Tax Break Plan for Big Projects Advances in Michigan

DALLAS -- Developers of major "transformational" projects in Michigan would be allowed to capture sales and income taxes related to the project to offset the costs of redevelopment under legislation that is headed to the state Senate.

Passage of the breaks could spur one developer's plans for more than $2 billion in projects, but the incentives could take a toll on state finances.

The Economic Development and International Investment Committee approved the five-bill package this week in a 7-0 vote with no debate. The bills head to the floor where they are expected to be taken up in October, said a spokesperson for the bills' sponsor, Sen. Ken Horn, R-Frankenmuth.

Senate Bills 1061 through 1065 would create a brownfield tax credit creating a new category specifically for large-scale "transformational" projects that would allow developers to capture sales and income taxes tied to the projects in exchange for a minimum amount of private capital invested in the project.

The bills are backed by Rock Ventures, owned by Detroit businessman Dan Gilbert, which has invested $2.2 billion in projects to revitalize Detroit.

"The logic is simple," said Rock Ventures Principal Matt Cullen in his testimony before the committee earlier this month. "In addition to a traditional property tax capture, it allows the capture of the sales tax generated on that site only and part of the state income tax generated by new residents living on the site in order to make large scale projects possible."

Cullen said that Rock Ventures is prepared to move forward with another $2 billion to $3 billion of projects if the initiative is passed.

Although Michigan already provides economic incentives for redevelopment projects, they're for smaller scale projects. For example, total appropriation for the state's community revitalization project to promote community revitalization that accelerates private investment in areas of historical disinvestment is only about $40 million, said Cullen.

Under the initiative the developer would put up all of the capital and take all of the risk.

"The Tax Increment Financing allows the developer to share part of the revenue generated on the backend in order to make project financially viable," said Cullen. "If the tax revenue does not develop as expected, the risk is on the developer."

The Senate panel approved the bills with minor changes on Tuesday.

Projects would start with local approval before making their way up to the state-level Michigan Strategic Fund. The MSF could approve five such projects per year.

The legislation also requires an economic impact analysis for each project and it can be approved only if it is projected to generate statewide benefits. "This legislation is transformational in terms of is accountability in insuring the state comes out on top," said Cullen.

"We have a very limited amount of economic development tools here in the state of Michigan and we are trying to find a path that is extraordinarily helpful for our local communities and that won't harm state budget and avoids this idea of picking industries that are winners and losers," said Horn.

An analysis by the Senate Fiscal Agency showed that the bills would reduce state general fund revenue by "an unknown, but likely significant amount."

The amount of the revenue reduction would depend on the characteristics of the developments, the number of approved projects, the terms of the project, and the interpretation of the definition of "sales and use tax capture revenues", which would be based on increases in sales and use tax revenue collected from within or attributable to transactions within the eligible property, according to the analysis.

The bills would also reduce individual income tax revenue to the general fund by an unknown and potentially significant amount.

Gov. Rick Snyder, who overhauled the state's tax code early in his first term and eliminated incentives that some economic developers say make it harder to finance large projects, told reporters on Tuesday that he had some concerns about the bills. "I'm not taking a position opposing it or being for it but I have a series of concerns that I'm happy to share with legislators," Snyder said.

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