Category Archives: Uncategorized

Data Center Redundancy

Data Center Growth: Because One is None

Delta Air Lines recently experienced what no company big or small wants to encounter: a failure of its data center and a halt to its core business. The small fire in Delta’s enterprise data center destroyed back up power capacity and hundreds of servers needed rebooting. This resulted in a grounding of the company’s entire fleet, cancellation of hundreds of flights and the inconvenience of thousands of passengers.

Because data centers provide direct benefits to the business community, revenue to local tax coffers and are similar in impact and intensity as an underused office building, many zoning officials are incorporating the use in local codes. However, even when zoning provides specifically for data center development, it is important to understand if the regulating authority also contemplated the need for any necessary utility infrastructure.

Company data centers like Delta’s typically have built-in redundancies in power, cooling and networking independent from the primary sources. While there were clearly built-in data center redundancy efforts in place, a single-point of failure remains if all of the data and operations are contained in one single center. The Navy S.E.A.L.s are known to say, “Two is one and one is none” as a reminder that if a piece of equipment is important enough to have, you should have two in case of malfunction, loss or failure. Redundant infrastructure within one data center does not account for the loss of the entire data center. This is a critical issue for modern business yet it is estimated that over half of all small and mid-sized businesses in the U.S. do not have a recovery plan in place should they too experience an outage, data loss, or other catastrophic failure in their data systems and operations. Data is central to doing business today and assuring that your information is secure and provided for in any disaster recovery plan is critical.

It is clear that companies will need to find ways to build and increase their crisis recovery abilities and assure data center resiliency through redundancy. For those businesses that opt for their own data center, this will mean multiple data centers in varying geographic locations. This approach ideally will involve “hot failover mirrors” that allow transfer of operations to another data center in case of a local failure. Other businesses may opt for the redundancies offered by larger scale commercial cloud companies that provide geographic diversity with multiple data centers across the country and even the globe. Regardless of the particular strategy employed, the net result is the need for more and in many cases larger data centers.

Because data centers provide direct benefits to the business community, revenue to local tax coffers and are similar in impact and intensity as an underused office building, many zoning officials are incorporating the use in local codes. However, even when zoning provides specifically for data center development, it is important to understand if the regulating authority also contemplated the need for any necessary utility infrastructure. Last year Loudon County Virginia officials amended zoning regulations to require special permits where previously the zoning allowed for data centers as of right. While new data centers were still a generally welcomed use in the zones where proposed, the new projects meant the necessary transmission lines would be in residential areas. As a result, officials amended the code to give greater scrutiny to data center projects. As more companies seek to meet data capacity and redundancy needs, it will be important to not only understand how local zoning treats data centers, but how additional transmission and communications lines have or have not been accounted for in that zoning and what local, county or state-level approvals are necessary to connect these facilities.

SEQRA EIS Cuddy & Feder

SEQRA Alternatives: The “No Action” Baseline

In New York State, the Environmental Quality Review Act (“SEQRA”) structures the process of assessing and mitigating the potential environmental impacts of development projects. The overarching purpose of SEQRA is “to incorporate the consideration of environmental factors into the existing planning, review and decision making processes of state, regional and local government agencies at the earliest possible time.”1 While the law undoubtedly fulfills a critical role in furthering this important public policy goal, at times its provisions – on their face – can be vexingly opaque, as lawyers, developers, planners, local officials, and other professionals earnestly seek to comply with its statutory provisions.

There is precedent to support the position that an “as-of-right” (AOR) alternative may be used, in which case the permitted build-out under the zoning code may be the proper alternative with which to establish the baseline for measuring the potential environmental impacts of the project proposal.

One of these frustrating clauses presents itself at the stage when a positive declaration has been issued and an Environmental Impact Statement (“EIS”) must be prepared. As part of the EIS, the project sponsor must consider a range of “alternatives,” and SEQRA § 617.9(b)(5) specifically provides that this range of alternatives must include a “no action” alternative.2 The “no action” alternative “must always be discussed to provide a baseline for evaluation of impacts and comparisons of other impacts.”3 Unfortunately, SEQRA does not elaborate further on what precisely constitutes a “no action” alternative, and therefore, what baseline must be used in calculations. This can lead to confusion for both the project sponsor, as they seek to fully comply with the provisions of SEQRA, as well as members of the public, who wish to understand and be involved in the environmental review process.

