SB0111: SUMMARY OF INTRODUCED BILL IN COMMITTEE (Date Completed: 2-9-17 )

-- Prescribe requirements and disqualifying conditions governing the determination of whether to approve a plan, including financial and underwriting analyses by the MSF and independent third parties.

-- Require any positive or negative determination by the MSF to be supported by objective analyses and documented in the record of its proceedings.

-- Allow the MSF to approve not more than five transformational brownfield plans in a calendar year, except under certain circumstances.

-- Specify that the MSF would have to require the owner or developer of eligible property to certify the actual capital investment upon completion of construction and before the commencement of reimbursement for the plan or the distinct phase or project within the plan for which reimbursement would be provided.

-- Allow the MSF to review and modify the amount of reimbursement if the actual capital investment were less than the amount included in a plan, and provide for remedial actions the MSF could take if the actual level of capital investment did not meet the applicable minimum investment required.

-- Require the State Treasurer to deposit annually from the General Fund into the State Brownfield Redevelopment Fund an amount equal to the construction period tax capture revenue, withholding tax capture revenue, and income tax capture revenue due to be transmitted under all transformational brownfield plans.

-- Prohibit the MSF from committing, and the Department from disbursing, a total amount of income tax capture revenue and withholding tax capture revenue that exceeded $800.0 million.

-- Prohibit the MSF from approving more than a total of $200.0 million in construction period tax capture revenue and in projected sales and use tax exemptions (proposed by Senate Bills 113 and 114).

-- Require the MSF to charge and collect a reasonable application fee as necessary to cover the costs associated with the review and approval of a transformational brownfield plan.

The bill also would prohibit the MSF from committing, and the Department of Treasury from disbursing, more than $40.0 million in "total annual tax capture" under all transformational brownfield plans. "Total annual tax capture" would mean the total annual amount of income tax capture revenue and withholding tax capture revenue that may be reimbursed each calendar year under all transformational brownfield plans. If the amount committed or disbursed in a calendar year were less than $40.0 million, the difference between that amount and $40.0 million would be available to be committed or disbursed in subsequent calendar years in addition to the annual limit otherwise applicable.

Senate Bill 112 would amend the Income Tax Act to provide that, from collected income tax revenue, an amount equal to the construction period tax capture revenue, withholding tax capture revenue, and income tax capture revenue attributable to transformational brownfield plans adopted under the Brownfield Redevelopment Financing Act would have to be deposited each State fiscal year into the State Brownfield Redevelopment Fund.

Senate Bill 113 would amend the General Sales Tax Act to exempt from sales tax the sale of tangible personal property for use in eligible activities on eligible property that was included in a transformational brownfield plan, to the extent that the tangible personal property would be affixed to and made a structural part of the real property or infrastructure improvements included within the plan.

Senate Bill 114 would amend the Use Tax Act to specify that use tax would not apply to tangible personal property acquired by a person engaged in the business of altering, repairing, or improving real estate for others, or to the manufacture of a product that was affixed to real estate, if the property or product were to be affixed to or made a structural part of improvements to real property included within a transformational brownfield plan, to the extent that those improvements were included as eligible activities on eligible property that was included in a transformational brownfield plan.

Senate Bill 115 would amend the Michigan Renaissance Zone Act to state that, where a portion of a renaissance zone was included within a transformational brownfield plan, upon the request of the property owner and the local government unit, and the approval of the Michigan Strategic Fund and the city levying an income tax within the zone, exemptions from the Income Tax Act and the City Income Tax Act would not apply within that portion of the renaissance zone.

Senate Bill 111 is described in further detail below.

The Brownfield Redevelopment Financing Act authorizes municipalities to create a brownfield redevelopment authority to facilitate the implementation of brownfield plans and create brownfield redevelopment zones to capture tax revenue attributable to increases in property value within the area or district, and use that money for specific "eligible activities" on "eligible properties" outlined under the Act. The Act also creates the State Brownfield Redevelopment Fund as a revolving Fund within the Department of Treasury.

The bill would permit the board of an authority to implement a transformational brownfield plan, subject to the approval of the governing body and Michigan Strategic Fund. The bill would define "transformational brownfield plan" as a brownfield plan that met the requirements of the bill and was adopted according to it and, as designated by resolution of the governing body and approved by the MSF, would have a transformational impact on local economic development and community revitalization based on the extent of brownfield redevelopment and growth in population, commercial activity, and employment that would result from the plan.

