Downtown Gets A Zone Of Its Own

July 23, 2002
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GRAND RAPIDS — The city is considering doing something that it has resisted doing for the past six years, and that is allowing Renaissance Zone projects in the downtown area.

In the fall of 1996, city commissioners created six districts for their nearly tax-free zone program and all were in underdeveloped commercial and industrial sectors of the city.

Back then commissioners gave little, if any, consideration to locating a zone downtown because they thought changes in the district, most notably the opening of Van Andel Arena, would provide the economic stimulus to revive places like Monroe Center.

Plus, the district has the city’s most valuable commercial property, land that makes up a solid real and personal property tax revenue base, and commissioners didn’t want to sacrifice any of those funds to the zone.

While the arena did lead a development charge south of Fulton Street, the immediate area to the north, however, wasn’t developed as they, and others, had hoped it would be.

After establishing the state’s most successful Ren Zone, commissioners have added specific projects to it since then. None, though, have been assigned to the downtown core.

But that could change next month.

At a recent meeting of the Downtown Development Authority, city Business Advocate Susan Shannon told board members that the city invited developers to submit proposals for zone projects downtown. The city’s purpose behind this is to provide an incentive to get a few of the vacant buildings downtown redeveloped, such as the old Steketee’s Department Store on Monroe Center.

Proposals have to be in soon, as the city has to submit its Ren Zone list to the state by Aug. 30. Shannon suggested the city might submit up to four projects to Lansing, and that selection priority will be given to those proposals that reuse a building that has been empty for a while and creates the most jobs. To the winners go the spoils: up to 15 years of not paying most state and local taxes.

And that may be a problem for the DDA.

Although its purpose is to promote economic development downtown, the board also relies heavily on the tax revenue it gets to do that job.

Of its $12.6 million annual budget, the DDA gets about $7.8 million of that total from the tax levied on downtown businesses and organizations in its district, along with related assessments. This is the money the board uses for improvements.

The DDA also captures about $4.8 million from the schools levy. This money is used to pay off existing debt, such as the bond issue for the arena.

Retired city Fiscal Services Director Bob White said the board has $56 million worth of debt on its books, mostly from the arena. White also said that there was just enough revenue from the schools to cover those payments, so the board doesn’t have to tap into its other tax revenue fund. But he added that the debt figure will get larger in the future.

So here’s the rub: How can the DDA improve the district if Ren Zone projects cut into its revenue base for, say, the next 15 years as its debt rises? But if the mission of the DDA is to improve the economic vitality of downtown, then shouldn’t it be willing to forgo the tax revenue?

In a nutshell, that is the scenario DDA members are facing and will answer at their next meeting.

DDA Executive Director Jim Knack told board members that if there is a negative effect on the tax revenue and if that hinders the board’s ability to pay off debt, then they may have to think about raising tax revenue in areas of the district not in the zone.

There is another issue, too. White said that the school increment taxes are dedicated to paying the board’s debt and if any of these dollars were to be abated for the zone, then the DDA would need to get a release from its bond insurers.

The DDA also doesn’t have a say in whether or not a zone project gets approved in its district. That authority belongs to the City Commission.

Shannon said she met with developers, architects, building owners and commercial real estate brokers in June to get a handle on what type of projects they might be interested in doing downtown and found out that housing and entertainment topped the list. She also learned that the city needed to provide more incentives to get the projects started, and many told her they favored a Ren Zone designation.

Shannon added that several projects were already being considered for downtown and that the selection process for zone status would be very competitive.   

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