Substitute has been found for tax credits

June 10, 2011
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A proposal put together by a statewide group of economic developers and their supporters to replace the loss of brownfield and historic tax credits has been accepted by Lansing. The credits have proved to be nearly irreplaceable incentives that helped urban areas like Grand Rapids revive existing but vacant properties.

The Michigan Economic Development Corp., which was involved in putting the proposal together, recently announced it would adopt the plan for the coming fiscal year that begins Oct. 1.

“We could do a loan. We could do a grant. We could do a direct investment. We could do a hybrid of those,” said MEDC CEO Michael Finney to annarbor.com.

City Economic Development Director Kara Wood also was involved in that action.

“A proposal has been developed through a workgroup that worked directly with Lt. Gov. Brian Calley and other staff. It was sent to the governor and both the House and Senate,” said Wood.

“The workgroup that prepared the proposal included the MEDC and, therefore, the proposal recommendation will be morphed into the final program with input from the administration,” she added.

The brownfield and historic preservation tax credits were tied to the Michigan Business Tax, which goes away permanently Jan. 1. The new 6 percent corporate tax will replace the MBT then, and it doesn’t offer credits. Gov. Rick Snyder, who pushed for the new tax plan, had offered to fund a new program called Business Attraction and Economic Gardening with $50 million as a replacement for the credits.

“It got to the point where you could qualify if you had a house in the suburbs and in the winter your lawn was brown,” the governor said about brownfield credits at the Mackinac Policy Conference. “That’s not brownfield development.”

But the Michigan Municipal League, which represents the state’s cities and villages in Lansing, felt the governor’s $50 million program didn’t offer a large enough incentive.

“Elimination of the credits along with miniscule funding for a replacement program will devastate the ability of local communities to attract private development and create jobs,” said MML CEO and Executive Director Dan Gilmartin.

The MML claimed that eliminating the credits would cost the state tax revenue and jobs, as both the brownfield and historic credits are awarded only when a project is completed. The league said roughly 75 percent of the new taxes that a project yields goes to the state, with 25 percent being credited to the developer.

“The math is simple: If a developer is going to lose the 25 percent tax credit, the state is going to lose the 75 percent in taxes that would have been generated by the project,” said Gilmartin.

“In addition, old buildings that are likely currently crumbling and previously developed land that is likely now not being used will stay off the tax rolls. Gutting funds for tax credits that create jobs and generate more tax revenues for the state amount to economic nonsense,” he added.

According to the proposal that Wood was part of, the state approved $510 million in brownfield credits from 2008 to 2010. Over the same three years, $45 million in historic tax credits also were approved. The proposal pointed out that the actual project investment from all sources was 12.6 times the amount of credits awarded. The group estimated that the annual withholding taxes from the permanent jobs the investments created were $22.6 million, and $28.9 million from the construction jobs.

“We needed to show how important the program is for urban redevelopment, which the governor is very interested in. We just wanted to make sure that a replacement program spurs a lot of investment and job creation,” said Wood.

Wood said the proposal contains a grant program and a loan program to replace the tax credits.

“I think right now we’re at about $100 million, which is more than what we initially thought the legislature might allocate toward this program. We’re glad to hear that it has increased. However, we know it’s a significant decrease in what we really need in the program statewide,” she said.

Finney said the MEDC will have a pool of $100 million for brownfield and historic credits and other incentives for the upcoming fiscal year.

“I feel good about it,” said Wood. “And our hope is that next year we can come back and show how many nice things we did with that $100 million that we’ll get more funding for the future.”

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