To be designated a transformational brownfield plan, a plan would have to be for mixed-use development and be expected to result in the following levels of capital investment in a municipality that was not a county, based on its population:

-- A population of at least 600,000, $500.0 million.

-- A population of at least 150,000 and not more than 599,000, $100.0 million.

-- A population of at least 100,000 and not more than 149,999, $75.0 million.

-- A population of at least 50,000 and not more than 99,999, $50.0 million.

-- A population of at least 25,000 and not more than 49,999, $25.0 million.

-- A population of less than 25,000, $15.0 million.

("Mixed use" would mean a real estate project with planned integration of some combination of retail, office, residential, or hotel uses.)

A transformational brownfield plan could consist of a single development on eligible property or a series of developments on eligible property that were part of a related program of investment, whether or not located on contiguous parcels, and could be amended to apply to additional parcels of eligible property. Each amendment to a transformational brownfield plan would have to be approved by the governing body of the municipality where it was located and the Michigan Strategic Fund, and would have to be consistent with the approval requirements.

A transformational brownfield plan could authorize the use of construction period tax capture revenue, income tax capture revenue, tax increment revenue, and withholding tax capture revenue for eligible activities on eligible property included in a plan, any demolition, construction, restoration, alteration, renovation, or improvement of buildings or site improvements on eligible property, including infrastructure improvements that directly benefited eligible property.

("Eligible property" means property for which eligible activities are identified under a brownfield plan that was used or is currently used for commercial, industrial, public, or residential purposes, including personal property located on the property, to the extent included in the brownfield plan, and that meets one or more of the conditions listed in the Act. The bill would include among those conditions undeveloped property that was eligible property in a previously approved brownfield plan abolished as provided in the Act.

"Construction period tax capture revenues" would mean funds equal to the amount of income tax levied and imposed in a calendar year upon wages paid to individuals physically present and working within the eligible property for the construction, renovation, or other improvement of eligible property that is an eligible activity within a transformational brownfield plan, calculated as described in the bill. The bill also would define "income tax capture revenues" and "withholding tax capture revenues". The Act defines "tax increment revenues".)

Except as provided for eligible activities conducted before approval of a plan, construction period tax capture revenue, income tax capture revenue, tax increment revenue, and withholding tax capture revenue could be used only for the costs of eligible activities included within the transformational brownfield plan to which the revenue was attributable, including the cost of principal of and interest on any obligation to pay the cost of the eligible activities.

A transformational brownfield plan would be a brownfield plan and, except as otherwise provided, would be subject to sections of the Act that require a plan to include certain provisions; require a plan to be determined to be a public purpose; and specify prohibited conduct, specify requirements for a work plan, and provide for combined brownfield plans, among other things. In addition to the information required under the Act, the bill describes further information that a transformational brownfield plan would have to contain, including the basis for designating the plan as a transformational brownfield plan, a description of the costs of the plan intended to be paid for with construction period tax capture revenue, income tax capture revenue, and withholding tax capture revenue, an estimate of the amount of capture revenue expected to be generated for each year of the plan from the eligible property, and the beginning date and duration of revenue capture for each eligible property.

A transformational brownfield plan could provide for the use of part or all of the construction period tax capture revenue, income tax capture revenue, tax increment revenue, and withholding tax capture revenue. The portion to be used could vary over the duration of the transformational brownfield plan, but the portion intended to be used would have to be clearly stated in the plan.

Approval of a transformational brownfield plan, or an amendment to it, would have to comply with the notice, approval, and public hearing requirements of the Act, except that the governing body would have to provide notice to the MSF at least 30 days before the hearing on a transformational brownfield plan. If a plan authorized the capture of construction period tax capture revenue, income tax capture revenue, or withholding tax capture revenue, approval of a combined brownfield plan or work plan by the Michigan Strategic Fund and a written development or reimbursement agreement would be required between the owner or developer of the eligible property, the authority, and the MSF. If a plan authorized the use of tax increment revenue for eligible activities described in the bill, other than those described in the current Act, approval of a work plan or combined brownfield plan by the MSF to use tax increment revenue for those additional activities would be required. A work plan or combined brownfield plan under these provisions would have to be consolidated with a work plan or combined brownfield plan under the Act. The eligible activities to be conducted would have to be consistent with the work plan submitted by the authority to the MSF.

