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State incentive programs slowly begin to roll out but will they work?

9 Apr 2012

I’ve blogged before about Governor Snyder’s replacements for the Brownfield MBT, historic property tax and MEGA credit programs.   Last August, the Michigan Economic Development Corporation (MEDC) announced that, effective October 1, 2011, those old programs were recast as the: (1) Michigan Business Development Program; and (2) the Michigan Community Revitalization Program.  This was the Governor’s effort at focusing on “business gardening” – ostensibly

These programs are just now being rolled out – a delay of some 7 months.  Thus far, not a single project has been approved (but to be fair, I’m not sure anyone has applied). The rigor that the Michigan Strategic Fund is going to put applicants through is severe. For example the return on the developer’s investment will be evaluated.  Here is some of what they are looking for (as applicable) before funding grants or loans under the Community Revitalization Program:

1. Projects that revitalize regional urban areas get preference;

2. Only projects within a downtown or traditional commercial center and only projects that primarily promote the desired revitalization of urban areas;

3. The amount of local community and financial support for the project;

4. The applicant’s financial need for the incentive and whether the project is financially and economically sound;

5. The extent of contamination and reuse of vacant buildings and historical buildings and redevelopment of blighted property;

6. Whether the project increases area density and promotes mixed-use development and walkable communities;

7. Whether the project promotes sustainable development; and

8. Whether the project will compete with or affect existing Michigan businesses.

Despite the “no picking winners/losers” mantra – clearly this program has a specific focus and asks for much more than the old programs did.  Some developers might not want their finances looked into this deeply   This is different from the Business Development Program which last month approved 5 incentive packages for five business expansion projects.  That Program is clearly focused on jobs and provides:

•  No support for any retail projects;
•  No support for any retention projects;
•  Consideration given to out-of-state competition;
•  Net-positive return to Michigan;
•  Level of investment made by business;
•  Shovel-ready projects with funding support;
•  Business diversification;
•  Re-use of existing facilities;
•  Near-term job creation;
•  Wage levels for those new jobs;
•  Employer provided benefits;
•  Strong links to Michigan suppliers; and
•  Whether the project is in a distressed or targeted community.

There was a pot of $100 million for incentives, which can be grants of up to $1Million; or loans or other economic assistance of up to a total of $10 million per recipient.

The best energy dollar is one you never spend. More insulation?

20 Jan 2012

The siding is down for the injection of insulating foam

Many articles that I’ve read say that the best energy dollar is the dollar not spent. Given that the overall trend in energy prices is up, and that our house has some very cold rooms, we thought that it was time to revisit our home’s insulation.

This week, we had USA Insulation add insulation to our attic and inject foam insulation into the walls of our home. Most interesting to me was when I learned that the many recessed lights in the ceiling act like chimneys venting air out of the house – air I had been paying to heat or cool!  The insulators have boxed in those lights, so that has stopped.  We also learned that despite insulation we added 4 years ago, our attic barely met current standards and the walls in our house had little insulation.

USA Insulation told us that we should see roughly a 30% energy savings from this insulation. My daughter has announced that she thinks our home office (which is hot in the summer and glacial in the winter) already seems less cold – and given our recent single digit temperatures, I was pleasantly surprised to agree.

I will be closely reviewing my utility bills, as this was not cheap to do. There are some utility and federal incentives and financing is available, but it’s still a pricey investment.  As we plan to be in the house for 15+ years, I’m hoping to recoup that cost and come out well ahead (I’m hoping for a 4 year or less payback) while saving energy and reducing our carbon footprint as well.

Looking Ahead To 2012.

5 Jan 2012

Wetland Rules at the Federal Level.  The Sacketts bought a $23,000 residential lot in Idaho and filled it in with dirt and rocks in preparation for building a home. The EPA fined the Sacketts claiming that the property is a wetlands that cannot be disturbed without a permit.  Next week, the U.S. Supreme Court will take up the Sacketts’ case, not to redefine wetlands, but to decide whether landowners are entitled to a hearing before a judge when they are confronted by the EPA. The case is being closely watched by developers and environmentalists.

Further, as Arthur has blogged about a number of times, it will be interesting to continue to watch how the federal government interprets the 2006 Rapanos decision regarding federal jurisdiction over wetlands.  Since no single Rapanos opinion garnered a majority of the Justices’ votes, it is unclear which opinion sets forth the controlling test for wetlands jurisdiction and fights and court cases will continue to follow.

EPA Greenhouse Gas Rules vs. Congress.

