Gilbert pitching Lansing to sweeten incentives for large developments

LANSING — Dan Gilbert's top lieutenant and economic development organizations around the state are pushing a plan in Lansing to allow the capture of state sales and income taxes to help pay for major redevelopment projects.

Such a plan could ease the path for massive projects Gilbert is planning in Detroit, including the redevelopment of the 2-acre site that used to house the J.L. Hudson's department store on Woodward Avenue and a new $1 billion Major League Soccer stadium and other development proposed for the site of the stalled Wayne County Consolidated Jail project on Gratiot Avenue.

A statewide coalition is building behind the proposal, which supporters say is necessary to line up more financing options for projects that developers traditionally have a hard time selling — those that involve cleaning up lead, asbestos or other contaminants, known as brownfields. Yet it’s difficult to say with certainty what a plan like this might cost the state in revenue it otherwise would collect. And it first would have to get past Gov. Rick Snyder, who does not believe in letting government pick private-sector winners and losers.

Gilbert’s umbrella company, Rock Ventures LLC, is lobbying for the effort, which has resulted in a five-bill package introduced this month in the Senate. Called “transformational brownfield projects,” the legislation would let developers use sales and income tax revenue generated by visitors and residents of the new mixed-use properties to offset the costs that go into 
preparing a dirty site for construction — provided they invest a minimum level of private capital into the project.

In Detroit, that would require a developer to put up at least $500 million in private funding; smaller communities would require minimum thresholds of $25 million to $100 million, depending on population.

A variety of projects throughout the five-county region, including the redevelopment of the Pontiac Silverdome in Pontiac and the Uniroyal site along the Detroit River, for example, likely would meet the requirements of the legislation.

State law currently allows developers to capture the new property taxes generated by the completed development. Proponents say a sweetened incentive could mean the difference between a project happening or not, since brownfield projects inherently are expensive and complicated.

And Gilbert, who has amassed more than 13 million square feet of real estate holdings in and around downtown Detroit since 2011, certainly has some projects in the works: Matt Cullen, Rock Ventures’ principal, said in a Thursday interview with Crain’s that this incentive could unlock at least $2 billion in projects by his company alone.

“This is critically important for us,” Cullen said. “But we all need it, from Ann Arbor to Grand Rapids to Flint to Detroit.”

Target projects

The Hudson’s site is one of the most prime pieces of downtown real estate, with 2 acres of vacant land along Woodward. Gilbert has said the mixed-use project is expected to be transformational to downtown, but precious few details of the planning have been publicly disclosed.

In addition, Gilbert and Detroit Pistons owner Tom Gores in April proposed a 20,000- to 25,000-seat stadium on the 15-acre site of the half-built Wayne County jail, construction on which was halted three years ago and which Wayne County still owns. County Executive Warren Evans has said he plans on moving forward with completion of the jail project.

The Gilbert-Gores proposal includes a 500,000-square-foot soccer stadium flanked by three 18- to 28-story glass towers — one a hotel, one offices and one residential.

Less-discussed publicly, Gilbert’s team and General Motors Co. have been discussing what to do with approximately 20 to 25 acres of largely vacant land immediately east of the Renaissance Center.

“We have historic, beautiful cities that we can turn into engines of the state’s growth and prosperity — if we have the tools to do it,” Cullen testified this month before a Senate committee.

“As a state, we don’t have the economic development tools we need to unlock the large-scale, transformational projects that are going to truly move the needle in revitalizing our cities,” Cullen testified. “The fact is that in many cases there continues to be a gap between the cost of development in our older cities and what you can get back in rent.”

Cullen’s statement underscores a point shared by others in the industry — that Snyder’s 2011 tax overhaul went too far in eliminating incentives for business attraction and economic development. Some worry that Michigan is not as competitive as other states, such as Texas, when it comes to landing major corporate spending or large-scale real estate projects.

“These projects and others are ready to go,” Cullen said. “We are motivated to get this thing done and get going. You hate to miss a window.”

