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Sunday, 05 February 2017 16:27

Grand Rapids reports 6 percent ROI with economic development initiatives

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GRAND RAPIDS — Stakeholders from around Michigan say they’re impressed with the results the Grand Rapids Economic Development department cited in a recent report detailing the performance of various project incentives.

Initially released in a public agenda packet in mid-January, the report shows that from 2010 through 2015, the city of Grand Rapids achieved a return of more than 6 percent on an investment of $197.6 million using six different types of state-sanctioned tax abatement programs. 

While the individual breakdown shows mixed results — some tax abatements achieved modestly positive returns while others continue to experience losses for a variety of reasons — city officials point to the many items in the black as evidence the incentives are working. 

“Overall, 6 percent is pretty reasonable,” said Kara Wood, economic development director for the city of Grand Rapids. 

It’s not exactly clear just how the ROI in Grand Rapids compares to results from other municipalities, in part because other governmental bodies do not compile and present the data in a similar way, according to economic development sources.

“With these programs, it’s mostly two components: You want good-paying jobs and you want investment in real estate that drives increased property taxes,” said Mark Nettleton, an attorney focused on municipal law, land use, zoning and real estate at Grand Rapids-based Mika Meyers PLC. “I can’t say whether (the numbers) are good or bad compared to other places, but the fact that it’s positive, it shows real growth.” 

Nettleton works primarily with smaller communities in the region and doesn’t currently represent the city of Grand Rapids. 

GAINS WITH MANUFACTURERS

Michigan’s industrial facilities exemption, a tax incentive to encourage manufacturers to renovate and expand in aging buildings, accounted for the most growth in Grand Rapids, according to the report. The city cited a 135 percent return on investment in 14 abatements between 2014 and 2015, primarily to companies in the food processing and beverage industries, plus a few traditional manufacturers.

On the other end of the spectrum, a number of abatements showed significant losses, largely because many of the projects have yet to be completed, Wood said. 

Additionally, four Renaissance Zones granted to tool and die shops in 2012 have shown losses of 39 percent. Wood said those abatements will return to the tax rolls next year. 

Likewise, abatements handed out to a number of apartment projects in 2014 and 2015 have yet to realize any gains since they remain under development and generally take 10 to 15 years to generate any returns, according to Wood. 

The survey also shows a mixed bag in terms of job creation and retention in the city. During the report timeline, the number of jobs created and retained — 1,890 and 2,678, respectively — fell slightly below expectations based on companies’ initial applications. 

Still, companies beat their initial projections in two key areas. The total investment of more than $312 million far exceeded the anticipated $197.5 million companies initially reported, and the average wage of more than $32 per hour beat the projected $23.12 an hour, according to the report. 

“For the statistics that I like to see, the city is pretty (spot) on with job retention and job creation numbers,” Nettleton said. “There’s not a great variance. That’s the whole importance of these incentives. You’re trying to create job growth and investment. That all bodes well. As has been talked about, the area continues to outperform.”

PRAISED FOR TRANSPARENCY

Beyond praising the ROI Grand Rapids achieved with its incentives, economic development stakeholders also applauded the transparency the city showed in releasing its data, which spanned several detailed spreadsheets. 

Luke Forrest, director of civic innovations at Ann Arbor-based Michigan Municipal League, said he’s unaware of other cities in the state that have presented such a vast amount of data in such a way, which included several infographics and data visualizations.

Part of the reason for that, Forrest said, could be related to a hesitancy on the part of municipalities to put their cards on the table.  

“It shows that it’s working out to some degree in Grand Rapids, but it’s a problem statewide,” Forrest said. “That’s about the only tool that (Michigan municipalities) have in their toolbox — to offer tax reductions. It’s become very unpopular politically in a lot of places because communities are facing shortfalls in terms of revenue.

“You hope it leads to benefits in the long run, but it doesn’t always work that way.” 

That rings true for Wood in Grand Rapids. With a lean Michigan Economic Development Corp. and a state legislature that hasn’t always been friendly to economic development initiatives, cities such as Grand Rapids have limited options when it comes to driving private investment, she said.

“What we’ve seen is a reduction in incentives available to municipalities,” Wood said. “But I think we’ve been fortunate with developers and we’re required to be strategic. We’re only asking for incentives when we need them.” 

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