AFTER 40 years of churning out Polish sausages, hot dogs, and bologna on Chicago's West Side, the managers of the Scott Petersen meat factory got wind of a rare opportunity.
A large US meat processing conglomerate, SMG Inc., wanted to buy the sausage-making plant and carry out a $5 million expansion and bring new jobs to the city.
But there was a catch. The only available place to expand was a trash-heaped former trolley barn across the street that was contaminated with hazardous waste. Unless the conglomerate could somehow buy the one-acre lot without incurring potentially endless cleanup costs and liability, the buyout would collapse.
The deal was clinched thanks to a pilot program that is helping companies recycle abandoned industrial sites.
Reclaiming inner-city "brownfields" is a development challenge not only for thousands of companies but also for scores of aging cities trying to hold or attract industry.
The federal government estimates that 500,000 brownfields blemish the American landscape, mainly in cities that dominated US manufacturing from 1880 to 1950 and now form the Rust Belt.
Since 1980, stringent federal cleanup laws have discouraged firms from reclaiming vast acreage of abandoned urban land. Companies have found it cheaper and less risky to dig up pristine new suburban "greenfields," sometimes damaging the environment and adding to urban sprawl.
Today, however, local and federal governments are making it easier for companies to develop brownfields. States are instituting voluntary cleanup programs that clarify standards and limit liability. More than 20 states in the Midwest, Northeast, and other regions have set up the federally certified programs, most during the past two years.
"There is an attempt to introduce some bottom-line economic reality to the cleanup," says Charles Bartsch of the Northeast-Midwest Institute in Washington. "The alternative is that nothing will be done."
The easing of environmental regulations - although only one of several factors discouraging firms from locating in inner cities - has spurred interest in brownfields from a range of businesses, says J. Thomas Black of the Urban Land Institute in Washington, D.C.
In Chicago, fast-food chains are setting up on old gas-station lots, while venture capitalists seek profits from the resale of low-cost industrial land. In Pittsburgh, back-office business services such as direct-mail, marketing, and computer repair operations are locating in abandoned buildings. In St. Louis, new light industries have moved onto the site of a former General Motors assembly plant. In Milwaukee, a modern office complex stands on the vacant Schlitz Brewery property. Elsewhere, discount retailers such as Price Club are locating in old warehouses.
Under state guidance, developers clean brownfield sites to standards that vary depending on the future use of the land.
"You don't need to clean industrial sites to day-care standards," explains Mr. Bartsch. While new housing requires immaculate land, an auto shop does not. In some cases, contaminated land can be safely fenced off or covered with a parking lot; in others, as in Chicago recently, tests may find the land is not polluted, experts say.
In return for cleaning up, firms gain legal protection. In April, the Environmental Protection Agency (EPA) made an unprecedented agreement with Illinois not to sue firms that follow the state cleanup program. Minnesota secured a similar agreement in May. And Michigan, Ohio, Indiana, and Wisconsin are likely to do so by the end of the year, says Jim Bower of the EPA's regional headquarters in Chicago.
"Every state in the country is asking for an agreement," says Mr. Bower.
Already, companies such as Chicago's Scott Petersen are benefiting from the more down-to-earth policies. Assured by a package of city incentives and state and federal legal guarantees, SMG bought the factory in March 1994.
This year, as part of Chicago's five-site pilot brownfield project, the city spent $350,000 to remove garbage and hazardous waste and demolish a building on the site across from the factory. By January, Illinois is expected to certify the cleanup, effectively ending the factory's liability, says Kenneth Spence, a director at Scott Petersen.
The factory already has a new smokehouse and a refurbished interior with new lighting, a black epoxy floor, and slick, easy-to-clean white walls. Production has increased 100 percent over last year, as the work force more than doubled to 230 employees, including many from surrounding low-income and blue-collar communities.
SMG plans initially to build a parking lot and truck staging ground on the adjacent property, and eventually to expand the plant.
Chicago and Illinois have also benefited from the cleanup, investment, new jobs, and added tax base. "This cost the city $350,000, and the business has invested $5 million," says Jim Van der Kloot of Chicago's environment department. "We're happy with that."
Chicago plans by the end of the year to expand financing for brownfield development to $10 million from the current $2 million under the pilot program.
Other industrial cities including Detroit, Cleveland, Minneapolis, and Milwaukee are boosting brownfield reclamation. In Detroit, officials hold a bi-weekly trouble-shooting session to remove hurdles to developing specific sites.
"Often times, all developers need is a quick answer to do a deal, but if there is no answer, the capital will go elsewhere very rapidly," says Bower.
Still, experts caution that brownfields remain unattractive to many firms because of crime, population flight, creaking infrastructure, poor schools, and other symptoms of inner-city decay.
"Just because you clean up an old industrial site, you will not have people moving back into the inner city," says David Allardice, an economist at the Federal Reserve Bank of Chicago.
Government tax and financial incentives are needed to tip the balance in favor of brownfields, economists say.
"It would pay society as a whole to bribe companies to locate where they would impose less costs on us," says University of Illinois economist Joe Persky, who is comparing the benefits of brownfield and greenfield development.