Brownfield Legislation Should Spur Development
GRAND RAPIDS — New brownfield legislation passed in late March by the Michigan House and Senate offers enhanced tax incentives that should boost development in Michigan's core cities and other urban areas, according to an attorney from Warner Norcross & Judd LLP who helped draft the legislation.
"I think the new legislation will likely spur additional development in the state of Michigan," said John V. Byl, a partner and environmental attorney at Warner Norcross. "I think we can expect to see new projects happen that would not have happened without it. We should expect to see new construction as well as rehabilitation of existing buildings, particularly in urban centers."
Byl is chairman of the Policy and Legislative Committee of the Michigan chapter of the National Brownfield Association. Because of his professional involvement with the brownfield laws, he was invited to help draft the legislation and was assisted by Troy Cumings, a Warner Norcross attorney in the Lansing office.
Byl said House Bill 5511 nearly doubles the Michigan Business Tax credits available for both new construction and rehabilitation projects in certain core communities until 2010. The legislation, which also increases the number of large credits available each year, establishes a new "urban development area" designation and provides a cash refund option of 85 percent of the amount of the credit.
"In light of our state's challenging economic situation, the legislature has taken some bold steps to enhance Michigan's brownfield legislation," said Byl. "HB 5511 is a powerful tool that has the potential to stimulate economic development throughout the state. The legislation should also help developers secure financing in what has become an increasingly tight market through increased tax credits that will enhance their equity in projects."
The new brownfield legislation:
**Immediately and permanently increases brownfield tax credits from the current rate of 10 percent to 12.5 percent.
**Provides credits of up to 20 percent for projects located in urban development areas that increase density of multi-story projects, promote mixed-use development and walkable communities, encourage sustainable development and address underserved areas. After 2010, these credits will reduce to 15 percent.
**Provides a cash refund option of 85 percent of the amount of the credit.
**Increases the number of large MBT credits available in any given year.
For example, under the previous legislation, a developer seeking brownfield tax credits for a downtown Grand Rapids project with a price tag of $20 million would be eligible for a credit of $2 million. Under the newly signed legislation, if the property qualifies under the urban development area, the credit doubles.
"This increase will make the difference between projects happening — or not — in some of our core cities," Byl explained. "The tax incentives are now sizable enough that we expect developers in Grand Rapids, Lansing, Detroit and other urban centers around the state will take a second look at projects they might otherwise have passed by."
Byl said he has already been contacted by several developers who indicated they will be starting a project if they can get the increased tax credit.
"In many cases we are talking about projects that will be millions and millions of dollars of investment in the state, so in the long term, I think (the change in the law) has tremendous benefit for the state," said Byl.
"Financing has become a real challenge for developers," said Byl. "They are expected to have a greater percentage of equity in the projects, and this frankly helps provide that equity."
The urban development area designation is a "brand new concept" within the framework of the brownfield law, according to Byl.
The state has not specifically identified the urban development areas — Byl said the applications for the 20 percent credit will be decided on a case-by-case basis. But the project must be located in the "downtown or traditional business district" or a "traditional commercial corridor" of a "core community" or county seat, and there are certain criteria that the Michigan Economic Growth Authority (MEGA) must consider when reviewing an application for an urban redevelopment project including:
- If the project increases the density of the area by promoting multi-story development.
- If the project promotes mixed-use development and walkable communities.
- If the project promotes sustainable redevelopment.
- If the project addresses area-wide redevelopment and includes multiple parcels of property.
- If the project addresses underserved markets of commerce.
MEGA also may add other criteria to consideration of "urban development area project" applications.
For all other projects, the credit limit has been increased from 10 percent to 12.5 percent of the eligible investment for the project. That increase was made to compensate for removing most "soft costs" from the eligible-investment calculation, with the exception of architecture, engineering, surveying and similar professional fees.
In late December, Gov. Jennifer Granholm signed other new legislation that amended the brownfield tax increment financing law, Act 381. Byl and Cumings were also involved in the drafting of that legislation, which extended the sunset date of Dec. 31, 2007, for MDEQ or MEGA approval of Act 381 work plans. The new sunset date is Dec. 31, 2012.
Among other things, the revised law also added to the list of "eligible activities" for which a developer can be reimbursed; adds criteria to the definition of a "blighted" area; and increases the maximum duration of a brownfield plan to 35 years, from the previous 30-year limit.