Costco Plan Moving Forward

Wednesday, July 6, 2016, 9:55 am
By: 
Alice Dreger

Above: Fiesta Charra restaurant, behind which Costco plans to build a store

Following the reaching of an agreement between the City of East Lansing and Meridian Township, Costco is likely to soon be building a new store in East Lansing along Saginaw Highway just east of Park Lake Road on land adjacent to the Fiesta Charra restaurant.

The store will be built on about 40 acres of the former home of the 66-acre Four Winds Golf Course. Because the land is subject to an Urban Cooperation Agreement between the City of East Lansing and Meridian Township dating back to 2001, the matter has set off several rounds of deal-making between the two municipalities, including over store employee wages, municipal cost and revenue sharing, road repair, site approval, and Brownfield tax incentives.

Wages: The retail plan requires rezoning of about 40 acres of the property to B-2 (retail), as shown in the map below. A resolution to allow the zoning change, passed by East Lansing’s City Council on June 21, determined that “such B-2 zoning classification shall only be available to a Costco retailer that agrees to pay each of its employees at least one hundred fifty percent (150%) of the State minimum wage for at least the first 2 years of business operation on the annexed area.”

But that 150% minimum wage requirement was dropped by the time the plan went before Meridian Township’s Board this week. In a memo to the Board, Meridian Township Manager Frank Walsh explained that, “Although Costco pays a higher wage as compared to their competitors, the company did not wish to have company wages legislated by a local community. Both East Lansing and Meridian counsels agreed.”

Property tax revenue sharing: The 2001 agreement involving this land requires tax revenues to be shared between East Lansing and Meridian Township. The new agreement reached over the Costco plan extends that tax revenue-sharing for four extra years, with it now set to end on December 1, 2039. In his memo, Meridian’s Manager Walsh told his Township Board this “protects our residents and future tax base” by “provid[ing] the township with four (4) more years of revenue sharing.”

But how much property tax will there be? That remains to be seen because, in Michigan, big-box retailers like Costco have managed to have their properties assessed at a rate as if the stores were essentially vacant—a type of property assessment that has caused a substantial reduction in their local property tax responsibility. This is called “dark store” assessment.

At the June 21 meeting of East Lansing’s City Council where this agreement was discussed, Councilmember Shanna Draheim asked East Lansing Planning Director Tim Dempsey about why there is no reference to the “dark store” issue in the paperwork on the project.

Dempsey replied that it looks like the problem will be fixed at the State legislative level. In early June, in a vote of 97-11, the Michigan House passed HB 5578 which closes this tax loophole. But the Michigan Senate did not take a vote on the matter before adjourning for the summer, and so the issue is not yet resolved.

At the June 21 meeting, Councilmember Erik Altmann suggested that it might make sense to build some protection against a “dark store” assessment into the agreements surrounding the Costco plan, as Draheim was suggesting. But Mayor Pro Tem Ruth Beier responded that municipalities can’t legally do this type of maneuvering. City Attorney Tom Yeadon added that the way the matter will play out may mean it may take decades before municipalities see tax increases on many of these properties.

Cost sharing: In the agreements between the two municipalities, East Lansing has agreed to give Meridian Township 50% of the building fees associated with the project. Meridian has also made clear it will not pay for any improvements needed to Park Lake Road. At the June 21 East Lansing Council meeting, Dempsey told Council that Ingham County has some plans to improve the road. He also noted that Costco will bear the cost of improving their property where it meets the road.

Brownfield tax incentives limited: Meridian Township has insisted that the City of East Lansing not provide Brownfield tax incentives greater than $1 million on this project, and so that limit is written into the agreements. At the June 21 Council meeting, East Lansing’s Mayor Pro Tem Beier asked Planning Director Dempsey, “Can you explain the reason that Meridian Township wants to limit our ability to give away the Brownfield [tax incentive]?”

Dempsey replied that, “in discussions with them, it’s really coming down to an issue of the philosophical aspect of Brownfields, you know, what is pertinent here in terms of supporting business development. I think they see the value in the project in terms of economic impact, particularly given the high-paying jobs relative to the retail industry, but they also recognize the importance of [tax] revenue.” (This was before the higher-pay clause was removed from the agreements at Costco’s request.)

In response to Dempsey’s remarks, East Lansing’s Mayor Mark Meadows added that agreements with Meridian Township require sharing of tax incentive responsibilities, so Meridian wants to limit how much they might be responsible for in terms of a Brownfield tax increment financing (TIF) plan. Meadows said Meridian’s portion of a Brownfield TIF would come to about one-third, with East Lansing responsible for the bulk of the tax reimbursement to the developer under any approved TIF plan.

ELi previously reported that Meridian Township historically has used TIF development incentives much less than the City of East Lansing.

Meadows added that Meridian “has been told that it is unlikely we would give a TIF for that project in any event, but that doesn’t mean [the developer] won’t ask for it or that people’s minds won’t be changed.”

Site plan approval: Meridian Township did not want to find itself in the position of ceding site plan approval over to East Lansing, and so they negotiated final approval of the site plan. According to Walsh’s memo to his Board, “This grants [Meridian] Community Development Director Mark Kieselbach the ability to monitor all aspects of the development including lighting, landscaping, parking, buffers, wetlands, building materials and site dimensions.”

Conservation plan: The site is currently largely undeveloped and is essentially a natural area. In a letter to East Lansing’s Council dated June 7, Mary K. Thomas, who lives in the area under consideration, raised environmental concerns among her objections to the project. She said she was concerned about the impact on wildlife from the substantial filling-in and black-topping of land that will be required for the store. (The image below shows in red the area that is being rezoned for redevelopment.)

The agreement between the two municipalities calls, in Walsh’s words, for the remaining approximately 33 acres of the site to be “placed in a conservation district into perpetuity. There shall be no development on the 33 acres and the property shall remain in its current state.”

 

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