Michigan developers with “transformational” plans to redevelop brownfield sites can continue to seek tax incentives after Gov. Gretchen Whitmer and the Legislature extended the program for an additional five years.
The state’s economic development board can approve new projects through 2027, instead of 2022, under a bill signed last week. The law, which was enacted in 2017, lets developers keep income and withholding taxes from people who live and work at the sites along with sales taxes associated with construction.
Brownfields are contaminated, blighted, functionally obsolete or historic properties.
The state in 2018 awarded Bedrock, a commercial real estate firm owned by Dan Gilbert, $386 million of the tax breaks for a multibillion-dollar development project in Detroit that includes a 58-story building on the site of the iconic former J.L. Hudson department store. The state in 2019 authorized $30 million in incentives to redevelop a long-closed paper mill in Vicksburg.
An overall $1 billion cap on incentives remains intact. But legislators amended the law to let the Michigan Strategic Fund approve a transformational brownfield plan that captures up to 100% of income taxes instead of 50%, if there is a written, binding affordable housing agreement with the municipality.
Other changes waive requirements that a project be for mixed-use development only, that officials determine the plan will result in an overall positive fiscal impact to the state and that there is a third-party underwriting analysis if a project captures more than $10 million in income and withholding taxes in any year.
Those changes and others likely will ease the approval of plans and increase their size, making it more likely the $1 billion cap will be reached than under the old law, according to the nonpartisan House Fiscal Agency. The legislation was approved 28-7 and 78-26 in the Senate and House.
The incentives program “was very palatable, very transparent but virtually unusable,” the bill sponsor, Republican Sen. Ken Horn of Frankenmuth, told a House committee this month. Potential projects in Lansing, Detroit, Grand Rapids and Petoskey did not qualify, he said, and the coronavirus pandemic has disrupted the need for new office space.
“The point of this rewrite is to make sure that it is usable statewide for smaller projects in all of our districts,” Horn said.
Critics who voted against the bill said the program should not be lengthened.
“To me, it always felt like we were creating a little fiefdom in some ways where the tribute, instead of being collected by the state, was collected by the landlord. That system always made me scratch my head,” said Rep. Yousef Rabhi, an Ann Arbor Democrat who questioned the impact on state revenues.
Supporters said the school aid fund is healthy and countered that if not for the incentives, it would be too expensive to redevelop abandoned properties.
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