A Truly Taxing Issue

September 23, 2008
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Kent County commissioners may make an all-or-nothing decision on whether to extend the nearly tax-free Renaissance Zone for three projects in Grand Rapids. But they won’t have to make it this week as originally planned.

The county’s Finance Committee reaffirmed its commitment to a policy last week, and if the full board had to vote on the extensions this Thursday, commissioners would most likely have said no to extending the time durations for the zone requests.

But County Administrator and Controller Daryl Delabbio agreed last week to meet with City Economic Development Director Kara Wood and The Right Place Inc. Vice President Rick Chapla this week to try to iron out an agreement that would fit the county’s policy.

“We’re open to talking with the county and we can come to an agreement quickly,” said Wood to members of the committee.

So now it appears that the actual vote on the extensions will come before commissioners Oct. 9, two days after the Finance Committee wrestles with the issue again.

Saying no to all three extension requests would let commissioners slow the erosion of the county’s property-tax revenue, a concern the board has had for the past three years. The trio of projects would cost the county roughly $89,000 worth of that revenue over 12 years.

But denying those extensions would mean the city would lose income-tax revenue from more than 100 jobs that have been estimated to come from the projects, and would make county commissioners look like they’re against economic development.

“Here we go again; we’re the bad guy,” said Commissioner Art Tanis.

Saying yes to all three extensions would let commissioners play a role in revitalizing three properties in the city that hold a promise to eventually return more property-tax revenue to the county than if the sites aren’t renovated.

But approving those extensions would mean commissioners would set a precedent by not adhering to a county policy they approved in May 2007 and have stuck to ever since, and not following it would make it difficult for them to deny future requests.

There are at least 26 different boards in the county that abate or capture property-tax and millage revenue that belongs to the county.

Their newly found dilemma and power comes courtesy of Public Act 116, a state statute passed by legislators earlier this year. The city has requested a decision from the county because city officials have to get the extension requests to the state by Oct. 23.

“Because the Legislature drafted the law as an all or nothing, we can’t grant any extensions to Grand Rapids until they get under 10 percent,” said Commissioner Nadine Klein, who referred to the county’s policy that doesn’t allow the board to approve a new request for a unit when it has abated and exempted more than 10 percent of its tax roll.

Three commissioners on the Finance Committee, though, indicated last week that they were interested in either making an exception to the policy from the trio of extensions or amending the policy to allow an approval of the extensions if the city reimburses the county for its lost tax revenue.

“It falls under their cap. They’ve got $183,000 to do that,” said Dick Bulkowski, the commissioner who proposed the reimbursement idea.

Commissioner Gary Rolls argued for ratifying the extensions because once the properties are improved and the parcels exit the zone, the city would get more tax dollars from the sites than any are worth today.

“We’re getting nothing now. Let’s look at the future and get something,” he said.

Commissioner Harold Mast suggested approving the largest of the three extensions.

“I have some sympathy for developers and cities,” said Mast, who served as a city commissioner in Kentwood for 14 years.

But two attempts to amend the policy failed and the committee narrowly reaffirmed the 16-month old document.

“There is nothing totally black and white about this. But we can’t scrap our policy over this,” said Commissioner Jack Boelema.

In an informational package he gave to commissioners, County Fiscal Services Director Robert White said two of the three extension requests could be considered minimal, as not resulting in a significant loss of revenue for the county, if both went forward.

A project that has been proposed by Via Design would cost the county about $1,000 a year or $10,500 over the duration of the extension. Via Design wants to invest $300,000 to renovate the building at 560 Grandville Ave. SW into retail, warehouse and research-design space as a supplement to its headquarters at 44 Grandville Ave. SW.

“Without (the extension) the business will not be able to expand its real estate as part of the business plan,” said Scott Sikkema of Via Design.

A request from Wealthy Street Historical Development LLC would cost the county about $1,700 a year or $17,850 for the zone’s duration. WSH wants to invest $1.2 million to turn a two-story structure at 632-636 Wealthy St. SE into commercial and residential space.

“The only way we can make it work is with a Ren Zone extension. The value will be eight to 10 times what it is now,” said developer Todd Ponstein. “If we don’t get the Ren Zone, the building will probably stay the way it is.”

The project that has drawn most of the county’s attention is the one that has been put forth by True North Architecture, Construction and Investments, a 12-year extension that would cost the county more than $61,000 in property-tax revenue. True North wants to spend $1.9 million to renovate 607 Dewey Ave. NW for its new headquarters and other tenants the firm reportedly has lined up.

“We have a phone ringing off the hook from people wanting space if we get the Ren Zone. Our other phones aren’t ringing off the hook,” said Dan Henrickson, company president. “It’s imperative that we get this extension.”

The city also stands to gain nicely from this extension as it would collect more income-tax revenue than the property-tax receipts it would lose if the jobs the project proposes to bring to the city pan out. In contrast, the county is one of two units that would suffer a net loss from granting the project more zone time. (See Chart, page 8.)

“It’s the type of an extension that the county is subsidizing,” said Commissioner David Morren.

All three properties have been in the city’s zone since January 1997, the year the nearly tax-free status for six different zones in the city went into effect, and all three requests are asking for extensions of 12 years that would be tacked on to the three years that remain on the zone’s ticking clock.

The issue was also discussed at a recent county work session, and commissioners didn’t appear to be taking their decision lightly at either gathering.

“This decision-making process is brand new. We’ve never had this before,” said Rolls.

The county had $7.3 million of its property-tax and millage revenue either captured or abated in 2007, roughly 8 percent more than it lost in 2006. County officials won’t know how much it will lose this year until next April when they receive reports from the taxing jurisdictions. The county’s policy limits its participation in economic development efforts to 7 percent of its yearly tax roll. The 2007 figure was slightly over 6 percent of that total.

“The overall cap is 7 percent countywide. If that is reached, you would suspend the granting of any new consents in the county,” White told commissioners.

The county’s policy also calls for it not to participate in a unit’s project when the amount of taxes it has exempted or captured exceeds 10 percent of its taxable value. Grand Rapids was at 12.3 percent at the end of last year; White said he expects that number to rise with next year’s report.

“My guess is it will probably increase to 12.5 or 12.6,” he said.

City Manager Kurt Kimball told the county the percentage would drop over the next few years as time runs out on the Ren Zone. He noted that the city would be under the county’s 10 percent limit in 2011 and would fall below 9 percent the following year when the zone expires. (See Box.)

“The 2008 taxable value of Renaissance Zone property in zones 1 through 6 equals $166,856,765 and will begin to return to the tax roll in 2009. When fully restored to the tax roll in 2012, the percent of the tax roll exempted in the city of Grand Rapids will be 8.91 percent, down from the current 12.30 percent,” Kimball wrote in a letter to the county.

Commission Chairman Roger Morgan told the Business Journal that once the city falls below the 10 percent mark, the requests that come from Grand Rapids would qualify under the county’s policy.

At the same time, Kimball pointed out that once the zone ends, the county would receive $836,000 a year more than it currently gets in property-tax and millage revenue.

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