RETAIL REDEV'T RENAISSANCE ZONES S.B. 971 (S-3): ANALYSIS AS REPORTED FROM COMMITTEE
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Senate Bill 971 (Substitute S-3 as reported)
Sponsor: Senator Hansen Clarke
Committee: Commerce and Tourism


Date Completed: 7-15-08

RATIONALE


The Michigan Renaissance Zone Act provides for the designation of various types of renaissance zones in Michigan. Residents of renaissance zones and businesses that are located and conducting business activity within a zone may receive certain tax exemptions, deductions, or credits. The Act provides for the designation of specialty renaissance zones for alternative energy development, the redevelopment of industrial property, agricultural processing facilities, tool and die recovery, and forest product processing facilities, among others. Some people believe that the Act also should allow the designation of renaissance zones aimed at retail redevelopment, in order to spur the revitalization of downtowns and other commercial areas in Michigan's cities and villages.

CONTENT The bill would amend the Michigan Renaissance Zone Act to do all of the following:

-- Allow the Michigan Strategic Fund (MSF) board to designate up to 20 retail redevelopment zones for qualified retail businesses by October 1, 2010.
-- Require that retail redevelopment zones be located in "qualified downtown revitalization districts" under the Neighborhood Enterprise Zone Act.
-- Require at least six retail redevelopment zones to be located in downtown districts under the downtown development authority (DDA) Act in cities or villages with a population of 25,000 or less.
-- Require at least five retail redevelopment zones to be located in cities with a population of 200,000 or more.
-- Specify factors the MSF board would have to consider in designating a retail redevelopment zone.
-- Require each city or village that had a retail redevelopment zone to report annually to the MSF board.
-- Limit the tax breaks available under the Renaissance Zone Act to property located in a retail redevelopment zone and owned or leased by a qualified retail business and to business activity in a zone by such a business.

"Qualified retail business" would mean one or more businesses that primarily sell goods to customers at retail, including restaurants. The term, however, would not include any of the following:

-- A striptease club or pornographic movie theater whose business is the commercial sale, dissemination, or distribution of sexually explicit material, shows, or other exhibitions.
-- An adult bookstore or adult video store in which 25% or more of its stock-in-trade, books, magazines, and films for sale, exhibition, or viewing on-premises are sexually explicit material.
-- A facility or operation that is a licensee and has a topless activity permit under the Michigan Liquor Control Code.
-- A facility or operation that derives more than 75% of its sales from the sale of
spirits for consumption off premises under the Michigan Liquor Control Code.
-- A facility or operation that derives more than 75% of its sales from the sale of tobacco products as defined under the Tobacco Products Tax Act.


Specifically, the bill would allow the MSF board to designate, by October 1, 2010, up to 20 retail redevelopment zones within Michigan in one or more cities or villages, if the city or village or combination of cities or villages consented to the creation of a retail redevelopment zone within its boundaries.

A retail redevelopment zone would have to be located in a qualified downtown revitalization district, as defined in the Neighborhood Enterprise Zone Act (described below). The MSF board would have to designate at least six retail redevelopment zones in downtown districts under the DDA Act that were located in cities or villages with a population of 25,000 or less. The board would have to designate at least five retail redevelopment zones in areas located in cities with a population of 200,000 or more. (Detroit is the only Michigan city with a population of that size.)


Each retail redevelopment zone would have to be one contiguous distinct geographic area and contain not more than 20 separate parcels of property.


The MSF board would have to consider all of the following when designating a retail redevelopment zone for a qualified retail business:

-- The economic impact on the community in which the zone was located.
-- Whether the goals of a retail redevelopment zone could be accomplished by locating qualified retail businesses in an existing renaissance zone.
-- The occupancy rates of the downtown district in the proposed retail redevelopment zone.
-- The presence of blighted or functionally obsolete buildings in the proposed zone.
-- The likelihood that development within the zone would encourage cluster formation and bring complementary businesses to the community.
-- The likelihood that the proposed zone would bring new and diverse retail businesses to the community.
-- The pool of entrepreneurs that likely would benefit from creation of the retail redevelopment zone.
-- The existence of a retail incubator or other community infrastructure to assist retail entrepreneurs in the proposed zone.


