Tax breaks for Gilbert's projects? Sure, but little guys need them, too

Defending tax breaks for billionaires is never an easy lift, particularly for a liberal-minded columnist.

But with businessman Dan Gilbert and civic leaders breaking ground Thursday on the Hudson's site project, which will include Detroit's tallest new skyscraper, it's worth the effort to see why the tax incentives that will flow Gilbert's way are worth it.

For even as critics decry the new MIThrive incentives as bloated giveaways to a guy who doesn't need it, the breaks heading Gilbert's way will in fact do what they're designed to do — create a lot of new jobs and tax base at a reasonable cost.

Having said that, we also need to figure out what to do to ensure that Detroit's recovery creates opportunity for all, not just the lucky few. And that means tax incentives for the little guy, too, not just the billionaires. More about that in a moment.

First, let's look at the facts. Under the MIThrive legislation passed this year in Lansing, certain "transformational brownfield projects" are eligible for some truly remarkable tax breaks. Developers of such projects will capture future property tax and income tax revenue that otherwise would go toward state, county and local needs.

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The Michigan Strategic Fund this month got a preliminary look at the first such proposal to come before it for approval. In the deal, Gilbert, with the blessing of Detroit's leadership, is bundling together four of his major projects downtown to qualify for the tax incentives.

The four projects include the 800-foot, $900-million mixed-use project on the Hudson's site. The other three are Gilbert's $830 million mixed-use Monroe Block project; his renovation of the vacant Book Building and Book Tower on Washington Boulevard; and his addition to the One Campus Martius (formerly the Compuware Building) which essentially was left unfinished when first built.

Interactive map: Click on each Bedrock structure for project details:

All told, Gilbert's Bedrock real estate arm said it will invest $2.1 billion in the four projects over the next few years. The tax incentives combined will return an estimated $618 million to Bedrock over the next 30 years. That figure isn't final yet; and the Strategic Fund won't give its final blessing until the spring, pending an independent outside analysis.

That's a lot of tax breaks, and understandably some people choke when they hear that figure.

But the first justification for the tax incentives flowing Gilbert's way is this: He first has to spent roughly $2 billion in his own and his partners' cash to quality. If he doesn't do what he's promised, he gets nothing from the incentives.

"The projects still need to make sense financially," Greg Tedder, executive vice president of the Michigan Economic Development Corp., told me. "I think the transformational brownfield legislation is really just adding another tool to our toolbox to allow us to usher in the next level of development in Detroit and around our state."

And, second, the payback for Detroit promises to be significant: Thousands of construction and permanent jobs, plus 3.2 million square feet of mixed-use space and more than 2,000 parking spaces, all on what is now vacant space.

Critics like to say that Gilbert would build the projects anyway, or that downtown is booming while the city's neighborhoods languish. But we shouldn't assume that.

Downtown's recovery remains in the early stages, with a very long way to go. While Woodward Avenue and Midtown have recovered nicely, there are still plenty of vacant lots and empty buildings on the periphery of downtown. And rental rates and property values, while rising quickly, are still nowhere near the level of the nation's premier markets.

The MIThrive incentives are anchored in market reality — that it costs more to build huge first-class projects today than Detroit's level of returns on investment will make worthwhile. Minus the MIThrive incentives, Gilbert may build anyway, but it would be smaller projects coming online at a later date.

"I think it's fair to say that this tool gives us a better project that we would otherwise have," Tedder said.

OK, but what of equity for the neighborhoods? If we give incentives to billionaires for the biggest projects, what do we owe for ordinary Detroiters?

One thing we can do is restore some of the tax incentives that Gov. Rick Snyder and legislators zeroed out several years ago, like the state's Historic Preservation Tax Credit. This one allowed restoration work on historic properties to recover up to 20% of the costs. It was a great incentive for smaller projects in historic districts, and multiple Detroit projects benefited.

A bill to restore that credit is making its way through Lansing now. It ought to become law. So should new tax changes that boost assistance to low-income families, or that encourage developers to include affordable income units in their new residential developments.

So I’m all in favor of using tax incentives to build up downtown as a center of business, entertainment and civic life. I just think our tax code ought to recognize ordinary Detroiters more than it does.

Detroit is still hurting. And it needs all the help it can get to set things right.

Contact John Gallagher: 313-222-5173 or gallagher@freepress.com. Follow him on Twitter @jgallagherfreep.