What Is A “No Action” Alternative?

There have been two distinct strains of thought on what constitutes “no action,” and as in most areas of law, the application of each is largely dependent on the facts in a given application. On the one hand, some courts have held that “no action” equates to a “no build” alternative, where a proposal’s potential environmental impacts are compared to the pre-existing and/or “as is” condition of the development site.4 On the other hand, there is precedent to support the position that an “as-of-right” (AOR) alternative may be used.5 In that scenario, the permitted build-out under the zoning code may be the proper alternative with which to establish the baseline for measuring the potential environmental impacts of the project proposal.6 Indeed, the NYS Department of Environmental Conservation (“DEC”) regulations expressly permit private developers to describe those alternatives for which no discretionary approvals are needed.7

In anticipation of project opponents claiming a Draft EIS is incomplete, a project sponsor should consider the value of identifying the existing physical conditions of the site to be in a position to compare that to both – the “no build” and AOR alternatives, if necessary. This is certainly not to say that the law requires a project sponsor to mitigate impacts based on the “no build” evaluation. However, included existing conditions data in the EIS may help to bolster the underlying record.

Finally, it is important for all involved in the SEQRA process to keep in perspective why the assessment of alternatives is required, and make this point clear to the lead agency during the scoping portion of the SEQRA process (assuming scoping is required for the EIS at issue). The consideration of a “no action” alternative may not be construed as a concrete, viable potential alternative use for the site; rather, its clear purpose may be to establish a reasonable baseline for assessing and, if necessary, determining appropriate and reasonable mitigation measures for the identified environmental impacts of a proposed project. The project sponsor and the lead agency must also consider context when analyzing the “no action” alternative for a specific project. For example, factors such as onsite contamination or existing blighted area conditions may impact the baseline as “no action” for these type of projects may mean that contamination will remain for an indeterminate timeframe, or that the community may miss out on the installation of new sidewalks, pedestrian connections or pocket parks for urban infill development.

A project sponsor should be mindful of these considerations early on in the SEQRA process and engage in an open dialogue with the lead agency and its staff to clearly establish the parameters of the “no action” analysis and the associated analyses.

New York Solar Energy

New York’s Community Distributed Generation

Proposed legislation in the State of New York would seek to advance the growth of solar energy by allowing renewable energy facilities in areas that might not otherwise permit such installations. For instance, in a previous blog post we discussed proposed legislation that would limit homeowner’s associations from prohibiting solar development and that would mandate “shading” of solar installations be considered during land use applications. Similarly, in July of 2015 the New York Public Service Commission (“PSC”) issued an order outlining its Community Distributed Generation policy, which promotes small-scale solar energy facilities and net metering in areas not prone to solar development (e.g. urban areas). Accordingly, residents in these areas will now be able to obtain net metering benefits similar to those in more rural areas. Phase 1 of the PCS’s Community Distributed Generation project has ended, and Phase 2 has begun, which will allow a broader range of projects to the benefit of New York residents and solar developers.

Community Distributed Generation  

What is Community Distributed Generation? Simply put, it’s a cooperative of people (a “group”) that utilize the same solar energy facility. Under the new Community Distributed Generation order, such a group would permit each “member” to net meter from a single solar generation facility. Thus, any solar generation in excess of consumption would create a credit that the utility company would track and distribute to all members of the group in accordance with the applicable Community Distributed Generation contract.

Of course, all New York State net metering laws would apply to the distribution and connection of the subject solar facility (see Public Service Law §§ 66-j and 66-l). Importantly, the Community Distributed Generation order provides very specific guidelines related to the creation and operation of a Community Distributed Generation group including guidelines for each member and specific energy distribution requirements. For instance, a group must associate or contract with some form of business, not-for-profit, or governmental entity that would become the “Project Sponsor.” The Project Sponsor is responsible for constructing the facility, interconnecting to the utility grid, and owning and operating the facility in accordance with New York’s net metering laws. Essentially, the Project Sponsor is responsible for managing the group membership and interacting with the applicable utility company.

