield redevelopment process is challenging because of regulations and funding.

Simplified processes, concise and predictable standards and requirements, and more funding would

act to make brownfield redevelopment a more appealing option.

These surveys give us a sense of how key stakeholders think about potential brownfield

remediation and redevelopment, as well as how the public views environmental degradation and its

subsequent health effects. The result of the public opinion survey indicates that the general public is

quite concerned about the health of their environment and their watershed. The other surveys show

how city officials across the US are concerned with the economic issues that brownfield remediation

raises. The in-depth economic feasibility analysis (discussed earlier in the ‘Brownfields in Portland,

Oregon’ section above) is perhaps the best step Portland is taking to encourage brownfield

remediation and redevelopment. If the concerns about market conditions and funding are addressed,

then the discussion can focus on potential gains, such as the benefits that remediation will have on

watershed health, environmental quality, carbon benefits, and economic growth in the City of

Portland.

1.5 Key Terms Greenfields: This term was originally used in construction and development to refer to land that has

never been used, where there was no need to demolish or rebuild any existing structures. Today, the

term greenfield project is used across industries, where it means to start a project without the need

to consider any prior work.

Use Value: The value derived from the actual use of a good or service, such as hunting, fishing, bird-

watching, or hiking, provided by an ecosystem. This can include indirect values, where there is no

direct interaction with a specific part of an ecosystem but value is derived from that specific

component’s contribution to the ultimate engagement with the environment.

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Non-use Value: Values assigned to environmental goods by an individual even if that individual will

never necessarily access that good. Non-use value can be equated to the satisfaction of just knowing

that an environmental good exists.

Total Economic Value (TEV): The composite value of an environmental good, also known as the sum

of the use and non-use values for that good.

1.6 Outline for the Rest of the Report Section 2 studies the Local, State, and National Policies about Brownfields, and finds that there are

several paths that Portland can pursue to encourage remediation and redevelopment. A land bank

could be established with the specific goal of redeveloping Portland's brownfields, but given the

particular characteristics of the Portland brownfields (notably reluctance of owners to sell their

brownfield properties without market pressure) a land bank may not be a strong option. Instead, a

tax- or subsidy-based incentive paired may be the best option.

Section 3 investigates Local, State, and National Policies about Urban Watershed Health, and

finds that there are few watershed health policies at the local level, indicating the merit of creating

local policies to address the nuances of specific watersheds; given the total economic values of even

small urban watersheds, it might be useful to design policies that ensure these values are taken into

account during land use planning.

Section 4 creates maps of brownfields in Portland overlaid with information about taxes and

ecology to find that the majority of brownfield sites are concentrated along the river on industrial or

previously industrial land, and that the majority of tax lots with a brownfield located on it are zoned

as "Commercial" use.

Section 5 explores the Economics of Brownfields Literature, and finds that while brownfields

are a largely untapped resource for both environmentalists and economists, there are a number of

difficulties associated with brownfield remediation. Brownfield landowners are often uninterested in

remediation, but they are also hesitant to sell their land at a low enough price to attract customers

willing to remediate and redevelop. The best solutions for this issue require the local government to

assume responsibility for the redevelopment of polluted properties. They could purchase

brownfields outright, subsidize some of the remediation, or tax landowners on their un-remediated

land.

Section 6 considers the Economics of Urban Watersheds and finds, in short, that the literature

unanimously finds that healthy urban watershed features (wetlands, vegetated areas, streams, rivers,

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lakes) or percentage of land comprised of urban watershed features in a property have a positive

impact on house prices. These urban watershed valuations rely mainly on statistical models.

Section 7 looks at the Carbon Benefits of brownfield remediation, and notes how the value of

brownfield remediation ought to consider the effect of redevelopment on carbon emissions. The

future costs of placing carbon in the atmosphere, the social cost of carbon particularly, might be

included in the evaluation of remediation feasibility; proactively addressing carbon emissions in this

venue might preclude any unwanted future federal policy action.

Section 8 studies previous cases of brownfield remediation in Georgia, Maryland, and

Pennsylvania that give important insights on how to successfully remediate brownfield sites. These

case studies make the importance of choosing redevelopment projects with strong demand

abundantly clear. For example, we found that an attempt at brownfield remediation in Pittsburgh,

Pennsylvania failed because it did not cater to the employment needs of the surrounding

communities.

