City Payback For Ren Zone Tax Cuts
The private investment and jobs that have moved into it and the tax revenue that the city has sacrificed to create it have been well documented since commissioners ratified the six initial districts of the zone in September 1996.
But little has been mentioned about the other payoff: the revenue from the commercial real estate investments the city will receive when the nearly tax-exempt zone expires.
Probably because that calculation is more art than science — at least at this point in the zone’s life.
The city’s zone lasts for 15 years and totally exempts most state and city taxes for a dozen of those years.
In the final three years of a zone’s existence, businesses, property-owners and residents will undergo a three-year phase-in of 25 percent, 50 percent and 75 percent respectively of those property taxes.
The revenue sources the city exempted to encourage investment in the zone are its property and income taxes, levies that were dropped again this year when commissioners agreed to make portions of two blocks on Monroe Center part of the zone.
The downtown office market doesn’t need more supply right now, because demand has cooled a bit over the past few years.
So developers in the zoned section of Monroe Center are thinking residential and are planning for apartments or condos on the upper levels of their buildings and retail, restaurants or service businesses on the ground floors.
One of those developers is Jonathan Rooks.
He owns Parkland Properties of West Michigan LLC and recently bought a longstanding office address known as the People’s Building.
Rooks plans to develop the People’s into 30 condominiums, 26 of which will be residential. He has figured out what the property tax return from those condos will be for the city when the zone’s tax-exempt clock stops ticking — and that return is substantial.
According to Rooks, the People’s Building was worth $35,000 annually in property taxes as an office building in 2002. In 2015, when the dozen years of full exemption run out and 25 percent of those taxes are due, the People’s will pay $60,000 in property taxes and do so largely as a residential building.
In 2016, that figure will rise to $120,000 and to $180,000 the following year.
When the Ren Zone tax benefits fully expire in 2018, the People’s Building should be worth close to $240,000 in property-tax payments that year and every year after that — or nearly seven times what it paid out last year.
“This building will pay $200,000 in property taxes in 15 years, at a minimum, and it has only paid $30,000 a year in the past.
“I did a calculation that shows the city will break even in the 17th year and the property taxes will profit $160,000 per year after that. If I filled the building up with all office, it would probably be an $80,000-a-year tax base,” said Rooks.
“I don’t know if anybody has ever looked at that in the past. I think it’s a really interesting numerical analysis of the Renaissance Zone and why it makes sense — and not just from the perspective of improving the quality of life in the city, but also on paper from an accounting perspective,” he added.
In addition to the larger projected tax payoff for the city, those living in the condos are expected to give downtown another financial reward by spending their money at restaurants, taverns and shops located in and near the central business district.
“If the city does give up city income tax, it is getting that back from where the people spend their money,” Rooks said.
Parkland Properties isn’t the only development firm planning residential for the zoned portion of Monroe Center.
Belford Development LLC also has housing units on its drawing board for a group of smaller buildings across the street from the People’s. Lee Kitson, David Lubbers, Paul Belden and Rockford Development make up Belford.
So what fueled the current drive to bring residential development to the Monroe Center zone?
Credit the Van Andel Arena and the many nightspots and restaurants that developed around it.
“If the entertainment aspects of downtown didn’t exist, residential wouldn’t be appealing and now residential is appealing. I think, in the future, retail will be appealing if there is enough residential downtown,” said Rooks.
“So I think the entertainment drives the residential, the residential drives the retail, and then it cycles back and continues in a circle.”