These residents may only participate in solar generation and net metering by a Community Distributed Generation group. For example, multi-tenant developments where tenants are not otherwise able to benefit from solar net metering can now utilize Community Distributed Generation to harness solar energy benefits.

New York Opportunities 

The Community Distributed Generation program’s goal is to allow a wider range of opportunities to benefit from solar energy systems, including New Yorkers who previously supported clean energy development through utility bill surcharges but otherwise were unable to benefit from New York’s net metering laws. Such users may be located in urban areas where solar energy facilities are restricted in their location and size. These residents may only participate in solar generation and net metering by a Community Distributed Generation group. For example, multi-tenant developments where tenants are not otherwise able to benefit from solar net metering can now utilize Community Distributed Generation to harness solar energy benefits.

To this end, the Community Distributed Generation order has identified strategic locations in New York where Community Distributed Generation projects should be explored. In fact, each utility company operating in the state is required to establish “opportunity zones” where locating such projects would be most beneficial.

Conclusion

Phase 2 of the Community Distributed Generation project began on May 1, 2016. Aside from allowing a broader range of Community Distributed Generation projects, the PSC has noted that Phase 2 projects should advance the interests of low-income customers. Further, Phase 2 will increase the number of projects that come online and likely provide clarification of applicable regulations. Developers and utility customers throughout New York should be aware and take advantage of Community Distributed Generation opportunities as Phase 2 rolls out.

Solar Energy and Residential Development In New York

In the suburban and more rural areas of New York, such as Westchester County, the Hudson Valley, and Long Island, municipalities must promote general state policies by encouraging the adoption of alternative energy solutions, i.e. residential solar systems. However, residential solar systems are not always easily permitted. A developer seeking to construct a residential solar system may face obstacles from neighbors or homeowner associations or may have trouble siting solar energy arrays in a location best suited for available sun-light. For instance, it is common for a planning board to ensure that appropriate landscape buffers are implemented, but typically without regard to what impact such actions will have on the effectiveness of residential solar energy systems.

As we enter the age of smart grid connectivity and net metering, communities will need to accommodate and encourage on-site residential energy systems that may sell energy back to the grid. A new balancing test will need to be employed. Municipalities will need to consider the rights of the applicant and the concerns of the neighbors in conjunction with the overarching policy of New York to expand alternative energy production. Importantly, if an applicant applies for a small-scale solar energy facility, the municipality must encourage such development and ensure its sustainability, i.e. access to sunlight.

Accordingly, the New York Legislature is considering laws that would advance residential (small-scale) solar facilities in New York and limit the obstacles hindering solar development. While there are many proposed laws related to solar energy in New York, Bill No. A06878 and Bill No. A00046 are the ones that will have direct impact the permitting and planning process for residential systems.

New York Legislation

Proposed New York Bill No. A06878 seeks to prohibit homeowner associations from banning the installation of solar arrays in their by-laws or rules and regulations. In fact, in this regard, New York is behind the game. In Arizona, Florida, California and Massachusetts, legislators have enacted similar bans on homeowner associations barring them from taking steps to prohibit the installation of solar arrays on residential properties.

This proposed New York legislation, if enacted, would provide residents in homeowner associations the right to install solar arrays through a consultative process with their respective association.

This is consonant with the stated policy of the State of New York to “promote solar investment and use”, which provides the impetus for Bill No. A06878.

In effect, it seeks to eliminate the inconsistent manner that residential solar systems are currently subject to review.  Residential developers in New York, who typically create homeowner associations and corresponding regulations in the course of subdividing larger tracts of land, must be aware of Bill No. A06878 in light of its potential impact on the design of future residential development.

Similarly, proposed New York Bill A00046 seeks to prohibit the shading of solar energy devices located on adjacent properties. This bill would prohibit the shading of more than 10% of a solar collector by landscaping on adjacent properties. While this proposed law takes into account existing landscaping, it represents another potentially significant consideration for residential developers and/or municipal permitting agencies.

Conclusion

Reflecting the official policy of State of New York to promote the use of alternative energy, more and more residential developers will be looking to incorporate small-scale solar energy systems into their developments. It is therefore vital for developers and local regulators to understand the applicable (and pending) New York State legislation, as they go about the business of developing the next generation of residential housing for our communities.