2. Brownfields in Local, State, and National Policy

2.1 Introduction Oregon’s Growth Management Act, by requiring cities to create development plans, puts limits on

urban sprawl at the cost of removing some development flexibility. Portland is currently

experiencing a shortage in its stock of industrial-use land (Bureau of Planning and Sustainability

2013a), but it also has numerous vacant lots and brownfields (see maps in chapter 4). These

properties have been found to reduce the value of surrounding properties (Apgar, Duda, and Gorey

2005) while also costing the city money because of vandalism, arson, and other crimes.

Opening up brownfields for redevelopment would help solve these problems, but there exist a

number of barriers. The first difficulty Portland faces is the long-acknowledged issue of motivating

the owners of brownfields to sell their property (David Adams et al. 2000). The distribution of

brownfields around Portland (see maps in chapter 4) raises the question of whether or not siting

industrial land could occur without significant pushback in certain regions or neighborhoods. Finally,

there’s the ever-present concern with brownfields that abatement and redevelopment is costly

compared to the alternative of locating on uncontaminated (greenfield) property. This section

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investigates land banks—their institutional arrangement, purpose, strengths and weaknesses—as a

possible tool for solving Portland’s brownfield problems.

Upon investigation of the Cuyahoga Land Bank (Cuyahoganty Land Reutilization Corp. 2013),

Chicago’s Cook County Land Bank (Cook County Land Bank Authority 2013), and others it appears

to us that a land bank is not a viable solution to Portland’s brownfield problem. It seems that most

land banks are deployed as a remedy to widespread property abandonment, which is not a problem

in Portland. While the environmental benefits of redeveloping brownfield sites is certainly touted by

other land banks as a success, it seems as though this is a secondary priority for these organizations.

For example, the Genesee County Land Bank has demolished 3,000 abandoned homes at a cost of

about $12,000 (Dominic Adams 2013) per home since 2003, eclipsing spending and grants on

brownfield redevelopment1 (EPA 2013). In other cities holding onto contaminated land makes less

economic sense for a reluctant seller, but in Portland there is good reason to speculate that the land

will increase in value. We found little to suggest that land banks would help ease this reluctance. The

idea of combining a tax or subsidy (or tax increment financing) into a possible land bank solution

would seem an unpopular or unfeasible solution, especially compared to an alternate purely tax-

based approach that could encourage brownfield owners to redevelop or sell.

2.2 Portland Compared to Other Land Bank Sites Population growth in Portland has been greater than the national average for over ten years,

and is projected to continue (Metro 2009). On the other hand, Portland’s urban growth boundary

limits the potential for sprawl; the result is that population density within Portland must increase.

More people looking to live and work in Portland means increasing land prices. With regards to

brownfields, the primary issue would seem to be the cost of redevelopment. Assuming a system

whereby a developer has no financial concerns with regard to site contamination and liability, there’s

the issue of high costs to clean up the site for development in the first place. In the face of growing

demand for land in Portland, it would seem a land bank might make good sense—transaction costs

could be lower, individuals with expertise in site remediation would be easier to contact, etc. The

problem is that brownfields do not seem to be the number one driver for land banks. Rather, land

banks seem particularly good at encouraging and aiding redevelopment of abandoned properties.

                                                                                                               1. It should be noted that Michigan lawmakers passed legislation such that any land held by a land bank is called “brownfield,” (Maul Foster & Alongi, Inc. et al. 2012) but that this does not mean each abandoned property qualifies as one in terms of high cost of pre-development remediation.

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One strength of land bank programs we’ve observed that could be improved upon further in

Portland is the establishment of internet information systems. All of the land banks we studied had

some form of online listing for their properties (see Cuyahoga County’s website for a good example

of a system). The City of Portland already provides PortlandMaps.com as a public data resource and

if a land bank were established in Portland the listing of properties provided for interested buyers

could include or be incorporated into the robust information already available online.

