BrentA Bad Penny
Like a bad penny, the Diesel Plant keeps showing up on city council’s agenda. First, (May 2023) convincing council to sell it for $1 million, 30% less than its $1.5 million appraised value. Then, (Sept 2023) convincing council to declare it obsolete under OPRA. And now, (Nov 2023) asking council to abate taxes for up to 12 years. Will this Diesel Plant saga ever end?
We’re Talking Real Money
So how much money are we talking about if a tax abatement is granted? The question was asked during a public hearing on the matter in Sept 2023. The prior 22/23 Council answered by suggesting the public go file a FOIA if you really want to know. That’s disappointing. Not the transparency council claims to embrace. Very few city taxpayers even know what FOIA means, much less how to file one. After all, this is taxpayer money we’re talking about. There is much talk about abatements, but no mention of dollar amounts. So, let’s run some numbers to see how much we’re talking about.
In its August 22, 2023, OPRA request to council, the developer estimates the cost to renovate and repurpose the Diesel Plant at $8.1 million (hard costs), plus $1.13 million (soft costs), for a total cost of over $9.2 million.
Let’s use (for the sake of illustration) the city’s current millage rate of just shy of 52 mills, apply it to only the hard costs ($8M buildout is $4M S.E.V. taxable), and abate 100% of the $4 million S.E.V. for 12 years. The abatement adds up to almost $2.5 million in lost tax revenue. That sounds like real money. Most of it (about 70%, or $1.7 million) goes into the city coffers, and the rest to the county and state. Putting it in perspective, the developer is asking for a tax break of almost $2.5M; that’s 2.5 times more than the $1M it paid for the property to begin with.
NOTE: The developer neglected to mention that little detail, the real money the city will lose. Instead, the developer proudly highlights in its most recent 10/04/2023 OPRA Application (page 4) submittal to council how the city will realize during the abatement about $70,000/yr in tax revenue and forego about $80,000/yr. Maybe the idea is “give a little; take a little”. Pointing out a favor to the city, perhaps. That’s just not true, and an insulting developer’s pitch to council and the public. Have we really shown ourselves to be that gullible during the last 2-3 years of negotiations on this whole deal? The tax revenue highlighted by the developer speaks only to the raw land, not to one cent of the planned $9 million buildout. If council buys that story, then city hall will soon find at its doorstep a long line of locals willing to sell council a bridge in Brooklyn.
The city did it right in December 2022 when council created a Commercial Rehabilitation District (CRD under 2005 PA 210) along the Beechtree Street Corridor allowing 46 parcels tax abatements for up to 10 years. The Beechtree CRD is a classic example of how tax abatements can be used effectively. Allow tax abatements to nudge tired, blighted areas into thriving redevelopment. Beechtree is proof that tax abatements work in the right circumstances. The Diesel Plant is not one of them, however. Beechtree is a corridor of many parcels and buildings, a district. The Diesel Plant is at best only one building, not truly a district at all. There is no blight surrounding the Diesel Plant. Quite the contrary, the Diesel Plant’s neighbors have the highest real estate values in the whole town! The similarities are none. To use the successful Beechtree tax abatements as precedent for arguing in favor of the requested Diesel Plant OPRA tax abatement certificate is not justified. The districts and the circumstances are as different as night and day. If council grants the requested tax abatement certificate, its decision must stand on its own; compared to nothing else, and based on nothing else.
The question council must answer is:
Can Grand Haven afford to give away $2.5 million in lost tax revenue, in addition to the $500 thousand already lost on the sale price?
Imagine the potholes $2.5 million can patch. Imagine the summer staff $2.5 million can fund. Imagine the snow and sand $2.5 million can plow. Imagine the worn-out city equipment $2.5 million can replace. Imagine the trees $2.5 million can trim and replace. Imagine, imagine . . .
Our city pension plan is underfunded by almost $30 million. Harbor Island cleanup costs will exceed $70 million. Our local schools and libraries need money. We have city debt piled on top of city debt to repay. (Note: Over 50% of all city revenues are spent to pay off old debt.) Our city finances are badly stressed, at best. Our city manager made two alarming statements in the city’s 2022-23 budget that bear repeating:
“Legacy Cost Review: Unfunded pension liabilities have now absorbed much of our capacity to maintain routine operations. . . . “ (GH Budget 2022-23, p2)
“Outlook
The coming year’s budget is a departure. We are setting a course to reduce services and increase resources to offset tremendous increases in pension liability. . . . .
. . . . . Pension liabilities have long been a concern, and projected short term cost increases have stymied past efforts to eliminate long term pension liability. . . . . . This impacts our ability to sustain the services you expect.” (GH Budget 2022-23, p3)
City hall’s plea for help is clear. Council must find money; not give it away.
The Project is Unclear
At an earlier public hearing on the matter (Sept 2023) the developer stated on the public record that the Project is renovating and repurposing the Diesel Plant building, nothing else, only it. Period. However, the signed Diesel Plant purchase agreement actually says something else. Exh. B says the developer can modify the Project to include the building of up to five condos.
Why does this matter? It would be tempting for a developer, once a tax abatement is granted, to modify its Project to include the five condos and enjoy the tax abatement for them, too. Assuming the condos sell for $1M each, that’s another $5M FMV the city loses in property tax base. Assuming a taxable $2.5M S.E.V (50% of FMV), applying our current 52 mills, that’s $130 thousand additional tax revenue every year; $1.5M over 12 years.
Some Options to Consider
Council has a range of options to consider regarding the tax abatement.
- Certainly, council can grant the whole thing. 100% tax abatement. All 12 years. That’s unlikely, all things considered.
- Council can deny the whole thing. No abatement. No years. That, too, is unlikely. Why would council create the OPRA District in Sept 23 if it doesn’t plan to abate some tax, in some fashion, for some years? To create an OPRA District and not use it is a head scratcher.
- Council can grant a tax abatement for less than 100% and/or less than 12 years. A years / % mix of sorts. For example, maybe abate 100% of tax for the first 3 yrs while the developer completes the Diesel Plant renovation. While the developer’s cash outlay is high ($8M hard costs and $1M soft costs). Then, starting in year 4, phase in 20% of tax per year over the next 5 years until the Project is fully taxed by year 8. A compromise; a middle-of-the-road approach for both sides.
- Council can encourage the developer to flip its plans upside down. Instead of building out the Diesel Plant as Phase 1 and building the five condos as Phase 2. Reverse it. Build the condos in the first 3 years to generate profits on their sale. Then, beginning in Year 3, use the condo profit money to help fund the Diesel Plant buildout, avoiding the need for any city tax abatement at all. If the developer can pull together $9M to renovate the Diesel Plant, it certainly can pull together $3M to build five condos. Net profits from selling five condos would exceed $2.5M since the developer already owns the land. The condo profits would total more than the requested 100% tax abatement for 12 years. The developer gets the money it needs to make the Diesel Plant project viable. The city dodges a tax abatement. The city gets additional new tax revenue from the five condos added to the city tax rolls. A win-win for all sides.
This Diesel Plant tax abatement issue is very important to the city. It requires council’s careful deliberation and utmost wisdom. Thank you. Brent Clark
