Council Appears Set to Approve $1.4 Million TIF in 3-2 Vote

Wednesday, September 9, 2015, 9:39 am
By: 
Alice Dreger

Above: Artist’s rendering of the planned building at 565 East Grand River Avenue, at the northwest corner of Bailey Street and Grand River Avenue. (Does not show the controversial plaza, which would use the current third lane of Bailey Street, closest to the building.)

Last night at City Council, a heated debate broke out involving all five Council members on the question of whether to grant a developer’s request for a $1.4 million tax incentive on a planned new downtown building. The official vote on this Brownfield Tax Increment Financing (TIF) plan doesn’t come until next Tuesday at City Council’s meeting, but Councilmembers indicated last night how they are planning to vote: Mayor Nathan Triplett, Mayor Pro Tem Diane Goddeeris, and Councilmember Susan Woods plan to vote in favor; Councilmembers Ruth Beier and Kathy Boyle will vote against.

Arguments centered around: whether a new public plaza is worth $200,000 in foregone tax revenue; whether something worthwhile would be built at the site without a $1.4 million TIF incentive to the developer; whether it is fair to tax-paying homeowners in East Lansing for City Council to give developers millions of dollars in tax incentives; and whether TIF in this case will ultimately benefit those homeowners.

The project at issue is set to be built at the site of the old Taco Bell building at 565 East Grand River, at the northwest corner of Bailey Street and Grand River Avenue, catty-corner from MSU’s Broad Art Museum. Developer David Krause has asked his architect to design a building that will mimic some elements of the Broad.

The building is set to have commercial space on the ground floor, including possibly a restaurant without some outdoor seating, and 4 stories of rental apartments above: 16 3-bedroom units, 16-2 bedroom units, and 4 1-bedroom units. All parking would be in City lots, paid for by the users. The refuse site on the property would be covered in a “green roof,” which would be maintained at the cost of the East Lansing Downtown Development Authority (DDA), a public entity.

City Planning staff Darcy Schmitt said the design as it now stands represents “drastic improvements” and told Council “this is a great plan.” A previous plan called for 4-bedroom units but Council wanted those eliminated to try to encourage someone other than students to rent the apartments. Schmitt told Council there is hope of that, because a new, similarly-mixed-use building at 903 East Grand River Avenue has some non-student renters.

The project at 903 East Grand River Avenue was built without TIF. If approved next week and if this building is built, the TIF plan now before Council will allow Krause’s company to keep up to $1.4 million that would otherwise become new property taxes—taxes that would go to various public entities, including the City of East Lansing. That $1.4 million would go to pay for site preparation and also the cost of creating a new public “plaza.”

The plaza—which has previously also been described as an extra-wide sidewalk with amenities like planters and benches—is being estimated to involve $200,000 in the TIF plan. This has generated a lot of discussion about whether the City can afford it.

Those in favor of the TIF say that the new plaza will be worth $200,000 in taxes lost. But those against the TIF say there is no good reason to divert $200,000 in newly-generated taxes back to the developer just to buy the City this plaza when there is a plaza across the street (at the Broad) and other plazas downtown, as well as many other pressing financial needs in the City, including sewer infrastructure.

The previously presented TIF plan on this project was set to give the developer 100% of newly-generated taxes for 12 years, up to $1.4 million. A plan presented last night called instead for the developer to take 90% of newly-generated taxes for 15 years, still up to $1.4 million.

Mayor Pro Tem Diane Goddeeris said this showed the developer meeting what Council had asked for, but Councilmember Ruth Beier objected, saying the 15-year, 90% TIF plan was no “deal” because it came to the same $1.4 million “lost” to the City. Beier said the only proof given that this developer wouldn’t build, at this very site, this or a similar project without TIF was his claim that he wouldn’t. She remained unconvinced that the City would be looking at years more of a vacant or fast food property at this location, given how valuable the space has become since the Broad Museum was constructed.

Beier had asked City Planning staff to provide “pros” and “cons” of the TIF plan and expressed frustration that Planning staff could only come up with “pros.” She said there is “vast literature” on the pros and cons of TIF from which the staff could have drawn. She named as “cons”: committing to this project and its $1.4 million in TIF when something else equally beneficial might be built without TIF; committing to a tax subsidy such that something else more worthwhile might not then be able to be subsidized (because there is a limit to how much tax subsidy a City can take before sinking into debt from services); and forcing City homeowners to essentially pay for services used by residents of the new building, because the taxes the building would pay for services is instead going to the developer to pay for some of his costs.

But Goddeeris disagreed with Beier’s reading, saying she was convinced that the City and East Lansing Public Schools would gain funds from this project that they would not otherwise get. She said she believed that without this TIF incentive, the property would remain at best a fast-food restaurant generating far fewer taxes. She said with this project, the City would gain a “vibrant plaza” and, under the 90%/15-year TIF plan, about $13,000 a year to the schools. She also said the City would gain about $142,000 over the life of the 90% plan. She said that would help pay for the public services consumed by the building. She also said the project would bring more people downtown.

Councilmember Susan Woods agreed with Goddeeris and said she thought the design of the building is “like, priceless” because it “compliments a multimillion-dollar, internationally-recognized” art museum. She said she hoped it would attract “a really good restaurant” and would add revenue-generation to all the nearby businesses.

Beier took sharp exception to Woods’ claim that the building is “priceless,” admonishing her that “to say anything is priceless is to say we are willing to go bankrupt for it.” Woods agreed it was a poor term. Beier also said there is no reason to believe there will be a good restaurant at the location, because what generates a profit downtown is bars, not fine dining.

Councilmember Kathy Boyle said the building design is very good but that the City cannot continue to give up a large portion of the taxes generated by new structures around the City. She said this represented a lost opportunity to see something built from which 100% of new taxes would go to the public entities that taxes are supposed to support.

Boyle said the City is only going to get $12,000 per year under the 90% TIF plan. She said she pays about $6,000 in taxes per year on her own home, so that this entire building, with 84 residents and commercial businesses, is only going to be paying in taxes per year what she herself and her next-door neighbor do together, on their two houses. She said that would mean homeowners are paying for the services consumed by Krause’s company and his tenants

Boyle said she believes in her “heart of hearts” that this developer can build a profitable building without the TIF. Beier agreed, saying this developer is not going to go off and build this building in some other municipality if Council denies him the TIF.

Mayor Nathan Triplett indicated he is strongly in favor of this TIF plan. He said this is not a “giveaway” because the developer is limited to what he can spend the $1.4 million on. He said that if developers were not incentivized to build these projects downtown, they would build high-end student rentals in other municipalities like Meridian Township and Bath, and that this site would likely remain “a burger joint.” Triplett also said that he felt that a “full economic analysis” would show that the downtown would benefit overall from this project being built, and that the parking system would benefit, too, points Beier conceded could be true.

Triplett disagreed with Beier and Boyle on the issue of City fund “diversion,” saying using TIF for infrastructure improvements ultimately freed up City money for use in other locales, including neighborhoods. He said the plaza design for this project follows the urban design guidelines. Triplett is the only sitting member of Council who received money from Krause as a campaign contribution in the last cycle, and did so in the amount of $200. (See this summary and this specific report.) Triplett is also the only sitting member of Council running for re-election.

City Manager George Lahanas said that staff would have a list of pros and cons on the TIF plan before the next meeting, where the vote is expected to happen.

 

Reminders: You can read our previous reports on how much TIF there is in East Lansing and elsewhere nearby. You can communicate with Council in person at its weekly meetings or write to Council directly at council@cityofeastlansing.com. You can speak or write on any issue involving the City, not only what is on the published agenda.