Latest TIF Plan Sharply Limited to Environmental Clean-Up

Wednesday, May 25, 2016, 8:06 am
By: 
Chris Root

Above: the project site at the northeast corner of Grand River Avenue and Spartan Avenue.

The East Lansing City Council voted yesterday on both the site plan and Brownfield Tax Increment Financing (TIF) plan for the White Oak Place project at Spartan and Grand River Avenues (just west of Brookfield Plaza). But in both cases, what the Council approved was significantly different from what the developer had proposed.

In a pair of 4-1 votes, Council removed all the balconies from the site plan. In a 5-0 vote, Council required that before the building is occupied, the site reaches environmental clean-up “closure” according to the Michigan Department of Environmental Quality. And in a 5-0 vote, the Council limited the TIF plan to the costs of environmental clean-up of the site, with far more taxes going to the City right from the start of the plan than the developer had proposed.

Joe Goodsir, the developer of the project who is a major student apartment developer and manager in East Lansing, came to the Council meeting with a new mix of apartments for the building that included fewer four-bedroom units. Councilmember Susan Woods pointed out that the Council has been moving away from approving four-bedroom apartments in the downtown. Four-bedroom units are seen as not appealing to residents other than undergraduate students.

Goodsir proposed a new mix of 20 (instead of 40) four-bedroom units, 21 (instead of 2) three-bedroom units, 23 (instead of 20) two-bedroom units, and 13 (instead of 7) one-bedroom units. Overall, this latest proposal reduced the total number of beds slightly from 213 to 202. The Council quickly agreed to this new configuration.

This latest site plan is considerably larger than what was originally proposed by the developer and agreed to by the former Council in July 2015; that earlier version had 172 beds. According to Goodsir, the building was originally shaped like a horseshoe but is now designed to be “a donut with a skylight in the middle with increased density.” The proposed building is now six stories along both Spartan Avenue and Grand River Avenue, with a step-down to three stories on the East side of the building nearer other residences.

The Council also voted to eliminate all balconies from the building. Mayor Mark Meadows originally moved to eliminate only the unusually large balconies on the corner of Spartan and Grand River Avenues. Police Chief Jeff Murphy, asked by Councilmember Erik Altmann for his view about balconies, came to the podium and said balconies are inherently dangerous because people can fall from them. He also said kegs can be a problem on balconies.

Councilmember Shanna Draheim was the one negative vote on Meadows’ motion to take away the large balconies, arguing that balconies are a valuable amenity that people enjoy and that they also make for a more attractive building, compared to a number of box-like buildings that have been constructed recently.

Mayor Pro Tem Ruth Beier agreed with Draheim that balconies are an amenity, one that she said she could support on owner-occupied condominiums, but that this project had gone in the direction of student housing and “the question is whether we are going to build a safe building or an unsafe building.”

After the strong vote in favor of eliminating the large balconies, Beier offered a second motion eliminating all the balconies, which also passed by four to one, with Draheim in the minority. Draheim said before the vote that it was unreasonable to make these decisions to regulate a few badly behaved individuals at the expense of others and at the expense of the aesthetics of the building.

After completing action on the site plan, the Council moved on to the Brownfield Tax Increment Financing (TIF) plan for White Oak Place. By a unanimous vote, the Council significantly reduced the amount of the TIF. The developer’s proposal had been for about $6.1 million TIF, including $5.5 million in reimbursements to the developer over an estimated 17 years. As is the nature of TIF, the reimbursements to the developer would come from the additional taxes (or “tax increment”) arising out of the increased value of the property after redevelopment.

The Council voted instead to limit the reimbursement to the developer to $3.2 million on a schedule that would yield considerably more additional taxes to the City as soon as the project is completed.

Here is what the approved TIF plan allows, compared to the original TIF plan:

  • Reimburses the developer up to $3.2 million, instead of up to $5.5 million.
  • Splits the incremental additional tax that is captured each year with 24% to the developer and 76% to taxing authorities (including the City) instead of 90% to the developer and 10% to taxing authorities.
  • Makes reimbursement payments to the developer for a maximum of 30 years instead of an estimated 17 years. (The longer time period is used because of the smaller percentage distributed to the developer each year from the taxes captured.)
  • Includes in the amount of the TIF administrative fees required to be paid to the Michigan Brownfield Redevelopment Fund and the East Lansing Brownfield Redevelopment Authority. 
  • Bases the amount to be reimbursed to the developer solely on approved environmental activities instead of also including $1.8 million of interest costs and $1.1 million of “non-environmental activities,” such as building demolition, infrastructure improvements, and site preparations.

Meadows made the motion for the substantially reduced TIF that the Council ultimately adopted in a 5-0 vote. He explained that it was consistent with what he had told the developer from the beginning of their interactions on this project, namely that it is the City’s responsibility to clean up the site and that this is what Brownfield TIFs are appropriate for.

After the Council session, Beier, an economist who has consistently voted in oppositions to TIF, told ELi : “This is a good deal for the City.” She added that “while the total Brownfield is $3.2 million, the plan that we adopted does not include any reimbursement to the developer for interest. This means that we are getting $3.2 million worth of cleanup today for a present value cost of approximately $1.4 million (assuming an interest rate of 6% over 30 years)."

The Council’s discussion of the motion was almost entirely to clarify the details of the revised TIF that was being proposed. Before the motion was introduced, the Council discussed the challenges of cleaning up the contamination at the former gas station at the corner of Spartan and Grand River Avenues. The current owner, Speedway LLC, did some clean-up, but it has not met the requirements set by the Michigan Department of Environmental Quality (MDEQ). There is incomplete data about contamination that is known to have leaked to some extent beyond the site itself, which is one of the reasons it is difficult to estimate the total cost of environmental remediation that will meet MDEQ’s standards for this project.

As part of the site plan approval, Council voted to require that the developer obtain “closure” from MDEQ on the environmental problems. At the meeting, after the vote, a consultant to the developer said this will not be possible because of how the clean-up works. Council may have to revisit this issue later as a result.

Before the Council’s consideration of the TIF, there was almost 40 minutes of public comment critical of the TIF from five East Lansing residents: Donald Power, Ray Vlasin, Jay Brant, Jim Anderson, and James Robertson. Written comments opposing the TIF were also received from Bernie Schupbach, Lanette and Steven Van Wagenen, and Ralph Monsma. No public comments were in favor of the TIF plan as it had been proposed.

Power spoke in opposition to any TIF because of the serious debt the City is facing, including $71 million in unfunded liability of the public employee pension funds. Vlasin echoed Powers’ comments about the City’s “staggering” debt and also raised a number of questions about the plans for environmental remediation included in the TIF.

Brant said that the City was not in a position to be able to subsidize developers’ profits or to subsidize student housing. Anderson argued against subsidizing student housing, which is already in surplus. Robertson discussed some weaknesses and missing data in the TIF plan and also argued that the addition of 10 jobs that are estimated to arise from this project and building of another mixed-used project was a poor way to use City funds to promote growth.