Real estate developers, local government leaders and consultants specializing in finding new life for brownfield sites say new state legislation in the works could help jump-start a range of new projects.
Rather than traditional tax credits, the legislation includes broader availability of tax increment financing — helping to finance costly brownfield infrastructure improvements like private parking structures or the restoration of historic properties.
For local governments, there’s a new lease on life for brownfield plans that capture school taxes to aid redevelopment.
In Lansing, the pieces are adding up to welcomed changes in Michigan brownfield redevelopment financing structure, through a Senate bill starting to move in the Legislature.
Senate Bill 1210, sponsored by Mike Kowall, R-White Lake Township, expands Michigan law for financing costs of redeveloping brownfield properties, making revisions that could come at an opportune time in Michigan’s improving economy.
“We are seeing an uptick in development activities,” said Richard Barr, co-chairman of the investment incentives and tax savings group and environmental law department partner at Honigman Miller Schwartz and Cohn LLP in Detroit. “So this is going to give people who have been sitting on the sidelines … an opportunity to start their projects, with the assistance of these programs.”
For example, in core urban areas and communities, privately owned and operated multilevel parking structures and underground parking will now be considered infrastructure eligible for reimbursement through a brownfield plan’s tax increment financing, or TIF. Brownfield financing plans capture the increase in local and school property taxes from redeveloped properties to pay for improvements.
Another significant change, Byl said, is that TIF financing would now also be able to be used for on-site features that control and manage stormwater so it doesn’t overload municipal systems. The bill’s expanded definition of infrastructure includes urban stormwater management systems such asgreen roofs and rain gardens in which water flows from one area of plants to the next, Byl said.
Byl, chairman of the Michigan chapter of the National Brownfield Association, was a member of a work group convened by the Michigan Department of Environmental Quality as part of an effort to evaluate the brownfield program. The group, which included municipal, state and private sector representatives, made recommendations for the legislation, which was initially drafted by Warner Norcross.
At the Michigan Municipal League, a concern with the brownfield program was an impending deadline affecting tax capture. Under current law, brownfield work plans to capture school taxes cannot be approved after this Dec. 31, the latest in several extensions granted by previous Legislatures.
Nikki Brown, capital office coordinator at the league, said it had been concerned about the uncertainty of continual extensions. The bill eliminates the sunset provision entirely, and that’s important, she said.
Also significant, she and others said, is a new state fund that would provide grants and loans to help developers pay for up-front costs that would otherwise normally be reimbursed over time through tax increment financing.
For example, a developer might receive a loan or grant from the fund to help demolish a building, and the loan would be repaid by future tax capture, said Barr of Honigman.
But the new fund won’t appear overnight, as it will be capitalized by payments from brownfield authorities.
An authority would pay an amount equal to 3 mills of the state school taxes captured under its brownfield plan — revenue that will take time to accumulate in the fund. The Senate Fiscal Agency, in an analysis of the legislation, estimates that the fund could eventually take in as much as $4 million annually.
The legislation also gives a boost to historic structures by allowing wider use of tax increment financing for projects. Under current law, historic structures had to be contaminated, functionally obsolete or blighted to be eligible for TIF financing. Under the bill, any federal, state or locally-designated historic building or structure would be eligible for TIF reimbursement for demolition and other steps to restore and rehabilitate a property, said Warner Norcross’ Byl.
Nancy Finegood, executive director of the Michigan Historic Preservation Network, said the change will be beneficial.
“We always hope developers choose historic properties, but it’s always a matter of the incentives that are available,” she said.
With the discontinuation of a state historic preservation tax credit in Michigan’s switch to a new tax structure — even though there’s a new incentives program that can provide grants and loans and other assistance to historic and other properties — “we can use all the help we can get,” Finegood said.
The legislation would also allow the chair of the Michigan Strategic Fund to approve work plans for TIF-eligible expenses of $500,000 or less, as opposed to the full Strategic Fund board approval currently required.
And the bill would give developers the ability to start work and incur expenses to be reimbursed through tax increment financing — prior to state approval of those expenses.
Current law prohibits recovery of tax increment revenue for expenses incurred prior to final approval; under the bill, the state could retroactively approve expenses deemed appropriate.
Michael Kulka, founder and CEO in the Berkley office of PM Environmental Inc., said that’s a major improvement.
“You can start doing your demolition and start your construction as long as everyone’s on board that you can get your expenses approved. It can be retroactive, after the fact. And that’s huge in the development world,” Kulka said. “Time is money.”
The bill cleared Kowall’s Senate Economic Development Committee Aug. 15 and is expected to be taken up by the full Senate following its Sept. 11 return to session.
Amy Lane, Crain’s Detroit
