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untanglingwebs
El Supremo
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Developers worry about the loss of tax credits to redevelop brownfield projects
Published: Wednesday, March 02, 2011, 5:00 AM Updated: Wednesday, March 02, 2011, 8:12 AM
By Shandra Martinez | The Grand Rapids Press MLive.com
Grand Rapids Press file photoThirty Eight Commerce building this spring. Tax credits were key to building the $26 million Thirty Eight Commerce in the city's Heartside Neighborhood.
GRAND RAPIDS — Gov. Rick Snyder’s plans to eliminate industry-specific tax credits is generating plenty of concern for the potential loss of film tax credits that draw movie-makers to the state.
Developers are beginning to feel that no one seems to be up in arms over plans to do away with brownfield or historic tax credits except them.
The state will feel a bigger loss if Brownfield tax credits fade away, they say.
These are the tax incentives given to developers to offset the costs of turning old buildings into chic urban spaces.
“The projects we have been involved in the last four or five years, none of these projects would have happened,” said Andy Winkel, a partner in the Grand Rapids Locus Development.
Locus projects include Thirty Eight, a $26 million mixed-use project in downtown’s Heartside area, which has spurred investment along the corridor.
“We’ve seen the leveraging of tax credits helping the whole neighborhood,” Winkel said.
The prospect of losing those critical tax credits hung over the half-day conference Tuesday focused on retail development. Held at DeVos Place, the International Council Shopping Centers’ West Michigan Alliance program drew a few hundred developers and public employees charged with redevelopment.
Two panel discussions on creative brownfield projects and innovative urban projects turned into a rallying call to save the development tools.
Developers are expected to head to Lansing on March 8 to meet with legislators and the governor’s staff.
Don Stypula, executive director of the Grand Valley Metro Council, encouraged the audience to go to Lansing.
“Don’t lay down on this issue,” said Stypula, who moderated a discussion on innovative urban projects.
While Snyder has indicated he’ll be looking for a way to continue to support urban revitalization, the potential loss of the credits is already impacting the industry.
“Even the notion things might have changed has a rippling effect,” said Winkel. “It creates a lot of fear among the people who buy these credits.”
Developers generally resell the tax credits to other Michigan companies with tax liabilities in order to help secure bank financing to get projects off the ground. The value of credits awarded is based on a percentage (typically 12.5 percent) of the total investment in a property.
Developers usually piece together financing with an assortment of credits and incentives.
It took 14 layers of financing from historic credits to local financing to cover the $11 million renovation of four decrepit buildings along East Michigan Avenue in downtown Kalamazoo into upscale apartments, office and retail space.
“This is a poster child of a project that needed incentives to get done,” said James Dally, president of Portage-based Mavcon Properties.
“Without these incentives, we are going to see a screeching stop to a lot of projects that will bring back our urban core,” Dally said.
E-mail Shandra Martinez: smartinez@grpress.com and follow her on Twitter at twitter.com/shandramartinez
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Sun Mar 27, 2011 7:18 am |
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untanglingwebs
El Supremo
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Originally Published: February 23, 2011 3:01 AM Modified: February 23, 2011 1:52 PM Crain's Detroit
Snyder's bet: Will lower taxes trump lost incentives?
By Amy Lane
ISTOCKPHOTO.COM
Income tax credits meet budget ax
State income tax credits for contributions to community foundations, homeless shelters and food banks are among those eliminated in Gov. Rick Snyder's proposed fiscal 2012 budget.
The current credit is 50 percent of contributions up to $200 for individuals and $400 for couples filing jointly. Individuals who made $200 contributions to both a community foundation and a homeless shelter or food bank currently would have a total credit of $200 (half of $400 total) and couples of $400.
Other deductions and credits eliminated include those for city income tax payments, historic preservation, college tuition and vehicle donation.
Retained are the personal exemption, homestead property tax credit and what the governor's office describes as "other minor subtractions."
Also retained is the scheduled reduction in the individual income-tax rate from 4.35 percent to 4.25 percent, but the proposal changes the law that requires the rate to drop to 3.9 percent in future years. The scheduled decrease ultimately would have cost the state $700 million annually. | | | | | |
LANSING -- Gov. Rick Snyder is wagering that an improved business tax structure trumps the need for widespread tax incentives.
"Let's stop the tax credits and realize, in many cases, that the only reason they're in the tax code is because someone had more political power," Snyder said last week in presenting his budget. "We're eliminating all those credits. We will honor past credits, but it is time for simple, fair and efficient on the business side.
"It will make us among the most competitive in the country for business taxation" and will create jobs, Snyder said.
