Community Benefits Proposals A and B

[ABetterDetroit]

Community Benefits Agreements have existed elsewhere for about 15 years. The first CBA was created in 2001 for a development abutting the Staples Center in Los Angeles. They've since spread across California, to Atlanta, Chicago, Denver, Milwaukee, Minneapolis/St. Paul, Miami, New Haven, New Orleans, Seattle, Washington D.C., New York City, and beyond. If Detroit passes a CBA resolution it will be in good company. Even if the jury is still out what are the net effects CBAs have on developments, communities, and local economies.

In principle I support them. After all, they only come into effect when developments are awarded significant public subsidies. And at least in Michigan, much of the power to collect public money and decide how to allocate it in the form of development subsidies has been outsourced to extra-governmental agencies who barely answer to the public, if they do at all. The Detroit Downtown Development Authority [[DDA), Detroit Economic Growth Corporation [[DEGC), Michigan Strategic Fund [[MSF), and the Michigan Economic Development Corporation [[MEDC) are "non-profit corporations" and their officials are not selected by public election. It seems they are not subject to conflict of interest and other government oversight laws. Please correct me if I'm wrong.

But like all legal matters, whether a CBA is a net positive or negative is determined by the details how each is individually written, and even moreso how those details are interpreted and executed when put into effect on the ground. When large sums of money are at stake "dealmaking" can subvert the intent of laws.

The New York City Bar Association provided an informative history of CBAs in this 2010 publication:

The Role of Community Benefit Agreements in New York City’s Land Use Process
http://www.nycbar.org/pdf/report/upl...UseProcess.pdf

They are generally skeptical of CBAs.

For another perspective, this advocacy group presents a deeper background on CBAs and a thorough position in their favor [[I've only skimmed it thus far):

Good Jobs First, Community Benefits Agreements: Making Development Projects Accountable
http://www.goodjobsfirst.org/sites/d...a2005final.pdf

The New York Times described some risks and issues that have arisen as the result of CBAs, including how a developer walked away from one project rather than agree to a concession local community leaders attempted to require:

Community Pacts Questioned in the Zoning Process
http://www.nytimes.com/2010/04/28/re...ial/28cba.html

The article also mentions how CBAs have often worked to ease the path of developments by blunting community opposition.

Case in point: After many years of lawsuits and local opposition to the Barclays Center project at what was formerly known as Atlantic Yards in Brooklyn, a CBA was finally enough to quell most of the local opposition, and paved the way for the development to proceed. Here's the press release:

Mayor Michael R. Bloomberg, Forest City Ratner CEO and President Bruce Ratner and Civic Leaders Sign Community Benefits Agreement
http://www.nyc.gov/portal/site/nycgo...&rc=1194&ndi=1

It's my belief developers should have more than just their honor at stake if their project falls far short of providing the benefits to the community they heralded when campaigning for public funds and approvals. But it's also my belief there is more to the system to publicly fund urban development in need of reform.

A CBA law could be a step in the right direction — maybe even a big one. But the devil is in their details and scrutiny will be required of their execution. Here's hoping there are ample more opportunities to try to get them right.

Thanks for the links bust. More than a fair balanced post with excellent research behind it.

[erikd]

Let me help out if I can. You can divide "tax breaks" that a developer receives into different categories.

Think of the problem as two questions in a grid, with four possible results. Question 1: are the improvements public or private? Question 2: are the funds used currently taxes being paid, or are they future taxes [[called an "increment", it's the "I" in TIF)?

Let's take the simple one first: public improvements funded by an increment. Let's say we need to widen a road or put new traffic lights in. Cities generally don't want to pay for that. In a unsexy residential development in the suburbs, the city will condition its approval upon the developer paying those costs. If the project is attractive enough, the city might want to pay for those improvements. If the city does, but doesn't have the money, they may capture some tax revenues from the new development to pay for the improvements. This is probably the least objectionable of the four.

If the improvements are public, but the development generates no new taxes [[or no new taxes are used), that's more like normal decision-making that municipalities make [[i.e. where do cities spend their taxpayers' money?)

