Should Developers be Allowed to Share in New Tax Revenues From the Redevelopment of Brownfield Sites?

Date: March 13, 2017

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Background: In Michigan, a “brownfield” is a former industrial or commercial site where future use is complicated by the presence of a hazardous substance, pollutant, or contaminant on the property and certain types of non-contaminated property such as vacant, functionally obsolete, and underutilized properties in blighted areas. Many Michigan properties in both urban and rural areas are “brownfield” properties and have become abandoned sites that are costly to redevelop due to the additional cost of cleaning up the property and removing any contamination before any new development can commence. Legislation has been introduced that would attempt to overcome the disadvantage of developing brownfield properties by allowing the developer to keep a portion of the new tax revenues generated by the development activity. Under the legislation, the developer could capture new state sales and income taxes generated from the construction activities on-site and up to 50% of the state income taxes generated from new jobs and residents within the completed development, for a period not to exceed 20 years. The total of all such projects statewide would be capped at $40 million per year for annual income tax capture and $200 million total on the amount of construction period tax captures that can be approved over the life of the legislation. The legislation also limits each city to one approved plan per year, so that approved projects would be spread evenly across the state.

Supporters of the proposed brownfield redevelopment legislation say that every community across Michigan has challenging brownfield sites — contaminated land, empty factories, or vacant malls — that sit empty because they are too costly to redevelop.  They believe the legislation is needed to close the financial gap on these large and complicated brownfield projects so that communities can bring these areas back to life as thriving new developments.  Supporters contend that allowing a project developer to keep part of the new tax revenue generated puts all the risk on the private developer as they get nothing on the front end: they must put up the capital, build the project, and fill it with people and jobs that generate new revenue. If the project does not generate the expected tax revenues, that risk is entirely on the developer. Supporters claim that the state and community get revenue they were not getting before, because there was nothing before and an eyesore is transformed into a major development that has a positive impact on the community and the economy.

Opponents of the proposed brownfield redevelopment legislation argue that this is just another example of “crony capitalism” where those with political connections at the state and local levels will benefit from projects they would have developed anyway. They say that if a private project is not economically viable without a government handout then it should not be developed in the first place. Opponents of the proposed legislation contend that many of the blighted properties in cities and across the state are that way because of the actions of government that created the problem in the first place such as anti-business ordinances, burdensome clean-up regulations and confiscatory tax policies. They believe that if the state budget cannot afford an income tax cut for its citizens then it has no business forfeiting future tax revenues to well-heeled developers. Opponents also point out that while caps and limits on the amount of revenue captured sound great, any future legislature could change them once the law is in place.

Should Michigan pass legislation to encourage the redevelopment of brownfield sites by allowing developers to share in new tax revenues from the development?

Related Content: Small Business News | Michigan | Taxes

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