State Tax Reforms Could Diminish Interest In Urban Redevelopment

By Bob Allen

A state program that has helped to revitalize Traverse City is on the chopping block in Lansing. The Brownfield program offers tax credits to clean up old contaminated sites and spur new development. Loss of those credits may stall projects now being planned.

What It Is
The Brownfield program is aimed at old eyesore buildings that sit abandoned for years. The program was put in place about a dozen years ago by conservative governor John Engler. The state offers tax credits encourage a developer to clean up a mess that someone else left behind. It is an incentive to reuse an abandoned site instead of building on green fields out in the country-side, which is usually cheaper.

A key example is the old Iron Works Foundry in Traverse City. That site is now rebuilt with condos, a restaurant, a parking deck and one of the region's top employers, Hagerty Insurance.

Key To Historic State Hospital Renovation
Brownfield credits also have been crucial to the Village at Grand Traverse Commons. On the old state hospital property, the state left behind decaying buildings contaminated with asbestos and lead paint. The Minervini Group is salvaging the huge complex and converting it into a mix of retail and residential space.

Raymond Minervini thinks taxpayers are getting their money's worth.

"You know when you look at something approaching $60 million dollars of private investment that was triggered with just over a million and a half worth of Brownfield credits to date that's a pretty good return for any community," he says.

State Tax Reform
But new governor Rick Snyder is proposing to scrap the credits. His plan is to lower the overall business tax in the state to boost the economy. In the process he would dump most targeted tax credits.

Jean Derenzy, director of the Brownfield program in Grand Traverse County, says, even if the business taxes are reduced statewide, there's still a gap in financing these clean-up projects.

She says, everything else being equal, what incentive is there for a developer to reuse a dilapidated and contaminated property?

"Business is business," she says. "When you are looking at $3 million to clean up a property versus going to a Greenfield without any environmental issues...no brainer." 

At the Traverse City Area Chamber of Commerce Tino Breithaupt also thinks there needs to be some incentives in place to encourage development on Brownfield sites. He recalls what happened back when John Engler first took office and scrapped all the state's tax incentives. Businesses didn't move out to green fields, they moved out of state.

"And for a period of about six months to a year, back in his first year in office, Indiana, Ohio, Illinois, other states in the Midwest were just coming in and taking companies out of Michigan," he says.

What the Snyder administration is proposing is a different way to fund the Brownfield program. Instead of a tax credit it would be a one-time grant made at the beginning of a project. That approach gives state officials a cleaner way to contain costs within a given budget year. Tax credits are taken after the project is complete and that may be several years down the road.

Breithaupt says business will adjust to whatever changes happen and he says there may even be some advantage to getting a lump sum grant at the beginning of a project.

"While it may not be as much of an incentive having it up front really is what companies are looking for because that allows them to make more investments," he says.

Most of the credits over the years have flowed to more heavily populated urban areas of Michigan. But Jean Derenzy says the Grand Traverse area has one of the top programs in the state. She says all the projects together in the region have added more than $75 million to tax rolls.

"More importantly we've cleaned up 14 sites that really sat vacant and underutilized and brought a tremendous amount of construction jobs, a tremendous amount of private investment," she says.

But Derenzy sees opportunities for more Brownfield investment slipping away. If the program turns into grants funded by the legislature, she thinks most of the money will go to heavily populated cities with more political clout. And one budget proposal would cut the program by as much as 90 percent.

Uncertainty, For Now
 Raymond Minervini at Grand Traverse Commons says a Brownfield credit already is in hand to complete the second half of massive Building 50. But he had hoped to get credits for several smaller projects this year. Without that, he says, those projects will be delayed or scrapped.

"I understand why the state is putting everything on the chopping block, but I think it's short sighted to say that an important incentive like the Brownfield credit has to go away," he says.

Details of how the Brownfield program may change will be worked out by the Snyder Administration and lawmakers over the coming months.