If the improvements are private, that's where it gets tricky. This is done all over the country. The largest example is the Gigafactory in Nevada--states were throwing money at Telsa. If you want an example for a stadium, try the new Comiskey Park [[now "Guaranteed Rate Stadium--with its logo of an arrow pointing down--hilarious). The park is privately owned and funded almost entirely by public funds, some through tax increment and some through existing taxes. A deal where public taxes [[without an increment) are used solely for the construction of a private property has dubious constitutionality.

The LCA is financed almost 50-50. $450MM total cost, $250MM in DDA bonds [[increment unknown), $200MM from Mr. I. Now, how much of the construction is public [[roads, streetscape, etc.), I don't know.

I'm in the camp that I don't know why a "community benefits" agreement would be needed. Is the City Council that out of touch with its citizenry that it can't figure out what the voters really want? How you define "community" in this case? Is it downtown only? Why would that be; residents of the whole city pay taxes? A well-run city doesn't need it.

I tend to agree with this assessment.

I have serious reservations about handing hundreds of millions of public dollars to fund private developments without including benchmarks and covenants to ensure that the promised public returns are actually realized.

However, I am not sure if the proposed CBA proposals are a good idea.

The city council is supposed to be body that reviews these contracts, holds public hearings, and takes public input on such matters.

It seems that the proper course of action would be for city council to require developers who are receiving significant tax subsidies to sign contracts holding the developers to their promises.

If the developer is asking for public funding based on promises of increased employment, increased tax base, increased spin-off development, etc., then those promises should be written into a contract. If the developer doesn't deliver on these promises, then they should have to forfeit a portion of the subsidy.

[Danny]

I will vote NO NO NO on proposal A. It's nothing but a "right to work" scheme that will cause regional jobs in Detroit area to vanish.

[Wesley Mouch]

I tend to agree with this assessment.

I have serious reservations about handing hundreds of millions of public dollars to fund private developments without including benchmarks and covenants to ensure that the promised public returns are actually realized.

However, I am not sure if the proposed CBA proposals are a good idea.

The city council is supposed to be body that reviews these contracts, holds public hearings, and takes public input on such matters.

It seems that the proper course of action would be for city council to require developers who are receiving significant tax subsidies to sign contracts holding the developers to their promises.

If the developer is asking for public funding based on promises of increased employment, increased tax base, increased spin-off development, etc., then those promises should be written into a contract. If the developer doesn't deliver on these promises, then they should have to forfeit a portion of the subsidy.

I'm against tax breaks. Thus I like the idea of writing iron-clad contracts overseen by a group of people [[Council) who have little idea what makes development really happen. It might be the best way to stop the nonsense.

Allow me to take issue with the idea of 'performance covenants'. I share the concern that businesses promise benefits that never materialize. And I've seen on the inside that businesses [[and the enabling politicians) do very optimistic math to support these promises of new jobs. They aren't necessarily lying... but their assumptions are about as accurate as the pension funding assumptions of 7.5% annual return. I get the concern.

But where I have an issue is that when you're in the business of development -- you expect some failure. If you don't have failure, then you make success harder. Bankruptcy, I've heard, is one of the western ideas that has made our economy successful. If you fail in your venture, you can go into bankruptcy, invalidate debts, and get another try. Before Bankruptcy Laws, when you failed you had to spend the rest of your life trying to pay off your debts. When lifetime debt is possible, people don't take risks. [[Do I have it right BankruptcyGuy?)

In Detroit, we want companies to take a chance on Detroit. Build that plant where everyone in NYC says it is sure to fail. Build it in Detroit. If we start requiring personal guarantees from company owners before granting tax breaks, we may find the fewer people take their risks in our yard.

We actually want people to be able to fail in Detroit. Because we want people to keep trying -- even when Version 1 doesn't work. A 'convenant' might discourage just what we want, and discourage jobs.

