Message to MEDC and State Legislators Concerning Abuses of Brownfield Redevelopment

Dear Mr. Arwood (and honorable members of Michigan House and Senate),

I am writing concerning what many citizens of East Lansing and around the state believe has become gross misuse of brownfield tax incentives for discretionary redevelopment projects at locations that at not true brownfield sites at enormous costs to city budgets and homeowners. I am copying legislative leadership and committee chairs, because overuse of tax incentives has become a significant issue for the state, as well as for local governments, and there is growing opposition from across the political spectrum. If used narrowly and effectively, as originally intended, brownfield incentives could still prove beneficial. However, misuse in East Lansing, over and over and over again, shows how instead of providing a jump start for private development, tax incentives have become a way of life for politically connected developers, politicians, and bloated planning and development departments. What follows in an extensive discussion with regards to the latest unneeded brownfield plan, with reference to some of the previous misuses and general issues (I could go through every single brownfield plan and prove how it has not come close to living up to promises, with some unmitigated disasters that have cost taxpayers millions).

Eliot Singer, East Lansing homeowner and taxpayer

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State of Michigan law requires there be adequate public services available to accommodate new developments.


East Lansing homeowners already pay ~4 mils more for policing than neighboring Meridian Township, a cost directly attributable to being a college town with an active party scene that attracts many party-goers in addition to Michigan State University students. A couple of years ago, 2 mils were added to taxes to pay for the library, which used to be paid for through general fund revenue. Despite some of the highest property taxes in the state, neighborhood infrastructure has been neglected for years, to the detriment of public safety and property values; estimates are tens of millions of dollars for infrastructure are urgently needed. Snow and ice removal has been reduced to levels that pose unacceptable risks, among other cuts to public services. A community center has been closed on the grounds of lack of funds to keep it open.


Since 2007, when East Lansing’s politically ambitious mayor (chosen by fellow members of Council not directly by voters) was first elected to Council, accrued liabilities (“legacy costs”) for MERS (city employee retirement plan) have gone from 73% funded to 58% funded, a funding ration now within the lowest 15% of participating municipalities across the state. At best, minimal required employer (city) contributions to MERS will increase ~$1.8 million by FY 2020, at 56% funding. Trying to reach full funding over the next 20 years would require and additional $540,000 per year, and if, as is likely, MERS reduces expected return on investment projections from 8% to 7% or even 6%, that would add another ~$1 million or ~$2.5 million to required city expenditures by FY 2020. Even at $1.8 million or $3 million increase, let alone $4.5 million, there will almost certainly need to be substantial cutbacks to public services/public safety or new taxes over the next.


There is no money for new developments, unless those developments can clearly be demonstrated to generate enough new taxes for the city services they will use. The city simply cannot afford its functionally obsolete practice of giving away taxes for discretionary redevelopment, inevitably (despite promises of marketing to young professionals, empty-nesters, or families) resulting in apartments for college students from wealthy families and more late-night bars (however much they may be dressed up in designer labels).


East Lansing has been providing tax incentives and diverting tax revenue for downtown redevelopment for 30 years. So far, there has not been one penny of return on investment in the form of new tax revenue for public services. The first project that was supposed to complete its tax diversion plan (already extended from 20 to 30 years) has now had another 30 years added to pay for new bonds for repairs. Not a single redevelopment project has lived up to its promises. Several have been financial disasters, and some total debacles, such as, St. Anne’s Lofts and the City Center II/Park District fiasco, have not only come at great financial cost, they have caused irreparable harm to the city’s reputation, among its own citizenry and across the state and country.


The purpose of targeted tax incentives for redevelopment is to jump start private-only redevelopment and lead to more tax revenue for public services than the taxes diverted. Proponents of tax incentives in East Lansing, which is college town not a rust-belt city devastated by closed factories or a rural community suffering from population decline, have totally forgotten how tax incentives are supposed to work. Instead, they, and their developer clients, want to put up new buildings without regard to financial impact on homeowners and the city as a whole, turning downtown into a permanent corporate welfare state.


Most people imagine brownfield sites are heavily polluted former industrial sites with enormous demolition and clean up costs that would make redevelopment prohibitive without tax incentives. In fact, in East Lansing, brownfield sites are all simply “functionally obsolete,” and demolition and clean up expenditures are a negligible part of overall project costs and only a small portion of eligible brownfield expenditures, which are mostly for infrastructure (including piggybacking discretionary public works), site work, and administration, expenditures that would typically be as much or higher for a greenfield (sprawl) site. The only reason downtown redevelopment has been slow in East Lansing has been lack of market, not true brownfield costs. With developers now eager to put up luxury student apartments near campus and apparently enough wealthy students (given influx of out-of-state and international students) willing to pay high rents, the only reason developers are still being offered tax incentives is because tax incentives have become a way of life, for city officials and developers alike.


