Tax breaks for mega-deals OK, but bring back incentives for smaller projects, too

John Gallagher | Detroit Free Press

When Gov. Rick Snyder signed a package of bills earlier this month creating tax incentives for brownfield redevelopment, he pleased many people and disappointed a lot of others.

The happy crowd included leaders in older cities such as Saginaw, where Snyder signed the bills in the lobby of a 120-year-old office building. Developers who hope to turn such derelict structures to new use were also onboard. This was the Michigan Thrive Coalition, dozens of business and civic leaders throughout the state who backed the legislation.

Detroit’s Dan Gilbert hopes to use the new incentives to create his $750-million-plus mixed-use project on the old Hudson’s site downtown — touted as Detroit’s future tallest building. The project, Gilbert has argued, cannot be built as planned without some tax incentives to fill the gap between what the project costs and what current real estate values will support.

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The people Synder disappointed were all those who think Michigan shouldn’t be handing out tax credits at all, especially not to billionaires like Gilbert. There were many such, and they were loud in their antagonism toward such financial aid.

But the real issue, ignored in the debate so far, is that neither this new package of super-incentives for major projects, nor the other package the governor touted during the Mackinac Policy Conference recently to lure major employers such as Asia’s Foxconn to the state, gets to the real need.

By all means, let’s support the Hudson’s project and lure Foxconn. But the State of Michigan unwisely killed off a variety of tax credits in 2011 that supported hundreds more everyday projects in our neighborhoods and communities, projects that had relied on tax incentives for decades.

Take the old Michigan historic tax credit, just one type killed off. Up to 2011, developers and communities could take up to 25% of eligible expenses on a historic rehab project as a tax credit. It applied both to residential and commercial projects, so long as the building involved either contributed to a historic district or was individually listed as a historic site.

Take just one example: The old Vanity Ballroom on Detroit's far lower east side sits vacant today as it has for years, waiting for a financial deal to make sense to bring it back to life. Recruiting a developer to do such a project would prove easier if the historic rehab credit was still in place.

Say a developer wished to rehab such a project. The project costs, say, $1 million. So the state historic tax credit once allowed the developer to deduct 25%, or $250,000, off his taxes or, more likely, sell the credit to investors for upfront cash. Numerous projects got done that way in Michigan, including vast numbers of older buildings in Detroit.

Indeed, decades ago when lawmakers both in Lansing and in Washington, D.C., created such historic tax credits at the state and federal level, it was pitched as an economic development tool for older, distressed cities in the northeast and Midwest — what planners now call “legacy” cities.

“The benefit is that we’ll see so many more historic buildings rehabbed and renovated and reused,” said Nancy Finegood, director of the Michigan Historic Preservation Network. “I’m very respectful of those that can afford to rehab, like Gilbert, but when you look at smaller communities or small towns or small developers, without that extra incentive, they just can’t fill that gap.”

When Snyder took office, working with legislators, he killed off such tax credits in favor of a broader business tax cut. A phrase commonly used was “economic gardening” — the idea being that instead of trying to lure outsiders to the state with big tax breaks, we ought to create conditions to nurture our homegrown economy.

But it’s clear now that state leaders went too far. Michigan’s nascent movie production industry all but died at birth when legislators significantly cut back state film credits. The historic tax credit that had supported so many projects in Detroit and elsewhere vanished.

Time to bring at least some of them back. And that may, in fact, happen. State Sen. Wayne Schmidt, R-Traverse City, told the annual conference this year of the Michigan Historic Preservation Network that he would introduce bills soon to reinstate such tax credits. We’ll watch for that to see how it goes.

So by all means, let’s support the biggest mega-projects such as Gilbert’s Hudson’s site deal or our attempt to lure Foxconn with its many jobs. Controversial those incentives may be, but they deliver a real bang for the buck.

But let’s also help out the little guy, even if “little guy” in this case means a developer dealing with a project worth only a million or so. It’s those little ones, spread across a city and a state, that really have more to do with bringing a community back.

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