Reaching The End Zone

September 5, 2006
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GRAND RAPIDS — Companies located in the city's original Renaissance Zone, created in 1997, can qualify for continued tax relief if they are expanding the business or adding equipment under new guidelines established last week.

City commissioners followed the recommendation of the Economic Development Project Team and ratified standards that would award state-approved tax-exemption certificates to those businesses in the nearly tax-free zone that have met their investment commitment while in the zone.

City Economic Development Director Susan Shannon told the Business Journal that at least two companies in the zone have already inquired about available tax advantages for buying new equipment, an expense that will be on their books longer than the number of years remaining in the zone's life.

"Companies looking down the road are seeing that the zone will be ending, and normally a tax abatement runs about 12 years. They're requesting tax abatements, so the commission decided that we should set up some guidelines for looking at those tax-abatement requests if they're in a Renaissance Zone," said Shannon

An abatement reduces personal property taxes for equipment purchases and real property taxes from expansions by roughly 50 percent for its duration. Both taxes, though, are erased during nine of the zone's dozen years, and the full tax benefits of the initial zone end on Dec. 31, 2008. Companies will then pay 25, 50 and 75 percent of the exempted taxes each year for the three years that follow until Jan. 1, 2012, when the zone ends.

The city's latest policy wants to help firms grow. But at the same time, the city doesn't want to be taken advantage of by the property owners. Some owners already have taken advantage of the city by not keeping the investment promise they made.

"They've been just sucking off the premium of the zone," said Mayor George Heartwell.

So the new policy requires a company in the zone that applies for an abatement to list its total investment while in the zone and the number of employees before getting the tax-exempt status, along with the current number of workers. Then the city will weigh the tax savings the firm had during its time in the zone against its potential reduction from an abatement.

"We will be doing that kind of financial comparison, but also looking at historically what has been their performance in the Renaissance Zone," said Shannon

Here is how the comparison might work. Say a company is entitled to a $15,000 tax reduction over 12 years for buying a piece of machinery through an exemption certificate, and the firm has a Ren Zone tax benefit of $7,000 remaining. Chances are the city would approve an exemption worth $8,000, the difference between the two figures, but likely for a period less than the maximum 12 years allotted to a certificate.

"It's a necessary step to be good stewards of the taxpayers' money and direct economic development," said 1st Ward Commissioner James Jendrasiak.

But a final decision might not always come from just doing the math. Other factors could affect the evaluation. Things that will be considered are whether a project will be a catalyst for other developments in the area and whether a project is planned for an area that has seen a lot of disinvestment in recent years.

"It's not corporate welfare; it's corporate workfare," said 2nd Ward Commissioner Rick Tormala of the jobs created through the abatements. "We get something for our money."

The city, though, may have another option to consider. House Bill 5942 would allow municipalities to extend an original Ren Zone for five years if a property owner makes another investment, creates more jobs and gets project approval from the Michigan Strategic Fund board.

The state House passed the bill in late June, and the Commerce and Labor Committee is reviewing the measure.

The city added properties to the zone in 2001 and 2002 and created four more areas in 2003. The city reported that $247 million has been invested in the zones since 1997.    

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