Economic Development and Government

City may reconsider NEZ rules

Neighborhood Enterprise Zones could include material compatibility, affordable housing stipulations.

March 18, 2016
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The wave of development throughout Grand Rapids is prompting closer scrutiny of existing incentive tools and building guidelines.

City commissioners raised some concerns regarding existing development incentives and certain guidelines for proposed projects during the Committee of the Whole meeting last week.

During the March 15 meeting, officials were presented with a Neighborhood Enterprise Zone request for a $1.8 million mixed-use building with 12 market-rate apartment units at 1555 Wealthy St. SE, and an additional application for a Neighborhood Enterprise Zone Exemption Certificate for a proposed $53 million, 16-story building at 601 Bond Ave. NW.

Although both projects received unanimous approval from commissioners, the proposals sparked a discussion to revisit the language and guidelines for the NEZ exemption incentive, and explore amendments in zoning ordinances for material compatibility with the surrounding neighborhood.

The project for 1555 Wealthy proposed by developer 1515 Wealthy LLC entailed 12 market-rate apartment units and about 3,900 square feet of ground-floor commercial space. The overall project has an estimated capital investment of $1.8 million and the creation of five new full-time jobs.

Kara Wood, economic development director for the city, said the project qualifies for a NEZ exemption since it is a mixed-use project with commercial space on the ground floor, available for rent and located in an area that is zoned primarily for business use.

“The construction is on a vacant lot that is adding housing units and increasing density in this neighborhood,” said Wood. “Also, this is adding multi-family housing, which is currently limited in this neighborhood.”

The 12-year NEZ exemption is anticipated to result in a 50 percent reduction in property taxes for the residential portion of the project, according to city projections.

Third Ward Commissioner David Allen said although he voted yes on the resolution because the developer and city staff followed the guidelines, he struggled with the application after reading through the intent of the NEZ legislation.

The city’s NEZ program provides a “tax incentive for a defined period of time for new construction, substantial rehabilitation of residential structures, and under specific circumstances, new construction of rental market-rate apartments,” according to the city’s program introduction.

“We don’t define what certain circumstances are for rental market-rate apartments, but the important thing is it says the purpose of this legislation is to improve the housing stock in distressed or declining urban areas — I wouldn’t call Eastown a distressed or declining urban area — where little or new construction is occurring,” said Allen.

“It says the legislation is intended to spur residential investment where it might not otherwise occur. I can’t say that a 12-unit apartment complex in a city where we have a 1 percent vacant rate bordering East Grand Rapids is an area that wouldn’t otherwise occur,” added Allen.

While he said he wasn’t “anti-development,” Allen pointed out the need to look at the NEZ goals and guidelines.

“At the same time we have a tremendous need for affordable housing, and if we have the opportunity to leverage an approval like this — even if it is for one affordable housing unit on this development, I think it is in our best interest to do that,” said Allen. “I think we really need to take a look at these NEZs, look at how they are being implemented, how they are being designed, and what we can do to increase affordable housing.”

Mayor Rosalynn Bliss said it is excellent timing to take a look at how incentives are utilized and how to target them toward city goals and values, especially around affordable housing.

“I think it absolutely behooves us to pause and say let’s look at NEZ. This is a unique tool that we have to use,” said Bliss. “I think we need to be really clear to both city staff and to developers that this is or is not an incentive they are eligible for, and I think that discussion has to start with us. We have to provide that input and direction to staff.”

Bliss added that, for the Wealthy project, it was too far along in the process to make additional changes to the NEZ eligibility guidelines.

First Ward Commissioner Dave Shaffer also suggested there is an opportunity to look at mechanisms for the city to be able to use the additional income tax from development projects to create incentives to specifically target affordable housing.

“This project is smaller, but it does give you $3,800 in income taxes in the first year,” said Shaffer. “How do you make sure that these projects happen and also how, as a city, do we look to say how does this $3,800 on this project — it is $65,000 on the (601 Bond Ave.) project — allow us to then go back and fund some things because we did not anticipate it in our budget to have that much of an increase.”

While the Wealthy project was expected to generate $3,800 in new city income taxes in the first year, the project proposed by 601 Bond Nassau Dutch John Equities LLC is anticipated to create more than $65,000 in new income taxes.

Bliss said another important aspect to communicate as development continues to occur is to ensure the buildings remain high quality and “feel like the character of the neighborhood” rather than a “cookie-cutter” building.

Suzanne Schulz, director of the city’s planning department, said part of the difficulty with the compatibility of building materials is there are not a lot of requirements included in zoning ordinances, and it is a question of “how do we want to regulate.”

“If the commission was interested in exploring that, regulating that, we can do that. It is something we can regulate,” said Schulz during the Committee of the Whole meeting. “We have been hesitant to do that, partly because of the cost that developers expressed that it adds to the project, and overall philosophy of how much do we want to regulate.”

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