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Economic Evolution in the Great
Mon September 19, 2011
reWorking Michigan: Developers wary of new state brownfield grant process
By Kevin Lavery, WKAR News
East Lansing, MI –
Michigan starts a new fiscal year on October 1, and the new state budget includes some big changes for urban renewal. The state will discontinue redevelopment tax credits for brownfield and historic properties. Instead, Michigan will provide a fund capped at $100 million for economic development grants. Since the budget was signed last May, developers have been trying to prepare for the new system. But they're concerned about how many projects they'll be able to complete.
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SLIDE SHOW: From Public Works to Working Bugs. Developers will soon have to compete for a limited amount of state grant funding to renovate brownfield properties. The former East Lansing Public Works facility is being renovated for the bio-engineering company, Working Bugs. Photos: Kevin Lavery/WKAR
Look around Lansing, and you'll see Pat Gillespie's imprint all around you. His real estate development firm, Gillespie Group, has been responsible for some of the biggest projects in the area, like the Stadium District and newly renovated Marshall Street Armory. Gillespie is not one to shy away from dreaming big. But he admits he'll be a lot more selective from now on.
"Time is money, so we're going to look for projects that we know are achievable quicker, rather than ones that would take a longer incubation period," Gillespie says. "So, we're going to be a lot more cautious."
Gillespie's caution stems from an upcoming change in Michigan's urban revitalization strategy. Starting October 1, developers will compete for their share of a $100 million pot of state money. The current system of providing tax incentives worth a lot more for brownfields and historic preservation is going away.
Mark Morante is in charge of program administration, legislative affairs and policy for the Michigan Department of Economic Development. He says the new system sets higher standards for developers. Morante says under the old model, many projects for which tax credits were requested never materialized. Now, there's greater urgency to show the state some deliverables.
"So, the change will be that we will have to be much more convinced that your project is going to happen if we in fact provide incentives for it," says Morante. "Rather than the other way, which was, it really in a sense didn't matter whether the project didn't happen or not. It was more of a 'build it and they will come.'"
The MEDC will dole out the grants. Once the money is gone, the only way to get a project financed will be through legislative approval. Morante says the new process is more transparent and less bureaucratic. And, he believes it's also less prone to abuse.
"If you have an unlimited, or pretty much unlimited, supply of tax credits, you get less discriminate about what you in fact incent, and could wind up providing assistance to projects that really didn't need it in the first place," Morante explains.
But supporters of the credit system say developers who didn't do what they promised wouldn't get the credits. They say the new system discourages developers from taking a chance on a brownfield or historic redevelopment project.
Cities compete for limited funds
Tim Dempsey wonders what the smaller pot of money will mean for his community's growth prospects. Dempsey is East Lansing's director of planning and community development. He says the city generally has done two to three projects a year using the current Michigan Business Tax credit. But even that modest number could be in jeopardy as more cities wrestle for their slice of the pie.
"If you were to reduce that, you know, from a percentage standpoint even by one, it could reduce our projects by 50%, potentially," Dempsey says.
The new system will force East Lansing to get its bids in faster. Dempsey says the pressure could put some strain on regional cooperation.
"And that's somewhat unfortunate," he adds. "If we now have to compete with our neighbors even more, that could certainly create some concern for, I think, all of us here in the region."
A wait and see approach
Developer Pat Gillespie envisions one possible outcome.
"Well, what a lot of people are afraid of is that in the first three months two big projects in Detroit and one in Kalamazoo sucks up every available dollar," Gillespie explains. "So for the rest of the year, there is no pot of money for anyone else to go after, and that could be used up in the first 10 days or the first 30 days."
For now, the rush to ink some deals seems to be on hold. Gillespie says the flow of development deals has slowed down as the industry takes a wait-and-see approach to the state's new rules. For its part, Gillespie Group has pulled the purchase agreements on two projects that are both historic and brownfield properties.
"And [they've] basically just sat there in limbo," Gillespie says. "The good news is, no one else has come in and bought them, but the bad news is, for the communities that those buildings are in, they're still sitting there."
While developers and urban planners wait for answers, one certainty seems universal: fewer dollars will mean fewer renovations and environmental clean-ups. Those in the industry say it's not a matter of if a slow down will happen. It's a matter of how much.
For more on economic evolution in the Great Lake State, visit WKAR.org/reworkingmichigan