Is The Current City Council Stalling Downtown Redevelopment?

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Saturday, January 28, 2017, 8:00 am

By:

Alice Dreger

Above: Studio Intrigue’s rendering of the project being built at 565 East Grand River Avenue.

Are the approaches being taken by East Lansing's current City Council actually getting in the way of redevelopment downtown?

“I love East Lansing and believe that it is the Mid-Michigan city with the highest potential for transformational/placemaking development, but I firmly believe that this will be the last, major development in ‘downtown’ East Lansing. Recent City Council decisions to try to control the market, rather than letting the market define itself by demand, has halted all plans that were 'on the boards' for downtown.”

This statement was posted recently at the Facebook page of Lansing-based Studio Intrigue Architects, the architects for the project now rising across from the Broad Museum, at the site of the old Taco Bell. The reference to “the last, major development in ‘downtown’ East Lansing” is to that project, located at 565 East Grand River Avenue, near Moosejaw.

I asked Studio Intrigue owner Kenneth Jones to elaborate on these comments for our readers, particularly since I’ve heard similar opinions from many other local people in the development business.

Diversification of downtown housing through legal requirements?

Jones’ concern relates in part to a law passed by the current East Lansing City Council known as Ordinance 1384. Until it was recently revised, that ordinance had required that, for large new housing-containing projects in the downtown area, at least 50% of the housing be owner-occupied condos or designated for seniors.

Criticized by many local business people—including members of the Downtown Development Authority—as completely unworkable, including for the blighted Park District, Council revamped Ordinance 1384 in November in three key ways: (1) the percentage requirement was lowered to 25%; (2) the percentage rule applies to a whole redevelopment, not each residential building within it; (3) the 25% requirement can now be met with owner-occupied housing, housing designated for seniors, or some other type of housing we are lacking.

Fighting the market:

But Jones says that the problem with Ordinance 1384 is that it’s simply unrealistic in terms of the market. He notes that it’s typical for Big Ten university towns like ours to see the housing demand come mostly from students looking to rent.

Says Jones, Ordinance 1384 “arbitrarily places restrictions on this demand and attempts to force it into a mold which it doesn’t fit.” He adds, “While there may be people who wish to purchase a residential unit and there may be those over 55 who desire to move into the core area of downtown, these are not the majority.”

Jones tells ELi, “This small group” of people over 55 interested in moving downtown “is further reduced when you apply the language of the ordinance and attempt to ‘mix’ them with the non-age restricted residents who are renting most of the apartments (students). Personally, the 46-year-old me couldn’t imagine living next to the college-age me. There were too many parties, late nights, pranks, etc. that are better tolerated by people who are at the same place in life.”

Doug Jester, a former East Lansing mayor and current member of the Downtown Development Authority (DDA), agrees on this point with Jones. Jester lives in an owner-occupied condo downtown in the City Center project. That building has retail (including CVS and Omi Sushi) on the ground floor and owner-occupied apartments above.

Jester told ELi that it just doesn’t work to mix up owner-occupied residents with student renters—that it leads to “lifestyle” clash. He said the condo association of City Center recently tightened up the rules to restrict rentals because the residents of the building find that it works best when all apartments in the building are owner-occupied.

Studio Intrigue architect Ken Jones also notes that if a senior wants to live among student renters in a mixed rental project, there’s nothing stopping her or him from doing it now: “Currently, anyone over 55 who wishes to rent an apartment anywhere in East Lansing, including the core area, can do so. There are already laws in place that prevent discrimination based on age. So, 1384 doesn’t open any new doors in this realm.”

Ordinance 1384 could be revised further, or interpreted broadly:

Former mayor/DDA member Jester told me he would prefer to see the City thoughtfully determine where it makes sense to offer senior housing or owner-occupied housing downtown, not to try to legislate it the way Ordinance 1384 does. He said he hopes Council will revisit the ordinance.

Could Council change it? Asked to respond to Jones’ idea that Ordinance 1384 makes redevelopment downtown harder to accomplish, Mayor Pro Tem Ruth Beier agreed it does make it harder. She said she is “willing to consider changes to 1384, and my guess is that other Council members would also.” She added that the fact that they’ve already reworked the ordinance suggests they are willing to reconsider it.

“I am willing to work with developers to get the downtown mix we want,” Beier tells ELi. “If a building is going to pay 100% of its taxes” by not asking for or getting a tax deal from the City, “I would be much more flexible about what gets built. I don’t think we can have it both ways. I don’t think we can tell developers exactly what to build unless we are willing to participate with at least some tax break. But we could say, ‘Build what you want (within some parameters) and pay your taxes.’”