Upon approval of a transformational brownfield plan by the governing body and Michigan Strategic Fund, and the execution of the written development or reimbursement agreement, the transfer and distribution of construction period tax capture revenue, income tax capture revenue, and withholding tax capture revenue as specified under the Act and in the plan would be binding on the State, and the collection and transmission of the amount of tax increment revenue as specified under the Act and in the plan would be binding on all taxing units levying ad valorem property taxes or specific taxes against property subject to the plan.

A transformational brownfield plan could not authorize the capture or use of construction period tax capture revenue, income tax capture revenue, tax increment revenue, or withholding tax capture revenue after the year in which the total amount of the revenue captured under the plan was equal to the sum of the costs permitted to be funded with the revenue under the plan.

The brownfield authority and Michigan Strategic Fund could reimburse advances, with or without interest, made by a municipality, a land bank fast track authority, or any other person or entity for costs of eligible activities included within a transformational brownfield plan using construction period tax capture revenue, income tax capture revenue, tax increment revenue, or withholding tax capture revenue attributable to that plan. Upon approval of the MSF, the amount of construction period tax capture revenue, income tax capture revenue, tax increment revenue, and withholding tax capture revenue authorized to be captured under a transformational brownfield plan could include amounts required for the payment of interest under these provisions. A written development or reimbursement agreement would have to be entered into before any reimbursement or payment using construction period tax capture revenue, income tax capture revenue, tax increment revenue, or withholding tax capture revenue.

Eligible activities conducted on eligible property before approval of a transformational brownfield plan could be reimbursed from construction period tax capture revenue, income tax capture revenue, tax increment revenue, and withholding tax capture revenue if those costs and the eligible property were subsequently included in a transformational brownfield plan approved by the governing body and Michigan Strategic Fund, a combined brownfield plan or work plan approved by the MSF, and a written development or reimbursement agreement. Reimbursement under these provisions would be limited to eligible expenses incurred within 90 days of the approval of the transformational brownfield plan by the MSF.

The duration of the capture of income tax capture revenue and withholding tax capture revenue under a transformational brownfield plan for a particular eligible property could not exceed the lesser of the period after the year in which the total amount of the revenue captured under the plan was equal to the sum of the costs permitted to be funded with the revenue, or 20 years from the beginning date of the capture of income tax capture revenue and withholding tax capture revenue for that eligible property. The beginning date for the capture of income tax capture revenue, tax increment revenue, and withholding tax capture revenue for an eligible property could not be later than five years following the date the Michigan Strategic Fund approved the inclusion of the eligible property in a plan. Subject to the approval of the governing body and the MSF, the authority could amend the beginning date of capture to not later than five years following the date the MSF approved the inclusion of the eligible property in the plan, as long as capture of the revenue under it had not yet began.

A series of developments on parcels that were not contiguous would have to be considered a related program of investment if various conditions were met.

Where undeveloped property included in a transformational brownfield plan had been designated as a renaissance zone under the Michigan Renaissance Zone Act, on request of the owner or developer of the eligible property and the local government unit that designated the zone, the Michigan Strategic Fund, and a city levying a tax under the City Income Tax Act, could elect under the Michigan Renaissance Zone Act to terminate exemptions, deductions, or credits provided for in that Act, and reimburse the authority, or owner or developer of the eligible property, an annual amount equal to the revenue collected for each tax year as a result of the termination of the exemptions, deductions, or credits that would otherwise have been in effect. The bill specifies further requirements regarding the implementation of this provision.

The authority and governing body would be responsible for deciding whether to seek approval of a brownfield plan as a transformational brownfield plan. Nothing in these provisions would operate to prejudice or limit consideration of a brownfield plan, including a decision by the MSF not to approve a plan as a transformational brownfield plan. Also, the bill states that nothing in the Act would be intended to preclude an authority established by a county from seeking approval of a brownfield plan as a transformational brownfield plan. In the event that an authority established by a county sought approval of a plan that extended into more than one of its component local units of government and that plan included eligible property in more than one municipality that was not a county, the minimum investment requirements would be established with reference to combined population of the municipalities that were not a county in which the eligible property was located.

