Council to Consider $25M Tax Plan for Park District Development

Friday, January 6, 2017, 5:35 pm
By: 
Chris Root

The East Lansing Brownfield Redevelopment Authority (BRA) voted unanimously yesterday to approve a Tax Increment Financing (TIF) plan of about $25 million for the Convexity Properties’ plan at Grand River Avenue and Abbot Road—the blighted area now known as the Park District. The BRA left the details of the plan largely to the City Council, however, which is unusual. The Council is expected to vote on Tuesday on both the site plan and the TIF plan for this major development at the west end of downtown.

The project plan proposes three disparate buildings, for which the Planning Commission approved a site plan in November.

The main building would be a 12-story hotel and apartment building along Grand River Avenue on the land stretching from Abbot Road to the memorial garden of People’s Church, across from the main entrance to Michigan State University. A bar is to be included on the top floor, and one level of underground parking is intended for use by guests in the 150-room hotel. This building, which would also include 177 rental apartments, is the primary interest of the developer and accounts for $115 million of the total $148 million in planned investment.

The second new structure would be a 52-housing-unit building across from Valley Court Park where the Evergreen Arms apartment buildings were located until they were demolished last July.

The third new structure would be a five-level parking ramp with 425 spaces, built along Evergreen Avenue on land purchased by the Downtown Development Authority (DDA) years ago for this purpose. Twelve additional housing units are to be built surrounding three stories of the parking ramp on the west side along the new Evergreen walkway. The 64 housing units in these two structures are projected to be owner-occupied condominiums, in order to meet the City ordinance requirement that at least 25 percent of downtown residential development be senior, income-qualified, or owner-occupied units.

The project plan entails significant public infrastructure work in addition to construction of the parking ramp, including replacing water and sewer lines, extending Albert Avenue, and redeveloping a portion of Evergreen Avenue as a pedestrian and bicycle thoroughfare.

The BRA did not approve a detailed tax reimbursement plan. Instead, the motion it adopted “[approves] the amount of Brownfield Plan #23 with the suggestion that City Council take a look at all elements of the plan to identify those components which are clearly a public benefit.” It also states “that the DDA expects that Council, in reviewing this plan, would also consider that the $5.6 million related to the DDA owned [Evergreen Avenue] property would be addressed in their decision.” (This language is from the draft minutes prepared by the staff.) In other words, the DDA wants to have the debt relieved somehow by this project.

Normally, the BRA approves a TIF plan that names specific eligible expenses for which the developer will be reimbursed, the projected number of years of the plan, and the percentage of annual tax payments that will be reimbursed to the developer and that will be received by the City and other nearby taxing jurisdictions. Final approval of a TIF plan is always up to the City Council, so the BRA vote serves as a recommendation.

At yesterday’s meeting, attorney David Pierson, speaking on behalf of the developer, acknowledged that the developer and City staff had not yet come to a complete agreement. So he asked the BRA to gives its approval to the plan with a list of issues they suggest that the Council consider. The developer is interested in moving this project along as quickly as possible.

This BRA motion approved the $25 million amount of tax reimbursement that the developer requested, but made only limited recommendation about what the total should include in terms of specific items to be reimbursed. It is very unusual for a project to include an expensive parking structure that is to be owned and operated by the City, as this one would, and this project also includes an unusual amount of other public infrastructure, as well.

A TIF capped at $25 million is much less than the total of private and public components that could be eligible in a brownfield TIF for this project. So it makes a big difference whether the Council decides that the TIF will reimburse the developer for costs of the privately-owned part of the development or for costs of publicly-owned streets, underground infrastructure, and public parking.

Costs associated with public properties could include such things as $4 to $5 million in infrastructure improvements in roads, water and sewer lines, $5.6 million related to the DDA-owned land on Evergreen Avenue, and the $11 million construction cost of the parking ramp. BRA member and former mayor Doug Jester asked at the meeting for a breakdown of the costs for what would become private property and what would before public property, but this was not made available.

The developer had requested a TIF plan that would cover a mix of private and public costs, including costs related to environmental cleanup, demolition, site preparation, infrastructure improvements, and interest paid on the money borrowed to do the project. It remains to be seen what Council approves in terms of specifics.

Under the developer’s proposed plan, 100% of the newly-generated taxes from the project would be used to pay for approved costs of the project over an estimated 23 years.

The BRA’s motion to focus on “components which are clearly a public benefit” and to “also consider that the $5.6 million related to the DDA owned property” suggests that the TIF include components quite different from what the developer requested. The BRA is primarily focused on covering the City’s and DDA’s expenses, not the developer’s.

Responding to an inquiry today from ELi, Pierson explained that what was approved was not what the developer had proposed: “The recommended position at the BRA was that the developer use its own funds to make offsite public improvements for the city including $5 million in road and public utility improvements needed replace the City's old systems and build a $12 million parking garage that the city will own/manage and also purchase the City DDA property that the garage will be built on.”

“Under this scenario,” he added, “the developer is essentially loaning interest free money to the City which will be paid back over 23 years. The interest the developer would have to pay on this amount could exceed $10 million and impose a financial impediment to the development. The real estate taxes on the developer's new project will be used to repay the developer for the money it spends on these public improvements. And the developer only gets reimbursed to the extent that its real estate tax savings cover the cost of the public improvements.”

According to Pierson, “This is not consistent with the Plan filed by the Developer which, in addition to public improvements and funds allocated for the construction of the city's parking garage included interest and eligible costs specific to environmental cleanup work.”

Council is set to take the matter up at its meeting next Tuesday, January 10.

 

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