Redevelopment Incentives Are Necessary to Rebuild Urban Areas
By Luke Forrest and Andy Schor
While much of the state’s attention this spring was on the Legislature’s efforts, initiated by Governor Snyder, to change the way businesses and pensions are taxed, other significant policy changes flew under the radar. Tax incentives for redevelopment of brownfields and historic properties were critical casualties of the broader tax and budget reform process. Because they catalyze hundreds of millions of dollars in economic development activity each year, the elimination of these incentives would have been a major loss for Michigan communities. Thanks to the leadership of Governor Snyder, spurred on by the League’s members and partner organizations, these programs will not be lost but significantly transformed.
Goodbye MBT—Redevelopment Credits Get Caught in the Crossfire
When Governor Snyder delivered his first budget proposal to the Legislature in February, he proposed elimination of the Michigan Business Tax (MBT) and with it a long list of tax credits, including the Earned Income Tax Credit and the film production incentives. While not the primary target of his reform efforts, redevelopment incentives were caught in the ensuing political crossfire. Recognizing the critical need to redevelop historic and underutilized properties in the state’s commerce centers, the governor proposed replacing certain tax credits with an appropriation for a new program of grants to attract economic activity in targeted areas.
Hello Corporate Income Tax
The Legislature, while it made some changes, generally embraced elimination of the MBT and replaced it in record time. After just five months in office, Governor Snyder signed Public Acts 38 and 39, which repealed the Michigan Business Tax and created a new Corporate Income Tax, on May 26. These bills did not include replacements for brownfield and historic preservation credits. However, the concerns raised by the League and other economic development advocates made an impact.
Replacement Incentive Program a High Priority
PA 39 included provisions to keep the promise of credits for redevelopment projects that had already begun. More importantly for the future of such efforts, funds for a replacement incentive program became a priority for the governor during budget negotiations. His original budget proposal had replacement funds in a Business Attraction and Economic Gardening line item which was funded at $50 million. After hearing from numerous League members, developers, and others, the governor admitted that this was too little. Although this was further cut by the House and Senate when they passed their respective budgets, the final legislation contained an appropriation of $100 million ($50 million coming from new available money due to higher-than-projected tax collections). This investment is a reflection of the appreciation among key policymakers of the job creation, placemaking, and economic development value of these types of incentives.
Over the summer, the League worked with the MEDC to implement this new incentive program. MEDC has indicated that it will be taking half of the allocation ($50 million) and using it to replace the now-eliminated Michigan Economic Growth Authority (MEGA) tax credits. While this money will most definitely find its way into our communities, there are no guarantees that it will be used for urban redevelopment. We can only hope that the governor’s mantra of rebuilding cities will hold and these dollars won’t be used for sprawl.
The other $50 million is being targeted for a new program, tentatively called a Revitalization Fund, certain qualifications (such as rehabilitation of a historic resource, cleanup, sustainable redevelopment, underserved markets of commerce, promotion of mixed-use development and walkability). This program will focus on rebuilding and revitalizing communities, and will be housed within the MEDC. Additionally, the Legislature is looking at passing legislation to supplement this program and support further community revitalization.
While we would have liked to see more of the money in the brownfield/historic replacement program (the Revitalization Fund), we are cautiously optimistic that this new system will reap great rewards for League members in terms of job creation, leveraging private investments, and creating the sense of place that attracts people and companies in the future!
What is Economic Gardening?
Economic gardening is an economic development strategy encouraging the growth of existing companies and the creation of an environment that encourages entrepreneurs. Traditional economic development efforts focused on drawing companies to an area with incentives.
Would These Projects Exist Without Brownfield Redevelopment Tax Credits and Historic Tax Credits?
Tax incentives for redevelopment of brownfields and historic properties were critical casualties of the broader tax and budget reform process. Because they catalyze hundreds of millions of dollars in economic development activity each year, the elimination of these incentives would have been a major loss for Michigan communities.
Mount Pleasant – Borden Creamery
“Preserving our community’s past has always been a priority for our city,” said Mt. Pleasant City Commissioner Jim Holton. “This is never more evident than in our downtown, which is committed to maintaining historic architecture and finding modern reuses for prized structures.” Since the Borden building is listed on the National Register of Historic Places, its rehabilitation had to be precise. The building’s exterior, along with key interior features, needed to match its original construction as closely as possible.
The entire process was overseen by the Michigan State Historic Preservation Office and the local Historic District Commission. DEQ
funds = $1.046 million
Monroe – Mason Run
Mason Run, a sustainable residential redevelopment, is one of the largest New Urbanism projects constructed on an urban brownfield site in the nation. It stands as a shining example of what can be accomplished through brownfield redevelopment. To mitigate environmental and site preparation costs, the team developed a creative funding program using multiple, leveraged brownfield financing. The team successfully acquired and managed approximately $7.4 million in brownfield financing through federal, state, and local grants and loans.
Whitehall – Tannery
The city received the following funds from DEQ for the project: an $850,000 Clean Michigan Initiative (CMI) brownfield grant; a $748,000 CMI brownfield loan; and a $400,000 waterfront grant.
Luke Forrest is the League’s Center for 21st Century Communities project coordinator. You may reach him at 734-669-6323 or [email protected].
Andy Schor is assistant director of state affairs for the League. You may reach him at 517-908-0300 or [email protected].