Cuts in brownfield and historic tax credits(!)

It is interesting that while people are complaining about the budget cutting down film industry subsidies, no one seems to have noticed the planned cut in historic and brownfield tax credits.

This is a huge issue because it is going to raise the amount of equity required to do projects involving rehabilitation and re-use of historic properties. It will also increase the financing gaps on these projects and condemn quite a few now-vacant buildings to destruction.

Write the Governor and tell him that you value historic redevelopment and think that the state should be encouraging that instead of slash-and-burn development.

Businesses are loving the new tax rates, but they will expanding & investing by building new properties. Without the brownfield tax credits older cities will struggle with outdated structures and contaminated sites.

Gov Snyder

Venture capital - Ceo and cofounder

Robert Schostak is the current chairperson of the Michigan Republican Party

The Schostak Brothers own property along Woodward in downtown Detroit. But they have built a lot of malls. They’re building new developments in Northville Township, Northfield Township, Rochester Hills and Salem Township. This might conflict with Rick Snyder’s 10 point plan to reinvent Michigan. Point 5 is called “Restore Cities and Control Urban Sprawl.”

You have the money ,you have the builder ,eliminate any and all brown-field and historic credits to keep anybody else from buying and rehabilitating and you have quite the little gig going. Why do you need to rehabilitate old buildings when the builder prefers building new.

Brownfield credits do not only go to rehabbing. There is a brand new housing development on the east side of Detroit that used Brownfield tax credits. This development would not have been able to be financed without them. Vacant land is being turned into affordable rental housing for lower income families. There was a plan to build more when these are complete. If this change happens...it will never happen. What a shame!

It is really counterproductive to throw a subject out there for discussion without first explaining to the general public how this will effect both the city they live in ,personally ,short term or long term.So they can then make a decision.

MEDC's stance is "If you really wish to find out the details of this information you need to hire someone that is familar with them"

See this David Brooks piece to understand the budgetary problem and why governments tend to cut things in a way that is counter-intuitive. Michigan has its own sacrosanct spending categories, and because discussion of those is apparently off-limits, discretionary spending like revenue-sharing and property rehab tax credits get hit.

MEDC says that it will have some [undefined in nature, scope and total amount] "incentives," but those all require one-off applications [[against an appropriation-based fund) that are far less certain to be successful than the older brownfield/preservation applications. One thing about the approach is correct though, and that's the treatment of tax credits as appropriations [[since they are effectively transfer payments or offsets against future revenues).

One implications for D-Yes-ers is that we're past the period when one can blithely claim that tax credits will pay for rehab projects [[equity actually does - but there is a serious pie-in-the-sky contingent here). Things will now be focused very strongly on owner equity and economics - you can be sure that MEDC is going to look at economic impact and jobs generation before it even considers how much you might like terra cotta.

This shift will effectively kill any efforts to get MEDC support for historic preservation or brownfield projects. No proposal is ever going to be able to compete against greenfield sites because the economics are severely tipped against them. That's why the credits were put in place in the first place because the Legislature realized that there were significant economic benefits to encouraging these developments but they didn't necessarily appear immediately or in the bottom line of a proposal for financing a project.

I have the feeling Snyder feels that the awarding of these credits is being done helter-skelter without any standards or regard for the outcomes of these projects. I can't speak for brownfield credits, but projects applying for HP tax credits must undertake a detailed 3 part application process, which is reviewed by the State Historic Preservation Office. All work done for HP credit must be done to the Secretary of the Interior's Standards for Rehabilitation to ensure quality. If the work is not done to the standards [[there are 10 standards), the credits are not awarded. HP credits, and brownfield credits, too, have made a very visible mark on the landscape of our state. These credits make a big difference in projects in many communities, especially those with a large assortment of older building stock ripe for adaptive use/redevelopment. Hopefully these credits, or something very similar to them, will continue to spur development in Michigan long into the future.

It's clear that the review of exemptions wasn't done with any significant research. One of the most widely given but little reviewed exemptions is the tax abatement on real property. In some communities, these abatements are given away like candy and there's no requirements on companies that get them to either produce jobs or generate revenue. The studies that have been done on them give conflicting views on whether they are effective or not but they are a huge drain on state and local revenues and ending them would create a true level playing field.