Portland, with its high demand for land, doesn’t really have an abandoned property problem. A

motivated buyer would be more likely to pursue abandoned, uncontaminated property if available

because it would be cheaper to develop, and a seller does not need to be concerned with remaining

part of a chain of liability which could complicate matters and cost them money even after the site

has changed hands. A land bank can be particularly effective with abandoned properties in cities

where that is a problem for a few reasons. One, the stock of properties the land bank targets

includes brownfield sites and abandoned properties. In theory this means that there is simply more

land that the bank can go after for encouraging redevelopment than in a city like Portland that has

primarily brownfield sites. This can be especially useful if a developer or group of developers is

looking to aggregate a number of properties for a larger project—negotiations and arrangements can

go through the land bank for both types of property. Two, property abandonment may not be a

static problem. In Portland, given demand for land and regulation/stewardship practices, we hope

the current acreage of brownfields sitting undeveloped (910) will not increase (City of Portland and

Sustainability 2013). In other cities where land banks have been implemented, if redevelopment of

abandoned properties begins in one particular district (it becomes the primary focus of an urban

revitalization effort) the property abandonment issue may continue and grow in other parts of the

city. A land bank focused on abandoned properties may then have a greater operating lifespan,

better justifying the cost of starting it in the first place and increasing the chance that private actors

will step in and a market will form around the sale and development of these previously unattractive

properties. Lastly, development of an uncontaminated property is simply cheaper. Table 2.1

summarizes the advantages and disadvantages of establishing a land bank in Portland. The table

initially appeared in the Portland Brownfield Assessment, a report prepared for the Portland Bureau

of Planning and Sustainability in 2012. The conclusions of our research have been added to the table

denoted by an asterisk (*).

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Table 2.1 Amended Policy Tool Summary for Land Bank (Maul Foster & Alongi, Inc. 2012)(Maul Foster and Alongi Inc, E.D. Hovee and Company LLC, and ECONorthwest 2012)

Advantages Disadvantages

Potential to become self-sustaining over time. Provides patient capital and long-term vision. Establishes alternative to government taking title of contaminated properties via tax foreclosure. Potential to leverage state and federal grants (HERA) High potential to promote brownfield redevelopment. Potential to work well with established information systems.*

Requires substantial initial public investment in challenging budget climate. Relatively low projected Return-of-Investment (ROI) rate. Land banks seem best deployed in areas with moderate-to-extreme urban blight and abandonment.* May do little to address owner reluctance to sell/land shortfalls simultaneously.*

Land banks could be formed with brownfield redevelopment as the first or only priority,

especially where arrangements could be made to release the final buyer/future developer from

liability, but Portland isn’t solely or even strongly in need of buyer incentives. Reluctant potential

sellers comprise another dimension of the brownfield problem; where incentive exists to simply hold

onto land, owners are reticent when approached about sale and redevelopment. In Portland it is

especially easy to see why owners might hold onto their land rather than sell now. With land in high

demand, owners can speculate on the value of their land increasing. If they can write off these

properties and do not need to pay property taxes on them, there is little a land bank option on its

own would be able to do.

2.3 Government Intervention In Portland, there are a large number of interested buyers of brownfield properties but only a limited

number of sellers. Thus, it would make sense for government intervention to target sellers, which

may occur in two ways. Sellers can be taxed for holding undeveloped land, increasing the price of

holding the land and incentivizing them to sell, or they can be subsidized to lower the selling price.

Economic theory suggests that the seller should be indifferent and incentivized equally by a tax or a

subsidy. However, this is not the reality as subsidies are politically more popular and hence

potentially reap better results.

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We can see from this list of problems that ownership constraints are varied in their nature and

hence require different solutions. Ownership constraints can be split into two different branches:

frictional constraints and structural constraints (Couch and Fowler 1992). Frictional constraints

relate to transaction costs in the market. Making the market more accessible and informative for

potential buyers and sellers can decrease transaction costs. Structural constraints are much harder to

deal with as they refer to the problems where a transaction is uneconomical because of the

differences in the price of selling and buying. While frictional constraints can be dealt with by

implementing more market procedures, structural constraints almost always have to be dealt with

using taxes or subsidies to the owner and/or subsidies to the buyer. Subsidies to the buyer are called

developmental measures and are not encouraged where demand for the land is high, as it is in

Portland. Government interaction with the seller only is recommended for our particular situation.

Taxing the owner of a brownfield site is usually done through a vacant land tax. First of all, it is

important to note that taxes are politically unpopular, and so this approach has rarely been practiced.

The structure of this tax is critical to ensure that it targets those who are currently stagnant in the

market, and not those who are actively trying to sell or remediate the brownfield. With this goal in

mind, a flat tax paid by owners of brownfields is least efficient. Such a tax may discourage

development since developers may have to pay the tax as they prepare for development, and the

added cost makes their scheme uneconomic. Instead, the tax could come with a grace period,

applying only to those who continue to own and not develop brownfields a certain period of time

after its announcement. In the interest of efficiency, Portland’s zoning regulations and increasing

population density give legitimate reason to tax those who own land that isn’t being used.

