Council Approves New $1.5M TIF in 3-2 Vote

Wednesday, September 16, 2015, 10:32 am
By: 
Alice Dreger

Above: artist’s rendering of the planned building, not showing the planned plaza.

East Lansing’s City Council voted 3-2 last night to approve what is now a $1.5 million tax incentive package for a developer’s plan to construct a new building across from MSU’s Broad Art Museum, at 565 East Grand River Avenue. Those voting in favor—Mayor Nathan Triplett, Mayor Pro Tem Diane Goddeeris, and Councilmember Susan Woods—said it was too important a project not to give this level of public support. Opponents Councilmembers Ruth Beier and Kathy Boyle said the project itself is a great design but that the City simply cannot afford to do this given how much debt we have.

For the property located at the corner of Grand River Avenue and Bailey Street where the old Taco Bell building now stands, the developer intends to construct a five-story building with about 6,000 square feet of commercial space on the first floor and 28 one- to three-bedroom apartments up above. The building is meant to architecturally compliment the Broad Art Museum, which was designed by renowned architect Zaha Hadid.

The use of the commercial space has not been determined but is expected to include a restaurant that will use part of a public plaza created by taking away the third lane of Bailey Street. (This will leave Bailey Street with one right-turn and one left-turn lane where it dead-ends at Grand River Avenue.) There will be no on-site parking; tenants and visitors will need to pay to park in the City’s public lots, a move that is expected to generate over $48,000 a year in fees paid to the City. Bike racks will also be installed to provide for parking at least 42 bicycles.

All five Council members voted in favor of the site plan. Originally it had called for 16 four-bedroom units, which are the sort of apartments only students are likely to rent. The new plan calls for apartments that each have only one, two, or three bedrooms. This change also reduced the number of total “beds” in the project from 96 to 84. During the discussion of the site plan, Triplett said that MSU’s administration has been especially concerned about this corner. He suggested this design would please MSU.

Division at the meeting came in discussing the Tax Increment Financing (TIF) plan, which increased in size since the last public discussion of it, now reaching $1,521,880. The plan calls for this to be the maximum amount reimbursed to the developer for “eligible expenses” from new taxes generated after the project is completed. The reimbursement to the developer will span up to 15 years, with the developer getting 90% of the TIF taxes and the City taking 10% each year.

Beier had asked staff to present pros and cons of this plan. In the resulting memo, City staff named as “pros” that this project is consistent with the City’s comprehensive development plan, that it meets the Urban Design Guidelines, that it will reflect the Broad museum, that new residents will help the downtown economy, that the project will generate substantial parking revenue, that the City will probably get new personal property tax income from the commercial tenant(s), that the City and East Lansing Public Schools are likely to obtain about $233,000 in tax revenue over the 15 years of the TIF plan, and that the developers involved are trustworthy. The developers, including most prominently David Kraus, have built numerous projects in East Lansing, including, recently The Residences, which has HopCat on the ground level.

As “cons,” staff listed that the City will only be getting 10% of the newly-generated taxes for the first 15 years of the life of the building, that “There are other uses for the site, such as owner-occupied condominiums and office space that have not been considered,” and that “The total tax revenue from this project that would be reimbursed to the developer for eligible costs will be up to $1,521,880.”

Triplett defended the 90%/10% split over 15 years, saying this would mean the property is generating some new taxes that go to the City to help pay for services the building’s tenants will be consuming. Beier criticized the way it had been presented, saying that because it effectively came to the same total dollar amount as would have occurred under a plan which called for 100% to go to the developer over only 12 years, it wasn’t really “giving” the City 10% the City would not otherwise get in dollars.

Beier said that because the plan now stretches to 15 years, the City ends up paying interest and so losing more tax revenue than under the 100% 12-year plan. Beier tried to get Council to shift the plan back to one more Council “work session,” with a vote at a later date, so they could more carefully consider what might be the optimal plan. Part of her concern was that the estimated taxable value of the project had changed since the last meeting, causing a cascade of changes of numbers in the TIF plan.

