NYC environmental consulting industry in 2009 and beyond

The United States in general and New York City specifically are facing tough economic times, and many of us wonder how the recessionary conditions will affect the environmental consulting industry in 2009 and the near future beyond. To make a proper estimation of the future, it is necessary to isolate the sources of funding for the business. There are several sources of funds or types of clients for environment consultants in New York City (NYC). "Brownfields" clients are almost universally developers, although on certain occasions the developer is either the government itself or a contractor working on behalf of the government. Environmental "E" designations restricting usage and activity at individual sites have been applied by the NYC Department of Environmental Protection (NYCDEP), the NYC Department of Buildings (NYCDOB), and the NYC Department of City Planning (NYCDCP). Environmental work for "E" designations may involve soil, water, air, or noise testing (or more), but the clients for such projects are almost exclusively developers. Indoor mold testing is more often performed in upper income housing areas, and may be just as likely to be performed on behalf of the tenant as on behalf of the client. Most Phase I Environmental Site Assessments (ESAs) are performed for property sales. The clients may be buyers, sellers, or lenders. Phase II ESAs and similar soil, groundwater, and/or soil vapor testing may be performed for any wide number of reasons. They may be performed to fulfill the recommendations of a previous Phase I ESA or be performed in response to some spill or discharge documented on-site. Phase II ESAs, perhaps more than any other environmental consulting work, may be ordered performed by non-city entities such as the New York State Department of Environmental Conservation (NYSDEC) at the expense of the responsible party. Asbestos containing material (ACM) testing, monitoring, and abatement projects can be done for public or private building owners. Likewise, lead-based paint (LBP) testing is - due to NYC Local Law 1 of 2005 done for owners of public and private residential buildings. The larger contracts for both ACM and LBP work in NYC are typically through government entities where work is awarded by competitive bidding. These contracts are largely for multiple buildings or entire developments. Smaller contracts for single buildings or parts thereof are more likely to be from private building owners These sources of funding and clients having been outlined, the question remains: who will be affected among these and how severely? Government contracts for 2009 for the most part were awarded in 2008. However, due to decreased tax revenue, the budgets for most government agencies will be less than was forecast when the contracts for these services were written in 2008 or earlier. Most such contracts allow an upper limit of work to be awarded, but almost universally allow the government entity to assign the work as it sees fit, and usually involve no guaranteed minimum work. Private developers may be affected in somewhat more subtle ways than government entities. Developers may - for example - have just completed a condominium building, but said building's units are not selling at a price or rate that was anticipated originally. Developers may be wary of engaging in larger projects until the real estate market improves enough to justify their potential large scale investments. They may also have more difficulty in securing bank financing due to more stringent lending conditions. Brownfield work is very difficult to predict in general, and applying the current economic conditions to such predictions is problematic. Brownfield projects in NYC, through both the NYSDEC and the NYC Mayor's Office of Environmental Remediation (NYCMORM), are still mostly in the early stages, with very few developers or owners having yet received tax credits. These tax credits would be very useful in stimulating redevelopment but the NYSDEC specifically has been very reticent to release such tax credits in NYC as they have questioned the level of hardship involved given the previous value of land in NYC. To date most of the environmental consulting work that has been performed on Brownfields has been performed by environmental lawyers, through the process of application, document postings, and potential litigations against regulatory agencies for inclusion into the various Brownfield programs. However, the NYCMORM has recently given indications that this process is being streamlined, and has started working in partnership with developers, consultants, and lawyers to make this process work for all. The mayor has made a personal priority of this issue and clearly understands the value that these significant tax credits can provide to the hurting real estate and development markets. It is hopeful that given the difficulties in the economy overall and the real estate market specifically, that other regulatory agencies will follow the mayor's lead in releasing tax credits and streamlining the Brownfield process. Bank lending conditions have the potential to significantly impact the flow of Phase I ESAs, although the significance of this impact is not clear at this time. Fewer loans - at all levels of the residential and commercial real estate markets - are being given. This can be expected to continue through at least 2009 (this may not be true, but those who assume otherwise do so at their own peril). Fewer loans may mean fewer Phase I ESAs. On the other hand, refinancing loans may be more frequent, and consequently lenders may order more Phase I ESAs than previously thought likely. ESAs are also occasionally ordered for foreclosure takeovers, although due to the property ownership market in NYC, the number of foreclosures should be expected to be significantly less than the nationwide per capita rates. Phase II ESAs should decrease in numbers in the next year, but may do so at a lesser rate than other forms of environmental consulting. Phase II ESAs done as recommendations from Phase I ESAs will probably decrease significantly, as lenders and developers are more likely to cut and run if Phase I ESAs make such recommendations. However, agency-ordered Phase II ESAs should not be affected at all. Spill and leaking tank sites will still need the same level of testing, consulting, and remediation that they have always needed - which is dependent on the rate at which they are reported and not anything to do with economic conditions. Environmental "E" designations currently place a significant burden on developers due to the time and money required to meet the requirements of the NYCDEP. The goals of the designation process are valid and do great good for the future tenants and owners of these properties, but given the current economic situation this process must be streamlined so that future tenants and owners are protected but economic development is not slowed down. So the issue now becomes: how can a successful consulting company survive the tough times ahead? The answer is twofold. The primary method is diversification. It is times like this that wipe out companies who put all of their eggs in one basket. Those companies who do all their work for government sources or lenders could be bankrupted by tighter government budgets or more selective lending practices. Companies that perform a wide spectrum of testing, consulting, and remediation are still likely to feel the pinch of the economic times, but are less likely to be crushed by a decrease in one particular revenue stream. The secondary method is to work with regulatory agencies to relax standards for admission to Brownfields programs and to streamline the process for "E" designation sites. Such pressure and encouragement can be applied in any number of directions from the Mayor to the City Council to specific regulatory agencies to state-level legislators and administrators. Developers, consultants, lawyers, and building owners should all combine their efforts to this end. The economy can be expected to be rough in 2009, but we at Airtek believe that through project diversification, working with our government, and strong amounts of patience and perseverance, the environmental consulting industry in NYC can survive, and more than that, can emerge stronger when overall economic fortunes improve. Mike Zouak is the president of Airtek Environmental Corp., Long Island City, N.Y.