Senate approves tax incentives for blight redevelopment

Jonathan Oosting
Detroit News Lansing Bureau

Lansing — A tax break plan designed to spur redevelopment projects across the state won bipartisan support Wednesday in the Michigan Senate but faces an uncertain future as it heads to the conservative House.

The five-bill package, backed by Detroit businessman Dan Gilbert and a growing coalition of statewide supporters, would allow developers to capture a portion of sales and income taxes generated on site during construction and after completion of redevelopment projects at blighted or contaminated brownfield properties.

The proposal could provide developers with a collective $1 billion in tax revenue reimbursement over 20 years. But supporters say those are new revenues that would not be generated but for the incentives, which they argue will help bridge funding gaps to spur difficult projects and unlock billions more in private investments.

“What we’re trying to solve is a problem of blighted properties in communities all over this state,” said sponsoring Sen. Ken Horn, R-Frankenmuth. “It’s developers who are going to be funding the cost for cleaning up; we’re just reimbursing them with their own money.”

Rock Ventures, the real estate and investment wing of Gilbert’s growing business empire, has said the tax capture plan could pave the way for its $2.5 billion in Detroit projects that include the former Hudson’s site on Woodward Avenue and the vacant “Monroe Block” near Campus Martius.

Horn and other supporters say the legislation could also spur projects around the state, including possible redevelopment of sites like the long-vacant Pontiac Silverdome. Pontiac Mayor Deirdre Waterman, who has backed the plan, recently told legislators the now-roofless stadium is functioning as the world’s largest bird bath.

Local governments would have to nominate projects for the incentives. The Michigan Strategic Fund would usually be limited to approving five projects annually, with one project per city per year.

The approved bills would limit annual income tax captures from jobs and residents who live at the new development to $40 million per year and $800 million overall. Total construction-period tax captures would be limited to $200 million over the life of the bill.

Sen. Steve Bieda, a Warren Democrat who sponsored one of the tax capture bills, said Michigan “unilaterally disarmed” when it eliminated several economic development tax credits in 2011. It has hampered Michigan’s ability to compete with other states that are aggressively wooing companies and projects.

“This gives the locals a tool for redevelopment efforts to take properties such as the Pontiac Silverdome, something that would be very expensive to redevelop, and put some other economic incentives in there,” said Bieda. Without the incentives, he argued many brownfield sites “would probably remain blighted for an extended period of time.”

Six senators — all Republicans — opposed the tax capture legislation. A similar package passed the upper chamber last year with eight “no” votes.

State Sen. Patrick Colbeck, R-Canton, said he opposes economic development incentives that “benefit a select group of individuals,” including Gilbert. He was not persuaded by new language limiting incentives to one project per city per year, arguing the legislation was only broadened to win votes.

“Ideally they’d have one project per Senate district to get as many votes as they can on it, but that’s not the way we should be pursuing economic development,” Colbeck said. “We should be looking out for the best interests of everybody, and this is just the case of a friends and family discount.”

The legislation heads to the House, where a similar proposal died last year. The lower chamber is focused on cutting personal income taxes rather than expanding business incentives.

New House Speaker Tom Leonard, R-DeWitt, said last week he is philosophically opposed to “picking winners and losers” through the tax code but has not taken a position on the tax capture legislation.

As The Detroit News reported Friday, critics plan to mount a more aggressive fight against the incentive plan in the House, where they feel they have a better chance of halting the bills.

The Mackinac Center for Public Policy, a free-market think tank in Midland that opposes the tax incentive plan, has called the package a form of “corporate cronyism”

“It’s an unfair transfer of wealth from taxpayers to a lucky few — a lucky few that have political connections, ultimately,” said Michael LaFaive, fiscal policy director for the Mackinac Center. “If a development is worthwhile, it will take place. If it’s worthwhile, you shouldn’t be subsidizing it.”

MIthrive, a coalition backing the bills that includes local government and business leaders, celebrated Senate passage and has been discussing the plan with House members.

“We look forward to demonstrating to the House how the Michigan Thrive Initiative will turn eyesores into thriving developments and build the vibrant communities that are essential for Michigan to grow and prosper,” spokesman Dan Austin said in a statement.

Horn said the only objections he has heard are “purely ideological,” arguing the legislation is well written and without flaws.

While the House is grappling with its own income tax cut plan, Horn said the tax capture plan is a separate matter, and he said the legislation has “momentum” as it heads to the lower chamber.

“Ultimately it’s got so many safeguards in it,” Horn said, noting that the state treasurer will have final say on any plan nominated for the incentives. “As long as our bill demonstrates a net fiscal gain to the state of Michigan, we think the House should be fairly comfortable with it.”