Subsidies and grants are generally more popular with the public and so the policy would be

easier to implement. Subsidies would either lower the cost of buying or increase a seller’s profits,

and in places of high demand such as Portland, a subsidy directed towards brownfield landowners,

as opposed to potential buyers, would be more efficient. Unfortunately, grants have significant

limitations that must be heeded. Subsidies require a much greater initial investment, and like the land

bank scenario, one must be sure the return on investment is large enough for the option to be

economically viable.

The second type of subsidy is a tax concession. It is important to note that in terms of costs to

the government this is no different than a grant, it merely has different effects in some cases. Tax

concessions usually take the form of capital allowances or enterprise zones. Capital allowances allow

a firm to deduct capital against the revenue of firms for tax purposes, if this capital is directly

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involved with industrializing a brownfield site. This means that the firms will not be taxed for this

capital. The capital is seen as an asset for development and the concession directly endows

developers with more market power to develop further, as well as incentivizing them to do so. Tax

concessions influence producer behavior. The subsidy is more likely to have been efficiently

allocated if it reimburses businesses for spending rather than gives them money for more spending.

Enterprise zones create areas in which development is tax-free or taxed less for a predetermined

period of time. This is a fiscal stimulus that creates or enhances market opportunities where

previously they were weak or did not exist. By and large, they are the most tried and the most

successful of all fiscal stimulus measures in brownfield redevelopment (Boarnet and Bogart

1996)(Boarnet and Bogart 1996)(Boarnet and Bogart 1996)(Boarnet and Bogart 1996). Reduced tax

liabilities and enhanced net revenues enabled developers to pay owners of sites enhanced prices and

still make an acceptable profit in areas where rental levels were previously depressed (Erickson and

Syms 1986)(Erickson and Syms 1986). Hence, owners previously demanding values that were

unacceptable to developers were frequently able to achieve prices sufficient to encourage them to

sell. Adams (2000) estimated that approximately 20% of brownfield sites in Britain that underwent

development would not have done so if not for fiscal stimulus. He expects this percentage to

increase over time as governments become more aware of the rewards associated with stimulus.

3. Urban Watershed Health in Local, State, and National Policy

3.1 Introduction Given the total economic values of even small urban watersheds, it might be useful to design

policies that ensure these values are taken into account during land use planning (Lahiri, Latif, and

O’Brien 2013). Urban watershed health, or watershed health more broadly, is addressed at the

Federal level primarily through legislation such as the Water Pollution Control Acts which aim to

protect the health of the nation’s watercourses (Darby, McMichael, and Dunlap 1976). Beyond such

acts, the policies surrounding urban watershed health are left largely to state and local regulatory

bodies.

There is probably no clean cut policy regime that would be applicable across the board to

address concerns surrounding urban watershed health. “Watersheds,” are extraordinarily variegated

and a policy that would be effective in one watershed might be wholly inappropriate for another.

For this, the most efficacious policies would be those designed for the specific character of specific

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watersheds (Hascic and Wu 2006)–it has suggested that a water quality-trading program (i.e. a

environmental credit market) might be useful in most cases for correcting some of the market

failures surrounding watershed services (Langpap, Hascic, and Wu 2008).

3.2 Watershed Valuation The economic valuation of the watershed and the services a watershed provides is a critical

consideration in the formation of any watershed policy. In general, the cost incurred for letting a

certain amount of pollution above some baseline level (a topic which is critical in its own right) into

the watershed must be higher than the savings from doing so. Valuing a watershed is difficult

because it provides multiple types of services that do not easily collapse into a single dollar value.

Further complicating the issue is the multitude of valuation techniques available–all of which will

often point to wildly different values.