The Court of Appeals Reconfirms the Rules of Standing in Environmental Impact Review Disputes

The New York Court of Appeals, the State’s highest court, had recent occasion to reiterate and clarify the law governing the legal standing of individuals to sue for environmental harms within the context of the State Environmental Quality Review Act (“SEQRA”).

By way of brief background, there is a two-part test under New York law for determining whether someone has a sufficient interest in and connection to the subject matter of a SEQRA determination to permit that person to challenge the determination in court. First, a petitioner must show an injury in fact, which means that the complaining party must be actually and directly harmed by the challenged action, beyond conjecture or speculation, in some way that is different in kind and degree from that of the public at large. Although an injury in fact may be inferred from a showing of close proximity of the petitioner’s property to the subject development or structure, what a court may consider to be “close proximity” sufficient for standing purposes will vary from case to case. Second, the injury must fall within the zone of interests sought to be promoted or protected by the controlling statute. Under SEQRA, the alleged injury must be environmental as opposed to economic.

In Sierra Club v. Village of Painted Post, 26 N.Y.3d 301 (2015), the Village had entered into a lease with a railroad company for the construction of a water transloading facility and a bulk water sales agreement to supply the facility. Nearby residents and a number of environmental groups challenged the agreements by arguing that the Village failed to review properly all potential, significant, adverse environmental impacts of the project.

The lower court held that almost all of the petitioners lacked standing because, as the lower court found, their concerns about noise and water quality were generic harms of concern to the public at large and were not unique to the individual petitioners.

However, the lower court ruled that one petitioner had standing because he alleged he could see the loading facility from his house and that noise from the trains allegedly kept him awake at night. Insofar as the remaining petitioner was concerned, the Appellate Division disagreed and found that he was no different from anyone else who lived near the train tracks, thereby rendering his alleged injury no different from that of the public at large and depriving him of standing to assert his claims.

The Court of Appeals reversed the Appellate Division, holding that it does not matter that more than one person is directly impacted by the complained-of activity, such as noise created from increased train traffic. The Court of Appeals observed that the reasoning employed by the Appellate Division was “overly restrictive” because it would effectively “shield a particular action from judicial review” simply because other nearby residents are also injured. The fact that the particularized environmental harm is shared does not necessarily mean that it is one of generic public concern. In reiterating its long-standing principle that the standing rules should not be applied in a “heavy-handed” manner to deprive aggrieved persons the opportunity for their claims to be heard on the merits, the Court of Appeals held that the remaining petitioner had standing to assert his claims and remanded the case for further proceedings.

The take-away lesson, in short, is that alleged environmental harms resulting from a SEQRA determination are not necessarily matters of generic public concern for which there is no standing to sue solely because other people in the local area suffer the same alleged injuries. By reminding lower courts that the procedural rules of standing should not be applied in an overly restrictive manner, the Court of Appeals’ decision in Sierra Club v. Village of Painted Post will serve as further precedent in support of the disposition of environmental impact review disputes not on procedural grounds but on their substantive merits.

One Fish, Two Fish, Red Fish, Brown Fish – New York’s Brownfield Cleanup Program in 2016

One Fish, Two Fish, Red Fish, Brown Fish – New York’s Brownfield Cleanup Program in 2016

In the ten (10) years since it was established, New York’s Brownfield Cleanup Program (BCP) has cleaned up nearly 200 contaminated sites in the State – incentivizing redevelopment in large part due to the tax credits available to participants and volunteers. Designed by the New York State Legislature to encourage persons to voluntarily remediate, reuse and redevelop contaminated brownfield sites that “threaten the health and vitality of the communities they burden, and… contribut[e] to sprawl development and loss of open space,”1 the BCP tax credits were scheduled to expire on December 31, 2015.

However, the 2015 Enacted Budget adopted by the State Legislature avoided sunsetting these important tax credits, and instead opted to continue the tax credits for another ten (10) years, while including notable reforms to the Brownfield Redevelopment Tax Credits (BRTC) that may have significant impacts on a developer’s bottom line.