But for now, it's an open question whether the strategy will work as envisioned.
While a number of factors go into corporate decisions to expand or locate, with labor costs and highway accessibility often top considerations, incentives rank high in importance to both businesses and site-location consultants.
Corporate executives surveyed in 2010 by Area Development magazine, which covers corporate site selection and relocation, ranked highway accessibility and labor costs as the top two most important factors in selecting sites.
But executives also placed high importance on tax factors, ranking tax exemptions third, state and local incentives fifth and corporate tax rate sixth.
Incentives can be "a tie-breaker when all other things are equal," said magazine Editor Geraldine Gambale.
Snyder proposes to eliminate the Michigan Business Tax and its accompanying array of tax credits and incentives and replace them with a new 6 percent corporate income tax on "C" corporations.
The governor said the plan would result in a nearly $1.8 billion tax cut for Michigan businesses and a simpler, fairer and more competitive tax structure.
Gone will be tax credits for brownfield redevelopment, the Michigan Economic Growth Authority program, alternative energy, film, renaissance zones and other areas.
Jeff Finkle, president and CEO of the Washington, D.C.-based International Economic Development Council, a more than 4,600-member organization of economic development professionals, said Michigan isn't unilaterally disarming because "to the extent that they're also reducing taxes, that's an incentive."
But will Michigan be at risk to having businesses picked off in instances where another state offers a large incentive and Michigan has a flat tax policy? "I don't know the answer to that," he said.
While the governor's proposal takes incentives out of the tax code, Michigan still will have some incentives it can offer.
Snyder's budget anticipates using $50 million in 21st Century Jobs Fund revenue and $25 million in general fund revenue for broad economic development programs and purposes. That $75 million would support areas that include business attraction and retention, assistance to entrepreneurial and growing businesses, and incentives to companies that face a significant gap between the cost of doing business in Michigan and another location.
Additionally, the Michigan Strategic Fund would receive $25 million for a grant program to replace film credits. The state would also allocate $25 million for Pure Michigan tourism promotion.
At the cornerstone of the state's economic development strategy is a focus on Michigan businesses and helping them grow.
"Existing businesses represent the most significant jobs, economic growth that you're going to see from companies," said Michael Finney, president and CEO of the Michigan Economic Development Corp. "By lowering the business tax, those companies ... are going to enjoy a significant reduction in the overall cost of doing business."
And with a lower tax base, he said, "you should not have to utilize incentives as aggressively."
One area drawing concern is the loss of brownfield and historic preservation tax credits that have played redevelopment roles in Detroit and other urban areas.
"There is no reduction in the business tax rate that would attract people to invest on contaminated, functionally obsolete, blighted or historic properties since the additional costs to do so are so high in most cases," said Richard Barr, partner and co-chair of the investment incentives and tax savings group at Honigman Miller Schwartz and Cohn LLP.
He said the purpose of the brownfield tax credit was not to reduce business tax loads but to narrow the gap between building on brownfield and greenfield sites. The credit also has encouraged people to invest the additional time and effort that building or rebuilding on a brownfield site requires, he said.
Finney said that Michigan will still be able to assist brownfield projects. "Projects that historically have been incentivized using brownfields can still be incentivized, if necessary, under this new structure," he said.
The MEDC has yet to determine how it will allocate the money that the governor's budget proposes and what form the assistance might take, such as grants, loans, direct investments or other aid to companies. Finney said proposals would likely go through the MEDC, for ultimate approval by the Strategic Fund board.
"We will have a pool ... to address the competitive incentive situations that require the additional support beyond the reduced business tax," he said.
But the amount of available aid will be far less. For example, the state last year approved $175.1 million in brownfield tax credits for 79 projects and $2.7 billion in MEGA tax credits for 109 projects, including 12 retention projects totaling $2.4 billion in credits and 97 job creation projects totaling $341.7 million in credits.
"What we're taking is this big pot and shrinking it down ... and saying, "work with it,' " Barr said. "We are greatly reducing the tools that are available to the MEDC. They'll run out of money, and so they'll have to be much more selective in what can be approved under their programs."
Amy Lane: (517) 371-5355, alane@crain.com |
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Sun Mar 27, 2011 7:27 am |
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untanglingwebs
El Supremo
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Our Voice: A brownfield redevelopment incentive should remain a part of any new state plan
Published: Sunday, April 03, 2011, 6:00 AM
By Editorial Board | The Flint Journal The Flint Journal
Gov. Rick Snyder doesn’t want state government to pick winners and losers with various business incentives. He wants a level playing field for all.