But Beier received no support for the idea of taking the matter back to another work session. Goddeeris said it was “uncomfortable” to “keeping dragging [these decisions] out.” Beier said she was just trying to ascertain all the facts before Council’s vote.

Triplett expressed significant frustration at continuing to discuss the matter, saying that the $1.5 million was “a relatively small portion” of the cost of the project, which is expected to come to about $8 million. He said the “vast majority” of the costs were being borne by the developer.

The “eligible expenses” of the TIF plan call for reimbursing the developer for cleanup of the site (about $170,000), for site preparation including putting in foundational footings (about $430,000), creating the plaza (about $200,000), and constructing a new trash-collection area. Those voting in favor of the plan said the plaza is an important component of the project and so is worth the approximately $200,000 in public subsidies it will receive under the plan. Those voting against said the plaza could be a nice amenity but is not worth $200,000 to the City taxpayers when the City is facing significant economic hardship. Beier and Boyle, opponents of the proposed plan, suggested they might be comfortable allowing TIF for the site cleanup and possibly even the site preparation costs, but not for the rest.

Beier said in the future she wanted clear analyses from staff showing whether a project can be profitable without a TIF plan, so that it is clearer to Council whether they are effectively boosting a developer’s profits, and to what degree. Goddeeris asked how one would figure that out. Beier called it “Econ-201,” explaining that you compare the expected rent to the cost of investment and “see if it is a positive number.” Beier named a project in Traverse City where a developer said he would not be able to construct a project without TIF, but after the TIF plan was rejected, the developer still built the project.

Kraus has said he would not build this project at 565 East Grand River as planned without the TIF because of the economic difficulty of doing so. City Planning staff Lori Mullins said that another project Kraus was going to build was not built when it didn’t get a state-level public subsidy. Mullins said that because certain state-level support was no longer available to developers, they need City-level TIF to make projects like this feasible.

Beier brought up 903 Grand River Avenue, a project called “The Element,” a mixed-used building that has just been completed where Bogue Street meets Grand River Avenue. Beier said that project is considerably less attractive than what is planned at 565 East Grand River—she called it “a box”—but said that because “The Element” was built without TIF, it shows developers can do construction downtown without TIF.

Beier said she wasn’t bringing this up to “irritate anyone,” but was trying to understand why some developers build without TIF while others say it can’t be done. She acknowledged that what would be built without TIF at 565 East Grand River Avenue might be considerably less attractive aesthetically and in terms of content, and might lack a plaza, but suggested that that might be more fiscally responsible to the City’s taxpayers and employees. She said the question wasn’t “Is this a good proposal?” or “Is the building priceless or beautiful or gorgeous?” but rather, “Is this worth at $1.5 million public subsidy?” She thought not. She said that the City cannot afford “the Cadillac version of this building.”

Boyle agreed, saying it was a great project with thoughtful architecture but that “we have come to a time in this city where we have to be much more cautious with utilizing tax increment financing.”

Woods said she did not want “just a Rite Aid” to move in, creating a strip-mall look to downtown. She said the project will increase urban density and that the TIF represents a worthwhile “subsidy to make our town more attractive, more modern, more appealing.” She also appreciated the parking revenue that will come from the project and the developer’s willingness to eliminate the four-bedroom units at the project.

Triplett said he does not believe anything significant would be built at this site without TIF. He said he thinks without the TIF, developers would build these projects elsewhere, such as in Meridian Township or Bath. He said economic pressures in the City are significant but that we have to move forward with this kind of development. He said people had objected to spending money on the Ann Street Plaza redevelopment but are now very happy with it. He said he thinks this project will be very good for downtown and for the City as a whole.

Goddeeris got the last word in before the 3-2 vote, saying that disagreement “doesn’t mean one wins and one loses.” She said, “It means we put our opinions out there, we put our decisions out there, and then we move forward.” She said this was part of living in a democracy.

 

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