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Brownfield Funding Legislation Enacted

5 Jan 2017

law

The bills passed.  At last.  As you may recall from two years ago, I served on an MDEQ-led task force to  review and improve the “patchwork quilt” of statutes and rules regarding brownfield redevelopment incentives, grants and loans.  A CSI II group (of which, in full disclosure, I chaired the Legislative Committee) met regularly in 2014.  The changes certainly would’ve been introduced earlier but the Flint Water Crisis happened and everyone’s attention was diverted. Earlier this year, a package of six bills was introduced in the Legislature; on the 15th they were passed and on  January 5, 2017, the Governor signed them.  They take effect in 90 days and are now 2016 Public Acts 471-476.

These proposed changes streamline, simplify and speed up the process for loan, grant and TIF approvals to enable projects to get started faster than ever before while supporting a greater range of eligible activities than previously available.

The most significant changes include:

  • demolition, lead abatement, asbestos abatement dredging and excavation of uncontaminated but unusable soils may be eligible for grant and loan funding, subject to certain criteria and prerequisites (such as a threshold that at least 51% of the eligible activities are part 201 type expenses);
  • one can be technically liable under Part 201, TSCA or RCRA and still be eligible for grant, loan or TIF funding – previously, even someone who submitted a technically deficient BEA was barred from eligibility – with a renewed emphasis on remediation and redevelopment, only those who actually caused contamination are barred from eligibility, again, subject to certain criteria and prerequisites;
  • while the definition of “eligible property” was changed very little, activities eligible for funding through TIF are broadened to include such things as due care expenses, UST removals, solid waste disposal, sediment removal and disposal (where either the sediments or the upland are contaminated), plan preparation and implementation costs (subject to certain conditions and caps), including the costs to track plan compliance and a clearer set of sheeting and shoring costs;
  • overall streamlining of the application and review processes in an effort to speed up the TIF process including giving greater authority to the Michigan Strategic Fund to approve plans of up to $1 Million without waiting for a Fund Board meeting.

There was some tension between those championing redevelopment and those focusing on environmental remediation but, ultimately, the set of changes to the rules and statutes clarifying the process for obtaining loans, grants and tax increment financing for brownfield redevelopment. Not every issue was agreed upon and there was a list of so-called “parking lot issues” (either because they were discussed at length in the parking lot after the meetings or because we “parked them” there as we couldn’t reach consensus).  Hopefully some of these will be addressed in the near future but these proposed changes should streamline, simplify and speed up the process for loan, grant and TIF approvals to enable projects to get started faster than ever, while supporting a greater range of eligible activities than previously available.  Given the Legislature’s unwillingness to approve other similar bills, this was a real accomplishment for brownfield redevelopment in the State of Michigan.

What will 2017 Bring? Dramatic Change?

20 Dec 2016

edit_calendar_ssk_47433454In prior years, we knew that regulatory and environmental change was coming but we expected it to be slow and incremental.  With an unknown quantity like President Elect Trump, one thing is clear – no one really knows what may happen.  Here are a few possibilities:

1.  Coal/Cleaner Energy Generation – revitalizing the coal industry was part of Mr. Trump’s midwest stump speeches.  Will Mr. Trump be able to reverse Barack Obama’s Clean Power Plan? What about the Paris Climate Accord?  Certainly, his team is looking at both of those right now. The dispute in Michigan v. EPA, decided in June 2015, continues to rage.  In 2015, the US Supreme Court ruled that the EPA didn’t properly justify its rule governing mercury and toxic pollution (MATS) from power plants because it did not specifically address costs at the initial stage of the rulemaking process. In April, the EPA announced it was standing by its MATS rule and concluded that the benefits far outweighed the costs.  Petitioners continue to litigate whether the EPA properly evaluated costs.  Here in Michigan, new legislation has been passed (and is awaiting the Governor’s signature) intended to encourage additional investment in energy generation and transmission while balancing consumer choice and a greater percentage of renewable energy generation.  Will it work? At a reasonable cost?

2. Power Generation Subsidies/Oil/Gas Generation – Mr. Trump’s attacks on “crony capitalism” would seem to mean that he will stop financial incentives for solar and wind generation.  Will he also attack oil and natural gas supports in the tax code?  Will he open up ANWAR to oil/gas exploration?  Will he scale back attempts to regulate fracking?  This will be difficult in light of the December EPA Report  which concluded that fracking posed problems such as:  fracking water withdrawals compete with other water needs; spills of hydraulic fracturing fluids and chemicals or produced water may impair groundwater resources; injection of hydraulic fracturing fluids into wells may allow gases or liquids to move to groundwater resources; discharge of inadequately treated hydraulic fracturing wastewater to surface water resources; and contamination of groundwater due to disposal or storage of fracturing wastewater.

