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Wednesday, April 13,2011

Incentives cut short

A tiny building shall lead the way — if the governor gets his way. Snyder’s proposal to reduce development tax incentives by more than $160 million derails plans for Old Town’s Comfort Station — and that’s just the first stop

by Andy Balaskovitz
As far as redevelopment projects go, the Thelma Joyce Osteen Comfort Station is a small one.

The two-story, 17-foot-wide, 2,424-square-foot historic train station that sits on .03 acres in the heart of Old Town is nearly 100 years old and has sat vacant for almost 10.


But the tiny building could become hugely symbolic of a major slowdown in state support for development, at least in the short run.


Gov. Rick Snyder’s proposed budget includes drastically cutting about $164 million — almost 70 percent — out of incentive packages the state grants for redeveloping properties, particularly those that are deemed historic or contaminated, or both.


The city has agreed to sell the Comfort Station, 313 E. Grand River Ave., to the Michigan Historic Preservation Network for $60,000, but the development agreement hinged on obtaining historic and brownfield tax credits from the state. However, Snyder’s plan to scale back new tax incentives for historic and brownfield redevelopment means the project is shelved for now, said Bob Trezise, president and CEO of the Lansing Economic Development Corp.


And it is not alone, Trezise said. “The governor’s proposal to eliminate these tax credits is devastating for the city,” Trezise said.


He added that Comfort Station is one of “many casualties” in the city, but he would not specify other projects looking to take advantage of historic and brownfield incentives. “There’s a whole group of them.”


The LEDC website lists pending projects in the city that depend on brownfield and historic incentive packages, including the Gillespie Group’s Ball Park North, the former Holmes Street School and the former administration building on the School for the Blind campus.


The Michigan Economic Development Corp. said the governor is looking to scale back these types of incentives — which also include Renaissance Zones and Michigan Economic Growth Authority, or MEGA, credits — and limit them to a certain number annually to go along with a lower business tax.


Ryan Kincaid, CEO of Kincaid Henry Building Group, said plans to redevelop the former Deluxe Inn property in REO Town at the corner of Washington Avenue and Malcolm X Street is also on hold in light of the governor’s plans.


“That one is definitely affected,” Kincaid said, adding that his company has six or seven other projects in the greater Lansing area on hold. While they’re not dead in the water, they’re forcing him to consider other ways to finance the projects.


“The process had to be stopped or put on pause at least until we find out what happens with the budget. It basically made those projects unfeasible from a financing standpoint,” he said. “The plan is to ride this out.”


Historic tax credits are a combination of state and federal discounts on new construction, while brownfield incentives reimburse developers for cleaning up contaminated properties as the property’s taxes increase.


“They were available, now they’re not,” Trezise said of the historic and brownfield incentives, adding that they could be reintroduced by the Legislature, which Snyder wants to pass a budget by May 31.


“We’ll know when the budget is passed,” Trezise said.


Lansing City Councilman Brian Jeffries, who chairs the Development and Planning Committee, said the Council is getting fewer applications from developers. Before the state approves tax breaks, the package must be approved by the Council.


“We’re being told from the state that, because of the governor’s proposal, this could very well be the last year a number of these incentives are offered,” Jeffries said. “What does this mean for new development? On our (Council) agenda, you can see we’re not getting many new projects coming in. The (tax) abatement stuff is just not there.”


While Jeffries said incentives like Renaissance Zones and film tax breaks are worth debating — and the effects of Snyder’s lower business tax remain to be seen — historic and brownfield credits have benefited Lansing.


“For old urban areas like city of Lansing, the thing that has saved us and made us competitive is clearly the brownfield tax incentive as well as historic tax credits. That levels the playing field for us,” he said.


The would-be buyer of the Comfort Station is the nonprofit Michigan Historic Preservation Network. Its headquarters is in Old Town at 107 E. Grand River Ave., a few blocks west of the Comfort Station.


Gary Scheuren, the network’s program director, said the group was looking to move into the second floor of the Comfort Station and lease the first floor to a “commercial” entity, but he would not discuss details. For now, he’s “reexamining” the move.


“Incentives are a real critical piece in the redevelopment of vacant and underutilized historic resources,” he said. “This project as we had assembled it and put it together did in fact hinge on those credits.”


Scheuren said it’s possible the deal might not happen. He would not comment on how much money was predicted to be saved had the incentives been granted.


“This was an opportunity to walk the walk and talk the talk. This is a way we can demonstrate to other communities how you can go about developing these types of buildings that are essentially underutilized.”


The MEDC confirmed that while historic tax and brownfield incentive applications are still being accepted, the state is tentatively not granting historic credits and plans to grant only about 10 percent of the number of brownfield projects this year than it approved last year.


MEDC spokesman Mike Shore said the governor’s plan is to drastically reduce the amount of tax incentives awarded annually in exchange for a flat 6 percent business tax.


“We’re transitioning to a new way of doing things,” Shore said, adding that there is “nothing that says in the future we won’t do brownfield development projects. It is not a certainty that this project couldn’t receive brownfield (incentives) to help it along.”


After all, Shore said, the governor’s proposed budget still has to pass the Legislature.


In 2010, the state granted $299 million through various tax incentive programs, Shore said. About $60 million of that was for the film industry, $25 million was for renaissance zones and historic credits, while the remaining $214 million was in MEGA and brownfield credits.


Shore said Snyder has proposed capping the annual amount in incentives at $50 million, coupled with a lower business tax rate.


“A lower business tax means the state doesn’t have to provide as much tax incentives,” he said. “We fully understand there are people out there who don’t agree with this strategy.”


Trezise is one who disagrees. While he hasn’t completely given up hope on the Comfort Station project, Trezise said the governor’s plan to cut back on these types of tax credits is just a philosophical difference, particularly on how to redevelop cities.


“I don’t see how vacant buildings help cities,” he said. “My frustration (with not granting the incentives) is that these historic and brownfield credits don’t cost taxpayers any money.”


Trezise said historic and brownfield credits are being viewed as the same thing as the film incentives.


“Our tools and incentives like these credits that help cities so much are tainted somewhat by incentives that really do give cash to businesses, i.e. film incentives,” he said. “We need to make sure each class of incentives are examined under the right category. I’m not sure that’s being done right now.”


The preservation network and Vesta Builders were the only two entities that responded to the city’s request for proposals to redevelop Comfort Station. That request was issued on July 30. After awarding the project to the preservation network, a development agreement was to be reached in February.


The nearly 100-year-old building, which sits only a few feet west of the dormant train tracks (see story below), once served as a public restroom and waiting area for rail travelers. The North Lansing Community Association leased it from the city for more than 20 years at $1 a year. But in 2002, the city sent out a “request for proposals” to sell the building, which essentially evicted the community association.


Pablo Maldonado, owner of Pablo’s Panderia restaurant next door, said he is interested in expanding his restaurant into the first floor of the station. While he said he talked with the preservation network “a few months ago,” he hadn’t heard that the project was stalled on account of the tax incentives.


“Hopefully we have an answer soon,” Maldonado said.


Trezise, who met with Snyder on incentives, said the governor argues that the market will determine where development happens.


“I argue that the free market has spoken loud and clear. The free market is urban sprawl and poor environmental policy,” he said. “I know what the free market did to cities. We don’t need to repeat history. These historic and brownfield credits at best even the playing field between contaminated sites and greenfield sites.”

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