I don't want a level playing field when it comes to land use and development. The whole idea is to curtail sprawl and limit the existing subsidization of sprawl development. The state should give incentives for redevelopment and growth in existing urban centers. Isn't that what Snyder campaigned on? If nothing else, stop the subsidization of sprawl. No more road expansions, no more utility extensions, no more chartering new townships on the outskirts of Metro Detroit.

If Snyder wants to tighten up the application process for historic and brownfield tax credits, then so be it, but do not eliminate them. We are trying to get developers to do things that aren't necessarily the most cost effective, but are the most beneficial to the public. Building stick shacks in Fenton is probably cheaper than redeveloping a historic building on contaminated land in the city, but without incentives such property will never get reused or repurposed. I don't care if the state uses tax credits or passes a law that strong arms developers into redeveloping older properties. Either way, it must be done. The state cannot continue to allow a development pattern that resembles Sherman's march to the sea. It is plain irresponsible.

Edit: Apparently, I'm not the only person who has come to this conclusion:

Quote:

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"There is no reduction in the business tax rate that would attract people to invest on contaminated, functionally obsolete, blighted or historic properties since the additional costs to do so are so high in most cases," said Richard Barr, partner and co-chair of the investment incentives and tax savings group at Honigman Miller Schwartz and Cohn LLP.

http://www.crainsdetroit.com/article...st-incentives#

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Interestingly, President Obama's budget proposal also features cuts in programs. Who'd thought Snyder & Obama would have this same idea. They consider it expendable? The link to the National Trust for Historic Preservation story on federal cuts is here.

Assuming that the David Whitney Building got in under the wire... and that the United Artists Building is being completely funded by Ilitch Holding... this proposal doesn't bode well for the David Stott Tower... and one can almost say Buh-Bye to the Book Tower & Building....

You can sign the petition against the cuts here:

http://my.preservationnation.org/site/MessageViewer?em_id=44787.0&dlv_id=34644

It is clear why the credits are needed so one would question why the proposal even comes up.

At this point in time one is hard pressed to find a bank that will fund these projects, they have clamped down,So how does one actually get these things off of the ground?And who gains from it?

That leaves two funding options Venture capital funding which would rather fund a business venture that wishes to go public in the future or the highest profitable lending vehicle out there Hard money.

Heres the reason,right now there is alot of heavy cash out there and investors are having a hard time finding a good interest rate to profit from,stock market? naw to volatile,stick it in the bank? at what .3% ? Gov Bonds nope.

So what is left? Hard Money from 13% to 18% interest with a short exit plan high risk, high return, fast exit. Where else in the world can you get 18% return on your money.And where else is a potential purchaser of these types of properties going to get funding? Unless of course you already have millions in the bank.

So removing these incentives is kinda steering future projects into another direction right or wrong you can kinda now see the why and what of it all.

So as an example I am looking at a project and have really no other choice right now but to go with hard money.I need $7000000 for the purchase and rehabilitation of said project.Bank says no because it needs work and the value is not there to justify the loan .

But how hard money works is they will lend 50% of the purchase price and the money needed for the rehabilitation based on the after repaired value of the property and you have 3 years to do the rehabilitation and ready the property to switch to convential bank financing every day from the time the loan is delivered it is costing alot of money in interest so there is no time to file for incentives before the funding accrues.

So what the Gov is saying instead of an incentive lets make that an all out grant based on the merits of the project,because lets face it the incentives sold on the market bring 75c or less on the dollar creating a percentage loss of taxpayer dollar right off of the top.

So with the grant situation what you have is while you are doing the rehabilitation you apply for the grant and as a direct grant you can use that direct input chunk of cash towards the bank in switching to convential financing.
Most incentives are drawn out over the years creating long term debt so this is saying a one time payment based on what the state can afford now.

So does it in theory slow growth or is it regulating growth by eliminating the booms and busts and cases of incentives being used in a way that is not in the best interest of the taxpayer as a whole.

Or is it a way to actually move properties forward faster by eliminating the risk when it comes to bank financing. Because bottom line is unless the numbers match nobody will fund anything.

So really in my case the new proposal would benefit me more then the previous system based on the availability of currant funding options.

So what does this all do in short term? It will make it a very nice position to hard money lenders and get the flow of money moving again and will force the banks hand with the question of what is your excuse now for not lending on a completed project with little risk.It actually puts teeth into the large banks when they start seeing that investors are flocking towards the hard money aspect verses the actual bank themselves.

For the record I have centered my life around historic restoration and preservation but this is my first project that includes the business aspect into the other two.So I really need to look at all sides of the issue.