Snyder in the past has resisted efforts to add or restore tax credits. His administration renegotiated credits with the Detroit 3 automakers under the defunct Michigan Economic Growth Authority program after discovering the state was on the hook for $9 billion in obligations.

A spokeswoman for Snyder said the governor will review the bills if they land on his desk, but his office did not say how the concept fits with his philosophy on tax incentives.

“He hasn’t said ‘no,’ ” said Sen. Ken Horn, R-Frankenmuth, who introduced the main bill in the package Sept. 7 and held a hearing on them the next day in the committee he leads. He hopes to vote them out of committee this week.

“I think I’ve got a fighting chance.”

How it would work

If adopted, the bills would require both the municipality in which the brownfield is located and the Michigan Strategic Fund, a division of the Michigan Economic Development Corp., to sign off on a developer’s brownfield plan. Proposed projects would require a financial analysis before the incentive could be approved.

Captured revenue could be used to reimburse developers for any brownfield-eligible costs, including demolition, construction or restoration of buildings and other site improvements.

All projects would have to contain mixed uses, including residential and commercial. The enhanced incentive could apply to a single project, or a series of related developments.

Cities would be limited to one transformational brownfield project annually; the Michigan Strategic Fund could not sign off on more than five statewide in a single year.

“We kind of grew allergic to the tax credits. We have nothing to offer the really big investments,” Horn said. “There’s still room for more tools. We just have to make sure they all work and they don’t over-promise.”

Horn, Cullen and others say developers would carry all of the financial risk, since the incremental tax revenue would not have existed without the development. Horn said that is in part because developers will have an interest in ensuring the developments are occupied and gaining value.

Property tax revenue also should rise with the new developments, he said. Today, many of the sites have little to no value.

“You’ve got nothing today. If we do nothing, you’ve got nothing tomorrow,” Horn said. “If you have no occupancy, no renters, no condo owners, no retail shops that come in, no office space that’s leased out, then the state still loses nothing.”

The actual financial impact to the state is difficult to determine, but would reduce general fund revenue by a “likely significant amount,” according to an analysis by the Senate Fiscal Agency. The actual revenue loss would depend on how many such transformational projects are approved in a given year, how large they are and how loosely the state defines sales tax revenue as having come from a particular development.

“Unlike tax credits distributed to a taxpayer to subsidize an activity, which are not subject to appropriation, the bills would apparently authorize direct expenditure payments to an owner or developer of an eligible property without an appropriation,” the agency wrote. “Furthermore, the captured revenue and distributed payments would not be subject to any legislated maximum level other than equaling the sum of all costs permitted to be funded under the bills. Because those costs would not be limited, and could include costs incurred before the approval of a transformational brownfield plan, the bills would effectively impose no limit on the amount of revenue captured. In the case of a transformational brownfield plan located in a non-county municipality with a population of 600,000 or more, over time the captures could exceed $500 million.”

A portion of the income tax revenue generated from new residents at a development could be captured, according to the analysis and committee testimony. The Senate Fiscal Agency estimated the state’s income tax revenue losses could total between $15 million to $45 million, using an average individual income tax liability of $1,500 in 2013 after credits were applied and an estimated 10,000 to 30,000 tax returns from residents of transformational brownfield projects.

Additionally, Senate fiscal analysts said the bills would create “extensive” administrative costs for the Michigan Department of Treasury, which today does not identify where sales tax revenue originates. The department likely would have to hire more employees and add informational technology systems to track the source of sales tax revenue across multiple sites, they wrote.

Local income taxes would not be captured under the bills. Horn said he has had discussions with the Michigan Municipal League, which supports the legislation “in concept,” and other local government associations to address concerns about possible lost revenue.

He said the legislation sets up a tiered approval structure, with multiple sets of eyes in local and state government watching the projects.

“We are trying to be very careful and thoughtful,” he said. “The underlying goal in all of this is to make sure there is a net gain for the state.”

Proposed impact

The real impact, Horn said, is at the local level. Individual communities will be the ones to decide what “transformational” means for their residents.

A $25 million project in Saginaw, part of Horn’s Senate district, could “fundamentally transform” its downtown.

