PDIG Plan Now Exceeds $100M with $32M in Tax Incentives

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Friday, January 16, 2015, 10:02 am
By: 
Chris Root

Image: The corner where PDIG seeks to construct the 10-story "Building A"

The East Lansing Downtown Development Authority (DDA) is moving forward on controversial developer PDIG’s plans for the blighted area downtown. Two major buildings in the area are now estimated together to cost $101 million, and local government is considering $32 million in tax incentives for the project area. At a public DDA meeting yesterday, details emerged on the Tax Increment Financing plan as well as the development agreement being made between the developer and the City.

Yesterday the DDA’s Project and Infrastructure Committee began its review of the draft development agreement and draft Tax Increment Financing (TIF) plan for PDIG’s proposal for two major buildings downtown: a ten-story building at Grand River Avenue and Abbot Road (“Building A”), and a four-story mixed-used building on Evergreen Avenue (“Building B”). The draft development agreement can be seen here, and the draft TIF plan here.

These financial and legal plans for the development are being worked out while City Council is still in the process of debating what will be built. Council is still discussing the site plan and Special Use Permit for Building A, and City Council’s public hearing on Building B is not scheduled until February 3.

Yesterday a representative of the developer gave the DDA committee the latest estimate of the cost of these two buildings: $88 million for Building A and $13 million for Building B. Neither document provides any information about private lender commitments to the developer for this project.

The committee devoted most of its time yesterday to the $32 million TIF plan submitted by PDIG. This would be East Lansing’s largest-ever tax incentive for a development, by a factor of more than three.

Under the TIF plan, taxes on the increased value of the properties resulting from its development would be “captured” and reimbursed to the developer for an estimated 25 years. The TIF capture would continue for “as many years as is required to fully address all eligible Project issues or thirty years, whichever is less.”

The draft development agreement states that reimbursements will be made under a TIF plan “only to the extent that tax increment revenue is actually generated” by the project.

If these taxes were not “captured” and directed to development reimbursements, the taxes would otherwise go not only to the City of East Lansing’s treasury, but also to Ingham County, Lansing Community College, and CATA.

This tax incentive request includes:

  • $3,437,000 for public infrastructure such as water supply, sanitary sewer, storm sewer, engineering fees, and pavement (including realignment and extension of Albert Avenue from Abbot to Valley Court);
  • $2,180,000 in public infrastructure “contingencies and general conditions”;
  • $9,635,000 for building the private parking system on two underground floors using hydraulic lifts.

Other expenses in the plan are for demolition, site improvement, abatement, and administrative fees, as well as commercial interest costs of $14,417,000.

A development agreement—set to be between the City of East Lansing, the DDA, the Brownfield Development Authority (ELBRA), and the developer—has been drafted by PDIG and extensively edited by the City attorney. (See here for an article about the City attorney’s December billings for this work.)

The developer had not responded to any of the City’s proposed changes to the development agreement before the meeting yesterday. One issue of disagreement is that PDIG wishes to have access to all of the $12.5 million in Michigan business tax credits that were approved in 2008 for the larger City Center II proposal at the same site. PDIG argues that the hotel in Building A will need to be dropped if PDIG does not receive all of this incentive.

City staff, however, wish to assign $2 million of the $12.5 million to DTN’s Park District project if it moves forward again. The state will need to review the significantly-revised plans for the Park District and the business tax credit.

Councilmember Ruth Beier, the Council’s liaison to the DDA Project and Infrastructure Committee, asked at yesterday's meeting whether the Michigan Economic Development Corporation’s fairly extensive background checks on developers could also be used by East Lansing for its due diligence. Tim Dempsey, Director of East Lansing’s Department of Planning, Building, and Development, said he would look into this possibility, noting that the state and City may have different confidentiality provisions.

Dempsey explained that the development agreement, which was circulated along with a staff-generated flowchart suggesting steps for reviewing and approving the project, is designed so that the City will be better off at every step than it was at the previous step. One approach to trying to achieve this is to have timelines and completion requirements throughout the process. The agreement also requires performance bonds for completion of the infrastructure and demolition work.

The development agreement stipulates that, if the developer defaults, all agreements related to construction of the project are to be assigned to the developer’s construction lender, including TIF incentives and Michigan Business Tax Credits.

The full DDA and Brownfield Development Authority will consider these documents at their meetings on January 22. The DDA meets at noon in Conference Room A of City Hall. The ELBRA, which has identical membership with the DDA, meetings immediately after the DDA. Both meetings are open to the public.

 

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