Second Opinion is a column that addresses important issues in Southwest
Michigan and expresses the viewpoint of editor Kathy Jennings.
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You might have heard that Gov. Rick Snyder says "everything is on the table" for cuts in the upcoming budget. That includes two dozen tax breaks that could be eliminated if his plan makes it through the legislature. Tax breaks that are used across the state to encourage the re-use of historic buildings and abandoned factories.
For Kalamazoo a part of what's at stake could be redevelopment of Western Michigan University's East Campus. A boutique hotel, a conference center, offices, apartments, restaurants and retail outlets, or a condominium development are just some of the possible future uses that have emerged after WMU officials challenged private developers to find a way to restore life to the site.
Development firms from around the nation responded to this university's request for proposals and several appear viable. But all of them require tax credits to move forward.
"We are considering some very exciting proposals that will lead to real economic gain for our community, " says Bob Miller, WMU associate vice president for community outreach who is one of those reviewing the proposals says the proposals under consideration could provide real economic benefit for the community. "Without the credits, the potential for redevelopment virtually disappears," he says.
The state has supported the idea that historic buildings are tangible links with the past. They help give a community a sense of identity, stability and orientation. And tax credits to redevelop them have made a difference in cities across the state.
The Brownfield Tax Credits are equally important to such redevelopment.
At a time when the state is trying to create jobs, be more efficient, and be more business-friendly, is doing away with these credits a smart move?
To keep it simple, let's just look at the Brownfiled Tax Credits part of the picture.
Making stuff is sometimes dirty work
Long before we cared much about our air and water quality, we spewed tons of toxins into the air, ground and waterways. That practice continued well into the mid 1900's, and still plagues many (predominantly urban) sites all over Michigan and the U.S. Cleaning up these contaminated sites is expensive, sometimes litigious. Many of the perpetrators aren't even around anymore.
That's why in the mid-1990s, the State of Michigan and many other states put into place Brownfield Redevelopment Authorities, and created a system of tax credits to help companies offset the costs of redeveloping contaminated industrial sites and old buildings. In many cases, the projects are not even feasible without Brownfield Tax Credits.
It's usually much less expensive in the short term for a company or developer to work with a Greenfield site (traditionally rural and agricultural). In addition, many old buildings are filled with asbestos and other hazardous materials that prohibit their use without massive and costly cleanup. The "path of least resistance" many times, at least short-term, is to build in the suburbs.
How far we've come
Kalamazoo has made impressive strides in the rejuvenation of historically industrial areas and its riverfront. It's gotten awards for its efforts and the work done to bring the river above ground is serving as an example for other communities.
According to the City of Kalamazoo since 2002, 14 brownfield Plans were approved, amounting to an investment in the community of at least $140 million and maybe as much as $156 million. The city says 1,137 jobs have been created or retained across the city through the use of Brownfield Tax Incentives. Some of those projects have resulted in 438 residential units being made available in the city.
Right now, five projects currently under way are making use of Brownfield Tax Credits:
• The Metropolitan Center, 105 E. Michigan, Ave., a $10 million investment, expected to create 72 jobs and result in 25 residential units. A $1.1 million tax credit has been approved.
* Interact Building, 610 S. Burdick, a $1.7 million investment, expected to retain about 120 jobs. Nearly $400,000 tax credit approved.
• The People's Food Cooperative, 507 Harrison, a $1.1 million investment, that could mean the retention of 11 jobs. Nearly $157,000 in tax credit approved.
• LADD Real Estate, 516 E. North Street, $1.25 million project, expected to create 14 jobs, and result in six residential units.
• Fabrikal expansion, 4141 Manchester, an investment of $16 million to $32 million, expected to create or retain 82 to 202 jobs, for which $3.5 million in tax credit has been approved.
The $27 million Rave Theater complex, the $31.5 million law offices built by Greenleaf Holdings on South and Park streets, and the $7.1 million renovation of the Spearflex Block on East Kalamazoo all came about with Brownfield Redevelopment Initiative tax credits.
