October 28, 2004
RECLAMATION BONDS AND DEVELOPMENT
By: Kevin E. McCarthy, Principal Analyst
You asked for information on reclamation bonds and whether there have been any proposals to require such bonds in the context of commercial developments such as malls. Specifically, you were interested in learning whether anyone has proposed requiring a developer to post a bond to ensure that his development will be dismantled and the property returned to its original condition if the development is abandoned.
You also wanted to know whether there have been any proposals for the Department of Revenue Services (DRS) or Internal Revenue Service (IRS) to sell land that they have taken (presumably for back taxes) separately from the land's development rights.
A number of federal and state agencies require mining firms to post a reclamation bond to ensure the land will be restored to its original contours and meet other requirements when mining ends. The bonding requirement is particularly common in areas where different persons or firms may own the land and its mineral rights. A Montana state website, http://leg.state.mt.us/content/audit/download/98l-36.pdf, describes its bonding requirements.
Similarly, under federal and Connecticut law, owners of nuclear power plants must put money into a fund to cover their decommissioning costs at the end of their life. While there are several decommissioning options allowed under federal law, the owners of Connecticut Yankee and several other first generation plants have chosen to dismantle their plants and return the site to a “green field” status.
We are unaware of any proposal in Connecticut or elsewhere to extend similar requirements to commercial developers. While buildings have “expected lives” for tax and other purposes, it is hard to tell in advance how long a particular building will actually remain in use. The actual lifespan of a building depends on its construction, location, and suitability for reuse, among other factors. As a result, it would be difficult to determine how large a bond a developer would need to post. In addition, it is unclear how often dismantling an existing building would be a preferable option to reusing it.
PROPERTY TAKEN BY TAX AGENCIES
In practice, the DRS does not take property for back taxes. Instead, it puts a lien on the property, which is recovered when the property is sold. The IRS occasionally takes real property for back taxes, which it auctions to recover the back taxes. When it does so, it auctions the fee simple interest in the property, i.e., the property itself and its development rights.
We are not aware of any proposals to have either agency sell off land it acquires with development restrictions, although nothing bars them from doing so now. (Ownership of land implies the ability to sell an interest in it, e.g., the land minus its development rights.) Presumably selling the property with development restrictions would reduce its marketability and the amount of money the agency recovers. In addition, it is not clear that either agency is well equipped to act as a landlord if it had to hold the property for an extended time to find a suitable buyer.
There are several procedures that apply when any state agency seeks to dispose of its land, regardless of how it was acquired, which might need to be amended to allow for your proposal. If the agency determines that it has land that it does not need, it must inform the Office of Policy and Management (OPM). OPM must transfer custody of the land to the Department of Public Works and inform all state agencies of the land's availability. OPM can transfer the land to another agency or declare it to be surplus. If the land is determined to be surplus, OPM must notify the municipality and legislators representing the area. Any disposition of surplus land requires the approval of the (1) OPM secretary; (2) State Properties Review Board; (3) Finance, Revenue and Bonding and Government Administration and Elections committees; and (4) the treasurer, if the land was purchased with tax-exempt state bonds. All of these provisions also apply to sales of interests in land, e.g., a conservation easement (CGS § 4b-21). If no state agency wants the surplus land, the municipality where it is located has a right of first refusal to buy it (CGS § 3-14b).