An innovative study conducted by Randhir and Shriver (2009) suggests an alternative method of

valuation that involves ranking without prices within the framework of group deliberation. They

argue that, “Preferences for ecosystem attributes can be prioritized without explicit imputation of

monetary values,” and that non-monetary valuation more accurately reflects the “human values

placed on improving and protecting ecosystems” (Taylor and Gerath 1996). An immediate concern

that arises from any non-monetary valuation is affordability–without any monetary weight to anchor

preferences, it is quite possible that environmental characteristics will be valued beyond a given

budget constraint. However, Randhir and Shriver are able to mitigate this risk by: (a) having

stakeholders performing this evaluation only give preferential weights and not levels of service and

(b) by incorporating a group deliberation element involving similarly interested and powerful

stakeholders to gain a sense of public consensus on what is most important in a watershed. End

values were derived from an algorithm incorporating individual stakeholder valuation, mean

valuation, and an index of consensus, which acts as a proxy for the public interest. The results show

that there existed a statistically significant difference between the raw mean (achieved by averaging

stakeholder’s individual preferences) and the harmonized mean (achieved through group

deliberation and consensus)–thus providing a motivation for this valuation technique.

3.3 Watershed Policy in Oregon

The Department of Environmental Quality (DEQ) is the main state-level agency responsible for

assessing, monitoring and setting water quality standards for Oregon. To best achieve its goal of

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protecting the state’s water supply, the DEQ utilizes a “watershed approach” framework. Although

the concept of managing water quality from the geophysical level has been utilized since the 1800’s,

the watershed approach has reached full maturity only within the last two decades (Taylor and

Gerath 1996). There are several key advantages of taking a watershed approach versus traditional

point-source pollution focused methodologies. Perhaps most prominently, a watershed approach

eschews arbitrary political boundaries for geophysical ones, allowing policy makers to holistically

assess and address water quality issues in a manner that considers the interactions that occur

between the biotic and abiotic elements of a watershed ecosystem. Furthermore, a watershed

approach unites various public and private organizations together and synergizes their efforts

towards the best possible use. Indeed, the Oregon DEQ cites their watershed approach as

synergizing 17 different programs run by various local, state, federal, and private agencies together to

best handle issues of water quality. Participatory place based approaches to watershed planning may

also have certain disadvantages. Using Portland as a case study, Larson and Lach suggest that certain

demographic groups are overrepresented in the planning process while other demographic groups

are marginalized (Larson and Lach 2010).

One of the DEQ’s key programs intended to address watershed health is the TMDL (total

maximum daily load) program. The EPA requires that states have a TMDL program via section

303(d) of the Clean Water Act (EPA 2013). A TMDL refers to the maximum level of

pollutant/impairment that can be present in water to still meet the minimum water quality standards

set by the state. Water bodies that fail to meet the minimum standards set by the state are required

to have TMDL’s developed for them under section 303(d). Currently, there are 1,206 TMDL

identified segments throughout Oregon, the most common impairment of which is the water

temperature, and the most impaired water basins being the Willamette and Umpqua

3.4 The State of Oregon’s Waters: The Willamette Basin

The Willamette Basin serves as a poignant case study on the importance and necessity of TMDL

standards in managing watersheds and water quality. Consisting of 12 sub-basins, the Willamette

Basin has been consistently plagued by mercury, temperature, and bacteria issues. The Willamette

TMDL program was ODEQ’s first attempt at creating a basin wide TMDL policy rather than

addressing issues at the sub-basin level (“Willamette Basin TMDL: Overview” 2006). Unsurprisingly,

this particular TMDL program required extensive coordination between multiple stakeholders from

all sectors. For example, the TMDL for mercury was set through a joint effort between the Oregon

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DEQ, US EPA, and a group of interested stakeholders from the public, private, and advocacy

spheres in Oregon (“Willamette Basin TMDL: Overview” 2006). This group of interested

stakeholders was able to develop a comprehensive plan involving a bio-magnification food web

model and an independently revised estimate of a mercury balance for the Willamette River Basin

with the ultimate end goal of having fish clean enough for human consumption (“Willamette Basin

TMDL: Mercury” 2006). This result demonstrates the degree of complexity that a TMDL can take

and the importance of having multiple interested parties participate in the policy making process.