Imagine going back in time to 2002 and crossing these projects off Kalamazoo's future. Now imagine all of the projects that could benefit from Brownfield Tax Credits over the next 10 to 15 years, which most likely won't happen if they're done away with. That's what we're saying to the people in Kalamazoo in 2024: No soup for you.
Not only that, but these Brownfield Tax Credits and programs have helped clean up industrial and contaminated sites all over the state, including Benton Harbor, Ludington, Jackson, Muskegon, Detroit, Lansing, Traverse City, Grand Rapids and hundreds more.
Brownfield Tax Credits for Dummies
Here's a simple explanation of how Brownfield Tax Credits work: I own a company that's looking to expand or want to develop a project. I basically have several choices: A) build on a Greenfield site, which is generally much cheaper per acre than an urban site, and probably won't need to be cleaned up; B) build on a Brownfield site or reuse an old dilapidated building; C) not do anything, keep my money for other investments, and the state gets nothing.
Brownfield Tax credits help make up the difference between building on the Greenfield site and the Brownfield site, and reimburse the company part of their tax liability to help offset the costs of cleaning up the contamination.
In other words, you build this project and you'll owe less in taxes to the state than you normally would on the project (or you can sell the tax credits at a discount to other parties to help finance the project) and do the cleanup. If you don't build the project, the state never gets any money, and no economic stimulus occurs. No people are hired, no new residents move into the city, no new tax base is added to the municipality, no contaminated site is cleaned up; you get the picture. Receiving a percentage of something is usually better than 100 percent of nothing.
Why urban sites matter
Trends show that people are moving to large urban areas, en masse, all over the country. According to several reports out recently, there has been a massive shift of construction from suburban and exurban areas to urban areas, where construction in urban areas has nearly doubled in comparison to suburban areas in many regions.
In 1950, only 30 percent of the world's population lived in urban areas. By 2050, it's estimated that 70% of the world's population will be part of massive urban networks. Where are these people going to live, if many urban sites are contaminated and economically infeasible to redevelop? And will people make urban areas in Michigan their home?
From an efficiency standpoint, it only makes sense. Why encourage growth in undeveloped Greenfield areas where there is very little infrastructure, when there are scores of previously used parcels already served by water, electricity, sanitary and storm sewer, streets, cable, fiber optics, transit, trash collection, healthcare, school buses, sidewalks, parks and a whole lot more.
It's less expensive to the population as a whole to have job density located in the center of the metro area. It makes for shorter commutes for most (which means fewer highways and bridges to build and maintain), allows for increased density that can be served by transit and other infrastructure, and can create the energy that comes from having your workforce concentrated with other similar workers.
And young people are continually being drawn to urban areas that have dense, vibrant urban centers with plenty of housing options, amenities, entertainment, access to transit, and walkable residential areas. In fact, some studies predict the next big housing boom will be precisely in these urban neighborhoods, with millennials looking to snatch up affordable properties in these areas. Will we be ready for them, or will they find better opportunities elsewhere because cleanup costs are too great?
The bottom line
If the secret to economic success was to encourage development far out into rural agricultural areas, than Michigan should be one of the most successful economies in the country. At a time when the state should be looking to save money both short- and long-term, and when the population is not growing, investing in and reusing what we already have seems to make a lot more sense than to subsidize growth in new areas.
As legislators are poised to take up the question, it seems like incentives that provide a triple whammy: create jobs, bring in new city residents, and clean up the mess left by generations before us, would appeal to both sides of the aisle.
This report has been edited from its original version, which first appeared in Rapid Growth. It was written by Jeff Hill, Publisher of Rapid Growth Media. He holds a degree in Communications and Economics from Western Michigan University. Kathy Jennings, Southwest Michigan Second Wave Editor contributed to this report.
Photo credit: Matt Newton
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