3. Pipelines – will Mr. Trump reverse the Obama administration’s dim view of oil and gas pipelines such as the Keystone XL and Dakota Access Pipelines?  How will this affect Michigan where public awareness of two 60+ year-old pipelines under the Mackinac Straits has galvanized both sides of the political spectrum into action.  In 2014, Michigan convened a pipeline task force which issued a report in 2015.  In September, 2015, the State entered into a written agreement with Enbridge to prevent the transport of heavy crude oil through the Straits Pipelines.  The task force also recommended that the pipelines be independently evaluated and that additional financial assurance be provided.  The State solicited Requests for Information and Proposals (RFPs) and Enbridge agreed to pay $3.6 Million for the evaluation of the Straits Pipelines.  An independent evaluation of alternatives to the Line 5 pipelines is also underway.  When those will be completed is not known.

4. Infrastructure – Mr. Trump campaigned on infrastructure (although to hear him tell it, that only encompasses airport quality), and Governor Snyder appointed a 21st Century Infrastructure Task Force which concluded that the State needed to be investing $4 Billion more than it was in infrastructure to address roads, bridges, internet, water, sewer and other infrastructure needs.  Given the recent nationally publicized Flint Water debacle, will Michigan find the intestinal fortitude to fully invest in infrastructure or will we continue to patch and delay?  Given the State’s recent fight against a federal judge’s order to deliver clean water, and Michigan legislators “default anti-tax setting,” the future does not bode well.

5. Brownfields – as previously reported, Michigan adopted legislation streamlining its brownfield funding laws and deferred action on Dan Gilbert’s “transformational” brownfield funding legislation.  Will that resurface in early 2017?  I expect it will.

6. Other issues – there are a number of other issues on the horizon including cleanup standards, the maturing of the Great Lakes Water Authority and its ability to deliver clean water and septic services at a reasonable price, Michigan’s effort to reimagine its solid waste program, water withdrawals and protection of the Great Lakes from invasive species and nutrients leading to algal blooms.

Gilbert Transformational Brownfield Legislation Stalls

12 Dec 2016

MOnroeblock9Dan Gilbert’s team drafted legislation based on the current Brownfield law.  This legislation was  moving rapidly through the Michigan Legislature until the Michigan Speaker of the House announced that the House would wait until next year to move the bills forward.  While this seems to have killed the bills for now, some are still lobbying for them to become law before 2017.

Articles had appeared in the local papers describing two proposed towers for the Monroe block of downtown Detroit (pictured), These articles include statements that the buildings won’t be built without this legislation being enacted (and presumably implemented in their favor).

The legislation is based on an existing approach – when a project increases property value, the taxes on that increased value can be captured and used to pay for  “eligible expenses.” Typically, these TIF (tax increment financing) programs put the risk of failure on the developer (where it belongs) while they increase the potential return by reimbursing the developer for expenses it would otherwise absorb.  The current brownfield law allows communities to issue bonds and pledge their full faith and credit, but in the brownfield “universe” that almost never happens.

The brownfield TIF law allows reimbursements for cleaning up contamination and taking protective measures and, in more urban communities, for costs of site preparation and infrastructure improvements.   This State, like many others, has decided that these incentives are necessary to entice developers to take desired risks. This is not a tax credit, nor, do the taxpayers of the State front any money to the developer.  If the development does not result in the increase in taxes expected, the developer loses. Without a bond, if there is no tax increment, the community/state owes the developer nothing.  Further, the community is held harmless because the predevelopment property taxes continue to go to the government as they did before project development. In short, this is a kind of “deferred gratification” for the taxing authorities as they must wait until the developer is repaid to get taxes on the increased property values (certain taxes are exempted from the TIF program and so there is some immediate benefit to the community).

So what’s the fuss about the Gilbert legislation?  These bills take the Brownfield TIF and put it on a massive dose of steroids. In addition to capturing real property taxes,  the Gilbert team proposes to capture both income taxes and sales taxes generated on a property following its redevelopment, if the project is “transformational.” This legislation vastly broadens the eligible expenses which can be reimbursed.  Instead of covering only environmental cleanups, environmental due care and communal benefits like infrastructure, the Gilbert legislation would allow a developer to be reimbursed for all of its construction costs. This is bold and would almost certainly lead to new, riskier developments. A developer could wind up with a significant competitive advantage because his costs are could be fully reimbursed. This could allow such a developer to undercut the market or amass significant profits.  The potential for market distortion appears to have been overlooked by the few commentators who have spoken on the subject.