But his plan to eliminate the state brownfield tax credits program has us worried for the future of redevelopment in the heart of cities such as Flint.
An alternative incentive must be in place if and when the brownfield tax incentive program gets hit with the legislative wrecking ball.
In place since 1998, the brownfield credit program has achieved its goal of helping to bring the higher cost of redeveloping previously used property closer to the lower price of building new factories, businesses and housing on untouched rural and suburban land.
Business decisions, of course, are driven by money. If it costs more to re-do an old building in downtown Flint than to build a new one in some former cornfield, it’s a corporate no-brainer. Those kind of decisions are part of the reason why Michigan’s metropolitan areas had started to look like donuts. They had used-up and discarded centers, and all the yummy stuff out near the edges.
Brownfield incentives helped level the inequality in the costs of developing property.
In Flint, 16 credits have been awarded to 15 projects. One of them was awarded to Diplomat Specialty Please delete me! to reuse part of the Great Lakes Technology Centre in an ambitious expansion that aims to yield 1,000 new jobs here in the next five years. A representative of Diplomat told The Journal for a story last month, “You’d have to be out of your mind to buy a brownfield” without the incentive.
At least, without some assurance that redeveloping previously used property wouldn’t cost a great deal more than plunking a project into a farm field.
Alternatives are under consideration, assures Flint Mayor Dayne Walling, a member of the Michigan Economic Development Corp. board, and other MEDC officials.
One is a proposal Snyder has made to have $100 million available for grants to developers of brownfields.
We have to wonder if that would be enough. The brownfield incentives given in Flint have totaled more than $32 million since 1998.
Snyder’s proposal would be more efficient than the old brownfields program. The original effort gave tax incentives to developers who were assembling financing for their projects on brownfields. Typically, they sold their credits at 70-90 percent of their value to businesses that wanted to drive down their state tax burden. The governor would cut out the middle man and give grants directly to developers; 100 percent of the state investment would go toward each project.
It’s simpler than the earlier version of brownfield help, and still would offset higher costs of reusing old urban property that otherwise might remain idle.
Ignoring that unused land in the heart of our city should not be an option. Some sort of brownfield incentive definitely is needed.
The proof is in downtown Flint’s startling stir back to life in recent years.
Projects in Flint that got brownfield tax incentives include The Durant, the Rowe Building, Riverfront Residence Hall, Witherbee’s Market and Deli, The Wade-Trim Building and GM Powertrain North — a credit that was not used. The Flint Journal also benefited from a brownfield incentive, for its new printing plant downtown.
Would any or all of these projects have remained undone without the incentive? That’s hard to say, but possibly. Not a heck of a lot of work was going on downtown before 1998, when the credit was created.
More than any other incentive out there, the state’s brownfield program hit at the heart of what Michigan’s urban landscape needs to encourage redevelopment.
An alternative program might work just as well.
State officials must be certain, though, that it is enacted quickly, with a goal that remains the same.
Give places such as Flint a fighting chance to rebuild their cityscapes. |
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Sun Apr 03, 2011 10:12 am |
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Ryan Eashoo
F L I N T O I D
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We have to make cuts, if not here then where?
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Flint Michigan Resident, Tax Payer, Flint Nutt - Local REALTOR - Activist. www.FlintTown.com |
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Sun Apr 03, 2011 10:39 am |
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untanglingwebs
El Supremo
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You love downtown and much of downtown was built using tax credits. They brought people downtown, created jobs and made downtown more exciting.
And yes some of those tax credits could have been used better. government needs to realize that in this economic climate that rentals are more logical than building units to sell. The Berridge Hotel rehabilitation creates a much better environment than it's predecessor. I remember walking down to the river near the Berridge and interrupting a drug deal involving a guy from the Berridge. I had to quick make an "exit stage left".
They may not have sold all of the units, but if Flint's downtown can continue to improve, they still may.
Diplomat pharmaceuticals would not have made the move without the tax credits. |
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Sun Apr 03, 2011 6:16 pm |
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Tegan
F L I N T O I D
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I wholeheartedly agree that cuts need to be made. But I think that Governor Snyder should look very closely at these tax credits as marketable and revenue-generating. In a lot of cases, a home or building owner only will agree to do a renovation, or at least an extensive renovation, because of the potential tax credits they will receive. It puts non-government money back into the economy through the hiring of contractors and consultants, and in many cases makes "unusable" or "crappy" buildings attractive and profitable again.
Now, programs like Renaissance Zones and the like, that take away tax money from the state and/or local government without any incentive or personal investment, yeah, cut those. |
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Sun Apr 03, 2011 10:49 pm |
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