Beier also says that 1384 as it now exists could allow for some innovative housing that goes beyond senior or “owner-occupied. She uses as an example that MSU could arrange a “master-lease” to lease 25% or more of a downtown East Lansing project to house visiting faculty, grad students, married students, and so on. She believes this would satisfy the current requirement of Ordinance 1384. (As ELi reported yesterday, MSU is now pursuing that possibility with Convexity's Park Distirct project.)

Tax increment financing (TIF) is a hot political issue in East Lansing:

Past East Lansing City Councils have used significant amounts of tax increment financing (TIF) to financially support downtown redevelopment. Under many instances of East Lansing TIF, newly-generated taxes are being “captured” from redevelopment projects and used to reimburse developers for eligible costs related to the redevelopment.

The project Jones referred to on his firm’s Facebook page, at 565 East Grand River, was granted a $1.5 million TIF plan by the last City Council. In that case, then-Mayor Nathan Triplett, then-Mayor Pro Tem Diane Goddeeris, and Councilmember Susan Woods voted for the TIF. Councilmembers Ruth Beier and Kathy Boyle voted against it.

TIF was a frequent point of debate for that City Council and subsequently became a major issue in the following East Lansing City Council election, in November 2015. An image of the old Taco Bell at the 565 East Grand River site was used by the Lansing Regional Chamber of Commerce to campaign against then-candidate Erik Altmann, who said he felt TIF had been over-used. (Ultimately Atlmann was elected to Council along with Shanna Draheim and now-Mayor Mark Meadows, and Triplett lost his Council seat.)

Some see TIF as a critically-important tool for East Lansing:

Jones tells ELi about TIF use in East Lansing, “The City is in need of higher tax revenue and as such the tax increment financing incentives are much harder to obtain than they have been in the past. While, I believe it is necessary and prudent for the City to carefully deliberate to ensure that public funds are used wisely and that any reductions in tax payments granted to a development project provide a net-positive for the City, I feel that the focus [of the current City Council] is currently too short-sighted.”

Jones explains, “Rarely, if ever, is actual cash provided by the City to develop a project. Typically, the incentives received are in the form of tax increment financing which has the net effect for the developer of a lower property tax burden for a specific period of time. During this period, the City typically collects the same taxes on the property that they were collecting before the new project was constructed, so the City isn’t ‘losing’ any revenue by providing this incentive. Instead, by providing this incentive the City is virtually ensuring that they will have higher tax revenue when this incentive expires.”

Jones adds, “It is important to look at the property taxes paid by a new development over the long-term. By incentivizing a project, the City helps to ensure that a property will be redeveloped. Typically, the incentives also help to increase the size of a project. A larger project has a benefit to the City of providing higher property taxes over the long-term.”

His view is that a TIF, if done well, pays great dividends in the long run because it can ultimately lead to a much more valuable property with a higher assessed value. “Many properties will not redevelop to their maximum potential without the use of this incentive tool,” says Jones.“Some properties may sit vacant while others will have modest investments made. This is a lost opportunity for the City.”

Another view on TIF:

But Mayor Pro Tem Beier sees things differently: “I don’t buy the presumption that development won’t happen in East Lansing without tax breaks. Development happens all over the country without tax breaks. Our proximity to MSU, our good schools, and our desirable neighborhoods make East Lansing a good place for developers to make profits without tax breaks.”

Beier believes that past City Councils have allowed far too many TIF plans, putting the City at a financial disadvantage. “Thirty years ago, the state allowed cities to create DDA [Downtown Development Authority] zones and grant TIFs, and now developers just assume that they will get a tax break if they build in a downtown. I am trying to challenge that assumption. I want to attract development that is profitable and I want to collect property taxes on that development.”

She thinks the value of TIFs to East Lansing may be over-rated in many cases. “It makes no sense to give away $10 million in tax revenue to get a building that is $10 million ‘better’ so that in 30 years we can start collecting taxes on a building that may or may not be worth $10 million more than it would have been without the TIF. That’s not a good deal. I want the taxes on a building that gets built. It’s ridiculous to wait 30 years (or more) to start collecting taxes” on the redeveloped value.

So why did Beier vote “yes” on the $26 million TIF plan for the Park District? That TIF was set up not to reimburse the developer, really, but to reimburse the City for what it is looking to do, including relieving the DDA’s debt on several properties and building a parking ramp. The developer has called that TIF plan unworkable, and since that vote, the Park District negotiations have apparently stalled.

November election likely to highlight these issues again:

This November, the terms of Councilmembers Beier and Woods will be ending. Both have the option to run for re-election, but it is likely that even if they do, there will be challengers. Based on politics in East Lansing, it seems likely that downtown redevelopment will again play a major role in the race for Council.

For now, it seems likely Ordinance 1384 and TIF will continue to be debated at City Council.

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