The legislation includes a cap on the number of such transformational projects per year and per community and with a maximum of $50 Million in the first year’s capture for new projects. It is tiered so what is transformational (based on a dollar amount) varies based on the size of the community. This was a sop to smaller communities to get their support for this legislation as was a provision putting funds into the State’s Brownfield revolving fund. There are also some exemptions from the spending requirements including one that seems directed right at Flint.

“Transformational” can mean many different things  but the legislation’s focus is whether a project will transform local economic development, community revitalization, growth in population, commercial activity and employment.

The legislation received little notice until recently. Interestingly, it has been criticized by those on the left and on the right. A Free Press column calling this legalized “serfdom” for employees seems over-the-top. Yes, taxes will be collected and ultimately reimbursed to the developer.  I don’t see that equaling employee slavery. The Mackinac Center piece is a bit closer to the mark. They complain of “crony capitalism.”  The fact that only a few developers can get these projects approved per year and one per community per year does seem like the sort of favoritism inherent in crony capitalism. Further, the fact that the projects are limited to extremely expensive ones (on a range between $15 Million and $500 Million depending on county population), again, seems to mean that only the elite get benefits that are not available to the ordinary developer. In that regard, as the Mackinac Center points out, this is no different than any TIF financing model (and there are many of them in use throughout Michigan and the US).  This is the world we live in as evidenced by President-Elect Trump’s efforts to keep a Carrier plant in Indiana.

The capture of sales and income taxes would be new to Michigan and would put Michigan in the minority of states that allow such capture.

What has not been commented on is the need for a mechanism to ensure that the taxpayers of the State of Michigan are held harmless – so that the income and sales taxes to be captured are truly new to the State and not the result of a business moving its operations from one place to another.  This mechanism (and others needed) are to be developed later.  This is a practical consideration with large implications.  The State’s review of this legislation thus far includes an admission that the Legislature has no idea how much this might actually cost the State in revenue if it passes as is.

Will this package of bills pass?  I expect it will.  If not this month, then early next year.  If the Legislature doesn’t address some of the concerns expressed above, we may find ourselves with some major projects and some unintended consequences not too far down the road.

Earth Day 2016 – hopefully this year will be better

22 Apr 2016

NASA_Earth
On this, the 46th Earth Day, I have reflected on both how far we have come and how much further we have to go.  Certainly, our waters and air are cleaner than they were in 1970. Our energy and cars are cleaner as well. However, the environmental challenges our society now faces are more complex and more granular and, therefore, harder to “solve.” Think about algae in Lake Erie and invasive species throughout our lakes and lands – those are much harder to deal with than a handful of industrial polluters.

Given the events of the last year in Flint, Michigan has become the country’s “canary in a coal mine” with respect to lead. More people are talking about lead and know about it than literally ever before.  When John Oliver spends 18 minutes on it on HBO, you know it is permeating the nation’s consciousness.  In some cases, it is possible we are focusing too much on water and not enough on paint and dust.  Despite the political posturing and the recent criminal charges, I do expect that the politicians and regulators will, in the near term, step up  and we will see greater action on lead removal and protection. Unfortunately, that has been the pattern – major environmental problems result in new environmental initiatives.

Unfortunately, the Flint crisis is likely to delay, perhaps indefinitely, the State’s efforts on developing a Michigan energy policy and, despite his recent letter to State employees, regulatory paralysis will likely reign in Lansing. It is difficult to see State agency employees taking anything other than the most conservative of positions to avoid falling prey to the kinds of problems that occurred in and from the Flint crisis – criminal charges have a way of focusing the mind.

The lack of: (i) an energy policy; (ii) a current solid waste policy; and (iii) a fully funded sustainable program to support brownfield redevelopment (although long promised legislation on brownfield incentives was recently introduced) coupled with the greater focus on petroleum transport via pipeline, particularly, under the Great Lakes, makes me wonder how things will look here in Michigan on the next Earth Day.  Michiganders have always had a healthy respect for our environment – we were among the first in the nation to protect wetlands and waters – the 1950’s vintage easement on pipeline 5 under the straights of Mackinac was cutting edge in its time.  Will Michigan resume its previous environmental leadership or will we continue to struggle as we have for the last few years?  Being in a negative national spotlight is not something any of us sought but now that we’re here – perhaps it is time to step up and take a leadership role on the environment as we once did.  It will cost money and effort but the results – our health and the health of the environment are worth it.

