Dialogue #40 -- Turner Presentation Materials
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Content Highlights from Joe Turner's presentation for IRM Dialogue Conference Call #40 of March 7, 2000
NEGOTIATION STRATEGIES, PART ONE - CARROTS
Over a period of about 30 years, the city of Saginaw, Michigan has struggled with deteriorating community health. Population dropped by 30 percent, urban industrial and commercial sites changed into abandoned brownfields or blighted buildings. Demand for city owned properties diminished and many of our most affluent individuals and corporations left the city for suburban or exurban locations. Personal income levels dropped as a result.
It took a number of years to develop an effective strategy to combat the various forces at work, but for the past half decade evidence is accumulating that some economic development strategies have been successful in revitalizing the community.
Today we'll focus upon the industrial and commercial aspects of the program, which have evolved, with particular emphasis upon the transformation of polluted and blighted sites into productive locations.
Obviously, factors which led to this decline are multi-faceted. Consequently, the responses which seem to have worked become components of an overall integrated economic development strategy. This strategy involves residential, commercial and industrial components.
The cities overall strategy incorporates, federal support for Brownfield redevelopment, state Brownfield laws and state laws which focus on other issues of blight. Some of these strategies involve eliminating fear that financiers and developers may have towards ownership of Brownfield sites. Others laws provide an incentive in terms of profit for a developer - tax breaks and public funds for private development.
As the first priority, most developers we've encountered want direct assurance their participation in a Brownfield redevelopment activity will not create a burden to them or their companies. They've reacted very strongly to 1970s implementation of various pollution laws, by disassociating themselves with any activity that may create a liability.
To eliminate their fears, encourage development and help ameliorate any other concerns developers may have, Michigan and federal officials created a landmark agreement or Memorandum of Understanding (MOU) with Federal Officials which effectively permits state officials to oversee redevelopment activities within the state.
Following the establishment of this regulatory agreement, state officials completely overhauled existing environmental laws. They created a legislative mechanism by which a developer of a brownfield site receives a very high level of protection from past contamination. The laws also protect lenders and government units who participate in property acquisition activities, from liabilities associated with contamination that may have occurred before they became involved in ownership. Finally, current landowners that are in fact tainted by ownership of polluted properties, find the severity of their liability is greatly diminished or even eliminated, if a new owner will remediate and develop a contaminated site.
Saginaw has been the recipient of a Two Hundred Thousand-Dollar federal Brownfield Pilot grant. This grant enables us to identify and inventory potential redevelopment sites. While doing this, a significant amount of "fear" for potential developers is eliminated, by knowing what contaminants they are dealing with. With fact based knowledge of contaminates on a site, a strategy can be developed for site remediation and a determination of cost effectiveness. Sites can be prioritized in terms of those which may easily be developed, and those for which supportive funding must be secured to assure proper remediation and reuse.
The federal brownfield grant also creates a digital process that assures information will be integrated and efficiently distributed to potential developers. Consequently, it becomes clear which sites have not only the ability to be redeveloped, but of those, which sites are most "marketable".
The results of these federally funded investigations are then blended with economic development strategies created at the state and local level.
State strategies consist of providing funding for clean up and infrastructure costs which are excessive when compared to demand in the market, and certain tax incentives. Local strategies focus on the viability of development. Developers acquiring city controlled properties sometimes must bid for land a fair market value. They are required to enter into a "Development Agreement" which mandates completion the proposed project within a 12 month time period. There is one 12-month extension. If conditions of the agreement are not fulfilled, developers must deed the property back to the city and loose some or all of their investment. This type of approach really doesn't create a burden on competent developers, but it does discourage speculative buying and developers with a dream but no wherewithal to perform.
Tax strategies which are part of Michigan's Brownfield laws create a mechanism to reimburse a developer for costs associated with site testing and remediation. In addition, a credit equal to 10 percent of the development costs is applied directly to the company's obligations to Michigan's primary business tax - the Single Business Tax. Many of these blighted and polluted sites are located in specially designated areas known as Renaissance Zones. Renaissance Zones are restricted to a very small percentage of land in the state. However, when a polluted site is part of a Renaissance Zone, the developer and companies who may lease at the site, receive complete abatement from most state and local taxes for 15 years. In addition, a savvy developer can create a brownfield redevelopment project which transfers significant benefits to their operations outside of the Renaissance Zone.
The results have been dramatic. Since 1994 we've moved from about a dozen projects having investments of around $9.5 million dollars in one year, to two years in which investment has exceeded $130 million annually. Literally hundreds of new jobs have been created, unemployment has dropped from a high of 15 percent to a current rate of about 7 percent. More importantly, new development is broadly based. Industrial firms are leading the way, but commercial development is clearly on the upswing.
We've learned that a community must focus development efforts on sites that match market needs. For example, if there is a high level of poverty, there may not be economic market dynamics strong enough to support retail operations. Therefore one's efforts are best expended in developing industrial and single family residential projects. We've learned that by demanding performance from a developer through a formal development agreement with teeth in it, the number of failed projects goes down, speculators go away and redevelopment occurs within the designated time frame. It is my personal belief that give away programs intended to stimulate development, often attract partners who may not be as desireable as others.
Finally, we've learned that there usually are some creative developers who can visualize a project on sites others did not see as opportunities. When those developers receive reasonable assurances and assistance, good things can happen.
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