Ask ELi: Is the Park District Plan Dead?

On Tuesday night, East Lansing’s City Council approved the site plan for the Park District redevelopment project on a 5-0 vote, but then approved a tax plan that the developer says effectively killed the project. As we reported, the vote on the tax plan went 4-1, with Councilmember Shanna Draheim saying it was financially unworkable—an opinion seconded by the developer.

We’re now getting questions from readers about whether this means the project is dead. The simple answer is “not yet.” Next week’s City Council meeting will involve discussions between representatives of the developer, Convexity Properties, and City Council to see if they can find a workable solution. ELi will be there to report what happens.

In the meantime, we’ve asked various involved parties how they view what happened, and what they think should happen next. Here’s what we’ve learned.

The developer believes the tax plan City Council passed would cost them $16 million: Usually tax increment financing (TIF) plans, approved in advance of some developments, are used to provide developers with financial incentives to do a challenging project. Commonly under TIF, new property taxes generated by a redevelopment project are “captured” and used to reimburse a development for allowable expenses up to a predetermined dollar amount or time limit.

But the $26 million TIF plan approved by Council on Tuesday on that 4-1 vote was mostly designed to reimburse the City, not the developer, for expenses related to this planned redevelopment. This includes things like road and sewer work, constructing a new parking garage for the City, and paying off the $5.6 million in debt on properties East Lansing’s Downtown Development Authority (DDA) bought to promote redevelopment in this area.

The City wants the developer to take on these expenses and then to pay the developer back over thirty years. But the City doesn’t want to reimburse the developer for the cost of laying out $26 million for all those years. Councilmember Draheim tried to change the proposed TIF plan to build in interest payments, but her colleagues did not support her proposals to add in interest reimbursement.

According to attorney David Pierson, representing the developer, “Shanna Draheim, in explaining her proposed amendments, stated our concern quite clearly. The plan as adopted would cost the developer about $16 million in interest, without reimbursement, to finance the improvements to be owned by the City.”

This is why the developer calls this plan unworkable.

Tuesday will give us some clue about what’s to come: Next Tuesday’s Council meeting is a “discussion only” (non-voting meeting), but we can expect that the Council and developer will discuss how they might come to an agreement to go forward.

It looks as if some Councilmembers may be assuming they might talk the developer into the approved TIF plan because they seem to have a point of leverage: The developer is trying to get a $10 million state-level tax credit for this project, but getting that depends on the Council and developer coming to some agreement and moving forward. Getting that credit currently also depends on the blighted, vacant buildings staying standing until the state approves the credit. Some Councilmembers, including Mayor Mark Meadows, have been talking about forcing demolition of the buildings soon. That City-forced demolition could risk the developer’s chances for the state-level tax credit, and so this threat creates an incentive for the developer to come to agreement with the City.

The developer’s attorney David Pierson told ELI this week after Tuesday’s vote, “We are looking at ways to make something work for development of the properties,” but he made clear the TIF plan as approved is financially impossible to accept.

This week’s Council meeting did not play out as the developer expected: Pierson tells ELi that the developer did not expect Tuesday’s meeting to go as it did.

Mayor Meadows introduced the plan that ultimately passed after the point at which the public and the developer had a chance to weigh in—so no one but Council got to weigh in on what Meadows brought to propose that night.

It appears, from what was said at Council, that Councilmembers had seen Meadows’ proposal, but it was not provided to the public or to the developer in advance. The public and the developer also were given no opportunity to comment on Draheim’s failed counterproposal.

Asked by ELi, “Would you have wanted the opportunity to tell Council your view of the pros and cons of these proposals before they voted?”, Pierson replied:

“Yes, as I said at the beginning of the TIF discussion at Council, we understood that there would be an opportunity to discuss the elements of a plan, as well as other parts of a development agreement that would affect the financing and feasibility of the project. That is why we submitted several different scenarios, as well as a letter summarizing them. We did not expect a plan to be adopted without any further discussion or response.”

As we reported, at Council, Chris Root took the governing body to task, calling their approach to this TIF proposal “unprecedented” in how it was presented without the normal hearing and approval process and without the typical details provided to the public in advance. (Root reports for ELi but was speaking for herself at Council.)

At least three Councilmembers (Meadows, Beier, and Altmann) appear comfortable with how the process went: After the meeting, Councilmember Erik Altmann said he was comfortable with how the process went. Says Altmann, “we’re amending Brownfield [TIF] plans at meetings, which isn’t that much different from amending ordinances at meetings, which we’ve also done. It’s complicated, but the option is to vote everything up or down as it’s presented to us, and I’m not sure that’s necessarily better.”

In advance of the meeting, Mayor Pro Tem Ruth Beier acknowledged to ELi that the proposed tax plan lacked normal details: “The Brownfield [TIF proposal] is a shell right now because it appears that Council disagrees with the reimbursement items put forth by the developer.” But, she said, this was an acceptable approach: “we have been in discussion with this developer for a year, so I don’t feel like we are rushing. The fact that we are doing things differently is not something that bothers me. I was not a fan of how things were done before, which was basically giving developers whatever they wanted, regardless of what the City needed.”

Asked before Tuesday’s meeting about whether she was comfortable with the tax plan going forward to vote when it lacked a normal approval process and key details, Councilmember Susan Woods said she would follow the lead of City Attorney Tom Yeadon. Woods ultimately voted with Meadows, Beier, and Altmann.

Councilmember Shanna Draheim did not respond to questions about the irregular process in advance of the meeting, but spoke to ELi after the vote, saying, “I wouldn’t lend the City money without interest,” as the developer was essentially being asked to do. She added, in light of the vote, “I worry that nothing will happen, that we’ll be back to the drawing board.”

The demolition issue seems to loom large: Prior to Tuesday’s meeting, Beier’s comments to ELi referred to the issue of the possible demolition of the vacant buildings—a move that, as noted above, could jeopardize a $10 million tax credit the developer hopes to secure. A few hours before the meeting, Beier wrote, “If we approve a plan and the developer decides not to go forward, we will insist on demolition of all of the properties on Grand River according to the court order.”

Comments received yesterday from Mayor Mark Meadows appear similar. Meadows says that on Wednesday, the City received a request from the developer to put off demolition of the demolition until April, so as not to risk losing the $10 million MEDC state-level tax credit.

Meadows tells ELi, if the developer won’t take the TIF Council approved, “then the City will proceed with legal action to enforce the stipulation they signed which required them to remove the buildings by December 31 [2016]. If they are committing to proceed and sign a development agreement before the 31st [of January], I have no problem giving them more time to demolish the buildings and get the MEDC approval for the project.”

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