City Offers GRPS Revenue Generator

January 31, 2005
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GRAND RAPIDS — City commissioners have agreed to extend the existing economic development tool of brownfield legislation to the Grand Rapids Public Schools district to give GRPS the means to generate a new revenue source.

Commissioners were unanimous in their support last week for the "Build Schools & City Resolution," the brainchild of City Commissioners Robert Dean and James White. The move gives GRPS access to the same tax breaks businesses receive with brownfield designations.

Under Michigan's brownfield law, the city can offer a specific tax increment financing option to help developers pay for cleanup of a property that's vacant, blighted, under utilized or contaminated. On top of that, the state provides Single Business Tax credits to help with the expense of demolition and any remedial actions needed to pave the way for reuse of a property. A developer can receive credits of as much as 10 percent of eligible investment up to a limit of $30 million.

Under the "Build Schools" model, GRPS can recapture 100 percent of taxes generated from redevelopment of functionally obsolete, under utilized or vacant school properties.

According to the model, GRPS requests and is granted brownfield status for an obsolete property, sells it to a developer, receives proceeds from the sale, and also avoids the costs of having to demolish the facility. It then relocates and builds a new school.

The developer, in turn, builds a mixed-use, residential or commercial development and pays city, county and state taxes on the property. That total tax increment goes to the city's Brownfield Authority, which then directs 100 percent of it back to GRPS.

A designated brownfield school property that's sold to a private developer for $500,000, for example, would generate $87,000 a year in taxes, at an increase of 3 percent a year. The annual revenue stream would typically run 30 years or more, which is considered the general "lifetime" of a new development. Under another scenario, for the same $500,000 property, instead of taking $87,000 a year for more than 30 years, GRPS could opt for a lump sum by selling rights to the value of the property to a bank. In this case, the sale of yearly receipts would be valued at about $2.1 million. So the sale proceeds plus sale of yearly receipts would total about $2.6 million in ready cash.

Nobody is out the money because it's all new tax dollars, White pointed out.

"The alternative is to leave the property sitting there, and nobody is going to get any benefit out of that," he said.

About a year ago, Dean got to thinking about the concept of extending brownfield development tools to the school district. Having served as president of the school board from 1990-96, he understood the financial woes GRPS was grappling with and recognized that all the traditional "solutions" just weren't working, he said.

He teamed up with White, who had served as an assistant superintendent for GRPS, and the two began exploring the idea of applying brownfield legislation to schools. They spent nearly a year researching the concept and talking with attorneys, CPAs, developers, real estate specialists and municipal finance experts on its viability and merit. They did not engage any city staff in the process.

"We kept asking whoever we could get our hands on: 'What do you think of this?' Is there anything there that could stop us from doing for our schools the same thing we do for private developers?" White recalled.

He said all the experts they tapped in the process shared their time pro bono and expressed a willingness to help out further if needed.

"We have that commitment from these people that want to see something really different and something new happen," White said.

Dean pointed out that GRPS is losing students and recently had to settle for a bond issue that represented less than half the funds the district actually needed. The city's image and economy is directly affected by the public's perception of the quality of the city's public schools, he said. He believes better quality schools with optimal resources will help stymie the flight to suburban school districts.

"As a city commissioner I'm concerned about the health of the city economically," Dean said. "If our schools go down, there will be an economic drain on our whole city."

The city can't help the schools financially because it's in dire straights, given that it's operating under a projected deficit of $30 million, he added.

"Here's a plan that will bring in a new stream of revenue to the schools and the city. The spin-off of this is that the schools will be able to immediately receive the proceeds from the sale and the tax capture. For the city, you have jobs created and taxes generated."

The Brownfield Authority endorsed the plan unanimously, and the school board was supportive and receptive to it, Dean said.

Who wins?

"Everyone," said local developer Jack Buchanan, owner of Blue Bridge Ventures. Buchanan was one of the developers Dean and White consulted with in devising the plan.

"The developer wins because he gets a viable project," Buchanan said. "The city is winning, in a way, because whatever the project — whether it's office or residential or whatever — it's creating jobs, there's income tax coming in and there are people living there that weren't there before. The city is getting a benefit even in the short run from any development that occurs. No one is losing anything because it's all new revenue that wasn't there before."

Now the ball is in the school district's court. As of last week, the school board hadn't yet voted on whether or not it wants to use the brownfield tools now available to GRPS.

"It will have to be a sort of partnership effort to make it work; it works that way with any development," White said. "But we've got the tools and we have a staff that knows the steps you have to go through because they do it all the time."    

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