Tax credits incentive programs for projects still available

May 9, 2011
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Looking for tax credits to help fill an equity gap in your project? These days you’re going to have to look a little harder and be more creative.

The landscape of available tax incentives that businesses and developers have relied on for brownfield and historic redevelopment projects has dramatically changed.

A wave of uncertainty has hit the economic development world and proposed investment has come to a screeching halt. Developments that once generated millions in new investment have been sidelined until a level of certainty is restored.

The tax incentive tools that supported these investments are still in place under the current business tax structure. Refusal to use the existing programs until replacements are in place is short-sighted and will continue hindering proposed investment in the state.

Tools are there, so use them

By now, we all know that Gov. Snyder’s budget proposal calls for the elimination of numerous tax credits, including the Michigan Economic Growth Authority, brownfield and historic credits. In conjunction with this proposal, the new administration handed the Michigan Economic Development Corp. its marching orders to operate as if the budget proposal was in place now, ignoring current statutory provisions for available economic incentives.

The result? The MEDC is operating from a much smaller pool of incentives, strictly prioritizing the types of projects it will support, which severely hinders investment in the state.

For the remainder of the fiscal year, the MEDC has an available pool of $20 million for all state historic and brownfield tax credit projects — a fraction of the $185 million it approved annually in recent years. MEGA projects and Renaissance Zones for businesses are operating from a separate $20 million pool, another drastic reduction from the nearly $350 million awarded in 2010.

The current administrative approach is severely limiting the ability of businesses and developers to structure deals. The limited financing that was once available has evaporated in the face of the uncertainty over availability and value of tax credits. Existing tax credit holders are left wondering what the credits are even worth.

Legislative attempts to provide transition clarity have further muddied the waters and left investors scratching their heads. Bridge financing for approved tax credits has slowed to a trickle until lenders have a clear picture of the value the credits bring to the project. Many prospective projects are just collecting dust on the shelf.

If the new administration wants businesses and developers to continue investing in brownfield and urban redevelopment while it works its way through passage of a new business tax and creates new incentive programs, the existing tools need to be utilized to their full extent.

Success with incentives

In the meantime, if you want a shot at the small pool of remaining incentives, you’ll need to get an application in to the MEDC or the State Historic Preservation Office and get in line.

First, for purposes of brownfield and historic credits, you’ll need to work with your local community to make sure your project is one of the few top priorities on its list. The MEDC instructed communities to prioritize their redevelopment projects, and those not at the top of the list face little to no chance of receiving incentive support.

Second, and more importantly, the MEDC is focusing strictly on significant brownfield sites, core urban redevelopment sites, downtown infill projects and significantly older existing buildings in major urban areas.

Finally, it is important to remember that the current changes only impact tax credits. Tax abatements such as the Obsolete Property Rehabilitation Act, Neighborhood Enterprise Zones and PA198 and PA328 are still available. These are still tremendous tools that can help reduce operating costs and thus assist with cash flow on prospective projects.

Jared T. Belka is an attorney at Warner Norcross & Judd LLP and a member of the Michigan Chapter of the National Brownfields Association. He can be reached at jbelka@wnj.com

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