Brownfield conditions in the city “have frightened developers away through the years,” JoAnn Crary, president of Saginaw Future Inc., the economic development agency serving Saginaw County, testified before the Senate panel.
One downtown project under consideration will require significant investment and undertaking, she said, but it also could be a catalyst that leads to more development.

“It creates a nucleus so that we can develop and build around it,” she said.

Saginaw Future and regional economic development agencies The Right Place Inc. in Grand Rapids and Southwest Michigan First in Kalamazoo have signed on to a coalition of developers, development agencies and chambers of commerce called MI Thrive. The group consists of more than a dozen members, though an official list wasn’t made available.

The group’s members “share a common goal: Helping move Michigan and its cities forward,” said Dan Austin, a senior account executive with Detroit-based Van Dyke Horn Public Relations, which is handling public relations for the coalition.

In southwest Michigan, there is pent-up demand for urban housing, while in Grand Rapids, the brownfield incentive could make it feasible for developers to pursue projects adjacent to downtown, according to committee testimony.

“The transformation of downtown, its neighborhoods and especially along the Grand River is not complete — but the easier projects are over,” Rick Chapla, The Right Place’s strategic initiatives vice president, told the Senate committee.

The legislation includes a provision that would waive the minimum private investment requirement in communities eligible for federal blight elimination funding or in a municipality under a state of emergency for drinking water contamination.

That could create opportunities for smaller projects in Flint, which otherwise would require at least $50 million in private investment under the bill. Flint has been struggling to recover from lead-contaminated drinking water caused by a state-appointed emergency manager’s decision to draw tap water from the Flint River.

“That excites us, obviously,” said Bryce Moe, managing director of Flint-based Skypoint Ventures, which does real estate development in the city and Genesee County.

Skypoint Ventures is considering two projects that could benefit from the incentive, though Moe did not disclose details.

“These are projects inherently by nature in our urban areas that have a financial gap, because the current business case is not there,” Moe said. “There’s a whole list of reasons why, and this really, really goes after that and attacks that gap, that space, in the project that a traditional investor or traditional lender does not have the appetite for.”

About The Author

Lindsay VanHulle

Lindsay VanHulle covers business and Lansing for both Bridge and Crain's Detroit Business. She can be reached here. 

Comment Form

Add new comment

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.

Minimal HTML

  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <blockquote> <code> <ul> <ol> <li> <dl> <dt> <dd>
  • Lines and paragraphs break automatically.