The governing body and the Michigan Strategic Fund would have to determine whether to approve a transformational brownfield plan according to requirements in the bill. The requirements would include an initial determination by the governing body of whether the plan constituted a public purpose; approval of the plan, or approval with modifications, by the governing body based on various considerations; and approval, approval with modifications, or rejection by the MSF. In determining whether to approve the plan, the MSF would have to conduct a financial and underwriting analysis of the developments included in the plan. The MSF could not approve the use of construction period tax capture revenue, income tax capture revenue, and withholding tax capture revenue beyond the amount determined to be necessary for the project to be economically viable. The MSF would have to develop standardized underwriting criteria for determining economic viability. The MSF also would have to ensure that each transformational brownfield plan included a significant equity contribution from the owner or developer as determined by the Fund.

The MSF could not approve more than five plans in a calendar year. If the MSF approved fewer than five plans in a calendar year, however, the unused approval authority would carry forward into future calendar years and remain available until five years from the bill's effective date.

The MSF could not approve a transformational brownfield plan unless it determined that the plan would result in an overall positive fiscal impact to the State. The bill includes further requirements for the MSF in making the determination. Also, the MSF would have to require an independent, third-party underwriting and fiscal and economic impact analysis for any plan that proposed to use more than $1.5 million in any year in income tax capture revenue and withholding tax capture revenue, as determined by the first full year of tax capture under the plan. The MSF would have to consult with the State Treasurer before approving any transformational brownfield plan subject to these provisions. The Treasurer would have to concur that there was an overall positive fiscal impact to the State in order for the plan to be approved. None of these provisions would limit the ability of the MSF to use independent, third-party analyses on plans not subject to these provisions.

The MSF could not approve a transformational brownfield plan that proposed to use more than 50% of the income tax capture revenue or withholding tax capture revenue unless the revenue was attributable to an election concerning the termination of exemptions, deductions, or credits for renaissance zone property.

The MSF could not commit, and the Department of Treasury could not disburse, a total amount of income tax capture revenue and withholding tax capture revenue that exceeded $800.0 million. Also, the MSF could not approve more than a total of $200.0 million in construction period tax capture revenue and in projected sales and use tax exemptions (proposed by Senate Bills 113 and 114). The MSF would have to project the value of the sales and use tax exemptions under each transformational brownfield plan at the time of plan approval and require such information from the owner or developer as necessary to perform the calculation, among other information outlined under the bill. If the value of the actual sales and use tax exemptions and construction period tax capture revenue under all transformational brownfield plans exceeded the limit by more than a de minimis amount, as determined by the State Treasurer, he or she would have to take corrective action and could reduce future disbursements to achieve compliance with the aggregate limitations listed in the bill. The corrective action could not reduce the disbursement for an individual plan by an amount that was more than the amount by which the value of the sales and use tax exemptions for that plan exceeded the amount projected at the time of plan approval and included in the plan. The MSF and the Department would have to prescribe specific methods for implementing these provisions within 60 days of the bill's effective date. Also, the MSF could modify the amount of income tax capture revenue and withholding tax capture revenue before approving a plan in order to bring it into compliance with the bill.

The MSF would have to require the owner or developer of the eligible property to certify the actual capital investment, as determined under the bill, on the completion of construction and before the commencement of reimbursement from income tax capture revenue, tax increment revenue, or withholding tax capture revenue, for the plan or the distinct phase or project within the plan for which reimbursement would be provided. If the actual capital investment were less than the amount included in the plan, the MSF would have to review the determination and could modify the amount of reimbursement if a modification were necessary to maintain compliance with the bill. The transformational brownfield plan, work plan, and development and reimbursement agreement would have to include provisions to enforce these requirements and remedies. If the actual level of capital investment did not meet the applicable minimum investment requirement and were outside the "safe harbor" provision in the bill (which states that a plan that was expected to result in, or resulted in, a total capital investment that was within 10% of the applicable minimum investment requirement would satisfy the capital investment requirement), the MSF could take one of the following remedial actions:

-- For a plan that consisted of a single development, reduce the amount of reimbursement.

-- For a plan that consisted of distinct phases or projects, where the failure to meet the minimum threshold was the result of failure to undertake additional distinct phases or projects as provided for under the plan, either permanently rescind the authorization to use captured revenue for the additional distinct phases or projects in the plan or, if the MSF determined that the applicable owner or developer acted in bad faith, reduce the amount of reimbursement for completed phases of the plan.

