D2 Organization eyes industrial return to Delaware under Coastal Zone Act bill
Heavy industry eyes return to Claymont under Coastal Zone Act bill
By Scott Goss - The News Journal
Keith Delaney and Kevin McGowan walked across a desolate expanse of broken concrete and rubble in Claymont on Friday with little concern for the high levels of arsenic, lead and DDT in the soil beneath their feet.
"There is no 5-second rule here," Delaney joked. "If you drop your candy bar, leave it on the ground. And be sure you don't lick your boots."
The 71-acre industrial wasteland that once housed sulfuric acid manufacturer General Chemical Corp. serves as a grim reminder of the state's dwindling chemical manufacturing sector, which has seen employment decline 87 percent since 2001 – a loss of more than 15,000 jobs.
But Delaney and McGowan see only fertile ground that soon could give life to $1 billion in new heavy industrial development – projects made possible only by an amendment to Delaware's Coastal Zone Act, passed by state lawmakers Thursday.
"This bill has transformed this site overnight," Delaney said. "I think it will bring a lot of development to the area, and we want to be the first ones to get to the finish line."
Delaney is the principal owner of the East Norriton, Pennsylvania-based real estate investment firm D2 [Organization]. McGowan is the president of McGowan Corporate Real Estate Advisors, based in Allentown, Pennsylvania.
They could be the vanguard of what many hope will be a surge in new heavy industrial development along Delaware's coastline – including 14 sites identified in the amendment, 13 of which are in New Castle County.
The property has raised interest from Fortune 500 companies that have expressed interest in building either a biofuel factory or a petrochemical plant, Delaney said.
The door to that new development was opened by House Bill 190, which authorized the first major change in Delaware's landmark environmental protection law since it was enacted in 1971.
Some civic groups and environmentalists consider the act to be Delaware's crowning achievement for protecting wetlands and wildlife habitat – along with the state's thriving beach communities – from pollution.
But business groups and unions have long characterized the law as an outdated measure that long ago achieved its original intent and say it has blocked job growth.
Facing a more than $350 million budget deficit, a steady decline in manufacturing jobs and years of stagnant wages, Delaware legislators opted to undo some of the act's restrictions.
The amendment is now awaiting the signature of Gov. John Carney, a Claymont native who made reforming the Coastal Zone Act a central part of his campaign platform and pushed the General Assembly to pass a bill this session.
"We really needed the Coastal Zone Act modification to jump-start the industrial development," Delaney said. "And Delaware's state legislators really came through for us."
Less than 24 hours after the legislation passed, they received several calls and emails from prospective tenants, Delaney and McGowan said. They now will focus their attention on an aggressive campaign to market the property to heavy industrial companies.
Whatever company is chosen will likely end up being the test case for the Coastal Zone's new "conversion" permitting process required before construction begins.
Regulations must be in place by October 2019. But a provision in the amendment allows the Delaware Department of Natural Resources and Environmental Control to issue permits sooner.
Environmentalists expect DNREC will see a flood of permit applications during the two-year grace period before the regulations are in place.
That could force DNREC to develop application forms, vetting procedures, review guidelines and timetables on the fly –– without any additional staff or funding.
"[The legislation] is an unfunded mandate that lacks the clear criteria and guidance needed for implementation," said David Carter, who previously led Delaware Audubon Society after retiring from a two-decade career with DNREC.
"It will excessively burden DNREC with an impossible task, setting them up for failure. The details will be determined through costly legal actions and case law, with an ice-cold chilling effect on redevelopment."
Coming down the pike
Of the 14 sites identified in the bill, only a handful are vacant and prime for redevelopment.
Three are in Claymont, including the former General Chemical property, the nearby Evraz Claymont Steel site and a 45-acre slice of Sunoco Logistics' former oil refinery.
An idled chlorine and chemical plant owned by Occidental Chemical Corp. is just outside Delaware City, while a 46-acre site along Red Lion Creek was used by Metachem Products and its predecessor Standard Chlorine to produce toxic chemicals known as chlorinated benzenes used as pesticides and herbicides until 2002.
The loss of those businesses collectively cost the state 900 jobs and left heavily polluted sites. All are now in some form of a state or federal cleanup program.
The former Metachem property, for example, was placed on the federal Superfund "priority list" in 1988 and has become the state's most expensive public cleanup project ever, costing taxpayers in excess of $100 million.
To win a "conversion" permit, buyers will be required to submit plans for dealing with sea-level rise, offer environmental offsets for any new pollution their projects will create and provide financial assurances that the sites will continue to be cleaned up – in the event of an environmental disaster or if the business closes down.
