H ONIGMAN Leveraging Michigan Brownfield Incentives with Other Development Incentives Richard A. Barr Honigman Miller Schwartz and Cohn LLP Detroit, Michigan

H ONIGMAN 2 Leveraging Michigan Brownfield Incentives with Other Development Incentives  Outline  Michigan’s Core Brownfield Incentives  Leveraging With Michigan’s Non-Brownfield Incentives  Sample Leverage  Second Sample Leverage

H ONIGMAN 3 Michigan’s Core Brownfield Incentives  Brownfield Plan Tax Increment Financing  Capture non-debt based incremental property taxes created by brownfield project to be used to pay or reimburse “eligible activity” costs.  No monetary limit.  Maximum 30 year capture period, with optional deferred commencement of up to 5 years.  Property tax rates range from about 20 mills to 85 mills (i.e., about 1% to 4.25% of property value/year).

H ONIGMAN 4 Michigan’s Core Brownfield Incentives  Brownfield Plan Tax Increment Financing  Sample tax capture estimate Initial market value of $0; completed cost and true cash value of $10,000,000 (excluding brownfield reimbursable costs). Property tax rate of 50 mills (no debt millage). Annual taxes of $250,000 ($10,000,000/2, x 50/1000). Maximum capture: 30 x $250,000 = $7,500,000. Increased property values would increase capturable taxes.

H ONIGMAN 5 Michigan’s Core Brownfield Incentives  Tax Increment Financing  Eligible properties typically must be one of: Facility (contaminated above generic residential closure levels, regardless of intended use). Functionally obsolete (can’t adequately perform intended function of property due to substantial value loss due to overcapacity, design deficiencies or other factors). Blighted (public nuisance, attractive nuisance, safety hazard, utilities disconnected, tax reverted, substantial buried debris or owned by a land bank.  Eligible property includes adjacent or contiguous property if its development increased the value of the remaining property.

H ONIGMAN 6 Michigan’s Core Brownfield Incentives  Tax Increment Financing  Eligible costs include: Environmental –Phase I/II and baseline environmental assessment –Due care activities –Additional response activities Non-Environmental –Demolition –Asbestos and lead-based paint abatement –Site preparation –Public infrastructure and limited other infrastructure

H ONIGMAN 7 Michigan’s Core Brownfield Incentives  Brownfield Business Tax Credits  12.5% of eligible investment on property subject to a brownfield plan.  Rate can increase to 20% (15% after 2010) for “urban development area projects” Downtown, traditional central business district or traditional commercial corridor in one of Michigan’s 103 “core communities” or its county seats Discretionary factors for approval of increased credit rate: –Density due to multi-story development –Promote mixed-use development and walkable communities. –Promote sustainable development –Addresses area-wide development and includes multiple parcels –Addresses underserved markets of commerce (e.g., neighborhood grocery stores)

H ONIGMAN 8 Michigan’s Core Brownfield Incentives  Brownfield Business Tax Credits  Credits of up to $30,000,000 each in three annual credit pools $30,000,000 pool for small credits on investment of up to $10,000,000/project, resulting in credits of up to $1,250,000 each (or $2,000,000 each if eligible for 20% credit rate). Second pool of up to 20 larger credits/year of up to $10,000,000 each. One additional credit of up to $30,000,000.

H ONIGMAN 9 Michigan’s Core Brownfield Incentives  Brownfield Business Tax Credits  Hypothetical $10,000,000 project could receive a credit of $1,250,000 or $2,000,000  Total brownfield incentives: TIF Reimbursements $2,000,000 Tax Credits$2,000,000 Total Brownfield Incentives$4,000,000

H ONIGMAN 10 Leveraging With Michigan’s Non-Brownfield Incentives  Property Tax Incentives  New Personal Property Tax Exemption 100%, negotiable time limit Eligible distressed property in certain communities  Neighborhood Enterprise Zone Reduce property taxes on residential property in target areas  Industrial Property Tax Abatements Reduces personal and real property taxes (other than on land) on new buildings and equipment by 50% for up to 12 years plus construction period. Freeze taxes on rehabilitation projects for same time period.

H ONIGMAN 11 Leveraging With Michigan’s Non-Brownfield Incentives  Property Tax Incentives (more)  Obsolete Property Rehabilitation Act Freeze most taxes on improvements to obsolete commercial property for up to 12 years. Applies only in 103 core communities.  Corridor Improvement TIF TIF for commercial redevelopment along certain major roads to pay for infrastructure costs and in certain cases additional project costs.  Wayne County TURBO program One year 100% real property tax exemption, followed by 5 year, 50% real property tax rebate for approved developments in Wayne County.

H ONIGMAN 12 Leveraging With Michigan’s Non-Brownfield Incentives  Other Tax Incentives  Renaissance Zones Michigan’s version of virtually tax-free enterprise zones Exempt from all but debt millage portion of real and personal property taxes, allocated portion of business taxes, city and state income taxes for residents of zone, utility taxes 15 years duration, with phase-out over last 3 years  MEGA Jobs Credits Business receives tax credit for projected personal income taxes to be paid by its new employees over up to 20 years (typically approved for 6-8 years) Minimum job creation and retention requirements  State Historic Credits 25% of qualified expenditures

H ONIGMAN 13 Sample Leverage  Aged and dated auto dealership  Converted from former retail but needs complete redo and new buildings to compete  Key high traffic corner with high visibility and impact on community image  Redevelopment of building and new buidligns at estimated cost of $7,250,000  Combines brownfield TIF and tax credits, OPRA and TURBO

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H ONIGMAN 16 Summary of Leveraged Incentives $1,788,588Brownfield TIF funding of non- environmental costs and minor environmental costs. $ 500,000 Michigan business tax credit $ 383,422Property tax reduction over 7 years under OPRA program $ 652,848 TURBO exemption and rebates $3,342,858TOTAL BENEFITS Capital Investment: $7,250,000 Environmental Costs: $10,000

H ONIGMAN 17 Second Sample Leverage  Former Large Office Building  Historic structure, Albert Kahn design  Corporate reuse commitment  Proposed mixed use for college classrooms and offices, dormitory, non- profit offices, limited retail  Major boost to nearby businesses and historic residential area

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H ONIGMAN 19 Summary of Leveraged Incentives 1.$11,200,000 of brownfield TIF funding of non- environmental costs. 2.$10,000,000 Michigan business tax credit. 3.$21,400,000 of property tax reduction over 12 years under OPRA program. 4.Federal and state historic credits. Not requested: 1.Act 328 personal property tax exemption. 2.Neighborhood Enterprise Zone property tax reduction (no longer had residential component). 3.Wayne County TURBO tax exemption and rebates.

H ONIGMAN Leveraging Michigan Brownfield Incentives with Other Development Incentives Questions or Follow-Up? Richard A. Barr Honigman Miller Schwartz and Cohn LLP 2290 First National Building 660 Woodward Avenue Detroit, Michigan (313)