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Playing A Tighter Zone
If House Bill 5942 moves through the Legislature unscathed and is signed into law by Gov. Jennifer Granholm, then city officials could extend Ren Zone benefits by five years if a property owner makes an additional investment, creates more jobs and gets an OK for that project from the board that oversees the Michigan Strategic Fund.
Or the city could move in another direction — one that involves tax abatements.
Third Ward Commissioner James White said he has been working with State Rep. Jerry Kooiman, R-Grand Rapids, to see that the extension bill gets passed by the state House.
But White added that if the bill becomes law, a Ren Zone occupant would have to propose another project to get an extension, and then guarantee that the investment would be made.
"Clearly, (an extension) doesn't happen without the investment," said Mayor George Heartwell.
The city has given up about $500,000 annually in tax revenue to the 10 zoned areas since 1997, the year the first six were created. Certain properties were added in 2001 and 2002, and four more areas were created in 2003. But despite the city's $4.5 million investment so far in the zones — and to its dismay — not every firm that received the designation has followed through on its promised project.
"They've just been sucking off the premium of the zone," said Heartwell.
What makes the matter worse for the city is that it can't pull a property out of a tax-exempt status before a zone expires, even if there hasn't been any investment from the firm that got the tax break.
"I don't think so. I think this is exempt property that doesn't come off the roll," said City Fiscal Services Director Scott Buhrer.
Economic Development Director Susan Shannon said the city was talking with Keeler Brass Co. officials about recouping some of the tax dollars that were lost to the city when Keeler failed to invest what it promised after the city admitted the company's 12 acres into a Ren Zone. The work that Keeler Brass did is being sent to a plant in
White said a zone occupant that hasn't followed through on its investment should not be given an extension. Heartwell added the city has a stricter development contract now than it had in place when the program began nine years ago.
"We don't want to reward anybody who sat on this," said
But even if the Ren Zone extension bill does become law, Deputy City Manager Eric DeLong said five years may not be long enough for a business to fulfill a development agreement with the city.
So as Ren Zone benefits wind down, DeLong thought more companies with a project in mind would look to the city for a tax abatement instead of a tax exemption. An abatement normally lasts for a dozen years — more than twice the length of an exemption that would be generated by a zone extension.
In response to that possible scenario, the city is looking to create two abatement polices. One would be for firms that are in a zone and the exemption period has expired. The other would be for new companies that are not in a zone.
"So two different analyses: one for new and one for existing," said
Public Act 198 of 1974 contains the most popular abatement statewide: for industrial firms that expand or upgrade equipment. According to the Michigan Economic Development Corp.,
"There is no 198 grant without some sort of investment. So that is why we're suggesting that we take a look at how much they have invested," said Heartwell.
Although both policies are in the initial design process, it's fairly certain the one for firms in a Ren Zone will require that a company lived up to its zone investment to be approved for an abatement.
The businesses that have been in a Ren Zone since 1997 will begin to pay 25 percent of the exempted taxes in 2009, 50 percent in 2010 and 75 percent in 2011. The 1997 zone will expire in 2012 unless the city extends all or a portion of it for five years, should the bill in the House Commerce Committee become law.
"When they go off the Ren Zone, we get 100 percent of the appreciated investment," the mayor said.
The Single Business Tax, state and city income taxes, and most operating property-tax levies, except for debt taxes, are fully exempted for 12 years in a zone, and partially waived for three years. Income taxes are exempted only for residents living in a zone.
The city reported that $247 million has been invested in the 10 zone areas since 1997.