Last month, the EPA released new rules under the 1990 Clean Air Act which were aimed at coal burning power plants.  More than a dozen electric power companies, municipal power plant operators and states had sought to delay the rules due to, among other things, the over 2 billion dollar price tag.  Last week, a federal appeals court in Washington approved their request.  Republicans claim that the rules would shutter some older, coal-fired power plants and kill jobs.  Obama and the EPA claim that the investments would be far outweighed by the hundreds of billions of dollars in health care savings from cleaner air.  The court is asking that oral arguments take place by April 2012.

Coal Ash – Hazardous Materials?

The EPA is currently considering several options on how to regulate coal ash, from giving it a special status as a hazardous waste to classifying it as a solid waste. The industry has said that even a solid waste classification would prompt the closure of some existing coal ash ponds and landfills, costing jobs and raising energy bills.  Last Halloween, a Wisconsin utility had a section of cliff the size of a football field give way, creating a mudslide that sent equipment and coal ash spilling into Lake Michigan.  I suspect a greater level of pressure on the EPA to characterize coal ash as hazardous or otherwise ramp up regulation of coal ash impoundments in 2012.

Fracking Debate Rages On.  The proliferation of hydraulic fracturing, also known as fracking, across the U.S. in 2011 sparked protests and debates over its utility and side effects.  Last May, the State of Michigan issued new requirements for the process (Michigan enters the “fracking” fray).  In November 2011, the EPA announced plans to expand federal oversight of fracking fluids after an EPA study revealed that an aquifer in Wyoming, which had seen extensive gas drilling, contained several cancer-causing compounds, and at least one chemical commonly used in fracking fluids.  The fracking debate is sure to rage on in 2012.

Keystone Pipeline.  President Obama and Congress are starting the new year locked in a politically charged dispute over the Keystone XL pipeline, a proposed 1,700-mile oil pipeline from Canada to Texas.  Republicans and some unions claim that the pipeline will create thousands of jobs. Environmentalists fear it could lead to an oil spill disaster.  The pre-Christmas agreement between Obama and Congress temporarily extending the payroll tax cut included language forcing Obama to make a speedy decision on whether to allow the building of the pipeline.  The $7 billion pipeline poses a political trap for Obama because it divides his supporters (environmentalists oppose the project while most labor unions support it).

Redevelopment Incentives in Michigan – Trying to Do More with Less.  Last year, the wildly successful MEGA, Brownfield and Historic tax credits were eliminated and replaced with two downsized programs.  This was a major disappointment as these incentives encouraged the redevelopment of blighted and polluted properties in Michigan.  So what will builders, developers and investors turn to in 2012?  Will Ann Arbor’s PACE legislation thrive and become a model for other communities?  Those seeking redevelopment in Michigan will certainly be trying to do more with less in 2012.  Hopefully, the MEDC and municipalities will assist developers and businesses to find creative ways to encourage investment, revitalization, and rehabilitation in the State.


Top Michigan Green Law Stories of 2011

27 Dec 2011

As we race toward the end of the year, we thought we’d look back at what we thought were the big stories of 2011 on, and in no particular order:

  • Solar Suffers / Wind Farms Move Forward – As we reported, due to a lack of incentives and serious foreign competition, solar companies languished this year and many will not make through 2012 – see posts regarding solar’s suffering; however, wind generated energy appears to be going strong- see posts regarding the progress of wind development.
  • Fracking – something that was little heard of before 2011, received a lot of notoriety as Michigan issued new rules for this gas extraction process, New York evaluated doing likewise, the EPA began to study its side effects in earnest and dueling reports began to be released.
  • MDEQ reorganization – in 2010, there was a lot of focus on legislation intended to move more sites toward closure and while the law passed, the MDEQ did little but thumb their collective noses at the change.  Well, the Director shuffled the staff in hopes of shaking some closures loose – Shake Up At MDEQ .  Time will tell.
  • PACE Legislation – Michigan adopted Property Assessed Clean Energy (PACE) legislation intended to help fund green energy and energy conservation investments in commercial buildings.  Ann Arbor then became the first City to adopt a PACE Ordinance.
  • New Due Diligence Requirements – As we blogged in Buyer Beware buyers may now need to do their own environmental inspections on residential properties which may chill the sales of refurbished industrial lofts. This comes on top of speculation that some due diligence was deficient as it was not well documented – what are developers and buyers to do?
  • Brownfield Credits Done – Governor Snyder, in an effort to get control over tax credits which did not appear on any government budget, decided that he would cap the amount of incentives given out and eliminate the  wildly successful brownfield credit program. While the public’s focus was on the TV and film making credits, the Governor first froze and then significantly downsized this program just when Michigan needed it most.

So, what is replacing the brownfield and historic credit programs?