Before the Coastal Zone bill's passage, state officials refused to release the names of any prospective companies that might take advantage of the change, citing those businesses' requests for confidentiality.
But Delaney and McGowan said the state knew all along that they were counting on the measure to clear the way for redevelopment of the Claymont site.
"We first brought our ideas to DNREC in 2014," he said. "Gov. Carney took a tour of the property just a couple of months ago."
Still, the business partners insisted the bill was not written specifically with them in mind.
"We didn't have much input at all," Delaney said. "We tried to make suggestions. Some were heard. Some were not. ... But we really did not have conversations with legislators."
State Rep. Ed Osienski, D-Newark, who authored the bill, said he was aware of potential activity at the former General Chemical site, but had few conversations with Delaney and McGowan about how the legislation would impact those efforts.
"I was told people were looking at that site and our bill would be beneficial," he said. "But I was not told any of the specifics. I just looked at what was needed to benefit every one of the 14 sites."
Sea change in the making
Amendments to the Coastal Zone Act could represent the dawn of a new age for Delaware industry, business leaders say.
"The Coastal Zone Act has been a major hurdle to seeing any meaningful redevelopment," said James DeChene, senior vice president of government affairs for the Delaware State Chamber of Commerce. "The fact that one of these sites is actively garnering interest on Day One shows that what we've been saying for years is proving out."
Yet environmentalists and civic groups who have fiercely defended the law for decades say the reforms will ultimately expose Delaware residents to new sources of pollution. They also suspect the amendment will prove to be the first step toward the act's ultimate demise.
"Once you start down this road, it's going to be death by a thousand cuts," said Ken Kristl, director of the Environmental & Natural Resources Law Clinic at Widener University's Delaware Law School.
"If we don't see this renaissance we've been promised from this bill, the proponents will say we didn't open the door far enough," he said. "And eventually there will be nothing left, all because of some optimistic, pie-in-the-sky promises of jobs that are always just around the corner."
Since its adoption under Republican Gov. Russell Peterson, the Delaware Coastal Zone Act has barred heavy industry from a roughly 2-mile-wide ribbon that runs the length of the state's 115-mile shoreline.
Chemical plants and other factories operating in the Coastal Zone when the act was passed were allowed to continue, but the law effectively froze in time both their physical footprint and their industrial use.
A handful of those companies have closed in recent decades, leaving behind large swaths of polluted ground with scant interest in redevelopment.
Today, the toxic chemical below the surface at the former General Chemical site is virtually all that remains of a century-old industrial complex that once employed hundreds to manufacture pesticides and sulfuric acids just yards from the Pennsylvania line.
General Chemical shut down in late 2003, citing chronic operating losses, millions of dollars worth of needed improvements and weak chemical markets. The closure resulted in more than 200 layoffs.
While the property could have been redeveloped for any number of light manufacturing uses, a chemical plant was the only heavy industrial use allowed under the Coastal Zone Act.
A year later, the site was declared abandoned and lost even that grandfathered protection, preventing a future owner from using a pier on the property to transfer bulk products from ship to shore and vice versa.
The bill that cleared the state Senate on Thursday eased those restrictions by creating an approval process that could restore the property's use as a heavy industrial site and reopen its pier – so long as the bulk products coming in are used by a business in Delaware's Coastal Zone and those heading out are made there.
That bulk product transfer provision, which impacts nine of the 14 sites, has been a major sticking point for the environmental community, which claims it's a spill waiting to happen.
Proponents of the measure argue such transfers are significantly safer today than when the original Coastal Zone Act was passed.
"The intent was not to gut the act but to allow for an extended brownfield program at those 14 sites so they could be cleaned up, reused and put back to work," said Brian McGlinchey, president of Delawareans for Economic and Environmental Development.
The coalition of labor, civic and business leaders has long championed Coastal Zone Act reform. A former projects director for then-U.S. Sen. Joe Biden, McGlinchey also works as a lobbyist for McCarter Government Solutions, where his clients include Delaney and PBF Energy, owner of the Delaware City Refinery – another one of the 14 sites targeted by the new legislation.
He described the bill as "critical" to the redevelopment projects Delaney is pursuing in Claymont but insisted the legislation was not tailor-made for the proposed development.
"Hopefully, this will be a pilot project and shining example of cooperation in terms of a redevelopment use that is consistent with the integrity of the act and created in the governor's hometown," he said. "But there is an approval process, and process is the keyword. This is not a fast track."
Canary in the coal mine
Delaney said the jobs promised are not some far-off dream. They are already here.
About a dozen contractors were at the former General Chemical site this week, conducting site preparation work for what Delaney says will be the first of several development projects planned for the property.