Upon approval by the Michigan Strategic Fund, the minimum investment requirements outlined in the bill and the limit on the number of designations could be waived if the plan met one of the following criteria: 1) it was for eligible property in an area approved by the State Housing Development Authority as eligible for blight elimination program funding under Federal law; 2) it was for eligible property in a municipality that was subject to a state of emergency under the Emergency Management Act issued for drinking water contamination; or 3) it was for eligible property that was a historic resource if the MSF determined the redevelopment was not economically feasible absent the transformational brownfield plan. Under these circumstances, the Michigan Strategic Fund could approve not more than five plans in a calendar year, but if the MSF approved fewer than five plans in a calendar year the

unused approval authority would carry forward into future calendar years and remain available until five years from the bill's effective date.

The determination as to whether a transformational brownfield plan complied with the minimum investment requirements would have to be made with reference to the most recent decennial census data available at the time of approval by the authority. A plan in a municipality that exceeded a population tier by no more than 10% of the maximum population for that tier would, upon election of the authority, be subject to the investment requirement for that tier.

Any positive or negative determination by the MSF would have to be supported by objective analysis and documented in the record of its proceedings.

Amendments to an approved transformational brownfield plan would have to be submitted by the authority to the governing board and the Michigan Strategic Fund for approval or rejection following the same notice necessary for approval or rejection of the original plan. Notice would not be required for revisions in the estimates of captures. An amendment to an approved plan would not be considered a new plan approval subject to the limit of five approved plans per calendar year. The MSF could consider an amendment as a new plan approval only if the amendment added eligible property and the MSF determined that approving the addition as an amendment would be inconsistent with the purposes of the Act.

A procedure, adequacy of notice, and findings under the bill would be presumptively valid unless contested in a court of competent jurisdiction within 60 days after approval of the plan by the MSF. An approved amendment to a conclusive transformational brownfield plan would likewise be conclusive unless contested within 60 days after approval by the MSF. If a resolution adopting an amendment to the plan were contested, the original resolution adopting the plan would not be open to contest.

In the event of a proposed change in ownership of eligible property subject to a transformational brownfield plan for which reimbursement would continue, the approval of the MSF would be required before the assignment or transfer of the development and reimbursement agreement.

The MSF would be prohibited from giving community revitalization incentives under the Michigan Strategic Fund Act to any project included in a transformational brownfield plan that had or would receive reimbursement for eligible activities.

The bill would prohibit an authority from using construction period tax capture revenue, income tax capture revenue, or withholding tax capture revenue to pay for eligible activities conducted before approval of the transformational brownfield plan except for certain costs outlined in the bill; or using construction period tax capture revenue, income tax capture revenue, or withholding tax capture revenue for any expense other than as provided for in the bill, except for other costs regarding the administration and operation of the authority or municipality specifically associated with the implementation of a plan.

The bill would require the State Treasurer to deposit annually from the General Fund into the State Brownfield Redevelopment Fund an amount equal to the construction period tax capture revenue, income tax capture revenue, and withholding tax capture revenue due to be transmitted under all transformational brownfield plans. The Department of Treasury would have to distribute the construction period tax capture revenue, income tax capture revenue, and withholding tax capture revenue to an authority, or to the owner or developer of the eligible property to which the revenue was attributable, in accordance with requirements of the bill and the terms of the written development or reimbursement agreement for each plan.

Amounts transferred into the State Brownfield Redevelopment Fund attributable to a specific transformational brownfield plan would have to be accounted for separately within the Fund and could not be used for any other purpose or activity or for any plan other than the plan to which the revenue was attributable, or for the additional administrative costs associated with the implementation of a plan.

The State Treasurer would have to transfer to the State Brownfield Redevelopment Fund each fiscal year an amount equal to the construction period tax capture revenue, income tax capture revenue, and withholding tax capture revenue under all approved plans. Funds would have to be transmitted to the authority, or owner or developer of the eligible property to which the revenue was attributable, within 30 days of transfer to the Fund.

The authority, the Department of Environmental Quality, and the Michigan Strategic Fund would have to comply with the reporting requirements of the Act with respect to all approved transformational brownfield plans, and would have to provide information on the amount and use of construction period tax capture revenue, income tax capture revenue, and withholding tax capture revenue to the same extent as required for tax increment revenue. The owner or developer of active projects included within a transformational brownfield plan would have to provide the information required for the authority, the Department, and the MSF to satisfy the reporting requirements.

In addition, the bill would amend various approval, submission, and other provisions regarding brownfield plans to include transformational brownfield plans.

