State lawmakers recently amended a rarely used tax incentive tool for large-scale redevelopments of contaminated property to make it more accessible to developers.
Changes to the state’s Transformational Brownfield Plan — which was enacted in 2017 to incentivize large redevelopments but has only been used twice — went into immediate effect late last year as part of a broader economic development bill package to lure major manufacturers to Michigan.
The brownfield changes in Senate Bill 671, sponsored by Sen. Ken Horn, R-Frankenmuth, extended the sunset for eligible Transformational Brownfield Plan (TBP) projects by five years to the end of 2027.
Lawmakers expect Transformational Brownfield Plan incentives to be more accessible under the changes as developments are no longer required to be mixed-use or demonstrate a substantial benefit to the state. S.B. 671 also increased the threshold requiring third-party underwriting from $1.5 million to $10 million in tax capture per year, and allows other incentives to be used alongside the TBP.
Gov. Gretchen Whitmer signed the bill, which passed the Senate on a 28-7 vote and 78-26 in the House, on Dec. 23.
“We’re very happy with the deadline being pushed to 2027 and the modifications to the program, which will allow greater use of the program around the state, and the bill will simplify the review process,” said Lori Mullins, director of community development incentives at theMichigan Economic Development Corp.
The Michigan Strategic Fund can now consider the changes as it weighs project incentives, Mullins added.
Five years, two projects
Passed in 2017, the Transformational Brownfield Plan builds upon the Brownfield Redevelopment Financing Act of 1996. A traditional brownfield plan allows for the capture of incremental property taxes to pay for the costs of environmental contamination.
The TBP allows for the capture of five additional sources of tax revenues associated with a project: construction period income tax, construction period sales tax exemptions, construction period use tax exemptions, income tax capture and withholding tax capture.
So far, only two projects have used the incentive tool, including one in downtown Detroit in 2018 forBedrock Management Services LLC, founded by Dan Gilbert. The state approved the second TBP project in 2019 for the redevelopment of a defunct paper mill in Vicksburg, located 15 miles south of Kalamazoo.
“When the program was initiated in 2017, there was a lot of interest and only these two projects were able to move forward, so I think that speaks to the fact that it was somewhat cumbersome to navigate,” Mullins said.
The TBP’s previous financial underwriting process was expensive and complicated, said Tom Wackerman, president of Brighton-based consultant ASTI Environmental.
“I would tell developers: ‘Here are the extra benefits and here is the extra time, cost and there is no guarantee you’ll show a significant contribution to the state,’” Wackerman said. “We weren’t able to deploy it anywhere and ended up being stuck with the same old tools.”
In Grand Rapids, the city abandoned a proposed $268.5 million redevelopment of the 201 Market Ave. SW site along the Grand River after it became apparent that the project wouldn’t qualify for TBP incentives, as MiBiz previously reported. The city in July 2020 terminated an exclusive development agreement with Indianapolis-based Flaherty & Collins Properties, which planned nearly 700 housing units and a 358-room hotel at the site that’s now being considered for an amphitheater.
‘We’re excited’
However, city officials are now optimistic that the TBP changes will open the incentive for more projects in the pipeline, including the new plan for 201 Market.
“The main updates are really important to opening up that opportunity for us to use and secure funds through the transformational program,” said Jeremiah Gracia, the city’s economic development director. “We’re excited — this is one of those things that can change a project from not happening to happening.”
Wackerman also called the changes promising, though rising labor and materials costs are creating a “financing gap again” for projects under development.
Additional, or more accessible, incentives won’t change the fundamentals of some projects, but they may make some redevelopments more attainable, he added.
“Now (the TBP) is attainable, which doesn’t mean someone will always get it or that it is applicable to everybody’s project, but at least now it can be considered for projects that meet the right investment threshold,” Wackerman said. “For properties that aren’t making it in an otherwise reasonable real estate market, this tool could apply now.”
Wackerman worked on two failed projects in Detroit that he declined to name that were applying for the TBP, he said. The developers could go back to the drawing board to revive the efforts under the new TBP, he added.
“There are so many things that go into a deal and this is just one of them, so it is hard to predict how this will change the landscape,” Wackerman said. “We have had a couple of developers that said if they had access to the tool they would have done a bigger or denser project. That might be a nice side benefit of this: You could get something bigger or better.”