It should be added that tax incentives have been given to developers who commit fraud, and regularly to developers who sit on the Brownfield Redevelopment Authority, and of course, to campaign contributors. Developers are rewarded for letting properties sit abandoned by being encouraged to apply for tax incentives, instead of being fined for allowing properties to be blighted.


Now, again, a developer who sits on the BRA, is a campaign contributor to the politically ambitious mayor, and has already been awarded three brownfield projects for discretionary redevelopment sites, is demanding a 100% brownfield tax giveaway for a project at the former Taco Bell site on Grand River, which has been left empty, since Taco Bell moved into a previous brownfield project across the street, a project where the brownfield plan called for apartments for families and young professionals, but which has ended up, as usual, being for wealthy college students, as is to be expected for a developer tied of a student rental management company. Another of his brownfield projects, an 8-story apartment building for wealthy college students, was premised on a restaurant incubator on the first floor, but instead ended up as the HopCat bar, which is a now a major contributor to the late-night downtown party scene that costs taxpayers so much. The brownfield expenses for that project included a private connection to a city-owned parking ramp (for which the developer was given deep discount parking space leases) and city street and sewer infrastructure, financed by bonds on the sewer fund, placed on homeowner water and sewer bills, and will only see TIF reimbursements after the developer’s share of the TIF is completed many, many years in the future. The city planning director told The State News tax incentives were to “maximize the developer’s returns” and that the building, which charges double the median monthly rent in the MSU market, was justified because “students shouldn’t have to live in squalor.”


The current project, more welfare Cadillac apartments for wealthy college students, has almost no demolition or clean up costs, just site work and infrastructure, including paving over part of a street so there can be a patio for outdoor seating for what will undoubtedly end up another late night bar.


Although most MSU students from Michigan families struggle to pay for room and board, those students who can afford luxury apartments are willing to pay whatever is asked. All the developer would need to do is charge $100 more per month to more than cover the taxes he wants diverted through the brownfield plan, and he will undoubtedly be able to charge more and more for the apartments and bar lease as years go on. Instead he expects homeowners to pay for public services, on the order of $60,000 annually (to be inflated over the life of the brownfield plan) for city public services alone.


There is no reason for this brownfield to be approved, other than a politically connected developer for whom brownfield corporate welfare has become a way of life and career ambitions of city officials who misuse tax incentives.


There are many other phony brownfield sites designated for redevelopment near the MSU campus, and if developers and developer-friendly officials have their way, taxpayers will be forced to pay for public services for thousands more welfare Cadillac student apartment beds and phony “redevelopment district” enabled bars.


I am asking MEDC to reject this brownfield project (since there is little hope East Lansing’s current developer-friendly 3-2 majority on City Council will). And, I am asking that the state legislature either revise the Brownfield Redevelopment Authority Financing Act to restrict brownfield projects to true brownfield sites and require no more than 50% of tax increment go for reimbursements, as in many states, or repeal the BRA Financing Act altogether and find new ways of helping communities where tax incentives to rehabilitate blighted and struggling areas are really necessary, which is certainly not the case for East Lansing or other college towns.


Legislators should immediately remove the $15,000 per year administrative fee that goes to BRAs and is a motive for bloated planning and development departments to grease the skids for more brownfield projects, and it should allow cities to use existing administrative fees to pay for public safety instead of staffing for BRAs. Legislation should also be passed to allow municipalities to impose 5% “payment in lieu of taxes” on rents for brownfield projects (including existing ones if not prohibited by state constitution), as with property-tax-exempt low-income housing projects. If renters in low-income housing projects can absorb 5% surcharges on rents for “payment in lieu of taxes,” certainly those living in luxury apartments or boozing at pretentious bars can. Overtaxed homeowners suffering from cuts to essential public services certainly cannot.


If the legislature and MEDC fail to act to restore the use of brownfield tax incentives to legitimate purposes, you can expect fed up East Lansing homeowners, either through a new Council majority or ballot initiative, to eliminate or severely restrict the use of brownfield tax giveaways, with a likelihood of this spilling over to a statewide ballot initiative to eliminate development authorities altogether, as was done in California. A good idea that gets systematically abused by special interests and public officials on the make or take causes irreparable harm to ordinary citizens.

Eliot Singer
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