Above: A recent rendering from the developer of the Center City District proposal.
Using the Freedom of Information Act (FOIA), ELi has learned that East Lansing’s tax assessor believes the Center City District redevelopment will generate far less property tax than the developer has assumed, calling into question the financial viability of the project.
The tax assessor’s estimate also shows that the developer can be expected to make at least $1.9 million in gross annual rents off private properties to be built on public land. For the right to do this, the developer will pay the City only $75,000 annually according to the current plan.
What we’ve learned:
The Center City District project proposal calls for the redevelopment of private properties along Grand River Avenue as well as for the construction of private properties on publicly-owned land along Albert Avenue. ELi obtained East Lansing tax assessor David Lee’s estimate of the development’s future taxable value yesterday via FOIA.
In his assessment, Lee is estimating that the Center City District redevelopment will be worth only about 72% of what the developer has estimated. That means the project appears to the City’s assessor to be unlikely to produce the tax revenue needed to support the project under the $55 million tax increment financing (TIF) plan that was sent to City Council for review this week.
Lee’s estimate also confirms what ELi has been reporting—that the developer will likely obtain over $423,000 per year in rents just from the retail space that would be built on City-owned land on the ground level along Albert Avenue. The assessor also estimates the developer will obtain about $1.5 million in rents from the senior apartments built on City-owned land along Albert Avenue, located above a four-level parking ramp.
For the rights to develop these private properties on public land—conservatively estimated by Lee to be worth about $1.9 million in annual rents—the developer has offered to pay the City $75,000 annually.
In fact, the developer appears to believe these properties would actually be worth significantly more in rent than $1.9 million per year. Estimated taxable values are based on expected rents, and the developer has estimated the taxable value of their project to be about 40% more than the City’s assessor has.
Why and how the TIF numbers differ:
The $55 million TIF plan that went to City Council this week did not use the City’s tax assessor’s estimate of future taxable value. That TIF plan, which was dated February 21, 2017, used the developer’s estimate. In that plan, the developer estimated that, once completed, the taxable value of the project would come to about $27.8 million.
On March 23, without having the City assessor’s estimate, East Lansing’s Brownfield Redevelopment Authority (BRA) approved that plan. City staff told BRA members at that time that they would likely receive a somewhat different TIF plan after Council acted on it. The plan was then sent to City Council for a public hearing this past Tuesday, May 9.
At that City Council meeting, some members of Council mentioned that the City’s estimate of taxable value of the project was lower than the developer’s estimate. However, City Council and City staff did not reveal the significant extent of this difference. This is despite the fact that the City assessor’s estimate had come in five days before the meeting, at the much lower level of about $19.9 million, or about $7 million lower.
When we run the numbers, Lee’s estimate means that the project would be producing about $555,000 less per year in potential captured taxes than the developer estimated. Over the course of the 30-year plan, that means the project falls short on TIF by at least $16 million.
City staff and the developer have talked about financing construction of the project by guaranteeing lenders a certain level of tax capture through TIF. (Details of this financial arrangement would be included in the development agreement, which is not yet completed.) It seems that the lower estimate of taxable value would put that part of the plan in jeopardy.
The City has been talking about setting up the deal to avoid having financial risk to the City should the taxes captured fall short of the goal. But several members of City Council have said they’re not interested in entering a deal where the taxes captured can be expected to fall short, even if the developer and not the City ends up on the hook.
Mayor Mark Meadows said at Council this week that he would insist on using the City assessor’s “more conservative” number in any TIF plan actually approved by City Council.
Another form of TIF may be coming down the pike:
It’s possible a new state-level approach to TIF could become an additional source of tax subsidy for the developers of the Center City District project. The State House and Senate have just passed a series of bills aimed at allowing designated developments to capture state sales tax and state income tax generated at a property to then be used to reimburse developers, the way property taxes are now captured and used.
As the Oakland Press reported yesterday, these “Transformational Brownfield Plans” would require state-level approval. Cities would be limited to designating only one project per city per year as eligible for this approach. The Center City District developer and the project supporters have been consistently referring to that project proposal as “transformational,” possibly in anticipation of trying to score this new, additional TIF.
Whether Governor Snyder will sign this legislation into law remains to be seen; he has previously expressed concerns about the approach, because the approach would redirect funds from the State’s coffers to developers. Even if Snyder signs the bill, the Center City District developer might not be able to wait to use the new mechanism, given that anchor-tenant Target wants construction of the Center City District project started very soon in order to have their store open there by March 2019.
The question of revenues from the Center City District proposal:
Whether City Council signs on to the Center City District plan will depend on more than the TIF question. Several members of City Council have signaled that they want to see substantial revenue for the City out of the project, from the start, or they won’t approve it.
On Monday, the day before City Council’s public hearings on the project, developer Mark Bell of Harbor Bay Real Estate said at his Lotsa Pizza P.R. event that his project would be “limitless” in terms of revenue to the City.
But, in fact, new revenue to the City can come only from a limited number of sources on this project. These include taxes not redirected through TIF capture, income from the proposed new parking garage, and the rent paid to the City by the developer for the use of the public land.
We don’t yet have numbers for all of these components, but tax assessor Lee’s estimate suggests that at least the first component—income to the City from new taxes not used for TIF capture—will be substantially lower than previously assumed.
Lee’s estimate also would seem to suggest the City might be able to negotiate for more than $75,000 per year in rent payments, given that the private properties built in public land are expected to generate about $1.9 million in rent for the developer.
A new revision of the Center City District TIF plan is expected to be provided to the Brownfield Redevelopment Authority (BRA) before its meeting on May 25. City Council is expected to take the matter up again on June 13, for a possible decision at that time.
You may also be interested in: