Senate Interested In Downtown Retail

November 9, 2007
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GRAND RAPIDS — The state Senate is looking into making revisions to the 32-year-old law that gave birth to downtown development authorities, and a few of the potential changes are aimed at helping develop retail businesses in these districts.

One change would let a DDA operate retail incubators in its district, while another would allow a board to establish a nearly tax-free retail Renaissance Zone in underdeveloped sections of its boundary. The hows and whens of these possible amendments to Public Act 197, which became law in 1975, remain cloudy, but the whys are clear: to bring retailers downtown.

The idea for a retail incubator came from state Sen. Jason Allen, a northern Michigan Republican whose family owns a retail business in Traverse City. Allen and a few others toured the city’s district recently and then mentioned the idea to DDA officials.

“We said we could give that a try, but it wasn’t something that we were thinking about at that particular time,” said Jay Fowler, DDA executive director.

Still, the timing of Allen’s concept was, well, timely. Board members approved a four-month pilot program in September that is examining what the DDA can do to draw more merchandisers to the district. Anne Marie Bessette, once with the Neighborhood Business Specialist Program, is directing the effort and is expected to file her report with the board by the end of the year.

“We’ve been thinking about this for quite a while and were thinking about it at that time, and so his suggestion to do an incubator is one that we put back on our list after the meeting to say, ‘Yes, that’s a good idea,’” said Fowler.

“I don’t know exactly how an incubator would work, but it’s certainly an idea we would be willing to explore.”

The same can’t be said, though, for a retail Renaissance Zone. The city already offers the standard Ren Zone for industrial, commercial and residential development, and the Recovery Zone version for tool and die companies.

“We’ve placed a cap on what we’re willing to contribute through Renaissance Zone tax losses,” said Mayor George Heartwell, also a DDA member.

The city’s ceiling on the annual tax loss to the Ren Zone is $500,000, and all but roughly $140,000 of that total is already in play. Heartwell said that wasn’t a large enough amount to fund a new zone, especially with new developments coming online in the old zones that will claim more of the amount that is available.

Besides, as the proposed idea now stands, a retail zone could only be created in a rundown section of a downtown.

“We don’t have any rundown portions anymore in the downtown area. Everything is coming along just fine without a Renaissance Zone because of the kind of investments made by the DDA, because of the private sector investments, and because of the public-private partnerships,” said Heartwell. “So a Ren Zone doesn’t appeal to me as much as some of the other elements of that plan.”

In addition, Fowler said a tax-exempt zone in the district could violate the relationship the DDA has with the bondholders who bought the securities that built Van Andel Arena. The authority promised to capture 100 percent of the tax-increment revenue it is entitled to, as part of that agreement. “It’s a pretty complicated issue and I’m not sure that is the direction we should be going,” he said.

But one direction the DDA is headed into is a refinancing of the arena bonds. The board is in the process of selling the securities to the Michigan Municipal Bond Authority, a sale that has been estimated to save the DDA $5.8 million in debt service over the life of the bonds.

DDA counsel Richard Wendt is writing the refinancing agreement and is attempting to re-word the tax-capture pledge made to bondholders to accommodate the board’s plan to expand its district, and then collect less than all the revenue it is allowed.

“That is a complicated issue and Dick is still working on that. I believe where we will end up is that the DDA will still pledge 100 percent of the increment. But it will be worded in a way that accommodates the ratchet back we’re talking about, because that is an important function of our planned amendment to insert into our (expansion) plan,” said Fowler.

The 30-year securities were sold in 1994 for $55 million and the outstanding principle on the bonds totals $39.3 million today. The DDA’s total bond obligation is $94.4 million.

Another revision the Senate is considering for retailers would give a DDA permission to assist a business owner with store improvements.    

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