Published in Economic Development
The Kalamazoo DDA wants to restructure its boundaries and create a corridor improvement authority in a move to stabilize revenues. The Kalamazoo DDA wants to restructure its boundaries and create a corridor improvement authority in a move to stabilize revenues. COURTESY PHOTO

Kalamazoo DDA seeks to avert ‘crisis’ with new business model

BY Friday, August 03, 2018 10:42pm

KALAMAZOO — Officials in Kalamazoo hope that a shift in structure for its Downtown Development Authority will spur new projects and encourage continued investment in placemaking initiatives.

The cash-strapped DDA, which is administered by the nonprofit Downtown Kalamazoo Inc., hopes to enlarge the boundaries of the tax increment financing (TIF) district and create a corridor improvement authority. The proposed Downtown Kalamazoo Economic Growth Authority (DEGA) then would absorb the existing DDA and be eligible to tap into additional state dollars.

The Kalamazoo City Commission in early July adopted a resolution declaring its intent to implement the DEGA proposal. It’s likely to vote on the matter in October.

The DDA’s revenue shortfall “crisis” — as it’s described in a memo from the city — stems from a range of circumstances, including the abundance of nonprofit organizations owning land in the district, as well as issues related to a plethora of former industrial properties.

DKI President Andrew Haan said the DDA’s struggles resulted from the recession, which depressed property values. In turn, that sent the taxable value that could be captured into a tailspin, he said, noting the state’s Headlee Amendment limits tax revenue growth for many public bodies.

Additionally, the downtown district’s legacy of properties owned by pharmaceutical players once accounted for a significant portion of the taxable value in Kalamazoo. However, in more recent years, many of those industrial properties have sat vacant or were transferred to tax-exempt entities, leading to greater constraints on the DDA resources.

Still, many local stakeholders remain hopeful that implementing a new model could transform the city’s ability to encourage more downtown projects.

“The creation of the DEGA will reset the basis on which tax increment revenues will be collected, placing the DEGA in a strong position to reinvest increased TIF revenue from recent and upcoming downtown developments,” according to a memo from the City of Kalamazoo.

Executives say the current shortfall has limited the DDA’s ability to invest in community priorities such as inclusive and equitable development, mobility and safety.

“These are some of the things that been identified by the community, but right now we’re in a position where there’s just not enough funding and resources to be able to address those,” Jennifer Jelenek, vice president of business development at DKI, said during a public meeting on the proposed changes.

DKI says because of the changing downtown real estate landscape, the DDA district this year will leverage no incremental funds for the first time in 30 years. To fund operations, the body has had to tap into its reserves.

“The bottom line is if we don’t change, we’ll no longer have the resources to do our work,” Haan said.

For the DDA, that work largely involves placemaking-based economic development initiatives, he added.

Ultimately, DKI executives stress the proposed changes are needed to propel economic development in downtown Kalamazoo and its surrounding areas.

“It’s this idea that places need business, business needs talent, and talent wants place,” Haan said. “Everyone wants to have a great place to live, and businesses need that workforce. For cities to be viable, they have to have businesses to pay taxes. Our little part of that is making sure we create the place that lends itself to keeping and attracting new talent and companies.”

REDRAWING boundaries

Under the DEGA proposal, the new tax capture district would extend to some strategic areas of the city where officials expect future development to take shape.

The exact size of the proposed district expansion remained unclear as this report went to press, but a city memo outlined the general areas where taxes would be captured for future investment.

The proposed additions include new areas along Stadium Drive southwest of downtown and commercial blocks of West Michigan Avenue and Academy Street between Westnedge Avenue and Stadium Drive. The district also would cross over the Kalamazoo River east of downtown, where redevelopment activity currently is underway.

“These are strategic expansions that would allow for us to use TIF dollars to stimulate new investment and catalyze new investment in some areas where the private market really isn’t confident spending money yet,” Haan said.

Even while Kalamazoo’s DDA continues to struggle, Southwest Michigan’s largest city has become a beacon for new investment in recent years, with multiple mixed-use projects containing residential units, office space and new restaurants popping up within the central business districts as well as in surrounding neighborhoods.

Investments in those areas total close to $1 billion dollars in recent years, according to Haan, who added the area continues to need more housing.

“The demand is just bursting at the seams right now and we need to make sure that projects we would support are meeting the vision of the community so that we have that market rate, the workforce housing and the affordable housing and a mix that’s reflective of the community,” he said. “It’s not easy.”

Keeping it local

The notion of Kalamazoo “resetting” its governmental structure has become somewhat of pattern in recent years.

In 2017, the city helped to form the Kalamazoo Foundation for Excellence, a nonprofit foundation started by billionaire philanthropists and businessmen Bill Parfet and Bill Johnston. The first-of-its-kind foundation serves as a stopgap measure for funding municipal services and allowed the city to lower its property tax rate with the assurance that funds would be in place to make up the difference.

Parfet views the creation of the foundation as a transformational moment in Kalamazoo’s history, something the DEGA stakeholders also have in mind.

“(The Foundation for Excellence) gets the community excited about its future and it gets people recognizing that these cities are important and that we’ve got to make them vital,” Parfet told MiBiz in an interview in early June. “You live there, you work there, you recreate there and you play there. And it’s working in Kalamazoo incredibly well.”

Likewise, DKI’s Haan thinks the pivot to a new tax capture district can yield more homegrown support and further propel the region’s growth.

“There’s been some challenges that have come our way,” Haan said. “We think this gives us a chance to look back at those first nearly 30 years (since the DDA was created) and think about the next 30 and how we can utilize TIF (and) those locally-generated dollars to stay local with locally-articulated economic development priorities.”

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