Comments

John Q. Public
Sun, 09/18/2016 - 7:03pm
And it first would have to get past Gov. Rick Snyder, who does not believe in letting government pick private-sector winners and losers. Where on Earth did you get that idea? He certainly believed in calling the new Detroit hockey rink a winner. This package to reward Gilbert is a gimme--a done deal. Here's how they work now: Gilbert will get a huge tax break which is not counted as taxable income. Then he will make a huge contribution of some sort to some government-funded entity (a la Mike Ilitch and Wayne State) which is tax-deductible. What the state calls "economic development" is really just tax planning for the politically well-connected. Gilbert could just pay for his own developments, and the government could fund the universities without contributions from billionaires, and as citizens we'd be in the same place. The difference between that and this is the enormous tax break for the billionaires.
Jess
Mon, 09/19/2016 - 8:02am
Just another boondoggle put forward by Economic Development incompetents Nothing new here
Ron Tracy
Mon, 09/19/2016 - 8:34am
Interesting idea but it goes too far. Perhaps the amount the developer could receive should be capped by the demolition cost OR 1/3 of the restoration cost, certainly not the cost of new construction.
Rich
Mon, 09/19/2016 - 9:03am
ENOUGH of tax give-aways to wealthy investors! If a project can not stand on its own merits, then it is not a project worth doing. We, the disappearing middle income taxpayers are sick and tired of having to fund everything while we get nothing but higher tax bills in return.
Dave
Mon, 09/19/2016 - 9:36am
Rich, I agree. Suppose you wanted to open a Pizza Parlor, do you think the state would pass a sales tax to help you pay for it? Oh no! But if millionaires want to build Comerica Park, Caeser's Hockey Arena, etc. sure, "Let's help the millionaires pay for it."
ChrisJ
Mon, 09/19/2016 - 10:53am
Especially when those millionaires owe the city of Detroit hundreds of thousands of dollar already...Illitch, talking about you.
duane
Mon, 09/19/2016 - 10:31am
This tells us about how the Legislators from Detroit and around Michigan are perceived. A project that can't justify funding at the lowest loan rates in common memory, but 'Dan Gilbert' and company believe they can get taxpayers' money to fund it. Why not an extra 100 million and so they can make the soccer stadium multi-purpose trucking in California sand for beach volleyball? Why not, Lansing has been giving billions to Detroit for years and its made them want more. This is a Detroit remake of the movie "Field of Dreams", "build it an they will come." And if they don't the people all around Michigan will pay for it.
Rick
Mon, 09/19/2016 - 10:50am
The old 'privatiize profits, socialize costs' routine. Never changes. Gilbert gets the profits and we pay for a major part of his costs. If the banks don't think it's a good idea and won't bankroll it then go to our legislature, make a few bribes, er, 'campaign contributions' and presto your problem is solved! Isn't concentrating wealth a great idea!?
ChrisJ
Mon, 09/19/2016 - 10:51am
"And it first would have to get past Gov. Rick Snyder, who does not believe in letting government pick private-sector winners and losers." You are right, he DOESN'T believe in picking winners and losers, he lets the MSF and the MEDC pick them for him. We all saw how well that worked with PureMichigan and the movie incentives etc. Besides, who in Michigan is that interested in soccer? Since NFL plays football on the baseball diamonds during MBL season, let them paint soccer lines on the same way they paint on football lines. That way they can use Coamerica park year round. The people of Michigan should be up in arms about this sweetheart deal for Mr. Gilbert. Oh..wait...they tried that with the road tax when 80% of the voters said NO to gas tax increase. Snyder and his cohorts ignored us and did it anyway. Detroit is just another black hole money pit. Stop funding Detroit and maybe the state will be able to stage a REAL come back.
Barry Visel
Mon, 09/19/2016 - 10:54am
Does the sales and income payment stream ever end, or does it go on forever for these projects? Michigan already has tax expenditures of over $30 Billion each year...When is enough enough?
Eric
Mon, 09/19/2016 - 11:34am
Small, incremental development will do more to sustain a city than large mega projects that usually are much more profitable. How many more of these mega projects will people like Gilbert and Illitch claim will save Detroit?
Mon, 09/19/2016 - 11:56am
I can't believe it! Shame on Gilbert and Gores!. Why aren't they like Mike Ilitch as I once thought Gilbert and Gores were. Mike didn't ask for a taxpayer vote for money to build Stadiums. The Ford's didn't ask the taxpayers for a vote to build a Football Stadium! Now that's a very good idea! Lets put it to a vote of the taxpayers. That would be fair eh. But these guys are not interested in being fair are they! I can't believe the previously thought to be good guys like Billionaires Dan Gilbert and Tom Gores are now breaking as bad as have the blood sucking tax Republican vampires in Lansing who delight in imposing taxation monies on the poor and give it to the Billionaires Big Business owners who pay to get the Republican vampires elected. Even a blind man or woman can see that vicious Billionaire/Republican money circle who could care less for the less fortunate in these cites and this state. Imagine the glee in Lansing as they once more get the chance to use taxpayer money for big business and deprive Michigan Townships, Villages, and Small Cities of their share of the $45 Billion or more in tax monies they should have gotten - $45 Billion gone up in Republican smoke! But wait - in several years they will raise the sales tax or income taxes to make up for what the Republicans gave to the Gilberts and Gores. Gee - that sounds like a familiar tune eh.