Right now, some companies exaggerate job creation. Look at the Poletown plant. They promised something like 15,000 jobs in that ring of death that currently surrounds the plant. Drive along the north edge and look at the green pastures. That's your 15,000 jobs that need appeared.

But we got an assembly plant. Was that plant being built in Detroit instead of Alabama worth tax breaks, even if it didn't produce all the promised jobs?

[ABetterDetroit]

I'm against tax breaks. Thus I like the idea of writing iron-clad contracts overseen by a group of people [[Council) who have little idea what makes development really happen. It might be the best way to stop the nonsense.

Allow me to take issue with the idea of 'performance covenants'. I share the concern that businesses promise benefits that never materialize. And I've seen on the inside that businesses [[and the enabling politicians) do very optimistic math to support these promises of new jobs. They aren't necessarily lying... but their assumptions are about as accurate as the pension funding assumptions of 7.5% annual return. I get the concern.

But where I have an issue is that when you're in the business of development -- you expect some failure. If you don't have failure, then you make success harder. Bankruptcy, I've heard, is one of the western ideas that has made our economy successful. If you fail in your venture, you can go into bankruptcy, invalidate debts, and get another try. Before Bankruptcy Laws, when you failed you had to spend the rest of your life trying to pay off your debts. When lifetime debt is possible, people don't take risks. [[Do I have it right BankruptcyGuy?)

In Detroit, we want companies to take a chance on Detroit. Build that plant where everyone in NYC says it is sure to fail. Build it in Detroit. If we start requiring personal guarantees from company owners before granting tax breaks, we may find the fewer people take their risks in our yard.

We actually want people to be able to fail in Detroit. Because we want people to keep trying -- even when Version 1 doesn't work. A 'convenant' might discourage just what we want, and discourage jobs.

Right now, some companies exaggerate job creation. Look at the Poletown plant. They promised something like 15,000 jobs in that ring of death that currently surrounds the plant. Drive along the north edge and look at the green pastures. That's your 15,000 jobs that need appeared.

But we got an assembly plant. Was that plant being built in Detroit instead of Alabama worth tax breaks, even if it didn't produce all the promised jobs?

Wesley, you keep preaching political rhetoric like it is a answer to the problems.

Detroit already has extremly high tax rates with the potential for them to rise even more only going higher with every election. The horses are already out of the barn. New development is and already has been almost impossible without tax incentives with the only exception being on the most choicest premium locations. What are you going to do with the other 130 sq. miles that are not in those locations? 3.49% for owners and 4.4% for renters, annually, every 365 days just on the property value. No other city in America taxes that high. Construction cost are close enough everywhere, how would you compete without them?

In a high tax environment you must have tax incentives, there isn't a choice if you want development.

I see the point of binding community benefit agreements. The average regular tax payer is getting the proviable shaft and going to foot the bill for the lions share of services no matter what. At least this way someone is negotiating for something to make them feel better about getting screwed.

Hopefully all the lawyers needed have offices in Detroit and are not out in the burbs to shelter themselves from the taxes.

https://treas-secure.state.mi.us/pte...TEstimator.asp

[Lowell]

UPDATE: Crain's calls Proposal "Community Benefits Plan" for the Yes's

"Milder "community benefits" ordinance passes in Detroit
Unofficial election results point to 7.5-point win

The Proposal B community benefits plan has won voter approval in Detroit, setting the stage for what could be new real estate developer requirements if the projects they plan receive city tax incentives or land. In the real estate community, Proposal B, which requires developers to incorporate so-called community benefits in projects of a certain size, was generally viewed as preferable to Proposal A, which would have implemented lower investment thresholds and affected far more projects."

http://www.crainsdetroit.com/article...ses-in-detroit

[Hypestyles]

nothing substantive will happen. The DEGC will get to arrange for the mega deals without consulting community members; a pittance of jobs will be created for these development projects, at best.

[Wesley Mouch]

UPDATE: Crain's calls Proposal "Community Benefits Plan" for the Yes's ...

I'm sure the developers are quite happy. No need to consider investment in Novi anymore. You can invest in Detroit AND rest assured that the Community will benefit.