Developers Face 'Credit' Risk

May 15, 2006
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GRAND RAPIDS — When Mayor George Heartwell met with four local representatives two months ago, the day after state lawmakers agreed to sunset the Single Business Tax, he was pretty astounded.

“It never dawned on one of the four that it would have this effect,” said the mayor last week.

Well, it dawned on city officials before legislators decided to kill the SBT at the end of next year without a replacement levy, because the city has awarded brownfield status to 52 projects and part of that is the reward of an SBT tax credit that equals up to 10 percent of the investment made in a project.

But a project has to be completed before a credit can be collected, and 26 of the 52 projects aren’t done yet — and some may not be finished before the SBT may set for the final time on Dec. 31, 2007. If there isn’t an SBT on the books, there can’t be a credit to collect from it.

“They’ve been busy creating a market for SBT credits,” said Deputy City Manager Eric DeLong of Lansing lawmakers, “and they’re not talking about a replacement.”

City officials are worried about the financial viability of some projects if these efforts can’t be completed by the SBT deadline. More than a few are major investments that are vital to the city’s future and are located downtown where the cost to build is higher than almost everywhere else.

Among these developments are: the $150 million Michigan Hill medical complex project, the $100 million JW Marriott Hotel project, the $24 million Two West Fulton project, the $30 million Mid-Towne Village project, and the $60 million Icon on Bond project.

“People have made investments and are making investments, and now that is being changed,” said DeLong.

City officials also said the legislative action has destabilized the current value of SBT credits for the future. One question the city is asking: Who is going to want these credits now when it takes years to finance, design and build a project on properties that have a high development cost? Another is: Who is going to go ahead with a project without an incentive?

The sunset bill, though, made it through the Legislature with a promise that another tax would replace it. But there has been little, if any, detailed discussion on what form that tax would take and how it would help to create jobs, spur investment and spark economic growth as the legislation calls for lawmakers to do.

But Rep. Jerry Kooiman, R-Grand Rapids, recently assured the Business Journal that lawmakers will replace the SBT. Although Kooiman didn’t offer any details, he did say the new tax probably wouldn’t be worth as much revenue to the state as the SBT.

He said instead of the $1.9 billion in annual revenue the SBT currently delivers, a new business tax would likely bring in $1.3 billion a year. Less revenue from the tax, though, could lower the credit amount and lessen the number of brownfield-approved projects.

The city has come up with a few suggestions for replacing the SBT and is sending those to area lawmakers and the Grand Rapids Area Chamber of Commerce, which supports the sunset bill (HB5743).

The city feels the Legislature should be required to replace the SBT before the sunset date, should allow any unused portion of an SBT credit to be used as a credit against another state tax, and should create a credit program for the new tax that is similar to the SBT credit.

Gov. Jennifer Granholm vetoed the SBT sunset bill because it didn’t include a new tax to replace the lost SBT revenue.

The city reported that the 52 projects with brownfield status have resulted in more than $600 million worth of investments and nearly 5,000 new jobs since 1998.    

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