MCL 125.2652 et al. (S.B. 111) Legislative Analyst: Drew Krogulecki

Proposed MCL 206.51e (S.B. 112)

MCL 205.54d (S.B. 113)

Proposed MCL 205.4dd (S.B. 114)

MCL 125.2689 (S.B. 115)

FISCAL IMPACT

The bills would increase State revenue over the long-term, assuming that the developments included in transformational brownfield plans (TBPs) would not have occurred in the absence of the bill and that development in a TBP did not shift economic activity from other locations in Michigan to the area of the TBP. The General Fund would incur the cost of tax capture under the income tax. The benefit of increased income tax revenue would accrue to the School Aid Fund and, depending on the interpretation of the bill, to the General Fund or the State Brownfield Redevelopment Fund (SBRF). The General Fund, School Aid Fund, and constitutional revenue sharing would incur the cost of exemptions under the sales and use taxes. The timing of General Fund spending related to the TBPs would not necessarily match the timing of increased State revenue. To obtain approval, each TBP would have to satisfy a requirement that it would result in an overall positive fiscal benefit to the State, considering the impact for potential displacement of revenue from other areas of the State and the impact of the TBP on the economic development in the surrounding area. The bills would increase the revenue and administrative costs of the Department of Treasury and the Michigan Strategic Fund. Local revenue would be affected by the terms of the TBP, including the degree to which a plan reimbursed a local unit for brownfield administrative expenditures and project advances and the possible use of tax increment revenue for additional purposes pursuant to the bills, including construction, restoration, and renovation of buildings. To the extent that sales tax revenue increased due to an increase in economic activity under a TBP, constitutional revenue sharing payments would increase. These impacts are discussed further below.

Senate Bill 111

State Fiscal Impact

The bill would provide for development incentives of up to $1.0 billion for projects included in TBPs. This is divided into two parts. First, the bill would allow the capture of up to $800.0 million in income tax revenue across all approved TBPs from withholding from employees working in the TBPs and income tax paid by residents of the TBPs. The tax capture from employees and residents would be limited to 50% of the increased eligible income tax revenue under a TBP. Second, up to $200.0 million would be allowed for the combined value of captured income tax revenue from construction period tax capture revenues (the increase in income tax paid to construction workers in the TBP) and the sales and use tax exemptions provided in Senate Bill 113 and Senate Bill 114. The General Fund would pay the entire cost of the $800.0 million in captured income tax revenue allowed by Senate Bill 111. This cost would be offset by additional State revenue because the tax capture would be limited to 50% of the increased taxes in a TBP. The terms of a TBP could require up to 100% of the construction period tax capture to be paid to the Brownfield Redevelopment Fund for remittance to the brownfield authority or developer. The cost of the $200.0 million primarily would be paid by the General Fund; however, to the extent that sales and use tax incentives were part of the $200.0 million, the General Fund and School Aid Fund revenue would be reduced.

The terms of a TBP would determine the amount of income tax revenue allowed to be captured by the TBP. This would be limited for each plan by an underwriting and financial analysis conducted by the MSF, and in some cases, by an independent third party. The amount of income tax revenue necessary to pay the authority, owner, or developer according to the terms of the TBPs would be calculated by the Department of Treasury and deposited from the General Fund into the Brownfield Redevelopment Fund. The disbursements to an authority, owner, or developer under a TBP could vary by year. The bill would establish a limit of $40.0 million in reimbursements per year under all TBPs; however, it provides that any of the $40.0 million not disbursed in a year could be used to allow payments above $40.0 million in a future year. Depending on the interpretation of several provisions in the bill, the increased State income tax revenue from the TBP developments would be either deposited in the State Brownfield Development Fund, or distributed to the General Fund and the School Aid Fund in the same proportions as other income tax revenue: approximately 76.2% to the General Fund and approximately 23.8% to the School Aid Fund.

If a worker obtained a new position in the TBP and that worker had not worked previously in Michigan (having been unemployed or having moved to the TBP area from out of State, for example), then the income tax paid by the worker would be new revenue to the State, which would receive at least 50% of that additional revenue while up to 50% of the new revenue could be captured under the TBP and paid to the authority, owner, or developer for up to 20 years according to the terms of the TBP and the overall caps on payments under all TBPs. On the other hand, if the worker had income that was simply shifted from another part of the State because the job moved from outside a TBP to inside a TBP, up to 50% of the State income tax paid by that worker would be lost to the State, which would have to pay up to 50% of that tax revenue to the authority, owner, or developer under the terms of the TBP for up to 20 years. The economic impact analysis required by the bill would have to estimate the relative magnitude of these effects. A TBP could not be approved unless the estimates showed that there would be an overall positive fiscal impact on the State. The impact, however, could vary year by year and it is possible that the net positive impact would not be achieved until the TBP expired.