Amendments to the Brownfield Cleanup Program:

Over the last decade, the tax incentives in the BCP have shifted in line with legislative amendments that resulted in three (3) versions or variations of the BCP, which determine the qualified costs and applicable percentage components that comprise the BRTC.2 In particular, these three (3) versions have different limits for eligible costs and restructured credits depending on when a Brownfield Cleanup Agreement (BCA) was executed for an eligible site, accepting an Applicant into the BCP. These “versions” are as follows:

  1. Version 1.0 – (Accepted into BCP Prior to June 23, 2008);
  2. Version 2.0 – (Accepted into BCP after June 23, 2008, and before July 1, 2015); and
  3. Version 3.0 – (Accepted into BCP after July 1, 2015).

Provided the above, an important deadline for participants in the BCP with active cleanup sites involves the trigger that is set forth in the current legislation, which pushes existing sites in the BCP under the prior Versions (Versions 1.0 & 2.0) into the current Version 3.0. Accordingly, any site in Version 1.0 (accepted into the BCP before June 23, 2008), which has not received a Certificate of Completion (CoC) by December 31, 2017, and or any site in Version 2.0 (accepted into the BCP between June 23, 2008 and before July 1, 2015), which has not received a CoC by December 31, 2019, will be subject to the rules under Version 3.0. While the failure of a Version 1.0 or Version 2.0 site to obtain a CoC by the dates identified above will not ultimately disqualify a site from tax credits, once forced into Version 3.0, if a volunteer fails to obtain a CoC by March 31, 2026, the site will be disqualified from credits.

BCP Version 3.0:

Under Versions 1.0 and 2.0 of the BRTC, applicants could be eligible for tax credit components including site preparation credits; on-site groundwater remediation credits and tangible property credits. Additionally, under Versions 1.0 and 2.0, credits are available for property tax credits,3 and qualified environmental remediation insurance policies.4

However, Version 3.0 has some important changes. Unlike in Versions 1.0 and 2.0, Version 3.0:

  • Sunsets the real property tax and environmental remediation insurance credits;
  • Limits eligible costs for site preparation (reducing the redevelopment credit cap);
  • Restructures credits (tangible property and applicable percentages);
  • Eliminates DEC oversight costs; and
  • Includes reforms designed in part to channel tax incentives to sites that would not otherwise be attractive to developers (separating eligibility and tangible property credit eligibility for sites in New York City).

The above changes are significant – and while the 2015 Enacted Budget also included other important reforms to the BCP, current participants under Versions 1.0 and 2.0 should carefully consider the credits that may be lost if the participant cannot obtain a CoC prior to the respective deadline, causing the site to sunset into Version 3.0.

In particular, limits on eligible costs for the tangible property credits, taken together with the sunsetting of the real property tax credits and environmental remediation insurance credits could result in significant losses up to – and in some instances more than – thirty percent (30%) in total credits available under the BRTC.

Collectively, these new deadlines incentivize timely redevelopment for sites to finish cleanup, especially those that have been in the program since prior to June 23, 2008 and are eligible to claim unlimited tax credits. Ultimately, sites where work is not completed by the deadline will be subject to the reformed eligibility criteria and restructured tax credits. Given these timeframes, current participants should be asking questions about what eligible costs are available now, in light of the potential to sunset into Version 3.0. This is especially important since the success of a project usually depends on the development coming in at the right price including all available incentives and tax credits.

The Evolution of Electrical Infrastructure: Does it require an Evolution in your Local Regulations?

The Evolution of Electrical Infrastructure: Does it require an Evolution in your Local Regulations?

Every municipality in New York has some level of electrical infrastructure within its borders, ranging from common distribution lines to major power generation facilities. Distribution lines within municipal right-of-ways may be governed by franchise agreements. Large electric generation facilities may be exempt from local laws and regulated by New York State.1 A key question for many public utilities trying to deploy modern electrical infrastructure, however, is where does the “other” infrastructure fit within the local regulatory scheme, if at all? The answer to this question is particularly important today given rapid developments in energy technology and the likelihood for change in the type of infrastructure available to support the electric grid.

Let’s assume for this discussion that “other” infrastructure historically includes a substation on non-municipal land. Such a project may be subject to some level of zoning depending on the language of the local regulations and the project’s details – albeit even public utility projects that are subject to zoning are reviewed under a “lesser” standard, or the “public necessity” test.

