The Northern Michigan Chamber Alliance helped lead the charge at a kick-off for a package of bills introduced on February 7, 2017 that would help communities throughout northern Michigan unleash investment dollars in some of their most troubling and contaminated buildings and properties.
Senate Bills 111-115 were re-introduced by Michigan State Senator Ken Horn (R-Frankenmuth), and the bills would build on the current and successful Brownfield TIF Act to create a new category specifically for major projects that will transform challenging brownfield sites into vibrant new developments.
Nearly every community in northern Michigan has a parcel of property or historic building that has been sitting vacant or unutilized for years. Many times, cost of clean-up and redevelopment are the major factors getting in the way of turning these sites in stunning developments. This legislation would help close that financial gap to get the projects built and assist communities needs for housing, jobs, commercial space, and tax revenue for local services.
The Northern Michigan Chamber Alliance believes these bills could help unlock investment dollars for these challenging properties that would in turn allow northern Michigan communities to grow and thrive.
At the kick-off press conference in Lansing, Chamber Alliance Director of Government Relations Kent Wood said, “Despite northern Michigan’s popularity as a tourism destination, we have eye sores like the “hole” in Petoskey, contaminated water-front properties, and crumbling historic buildings that we are struggling to turn into community and economic benefits.”
“One thing our region likes most about this legislation is that it allows smaller cities to get a piece of the action. That could open the door to more investment in northern Michigan than we’ve seen in a generation. We need tools for small cities and rural communities to develop, grow, and thrive, especially for our most challenging properties. We believe that this legislation is one of those tools.”
· This legislation is different from other tools that spend current tax dollars. It recognizes that these challenging redevelopment projects have financial gaps that make it impossible to move forward, and simply allows a project to keep part of the new tax revenue it generates in order to close that gap. This approach is known as Tax Increment Financing (TIF).
· At the beginning, there is a vacant site producing no benefit and no revenue. This legislation allows the project to keep a portion of the new tax revenue generated from bringing the site back to life – just enough to make the project feasible.
· At the end, the state and community get revenue they were not getting before, because there was nothing before. And an eyesore is transformed into a major development that has a positive impact on the community and the economy.
· This approach is entirely performance-based and puts all of the risk on the private sector. The investor gets nothing on the front end: they have to put up the capital, build the project, and fill it with people and jobs that generate new revenue. If the project does not generate the expected tax revenues, that risk is entirely on the investor.
The Legislation: How it Works
· The legislation builds on the current Brownfield TIF Act (PA381) to create a new category specifically for major projects that will transform challenging brownfield sites into vibrant new developments. To close the financial gap on these projects, the legislation allows the project to capture:
o State sales and income taxes generated from the construction activities on-site;
o Up to 50% of the state income taxes generated from new jobs and residents within the completed development, for a period not to exceed 20 years.
· The minimum investment to qualify as a “transformational” project ranges from $15 million in Michigan’s smallest communities, including all communities in northern Michigan, to $500 million in Detroit.
Caps and Protections
· This legislation includes some of the most rigorous caps and protections ever put in place in economic development legislation in Michigan. Both local and state approvals are required. The local government has to designate the plan as transformational, and then the state has to approve it based on the criteria below.
o First, the state has to conduct a financial analysis to validate the financial need or “gap” to make the project economically viable. The state can then only approve as much tax capture as needed to close that gap – not a dollar more or a year longer.
o Second, the state has to conduct a fiscal impact analysis, and can only approve a project if it determines the TIF will result in a net fiscal benefit to the state.
o Third, for the largest projects, the legislation requires an independent, third party to conduct these analyses; and requires the State Treasurer to review and sign off.
· In addition to these project-specific caps and controls, there are strict overall caps:
o Annual income tax capture from jobs and residents is subject to a hard cap of $40 million per year. $40 million is the most that can be reimbursed each year.
o In addition, there is a separate cap of $200 million total on the amount of construction period tax captures that can be approved over the life of the bill.
o The legislation also limits each city to one approved plan per year, guaranteeing that the program’s benefits will be spread evenly across Michigan.
- This, along with lowering the investment threshold to communities under 25,000 inhabitants to $15 million, are critical to ensuring communities across northern Michigan are able to use the program.