The city or village, with the assistance of the DDA, would have to report annually to the MSF on all of the following:

-- The amount of capital investment made in the retail redevelopment zone.
-- The number of individuals employed in qualified retail business in the retail redevelopment zone in the beginning and end of the reporting period.
-- Any other conditions or requirements reasonably required by the MSF.


Only property that was located in a retail redevelopment zone and that was owned or leased by a qualified retail business and business activity conducted in a retail redevelopment zone by a qualified retail business would be eligible for the tax exemptions, deductions, or credits available under the Renaissance Zone Act.

(Under Enrolled Senate Bill 976, which would amend the Neighborhood Enterprise Zone Act, "qualified downtown revitalization district" would mean an area located within the boundaries of one or more of the following:

-- A downtown district, as defined in the DDA Act.
-- A principal shopping district or a business improvement district as defined in the principal shopping district Act.
-- An area of the local unit zoned and primarily used for business, as determined by the local governmental unit.)


MCL 125.2683 et al.

ARGUMENTS (Please note: The arguments contained in this analysis originate from sources outside the Senate Fiscal Agency. The Senate Fiscal Agency neither supports nor opposes legislation.)

Supporting Argument Downtown areas and other commercial retail districts often serve as a community's business, cultural, entertainment, and social
hub. Restoring and sustaining the viability of these areas can help to ensure a community's economic well-being. Renaissance zones have been used to spur development in Michigan for various purposes, including the redevelopment of industrial, military, and pharmaceutical facilities; the development of alternative energy, agricultural processing, and forest product processing facilities; and the recovery of Michigan's tool and die businesses. Offering tax breaks to retail businesses in qualified downtown revitalization districts would provide an incentive for business owners to remain or locate in traditional downtowns and commercial districts. By authorizing the MSF board to designate retail redevelopment renaissance zones, the bill would help to reinvigorate business development and economic activity in the State's municipalities. Also, since at least five of the zones would have to be located in Detroit and at least six in cities or villages with a population of 25,000 or less, the bill would ensure that the State's largest city and its small towns both benefited from the retail redevelopment renaissance zone program.


Legislative Analyst: Patrick Affholter

FISCAL IMPACT
The bill would reduce revenue to both the State and local units by an unknown amount, and would increase State expenditures from the General Fund by an unknown amount. The magnitude of any changes would depend upon the specific characteristics of the property affected by the bill, how many of the allowed 20 zones the board of the Strategic Fund actually designated, and when the designations occurred.


Most local property taxes abated in renaissance zones are not reimbursed by the State, reducing local unit revenue. However, the State's General Fund reimburses lost revenue to public libraries, intermediate school districts, local school districts, community colleges, and the School Aid Fund. Local school districts are able to levy 18 mills upon nonhomestead property, and the State education tax levies 6 mills on all property. Tax levies for the other reimbursed components can vary widely, although it is not uncommon for schools to levy an additional 6 to 12 mills in some areas. If $100.0 million of investments eventually were made in the zones as a result of the bill, it would increase State General Fund expenditures by at least $1.5 million per year, a portion of which would represent lost School Aid Fund revenue. Revenue losses, such as under the business taxes and individual income tax, are not reimbursed and are not included in this example; nor are local unit revenue losses that would not be reimbursed.


Renaissance zone credits under the Single Business Tax Act were estimated to total $22.1 million in FY 2007-08, while exemptions under the individual income tax were predicted to total $0.3 million and property tax exemptions were estimated to total $120.0 million. Reimbursements from the General Fund were appropriated at $3.1 million during FY 2007-08 and are expected to total $3.9 million in FY 2008-09.


Fiscal Analyst: David Zin

Analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent. sb971/0708