Drawbridge Claymont, a limited liability corporation managed by Delaney's real estate investment firm, purchased a portion of the site last summer. In May, the company won the blessing of the Delaware Department of Natural Resources and Environmental Control to build a 14-acre rail yard on the southern portion of the site.
Located just south of an existing Conrail freight spur, the yard will serve as an adjunct to the Braskem America's polypropylene plant just over the state line in Marcus Hook, Pennsylvania.
The facility will serve as a staging ground for up to 240 rail cars loaded with pellets of the petroleum-derived plastic before being sent to customers that convert the feedstock into materials used in everything from diapers to carpet fibers. A loading area also will allow the pellets to be moved onto trucks.
But first, Drawbridge will need to install a massive impermeable geo-synthetic membrane between the soil and the future rail yard to prevent security personnel, drivers and equipment operators from coming in contact with the polluted soil. That portion of the project is still awaiting final approval from the U.S. Environmental Protection Agency.
A rail yard is one of the uses permitted by right in the Coastal Zone Act, and the project will not need a permit under the long-standing regulations or the new amendment to proceed, DNREC ruled.
But Delaney said he sees the rail yard as the first toehold that will help attract more investment to the former General Chemical site.
Other projects may soon follow elsewhere in the Coastal Zone.
Commercial Development Co. of St. Louis purchased the former Evraz Claymont Steel property in 2015. The 425-acre property off I-495 straddles Philadelphia Pike, the railroad and has frontage along the Delaware River with a barge slip.
The developer has proposed turning the property into an office, manufacturing and transit hub called First State Crossing that could bring as many as 5,000 jobs to the area. The plans also include a proposal for a port facility along the Delaware River, including a 1-mile bulkhead and space for a dry dock.
Steve Collins, executive vice president of CDC, previously told community members that port project would likely require some exemption from the Coastal Zone Act. It is possible that project may move forward under the conversion permitting process passed by the Legislature.
"We are pleased the legislature seeks to balance economic as well as environmental concerns," Collins said via email. "We will return the former Evraz Steel site to productive reuse, and feel revisions to the Coast Zone Act could be helpful."
Just across the Pennsylvania line, Energy Transfer Partners is turning Sunoco Logistic's former refinery into a hub for the company's natural gas liquid pipeline network, a portion of which conceivably could be built on its Delaware property.
Refinery officials did not return messages seeking comment. But Wilmington-based attorney David Swayze, who represents both Delaney's D2 Management and ETP, said last week that the owner of the natural gas liquids complex was watching the Coastal Zone bill "with interest."
Shaky ground
Interest in industrial redevelopment along the Delaware River may be at a 50-year high thanks to the new conversion permitting process. But it remains to be seen whether that translates into an actual boom along the Delaware River.
Kristl, the environmental law professor, said Delaware officials went down a similar path after the Great Recession, becoming susceptible to the misdeeds and broken promises of out-of-state companies also offering hundreds of blue-collar jobs.
Delaware's most notorious bust came in the form of a $12.5 million state loan and a $9 million state grant to Fisker Automotive, marking the third-largest Strategic Fund outlay under former Gov. Jack Markell. The deal included few of the clawback provisions common to such state-led economic development efforts.
Fisker never built a car in Delaware. And only a small amount of the state’s money was returned.
The state also ponied up a $16.5 million grant to Bloom Energy in 2012, and lawmakers put Delmarva Power customers on the hook for 21 years' worth of surcharges – all with the promise that the fuel cell maker would generate 900 jobs. As of last fall, its total employment in Delaware was below 300.
"We've been down this path before with the state changing the rules in its never-ending quest for jobs, and look how that turned out," Kristl said. "Hope springs eternal, I guess."
Supporters of the Coastal Zone Act amendment, however, say they are certain the state's attempt to attract heavy industry will yield the desired results.
"The is palpable evidence that D2 is poised to begin a major expansion at the old General Chemical site," Swayze said. "Obviously, it will take a while to transform the land and get businesses in place, but it's reasonable to believe they will do so."
Bill Freeborn, executive vice president of the Delaware Contractor's Association, said he is certain that project and others will help generate enough interest among heavy industries to pull the state out of its current "economic malaise."
"Where there are one or two, there are 36 or 72 waiting in the wings," he said. "When the door opens up and word gets out that Delaware is open for business, there will be people knocking down our door."
James Maravelias, president of the Delaware AFL-CIO, said he understands the doubts about whether heavy industry will actually come to Delaware.
"Look, I can't say for sure today whether this legislation is the answer, but after 46 years it's certainly a good start," he said.
"It can't hurt to try something that might create jobs, bring back industry and get some of the sites cleaned up rather than have them be a big wasteland," he added. "How people can think that is better than having a productive plant, I just don't get it."