Trowbridge Developer Threatens to Stop Project Unless Tax Incentives Increase

In a dramatic plea to East Lansing’s City Council Tuesday night, River Caddis Development principal Kevin McGraw asked Council to increase the tax incentives for his project at Trowbridge Plaza. McGraw said that because of unexpected costs, a tax calculation error (for which he alternately blamed only himself and the city assessor as well), and his agreement with City Council to build to only four stories instead of five, his profit margin has dropped to single-digits.

McGraw wants Council to give his project more tax subsidies so that more of his costs will be paid via tax dollars eventually collected on the property. McGraw told Council that his “normal minimum rate of return” on a development is fifteen percent and that his expected return on this project has dropped well below that percentage. He wants to make up the loss of expected profits by having the City increase the amount of funds that will reimburse him for eligible costs through Tax Increment Financing (TIF).

The developer now wants to change the percentage of tax capture that goes to the City versus the developer, from 50/50 to 35/65, with the larger sum going to reimburse the developer for TIF-eligible expenses. McGraw also wants the cap removed on the total sum he can obtain in eligible reimbursements. The amount has been capped at about $1.8 million.

McGraw told Council that the major new structure's foundations are due to be put in next week, but that if City Council does not provide the extra tax incentive, “we’ll have to stop.”

To this, Councilwoman Ruth Beier asked, “If we don’t agree, you’ll leave a hole?”

McGraw responded that he would bury the hole for safety reasons. He added, “I’m not going to leave it a problem.”

Councilwomen Beier and Kathy Boyle engaged in lively interchanges with McGraw during this portion of the meeting. Both councilwomen pointed out to McGraw that he agreed to the reduction from five stories to four, and suggested that the associated loss of income was something he should have foreseen. McGraw and his team said that the condition of the soil on the site was poorer than expected, costing the developer to “blow through the contingency” funding. McGraw added that he had not had adequate time to consider the profit margin change before he agreed to the revision of the number of stories.

Boyle appeared unmoved by McGraw’s argument, saying that in one-on-one discussions with him prior to Council’s approval of his project, she had been told by McGraw that he understood what each story would cost and bring in profits.

While Beier and Boyle asked many probing and clarifying questions of City Planning staff and the developer, the other three Council members (Mayor Nathan Triplett, Mayor Pro Tem Diane Goddeeris, and Councilwoman Susan Woods) essentially sat out the discussion. City Council did not take any action on McGraw’s request at the meeting.

For our previous report on this issue, click here.

For a more recent report on this issue, click here.

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