The number of TBPs that the MSF would be permitted to approve in a year would be limited to five plans that met the investment levels specified by population level and five plans approved under waiver authority that would allow the MSF to waive investment requirements for TBPs in areas that had been subject to a drinking water state of emergency (Flint) or that had received certain Federal funds for blight elimination. Local units eligible for that funding are shown in Table 1.

Table 1

Municipalities Eligible for Blight Eliminate Funding

Under the Housing Finance Innovation Fund for the Hardest Hit Housing Markets

Adrian

Calhoun County

Ecorse

Detroit

Flint

Genesee County

Grand Rapids

Ironwood

Hamtramck

Highland Park

Inkster

Ishpeming

Jackson

Kalamazoo

Lansing

Melvindale

Muskegon County

Muskegon Heights

Pontiac

Port Huron

River Rouge

Saginaw

Source: Michigan State Housing Development Authority and Michigan Strategic Fund

In addition, the bill would increase the revenue and costs of the Michigan Strategic Fund. The bill would direct the MSF to collect a reasonable fee to cover the cost of TBP review and approval. The Department of Treasury would incur additional costs to administer the tax capture provisions of the bill to determine revenue attribute to construction worker, employees, and residents of a TBP. The Department would be allowed to use money in the State Brownfield Redevelopment Fund to pay for the administrative costs of the Brownfield Redevelopment Financing Act.

Local Fiscal Impact

The bill would have a generally positive impact on local revenue over the long term assuming that the projects would not occur without the establishment of a TBP. Each TBP would be considered a brownfield plan with the ability to use tax increment financing and capture property tax revenue. The period before local governments saw increased property tax revenue from development under a TBP would vary based on the characteristics of the plan, particularly the duration of any tax capture period, and the number and value of developments locally.

The bill would expand the uses of tax increment financing to include any construction, restoration, alteration, demolition of buildings, or improvement of buildings or sites that could increase the magnitude of any tax increment financing and associated capture. Expanding the eligible uses of tax increment revenue would increase the magnitude of the property tax capture, with the potential to increase the capture of local school operating millage and thereby increase costs to the School Aid Fund.

A brownfield authority or municipality with an approved transformational brownfield plan could receive increased revenue, if the terms of the TBP allowed for a portion of the captured sales, use, and income tax revenue to be used for administrative and operating expenses associated with the TBP, including the repayment of the cost of developing the original TBP or the reimbursement of a municipality for advances made for a TBP project, which could include interest. Reimbursement of advances, possibly with interest, also would be allowed to a land bank fast track authority. Advances also could be repaid with interest to any other person or entity for costs of eligible activities within a TBP. This would reduce funds available for new projects. An increase in sales tax revenue due to the TBP would result in an increase in constitutional revenue sharing payments to cities, villages, and townships.

Also, local governments and brownfield authorities could see increased revenue due to the expanded purposes for which advances could be reimbursed from TBP captured revenue.

Senate Bill 112

The bill would reduce General Fund revenue by an unknown and potentially significant amount that would depend on the level and timing of economic activity related to a transformational brownfield project. While Senate Bill 111 would limit the amount of reimbursement of income tax capture revenue and withholding tax capture revenue for all plans to $40.0 million per year, the amount of money directed to the State Brownfield Redevelopment Fund (SBRF) under Senate Bill 112 would be limited only by the amount of actual capture, and thus could be less than, or more than, the $40.0 million reimbursement limit. Similarly, Senate Bill 111 would only limit construction period tax capture revenue to $200.0 million less the value of any sales and use tax exemptions under Senate Bills 113 and 114, and Senate Bill 112 would direct that revenue, as it was determined, to the SBRF.