What will be the top stories of 2015?

23 Jan 2015

edit_calendar_ssk_47433454Happy new year!  I know it’s almost February but as this is my first blog post of the year, I thought (particularly after hearing the State of the Union and the State of the State speeches)  I’d predict the big stories of 2015 in no particular order:

  • Wetland Rules – the EPA and the Army Corps of Engineers finally proposed rules in 2014  to address the fallout of the Rapanos case.  The proposal was met with a firestorm of disapproval, particularly from the farming world.  Will they ever finalize them?
  • Brownfield TIF Legislation – after all that work last year, will the Legislature take up streamlining this program and expanding it to allow Michigan to be even more competitive in redeveloping brownfields?
  • EPA Greenhouse Gas Rules vs. Congress – in September, 2013, EPA issued a proposal for carbon pollution from new power plants; in June  2014, EPA issued a proposal to cut carbon pollution from existing power plants – the GOP and coal and oil interests in Congress have fought this for some time.  Will the rules be adopted and enforced?  Will there be enough time for electricity generators to get alternative plans in place before being forced to shutter their oldest, least efficient and most polluting plants?
  • Keystone Pipeline – President Obama and Congress have been locked in a politically charged dispute over the Keystone XL pipeline for almost 3 years now – he seemed to indicate in the State of the Union that he’d veto legislation – will he?
  • Energy Policy – Governor Snyder has pushed for an energy policy, legislation is expected this year and the Governor recently mentioned an intention to develop a new energy agency that would make Michigan more competitive for business.  What that will entail in light of the likely changes due to federal regulations will be interesting to see – will Michigan upgrade or discard its renewable portfolio standard? Can Michigan reduce electrical cost while improving both reliability and environmental performance?
  • Water Policy – the Governor’s long-awaited great lakes policy is expected this year.
  • Pipelines – in addition to the Keystone pipeline, there has been a lot of interest in pipelines in, under and around the Great Lakes – could there be federal and state changes there?
  • Detroit’s Water Authority – it is supposed to morph into a regional authority – as I said previously, the easy part was getting to the agreement last year – will the hard work succeed or will it fail, causing major shockwaves for roughly half of the State’s population?

Electric Shaming – Part 2 – “I told you so”

15 Dec 2014

1368974_10201396380089655_297288408_nA year ago, I raised the question “has electricity shaming come to Detroit?”  This was after I started receiving the monthly “letter of shame” that DTE generates, comparing my family to our more and less efficient neighbors.  It appears I’m not alone in wondering about this.

Saturday’s Detroit Free Press asked the same question.  The answer appears to be about the same as mine was – most people wonder who are these “more efficient” neighbors and what are they doing that I am not?   Interestingly, the Free Press article says DTE and Consumers can document a decrease in electricity usage after these letters (and emails) start going out – albeit a relatively small decrease – 1%.  In the meantime. I’d appreciate better information on how to save energy rather than just the generic platitudes about switching lightbulbs (I’m working on it), vacuuming out my refrigerator (I do that)  and ditching the old refrigerator in my basement (not going to happen).

CSI Part II – MDEQ rolls out brownfield tax increment financing proposal – five major changes you should know about

11 Nov 2014

moneyAs you may recall from this spring, I was asked to serve on MDEQ’s initiative to  review and improve the “patchwork quilt” of statutes and rules regarding brownfield redevelopment incentives, grants and loans.  A CSI II group (of which, in full disclosure, I chaired the Legislative Committee) met regularly over the Spring and Summer and MDEQ has announced two meetings (see the attached flyer) to roll out the proposed changes. These changes have not yet been introduced in the Legislature and thus, are currently only an MDEQ internal recommendation. The hope is that these changes will be introduced shortly.

if passed, these proposed changes should streamline, simplify and speed up the process for loan, grant and TIF approvals to enable projects to get started faster than ever before while supporting a greater range of eligible activities than previously available.

There was some tension between those championing redevelopment and those focusing on environmental remediation but ultimately, there was agreement on a set of changes and clarification of the rules and statutes to clarify the process for obtaining loans, grants and tax increment financing for brownfield redevelopment.  The five most significant changes include: (more…)