A touchy issue under review

January 27, 2009
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The Downtown Development Authority awarded two nonprofit organizations money generated from property-tax revenue last May and then denied another request from another nonprofit the following month.

The board gave the Grand Rapids Community Foundation a $50,000 building reuse grant for its renovation of a two-story, 104-year-old building at 185 Oakes St. SW, which has since become the foundation’s new home.

On that same May day, board members gave the Downtown Alliance $170,000 for its 2009 budget, or $30,000 more than they awarded the nonprofit a year earlier. The Alliance markets downtown to the general public and makes sure the streets and sidewalks are clean.

But in June, the DDA rejected a request from the Public Museum. That nonprofit asked the board for $205,000 to build a kitchen that would strengthen its emerging catering business.

Those actions prompted board member Cathy Mueller to question whether the DDA should give property tax dollars raised from for-profit businesses to organizations that are exempt from that tax.

DDA Chairwoman Kayem Dunn suggested then that the board might want to consider creating some guidelines about funding nonprofits with tax revenue, if the DDA plans to continue to do that.

“We need to have further board discussions about that,” she said then.

The DDA board began that discussion at its last meeting and is likely to continue it at the next one, as board members didn’t arrive at a conclusion.

But Mueller, president of the Grand Rapids Public Schools system, reiterated at the last DDA meeting what she believes is the core issue. She said the DDA’s funding comes from property taxes paid by businesses, and some of those dollars are being given to organizations that don’t get those tax bills. And more nonprofits, she said, are moving into downtown, so more of the DDA’s tax revenue could be going to those organizations.

“Is this fair to the rest of the tax-paying entities?” asked Mueller. “We don’t want to undermine those that make that contribution.”

Mueller also asked if the DDA was on track with its original mission. Board member Paul Mayhue, a former county commissioner, said he thought it was because he believes the DDA’s mission is to redevelop downtown.

“I don’t think we’ve torn down any major pieces of downtown, and we’ve redeveloped the downtown,” he said.

Public Act 197 of 1975 provides a lengthy definition of a DDA’s mission. But it includes “to correct and prevent deterioration in business districts,” “to authorize the acquisition and disposal of interests in real and personal property,” and “to promote the economic growth of the districts.”

The state law doesn’t address whether a DDA can award tax revenue to non-tax-paying entities. It is well within the DDA’s power to give those funds to the Alliance because state law gives the panel the right to market the downtown district and to improve the land within it.

Although she didn’t address the tax issue, Fifth Third Bank Regional President Michelle VanDyke said that “having nonprofits move into downtown is good for everybody.”

A 2007 report produced by the Community Research Institute at Grand Valley State University estimated that the economic impact of the nonprofit sector in Kent County was $2.1 billion. The report added that those 3,149 organizations in the county directly employ 33,000 and indirectly support 14,800 additional jobs in the for-profit sector.

Grand Rapids Mayor George Heartwell said the issue is not just about property taxes; it’s also about income taxes, which nonprofit employees pay. He said income taxes account for 46 percent of the city’s total tax revenue and nonprofit workers pay into that pot.

“It’s a slippery slope, but, fundamentally, nonprofits are important,” said DDA member Joseph Tomaselli, president of the Amway Grand Plaza Hotel Corp.

“It’s a touchy issue,” he continued. “My question is, what are the guidelines and what can we support?”

Dunn thought the board’s next step would be to look into creating some guidelines.

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