A public utility generally warrants a zoning approval when it shows that the infrastructure project is proposed in furtherance of rendering safe and adequate service and power supply to the public.

Not all municipalities regulate electrical infrastructure the same way. Some municipal zoning laws may not mention public or electrical infrastructure at all. This is not necessarily an oversight as the municipality may deem utility infrastructure a critical public use and review public utility projects administratively (rather than under zoning). However, where zoning does regulate certain electrical infrastructure, vague language in zoning laws often leads to a discussion with municipal officials to determine where the project fits in the local regulatory framework. A substation project, for example, may not fit neatly within a local zoning definition, necessitating the need for the utility to obtain an interpretation from the local zoning administrator that either squeezes the project into a standard zoning process that may or may not be appropriate for this type of matter, or alternatively, identifies a modified review process.

Vagueness in local regulations will become even more apparent as new technology and types of infrastructure permeate the electric utility sector. In 2015 New York State put forth the “Reforming the Vision of Energy” (“REV”) strategy in an effort to respond to digital innovation opportunities and the specific challenges facing the electric industry, such as increased costs, aging infrastructure, and energy self-generation options. “The regulatory initiative launched in [REV] aims to reorient both the electric industry and the ratemaking paradigm toward a consumer-centered approach that harnesses technology and markets.”2 A key aspect of REV is integrating distributed energy resources (“DER”) into the planning and operation of electric systems. DERs are generally “defined as ‘behind-the-meter’ power generation and storage resources typically located on an end-use customer’s premises and operated for the purpose of supplying all or a portion of the customer’s electric load.”3 They include “solar photovoltaic (PV), combined heat and power (CHP) or cogeneration systems, microgrids, wind turbines, micro turbines, back-up generators and energy storage.”4 The State’s purpose of integrating DERs with the grid is “to achieve optimal system efficiencies, secure universal affordable service, and enable the development of a resilient, climate-friendly energy system.”5

Policy considerations and technical questions regarding the integration of DERs into the electric grid are important (and something we will discuss in future blog posts). REV is encouraging DER projects by proposing changes to the traditional public utility business model. REV’s affect on infrastructure siting regulations at the local level will take time to emerge. Municipalities may start to see, if they haven’t already, DER proposals by private applicants. Projects may be relatively small, independent electrical infrastructure proposals, or larger “micro-grid” proposals that further blur the regulatory lines for utility projects under zoning. In the meantime it is important for all parties involved in the local process, such as municipal officials, public utility vendors, and property owners to understand that existing local regulations may not be equipped, or appropriate to handle new or unconventional DER projects. Municipalities should consider, with input from potential applicants, where these type of projects fit within their regulatory framework to avoid “vagueness” and setting a precedent for complicated zoning processes.

Developers Need Compliance Too

Recently, I was reading about the FBI’s investigation into AFB Construction, a Connecticut construction company which is the facilities manager for the Stamford school district. The substance of the investigation is whether AFB used its position within the Stamford school district to obtain business with another city contractor.

The article got me thinking about Cuddy & Feder’s developer and construction clients (and developers and construction companies working in the Westchester/Fairfield area generally). Like all companies, developers/construction companies would rather spend money on their core business than pay attorneys or compliance professionals to mitigate potential risk. While they recognize the need to invest money in counsel with respect to land use matters – the type of work that is necessary to achieve the permits, variances, and other permissions required to build/develop/sell and ultimately generate revenue – they may be hesitant to incur legal fees beyond that, relying instead upon employing ethical business practices in order to avoid regulatory or legal troubles. This approach is attractive, but dangerous, particularly in light of the current business climate.

In 2012, Bovis Lend Lease, the U.S. subsidiary of an Australian construction company, entered into a deferred prosecution agreement with the United States Attorneys’ Office (USAO) for the Eastern District of New York. Under the agreement, Bovis was fined $56 million and in a separate proceeding its former president was sentenced to 10 years in prison (the sentence was later suspended). Small or mid-sized developers might be tempted to dismiss this as an instance of a corrupt, massive organization, which has little bearing on them, but it is important to understand the basis for the USAO’s case.

The allegations were not that Bovis paid bribes, skimmed off the top, or even took any extra money.