25 Aug 2011

The Michigan Economic Development Corporation (MEDC) announced yesterday that effective October 1, 2011, it has taken the old MEGA, Brownfield and Historic tax credit programs and has recast them as the: (1) Michigan Business Development Program and (2) the Michigan Community Revitalization Program.  This was done ostensibly due to the elimination of the MBT on which those credit programs depended.  However, more likely, this was the Governor’s attempt to put his preferred focus on “business gardening” into action. 

Beginning Oct. 1, the new programs will provide $100 million in incentives for competitive projects in the State which can be in the form of grants, loans, or other economic assistance of up to $10 million each.

According to the MEDC:

  • The Michigan Business Development Program will support businesses that create qualified new jobs and make new investments in Michigan.
  • The Michigan Community Revitalization Program will support projects to revitalize regional urban areas, act as a catalyst for additional investment in a community, reuse vacant or historic buildings, and promote mixed use and sustainable development. 

It is nice that the MEDC is creating two new incentive program and it’s good that the MEDC is focusing on job creation, community redevelopment, benchmarks, flexibility and  transparency.  The problems here are that these programs are smaller than the current $175 Million program the Governor put into place for this year and far smaller than the programs that these programs replace. 

Even more problematic is the fact that roughly eight months after the Governor pulled the plug on the MEGA, brownfield and historic credit programs, is the fact that the MEDC still seems to be “creating” these programs with only a month to go before they launch – there appear to be no publicly available criteria, scoring mechanisms, goals or targets – while it is clearly a big and important job, how can the business community plan to seek these incentives when they don’t know what’s being incentivized or how the two programs will interact?   

This issue is too important to the business community and the future of the State for 8 months to pass and the MEDC still not to have much concrete to show.

New solar deal? Not in Michigan

17 May 2011

A company named Sungevity just announced a deal with Lowes in an effort to make solar panels more of an off-the-shelf commodity rather than some sort of unique exotic product that people talk about but don’t buy.   Sungevity has a motto of “making it easy” for homeowners and the way they approach this is to not sell solar systems but to lease them.

The single biggest barrier to solar power is the high upfront cost.  Sungevity claims that its Solar Lease avoids that impediment.  With no money down, they say they will design and install a  customized systemand then lease the panels to the homeowner for a low monthly rate. 

Sungevity’s pitch is that the combined cost of the lease payment and a lower electricity bill should be less than the pre-solar electricity bill. Sungevity takes responsibility for the system performance and so both installation and maintenance are someone else’s problems – which sounds good to me.

The company makes money off Federal and State incentives (some of which expire this year) and I suspect the lease program may include some percentage on electricity sold back to the utilities.  Unfortunately, because Michigan does not have  incentives as strong as those offered elsewhere (and typically less sun than say Arizona), Sungevity does not currently plan to offer this program here.  In fact, DTE just announced that its Solar Currents credit program was “full” as they had hit their goal of five megawatts of solar generation created.

Brownfield progams work – who doesn’t get this?

9 May 2011

Last week’s Freep had a piece supporting the brownfield tax credit and historic tax credit programs.   Unfortunately it was only in the online version and I wonder how few people saw it.

It was written by the City of Adrian DDA director and economic development coordinator, a U-M public policy professor and the CEO and executive director of the Michigan Municipal League. 

They “get” that these programs work by facilitating investment.  “And they are smart investments because private dollars come first, jobs come first, rehabilitation or renovation comes first, increased tax base comes first, and then, and only then, does the state provide a short-term reduction on taxes that were already increased as a result of the project completion.”  

The argument that there’s no data about the economic ripple effects of  these programs (i.e., the “do they pay for themselves” question) isn’t an argument against the programs – it’s an argument for better data gathering.  I believe that once data is gathered, it will show developers are using these incentives to break down barriers to market entry which include business risks and reluctance by traditional lenders to lend in urban areas.  These developers are in it to create jobs because that makes money, but no one has ever measured these benefits before.  However,  no developer is saying “I want to spend years of my life rehabbing a building or site because I will recoup 15% of my investment at the end of this process.”  They expect to make money – and that means jobs.  

The Governor seems to be getting his way with the Legislature – revised tax legislation doing away with these credits is moving swiftly toward his desk.   However, the Governor has reportedly said that he wants to do something to replace these programs – funding them at lower levels, via a Legislative appropriation or some other mechanism.

That approach is less than optimal because it would be subject to political whims and likely would be inconsistent – a serious disincentive.  Stability and predictability are key to the success of these programs.  A lower level of funding is problematic because it limits the number of projects that can be funded.  Whether and how those programs will be funded remains to be seen.  One thing is clear – unless the Governor and Legislature replace these incentives in a way that encourages urban redevelopment, there will be far fewer brownfield and urban redevelopments – just as the City of Detroit seemed to be reaching a positive tipping point.