3.5 The State of Oregon’s Waters: The Columbia The Columbia River is a major waterway that separates Oregon and Washington near Portland. Its

course has attracted extensive industrial development, especially along the OR/WA border, thus

plaguing that portion of the river with extensive pollution. As such, the EPA in partnership with the

ODEQ formed the Columbia River Toxics Reduction Working Group with the aim of reducing the

level of toxins present in the water system. According to a 2009 report published by this working

group, the river is heavily polluted with, “mercury, dichlorodiphenyltrichloroethane (DDT) and its

breakdown products, polychlorinated biphenyls (PCBs), and polybrominated diphenyl ether (PBDE)”

to the extent where it may have adverse effects on human, animal, and plant life (“Columbia River

Basin: State of the River Report for Toxics” 2009). The river is also contaminated with “arsenic,

dioxins, radionuclides, lead, pesticides, industrial chemicals, and “emerging contaminants” such as

pharmaceuticals found in wastewater,” which are not focused upon in the report but merit some

advance concern (“Columbia River Basin: State of the River Report for Toxics” 2009).

3.6 Brownfield Redevelopment and Watershed Health Brownfield redevelopment efforts are inextricably linked to the improvement of watershed health in

which the brownfields are located. Indeed, it can be argued that every brownfield redevelopment

project is also a watershed redevelopment project. Empirical support for this proposition is found

by an April 2011 study conducted by the US EPA of five metropolitan areas with extensive

brownfield redevelopment projects (Swartwood and Thomas 2011). To summarize, the EPA

averages the environmental performance of brownfields across the five communities and compares

them to traditional developments. The results are telling (Swartwood and Thomas 2011):

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Table 3.1 EPA Estimation on Environmental Performance of Brownfields as compared to Greenfields.

Pollutant

Measurement

% Difference for Brownfields as compared to Conventional

Stormwater Runoff

Acre-feet/yr

43~60%

Nitrogen

Lbs/yr

9~71%

Phosphorous Lbs/yr -31~78%

Turbidity Lbs/yr 21~80%

Biological Oxygen Demand

Lbs/yr 62~79%

Chemical Oxygen Demand

Lbs/yr 65~79%

Oil and Grease Lbs/yr 66~80%

Metals Lbs/yr 59~72%

In almost every case, brownfield redevelopments perform better by a significant margin as

compared to their conventional (or “greenfield”) counterparts (Swartwood and Thomas 2011). This

result is due to the particular characteristics of brownfields. First, because brownfields are already

polluted, any development that occurs on them will result in a reduction of pollutants entering the

watershed. Second, the EPA hypothesizes that brownfield redevelopments are often used more

intelligently with an eye towards ecological friendliness.

3.7 Brownfield Redevelopment and Watershed Protection: An Overview of Process Given that policies concerning (urban) watersheds need to be undertaken on the state and local

levels, and that those policies need to be directed to the specific character (where character is

composed of the abiotic (physical geography), biotic (ecosystem), and built (otherwise invisible

human institutions of property and visible material objects such as infrastructure) of local

watersheds, it should perhaps come as no surprise that Oregon policies concerning watershed health

seem to have been designed to facilitate public-private and state-local partnerships.

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One such public-private partnership is that undertaken by the Oregon Watershed Enhancement

Board. Under the aegis of the OWEB, local watershed councils are provided funding to take care of

the Oregon’s waters (Seim 2012). A quick back-of-the-envelope calculation of the OWEB data

reveals that funding is overwhelmingly utilized for actual restoration efforts (Seim 2012). That is not

to say, however, that funding can only be used for restoration–funding has been allocated for

everything from education efforts to monitoring equipment (Seim 2012).

3.8 The Willamette Partnership and Freshwater Trust Historically, in the United States the instrumental value of rivers and streams has been measured by

their capacity to serve the purposes of navigation, waterpower, irrigation, and flood drainage (Hays

1959, 5–27 and 91–122). This manner of accounting the value of rivers was not isolated. Far from it,

in fact, this way of accounting has a long and wide-ranging historical lineage. The same exact criteria,

for example, were used to evaluate the efficacy of early 19th century drainage projects designed to

“materially improve” the rivers of Ireland (Great Britain, 1809). These methods of accounting did

not take into account such things as in-stream flows or the ecological/habitat benefits from streams

and rivers. The Freshwater Trust aims to further the “new solutions [that] are needed to fix every

river.” That is to say, the Freshwater Trust aims to “fix” the more than a century of “improvements”

effected upon the rivers and streams of Oregon. This fixing, as it were, will in part be accomplished

through restoring and accounting for the benefits of habitat and in-stream flows (The Freshwater

Trust 2013). Notably, however, fixing the improvements to rivers and streams will be accomplished

through water quality trading and quantifying/marketing ecosystem services. In this respect, the

Freshwater Trust of Oregon has partnered with the Willamette Partnership whose stated goals focus

on the establishment of successful ecosystems services market. Toward this end, the Willamette

Partnership has developed the experimental Ecosystem Credit Accounting System which “is a

package of protocols, tools, and resources,” that allow participants in the ecosystem services market

to buy and sell ecosystem services in each of the four ecosystem currencies (Willamette Partnership

2013a). The Partnership is currently engaged in six pilot projects throughout the Willamette Basin.