The allegations were that Bovis paid union foremen (not company employees) for some overtime and holiday hours that they did not work, passing that cost along to clients, and that it did not accurately report its use of women’s/minority/disabled owned business entities (W/M/DBE) as subcontractors.

While most of the companies working in and around Westchester or Fairfield counties are not the size or scope of Bovis, they should still take note of the hefty penalty imposed in a case where there were not even allegations that the company illegally profited or took extra money for itself. Similarly, the allegations in the AFB matter are far from what we would typically think of as what constitutes institutional corruption.

It is not only criminal investigations by the US Attorneys’ or FBI with which construction companies and developers need to concern themselves. These companies may also find that they are on the receiving end of inquires from states’ Attorney Generals, school or city construction authorities, or other agencies such as the Federal Housing Finance Agency. Accordingly, developers/construction companies of all sizes must have compliance procedures in place and know what to do if and when they do receive a regulatory or prosecutorial inquiry.

First, developers/construction companies need to implement robust compliance procedures. For most small or mid-sized companies it will not be cost-effective to have a full-time employee dedicated to compliance, therefore these companies should look to engage outside counsel or compliance consultants to implement policies specific to their businesses. These policies should include, among other things:

  • Document retention policies
  • Procurement practices (with extra controls in place for public projects)
  • Subcontractor selection and billing practices
  • M/W/DBE reporting (depending on the jurisdiction in which the company operates)
  • Timekeeping practices for both company and union employees

These policies benefit a company by not only mitigating risk, but they also demonstrate good faith to regulators/prosecutors if the company ever is investigated.

Second, if a developer/construction company receives a regulatory inquiry, it should consult with an attorney with experience in the area of regulatory investigations. It is difficult to stress how critical this is, even for a company that may not be the target of the investigation. In addition to retaining an attorney to assist in responding to the inquiry, companies should:

  • Retain all documents relevant to the subject of the inquiry
  • Not make any public statements about the substance of the inquiry
  • Not take an adversarial position towards the regulators/investigators

Compliance is not an added cost for developers and construction companies, it is a necessity and should be viewed as an opportunity to put in place procedures that will protect the company, mitigating risk and saving money, stress, and distractions in the future.

Public Finance at the Crossroads Again

In the face of potential broad sweeping tax reform, a bi-partisan Municipal Finance Caucus has been formed in the House of Representatives in order to assist states and municipalities with their infrastructure and other municipal finance needs.

Some in the public finance community worry about comprehensive tax reform, along the lines of the 1986 Tax Reform Act, which fundamentally changing the “rules of the road” for states and local governments. This is a legitimate concern, in that nothing in the 1984 Treasury Department Study that led to the process beginning in January 1985 led anyone to expect either change to already-issued notes and bonds (affecting both issuers and investors) nor wholesale elimination of categories of tax-exempt financing as of January 1, 1987, such as for commercial office facilities and pollution control industrial revenue bond transactions. So anyone involved in public finance in 1984-1986 certainly worries about the “last war” happening again.

A more significant reason for the formation of the caucus, however, is the introduction of many measures that individually would harm issuers, investors and/or projects, often for reasons of “raising revenue” to offset other tax changes, such as a lowering of corporate and/or individual marginal tax rates.

One example is the potential “cap” at 28% for the value of tax-exemption introduced in the last several Presidential budgets, which would get revenue based on the higher marginal rates of certain taxpayers. The purpose of setting this limit would be to make a percentage of the interest income into taxable income in that tax year for that taxpayer. This has been judged to gain significant revenue, in part because in the proposal there is no “grand-fathering” for outstanding tax-exempt bonds, which may have up to forty years to maturity. The Bond Dealers Association, SIFMA and other trade associations have all said this would significantly harm the market, in that it would dramatically reduce demand by higher tax bracket investors, both directly and indirectly (such as by means of funds and unit investment trusts).

If existing securities were at a fixed rate, their drop in value would be a loss to existing Bondholders were they to sell prior to maturity, as all potential investors would re-adjust their offers to gain the same after-tax yield they seek to obtain under current law.