The total amount of General Fund revenue to be deposited into the SBRF in any given year, or in total, is difficult to determine because of similar, but different, language in Senate Bill 112 and two sections of Senate Bill 111, as well as in the definitions of capture revenue. In Senate Bill 111, Section 8a(4) would direct General Fund revenue to the SBRF, but limit the deposit to the amount "due to be transmitted under all transformational brownfield plans", although it is unclear whether "due to be transmitted" would be the same as the amount to be reimbursed. Later in Senate Bill 111, Section 16(8)(a) would direct a transfer of revenue to the SBRF "as provided for in Section 8a(4)", but does not indicate that the transfer would have to be made from the General Fund. Senate Bill 112 would require the transfer to be from the General Fund, but not limit it to the amount "due to be transmitted". Furthermore, the definitions in Senate Bill 111 for the various types of capture revenue do not appear to incorporate the limit imposed in Section 14a(8) that would not allow a transformational brownfield plan to use more than 50% of any captured withholding or income tax revenue. As a result, because the definitions for capture revenue determine the capture as the amount above an initial value, the bill would appear to earmark more revenue to the SBRF than could be distributed to a plan. For example, income tax capture revenue would be that revenue above the initial level. Therefore, if the initial level were $1.0 million, and revenue in a given year under the transformational brownfield plan were $5.0 million, the definition would indicate that the income tax capture revenue would total $4.0 million, and Senate Bill 112 would appear to require the $4.0 million to be deposited into the SBRF. However, Senate Bill 111 would not allow a plan to use more than $2.0 million of the $4.0 million; and the bills are unclear regarding the ultimate disposition of the remaining $2.0 million in the SBRF. As a result, the bills hypothetically could allow, over the 20-year life of the plans, $1.8 billion to be transferred from the General Fund to the SBRF: $800.0 million of income tax and withholding capture used by the plans, another $800.0 million of capture not authorized to be used by the plans because of the 50% limit, and $200.0 million of construction period tax capture.

If the language were to be adjusted so that only amounts that could be used by a plan were to be transferred into the SBRF, the limits in Senate Bill 111 would imply that the maximum amount of General Fund reduction over a 20-year period would total $1.0 billion, although the values of the exemptions under Senate Bills 113 and 114 would likely reduce that total. The amount that could be transferred in any given year could vary significantly, depending on how the transfer language was modified. There would be no annual limit with respect to the construction period tax capture, so the yearly reduction under those provisions could vary from zero (no construction activity) to $200.0 million (the maximum amount of capture all occurring in a single year). For income tax and withholding tax captures, the reimbursement would be limited to $40.0 million, unless an amount had carried over from a prior year in which less than $40.0 million was reimbursed. Thus, even if the language were modified to limit the transfer associated with any income tax and withholding capture to the amount that could be reimbursed to a plan, the annual impact on the General Fund could be more or less than $40.0 million.

Senate Bills 113 and 114

The bills would reduce State General Fund and School Aid Fund revenue, and local unit revenue under constitutional revenue sharing provisions, by an unknown amount that would depend on the timing and level of economic activity related to purchases of tangible personal property for a transformational brownfield plan. Senate Bill 111 specifies minimum expected investment levels for plans in different sizes of communities. If one plan occurred in each community size category listed in Senate Bill 111, the minimum expected investment would total $765.0 million. The portion of this investment that would consist of tangible personal property eligible for the exemption under the bills is unknown, as is the portion that would be exempt under the sales tax rather than the use tax; however, if 20% of the investment were eligible for the exemption under the sales tax, sales tax collections would be reduced by $9.2 million, which would be divided between a School Aid Fund reduction of approximately $6.7 million, a $0.9 million reduction in constitutional revenue sharing payments to local unit, and a $1.5 million reduction in General Fund revenue. To the extent that a portion of the purchases would be exempt under the use tax, the impact on the General Fund would increase, while the impact on the School Aid Fund and constitutional revenue sharing would decrease by an identical amount. Regardless of how the exemptions were split between sales taxes and use taxes, if a larger portion of the investment were exempt, the reductions would be greater; while if a smaller portion were exempt, the reductions would be less.

Senate Bill 115

The bill would allow the levy of State and city income tax in a renaissance zone that was in part within a TBP with MSF and local approval. Affected taxpayers within the renaissance zone would no longer be exempt from State and city income tax. Instead, they would pay the State and city income tax that would be captured for distribution under the terms of the TBP to the authority, owner, or development. This income tax revenue would be foregone by the State and city levying a city income tax, which otherwise would receive increased revenue if the exemption under the renaissance zone were terminated. This provision would apply only to development on previously undeveloped land within a renaissance zone.

Fiscal Analyst: Elizabeth Pratt

Cory Savino

David Zin

This 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.