Unanswered Questions on the Center City District Proposal

Friday, March 31, 2017, 7:37 am
By: 
Alice Dreger and Chris Root

Above: Artist’s rendering of the 12-story buildings proposed under the Center City District plan.

The Center City District proposal for East Lansing’s core downtown area has already obtained approval of the complex public-private financing plan from East Lansing’s Brownfield Redevelopment Authority. Planning Commission will continue discussion of the project on April 12, and the developer wants to see the Commission vote on it at that meeting, so that the City Council can act on the site plan and financing plan later in April.

As this very large redevelopment proposal moves forward quickly, ELi is working on obtaining answers to some key questions about the proposal. These include:

Is there a market for rental apartments for people aged 55+ along Albert Avenue?

The developer is building rental housing for “active seniors” because, under Ordinance 1384, City Council currently requires that at least 25% of housing units in projects of this size be used for something other than typical student rental housing type options.

But is there a market for rental units for “active seniors” in that location, in the thick of student bars? The developers say a market study they obtained shows there is, but we don’t know the details. They have promised to make public a “heavily redacted” version of the conclusion of the study, but even the redacted version is not yet available, as far as we know.

What are we talking about in terms of an “urban grocer”?

The developer has said the project will have a medium-box retailer on Grand River Avenue, but has warned that this is not the sort of grocer where a typical homeowner would go once a week or so. They say this is more like a “convenience grocer” for people living in apartments downtown.

Would this be different from what CVS, quite near the project area, currently offers in terms of groceries (boxed cereals, tea, cake mixes, bread, milk, eggs, canned goods, frozen prepared foods), or would it duplicate what CVS now offers residents downtown?

How much new revenue would the redevelopment generate for the City of East Lansing?

Proponents of this proposal have said that the redevelopment would double the revenues the City of East Lansing obtains from the geographic area of the project. A chart on expected “new revenue” shows that this calculation of “doubling revenue” depends largely on new water and sewer billing for the redeveloped area, estimated to be about $388,000 per year once the project is complete.

But is this really “new revenue” for the City? We asked East Lansing’s Director of Public Works Scott House whether any of these funds would end up coming back to the general fund as a sort of “profit” revenue, the way new property taxes do. House explained, “The fees for water and sewer cover the cost of providing the service….There is no profit to the general fund.”

By law, the City can’t charge more for water and sewer fees than the services cost to provide. “New revenue” to the City should logically count new income minus the expenses associated with creating that revenue. That net revenue amount should be zero for water and sewer billing.

Water and sewer billings are by far the largest item in the projected “new revenue” table. Changing that amount to zero means the total “new revenue” drops from about $599,000 to $211,050 annually – or from a projection of about $20 million new revenue for the City to a figure of about $6.3 million over the 30-year life of the proposed Tax Increment Financing plan. In other words, with this correction, the City’s revenue would not double (i.e., increase by 100%); instead it would increase by only about 37%.

Meanwhile, about $55 million in newly generated taxes would be used to reimburse the developers’ expenses related to the project, including for the cost of new public infrastructure and interest. The City would have to provide full services, including police and fire, to all the new residents and businesses in the area.

How was the land lease rate of $75,000 per year reached?

One of the new sources of revenue named in the financing plan is an air-rights lease of the land that now is used for the City’s Parking Lot #1, the gated surface lot across from HopCat. The lease price is set in that plan at $75,000 per year. How was it determined that this is a fair price for the City to charge the developers? (Parking Lot #1 is currently the most lucrative parking lot for the City, generating over $500,000 per year.)

Who is going to pay the price of City parking lot #1 being unusable for up to two years?

The site plan as proposed requires that Parking Lot #1 be unavailable for two years. It would be used for construction staging and then would be occupied by a parking garage fronted by retail on the south side of Albert Avenue. Above that garage, the developer would construct six stories of rental housing for people aged 55 and up.

The plan as it currently exists doesn’t make clear who will ultimately bear the cost of losing parking revenue from this land for two years—the City or the developer. (Some drivers who would otherwise park in the surface lot might park in other City parking facilities, where parking rates are lower. So it is difficult to project the amount of lost parking revenue during this two years, but it would be substantial.)

How will financing for this project work, and what is the role of the “non-recourse revenue bond” that is to be issued by the East Lansing Brownfield Redevelopment Authority (BRA) and then “sold” to the developer?

It’s difficult to ascertain from the plan presented so far exactly how the financing for this project is proposed to work, but we know the proposal includes a plan for the East Lansing BRA to issue bonds that would not be backed by the full faith and credit of the City. The idea is to have the developer or its designee, not the City, assume the financial risk if the revenue generated is insufficient to pay back the bond debt.

The City’s Community and Economic Development Administrator Lori Mullins tells us, “The [TIF] Plan is including a calculation of 3% interest, but it is likely that the interest rate on the bonds will be around 5%, therefore the developer will not be able to secure the entire amount necessary to complete the eligible expenses through the Brownfield Revenue Bonds. They will only be able to borrow whatever the net present value of the $52 million is, which is estimated at about $25 million.”

Mullins adds, “They will finance the rest themselves, and use net revenue from the Albert Avenue retail space and reduced rates for parking permits to help cover the financing gap.”

Mullins tells us further that to make the plan work, “The Brownfield Authority would need to approve a formal resolution related to the Bonds and I anticipate that the resolution would state that they are pledging 90% of the new [tax] revenue from the project” to pay the allowable expenses under the TIF plan.

Will Council agree to a “Brownfield” TIF when only 0.4% of the reimbursed expenses are for environmental clean-up?

The tax increment financing (TIF) plan for this project is a Brownfield plan. By definition, these plans are designed to be used to defray the cost of environmental clean-up.

Yet this TIF plan as it currently exists lists “total environmental eligible activities” as $235,375. This comes to only 4/10 of 1 percent (0.4%) of the approximately $55 million TIF plan. All the expenses listed in the TIF plan – including construction of the parking ramp ($23.3 million) and interest ($20 million) – are technically eligible to be reimbursed under a TIF plan in Michigan, but these swamp the original core purpose of the program.

Will this Council agree to use Brownfield TIF in this way? When the White Oak Place redevelopment proposal came to this same Council, they rejected the developer's $5.5 million TIF request (which included a request for interest reimbursement), instead agreeing only to allow a $3.2 million TIF plan strictly limited to covering the cost of environmental cleanup.

How much will the covered walkway cost the City to construct and maintain, and might it invite mischief?

The site plan in the current proposal calls for a covered walkway on the ground floor from Albert Avenue to the alley running behind businesses along Grand River Avenue to the backdoor of the new medium-box retailer. Mullins tells us, “The walkway is being designed by the developer with input from the City and will be part of the parking garage that the City will own.”

But what will be the cost to the City of building and maintaining this ground-level pedestrian tunnel? Also, will a space like this—which is anticipated to include attractive lighting and benches in a quasi-indoor open public space—invite troublesome behaviors, particularly given its proximity to a number of bars? The City’s parking garages currently see problems with post-bar behaviors, including in terms of vomit and urine, a subject often raised by local business owners.

Others?

We have other questions—some pretty technical financial questions—but this is a summary of questions we think many readers may be interested in. Have more that we should be asking? Contact us.

 

Related:

City Center Project Gets $55 Million Tax Incentive Approval from BRA

Small Business Owners Worried about Redevelopment Proposal

Center City Design Morphs, with Developer Wanting Approval Soon

Two Big Redevelopment Proposals, Treated Differently

Ask ELi: How Are TIF Proposals Managed in East Lansing?