For bonds with an interest rate which re-sets, for example weekly or quarterly, the Remarketing Agent would have to offer the bonds at higher yields/higher interest rates for the same reason, which would impose the loss going forward on issuers, just as in the case of newly issued Bonds. That greater additional cost to issuers is why coalitions of states and cities such as the National League of Cities, oppose such a “cap” on the value of the tax exemption.

Former House Ways and Means Committee Chairman Dave Camp offered a tax reform plan with a 10% surtax for certain higher-income taxpayers, including interest on municipal bonds. The Council of Development Finance Agencies (CDFA) and others pointed out that this plan could make certain tax-exempt industrial revenue bonds, already subject to the alternative minimum tax, as or more heavily taxed than ordinary corporate bonds, and accordingly opposed the idea as taking a key element of the “economic development tool-box” away from states and localities.

Although as many as fifty million investors hold municipal bonds, either directly, indirectly, or because a pension plan on their behalf holds such investments, the key tax-exempt bond provisions are far less well-known to ordinary voters than the mortgage interest deduction or charitable itemized deduction many individual taxpayers take on their Form 1040 Schedule A each year. So the goal of the caucus is to make sure that before any such provisions are modified or eliminated, whether to achieve tax simplification or other reform, a full discussion of the value of tax-exempt bonds in terms of state and local finance, especially the funding of infrastructure, is part of the overall approach.

“Special Circumstances” Permit Discovery Even When a Will Has a No-Contest Clause

Do you want to try to prevent a challenge to the validity of your Will? Then you very likely may want to include what is called an “interrorem,” or “no-contest,” clause therein. Put simply, a “no-contest” clause requires a will beneficiary to forfeit his or her inheritance in the event he or she objects to, or challenges, the will unsuccessfully. One of the many purposes of such a clause is to insulate the estate from what can be substantial legal fees associated with defending against a will challenge.

Nevertheless, the law tries to strike an appropriate balance between, on the one hand, the testator’s perceived last wish to deter a will contest, and, on the other hand, the ability of an individual subject to an interrorem clause to gather information regarding the merit of a potential objection to help him or her decide whether it is advisable to file objections and risk his or her inheritance.

To enable a potential objectant subject to a no-contest clause to assess the merits of a will challenge before proceeding with the filing of objections, the law permits him or her to depose the attesting witnesses to the will, the person who prepared the will, the nominated executors in the will and the proponents of the will, and “upon application to the court based upon special circumstances, any person whose examination the court determines may provide information with respect to the validity of the will that is of substantial importance or relevance to a decision to file objections to the will.”

Because the final category of potential deponents – those subject to deposition based upon “special circumstances” – was added in 2011 by an amendment to the pertinent law, there is a relative dearth of reported cases interpreting what constitutes “special circumstances.”

But adding to the body of caselaw is a recent New York County Surrogate’s Court case, In the Matter of the Motion for Discovery and Other Relief in the estate of Shirley W. Liebowitz, 2016 WL 685327 (Surr. Ct. 2016). There, the testator’s son was left a meager portion of his mother’s approximately $50 million estate. He alleged that the will may have been the product of undue influence, and, to that end, moved the court for permission to depose his late mother’s long-time business manager on the basis of “special circumstances.”

The business manager – as well as the attorney who drafted the will and proffered the will for probate – each received a $1 million bequest under the will. While the business manager conceded he had an ongoing role in the process of drafting the alleged will, he asserted that “he was not much more than an amanuensis” – or transcriber – in that process. According to the court, the business manager “became a regular resource upon whom decedent relied for decades,” and writings of decedent herself were apparently adduced wherein she “expressed concern about his role in the preparation of her will.” The business manager also conceded that “decedent substantially relied upon him in relation to her affairs.”

While the court noted the lack of precedent on the definition of “special circumstances” in this context, the court stated emphatically that “[t]he scarcity of precedent does not pose a problem here.” In so declaring, the court granted the potential objectant’s motion, holding that “[t]he presence of ‘special circumstances’ within the meaning of the statute provides the authority for his examination.”

There is a conflict between the right of a decedent to punish named beneficiaries who challenge the will and the right of a potential objectant to assess the merits of a will challenge before risking his or her inheritance. So, it bears watching how broadly courts will construe the “special circumstances” test as it reaches its fifth birthday this coming August.