Kevin Grand
Mon, 09/19/2016 - 12:26pm
Normally, when I hear of any scheme to have public officials "kick in a little from the kitty" for someone's favorite pet project, I'd say get in line. Cities, schools, colleges, road builders...the list goes on and on with people who are already clamoring for more money. I'm pretty sure that the likes of Messrs. Power, French along with Mrs. Dawsey would agree with that sentiment given the material they have written in the past. Speaking for myself, if Lansing has any money that it doesn't need, then it should immediately be returned to where it came from (read: the Michigan Taxpayers). There are more than a few uses that I would like to be able to spend more of my own money on (and I'll wager that there are others here as well who can do the same). But based upon Lansing's past performance with people like this (i.e. Joel Ferguson and the MSP Headquarters the MSP didn't really ask for or Ron Boji and the Capitol View project to replace the office building the Michigan Senate is already in), don't be too surprised if it gets quickly and quietly added to the short list of "To-Do" projects for waning days in this session of the Michigan Legislature.
dick b
Mon, 09/19/2016 - 11:32pm
What is the matter with people? Why is everyone always accusing someone else with a political reason for doing or not doing something? Brownfields are good for no one, but cost a ton of money to clean. Businesses must make a profit or they don't stay in business, and whatever jobs they create will be lost if it fails. These projects can accomplish both a profit for the investment someone makes, and a long term "profit" for the community and state with the added tax revenues successful business will provide. There must be a reasonable compromise that will allow a win-win for everyone, but it won't happen if we continue to point fingers at "the other guy" without looking in the mirror ourselves. Let us not mess up any chance to help revitalize our cities by PETTY politics on both sides. Look at what some successful cities have done. Check out the Utica, Mi solution in reclaiming land that has been vacant for years into a wonderful stadium that adds to the community without giving away the farm. It can be done, with the proper attitude. Just do it!
Tue, 09/20/2016 - 12:25am
Dear dick b -"what is the matter with you and your lack of concern - or really your total disregard for the citizens, communities and small businesses of Michigan. Your disrespect and disregard for the taxpayers of Michigan who can't afford to pay for every hair brained republican scheme to bilk taxpayer money for the billionaires to get richer on. The contriver's of this intended abuse of the poor and middle class citizens of Michigan should be ashamed of the idiot in their mirror each morning. Then you are right about how this should be handled so lets put it to a taxpayer vote this November and not try to force it down Michigan's throat. What say you dick? Will you play fair?
Kevin Grand
Tue, 09/20/2016 - 3:02pm
Easy, because Lansing is proposing to do something that it does not have any authority to do according to the Michigan Constitution. Unless someone snuck in a provision recently under the section "well-heeled donor tax carve-out", you cannot just take away tax revenue and give it to someone (with very deep pockets), who has been lobbying for this like you wouldn't believe for the past several months just because he says that he'll do some good with it. The MEDC is a textbook example of what happens when you take state $$$ and just give it to business. Just go and look up the number for yourself on jobs that were created under their recent battery binge? It's not a pretty sight. Personally speaking, I would've never thought that this package would've gotten this far. The word on the street is that the republican party is a little on edge over how many seats in the Michigan House they will lose this November. This should easily sail through the Michigan Senate in the next few weeks by a party line vote. But don't expect the Michigan House (or Gov. Snyder) to take it up until after the General.
Phil L.
Tue, 09/20/2016 - 12:17pm
Great. Fabulously wealth people receiving more tax breaks. Michigan residents will pay for pollution-causing industries twice.
jim
Wed, 09/21/2016 - 10:57am
does the Pontiac Silverdome "ring a bell" with anyone? "Brownfields" are just a reminder of previous government failure to adequately protect the environment and taxpayers.
John S.
Fri, 10/21/2016 - 7:32pm
There was a $1.6 billion dollar tax cut for businesses and, sure enough, they're back for more. The economists call it rent seeking--lobbying by economic groups for governmental interventions that will yield them profits beyond what they would get in the competitive market. The governor should say "no" to this scheme. The "no action" option may be best with respect to brownfields--just leave them alone. Down the road a developer may come along that will find it worthwhile to purchase, clean up, and build on the site. Is there a shortage of properties that are not brownfields to develop?