The project in Johnson Creek, for example, aims to achieve Oregon DEQ TMDL goals by lowering

average water temperature, improve salmon habitat, and demonstrate the efficacy of the use of

temperature credits in an ecosystem services credit trading system (Willamette Partnership 2013b).

3.9 Brownfield Redevelopment and Watershed Protection: An Overview of Tools

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Brownfield redevelopment is fraught with significant financial risk and uncertainty of final outcomes.

According to a report published by the US Government Accountability Office, brownfields are

difficult to redevelop due to owner unwillingness to identify properties that may be or are

contaminated and investor unwillingness to take on the risk of a possible lawsuit or cleanup costs

that comes with brownfield properties in the context of Superfund Laws (Guerrero 1997). These

inefficiencies due to information asymmetry and risk preferences are most likely further

compounded by state and local legislation–leaving the potential for many brownfields to sit

undeveloped. Beyond the loss in potential economic activity that results from a lack of

redevelopment, it is quite possible that many brownfields, even though no longer actively producing

new pollutants, are harming the watershed due to toxic chemicals and waste that have seeped into

the soil and permeated the surface. Hence, any plan to remediate brownfields incorporates–to a

certain degree–concerns about watershed health.

Many state and local authorities have set up loan/grant programs that assist developers with the

costs associated with brownfield redevelopment. One such program is the State of Washington’s

Brownfields Redevelopment Loan Fund. The BRLF program loans up to $425,000 to contaminated

landowners to put their land back into productive economic use. Augmenting this program is the

Voluntary Cleanup Program in which property owners can retain environmental consultants from

the State’s Ecology department at a low fee ($50-100/hr). Washington’s Department of Commerce

has estimated that every dollar spent on brownfield redevelopment has resulted in $12 in

State/Local Tax revenue, $14 in Payroll Value, and $64 in Business Revenue (Mandeville 2013).

3.10 Brownfield Redevelopment and Watershed Health: Credit Markets An alternative tool that can be used to encourage the redevelopment of brownfields in a manner

that is consistent with watershed protection is the creation of an environmental credit market. In an

environmental credit market, property owners can trade pollution permits, thus creating a market

that appropriately addresses the individual needs of a diverse variety of firms.

One of the primary issues facing the creation of an environmental credit market is the

appropriate baseline level that should be set as a market entry condition. First and most obviously,

an improperly set baseline will most likely cause more pollution or less productive activity than is

desired by the policy maker. A more nuanced concern results from the tradeoff made between

having an efficient market or an equitable market depending on the baseline.

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3.11 Brownfield Redevelopment and Watershed Health: Credit Market Baselines

Ghosh et al. (Ghosh, Ribaudo, and Shortle 2011) extensively address such concerns in a study of the

Conestoga watershed. They employ a simple model consisting of dairy farms (a source of non-point

pollution) located within the Conestoga watershed under different baseline requirements and policy

characteristics (Ghosh, Ribaudo, and Shortle 2011). In particular, they divide up dairy farmers into

two distinct classes: (a) good stewards that adopt best management practices before a credit market

and baseline are set, and (b) poor stewards who do not adopt best management practices until after a

baseline is set. Furthermore, they introduce two different baseline methodologies: the D baseline,

which sets baseline requirements based on the BMP’s is use by all farms at a specific date and the M

baseline, which sets baseline requirements given a minimum standard that the policy maker sets. The

D baseline carries the danger of the baseline requirement being too lax, whereas the M baseline

carries the danger of the baseline requirement being too high. Running a simulation using this model

leads to the important conclusion that the problem of inequity towards the good stewards that

occurs with a D baseline is far less harmful from the market’s perspective than the inefficiency of

the M baseline. They are able to conclude this by showing that although good stewards are less

rewarded or even priced out of the market using a D baseline, the M baseline raises the overall cost

of offsets and results in less pollution abatement than is desired (Ghosh, Ribaudo, and Shortle 2011).