There is no doubt these are challenging times for many businesses and communities. Businesses that did not survive COVID-related shutdowns have left empty storefronts and offices. Offering incentives to attract new businesses may not be on the radar of already-strapped governments; however, reduced up-front costs make new development more feasible for businesses, and incentives do not reduce local bank accounts. Redevelopment incentives remain one of the best deals in town for reducing development-related environmental due diligence and cleanup costs and reusing contaminated property and blighted, obsolete buildings known as brownfields. Some incentives can even be used on property that isn’t challenged by brownfield conditions
Brownfield conditions can be a significant redevelopment roadblock. Gas stations, warehouses, train tracks, and old industrial buildings remain a threat to public health, safety, and the environment and create extra costs for developers trying to take advantage of existing infrastructure or prime real estate. State and local incentives can level the playing field between a brownfield that may need demolition or environmental cleanup and a greenfield that has never been developed. These incentives most commonly include grants, low-interest loans, and tax increment financing (TIF).
Brownfield redevelopment grants are available from the Michigan Department of Environment, Great Lakes, and Energy (EGLE), the Michigan Economic Development Corporation (MEDC), and the US Environmental Protection Agency (EPA). Eligibility and turnaround time differ for each agency, but EGLE and EPA grants generally pay for environmental site assessments, baseline environmental assessments (BEAs, which protect the buyer of a contaminated site from liability), and cleanup to make a contaminated site safe for people and the environment. EGLE and EPA grants are highly competitive and available only to local governments. MEDC’s Community Revitalization Program grants can be awarded to developers for demolition, site preparation, infrastructure improvements, building rehabilitation, and other costs in priority communities. Most grants require a committed developer who will create new investment, jobs, and/or an increase in the property’s taxable value.
EGLE offers local governments low-interest brownfield redevelopment loans to incentivize new development on brownfield properties. Loans are less competitive than grants and can be repaid with tax increment financing (described below). Like grants, EGLE loans can be used for environmental assessments, BEAs, and other environmental costs associated with site reuse. Unlike EGLE grants, EGLE loans can be used even where there is no committed developer.
TIF is probably the most complex incentive, but the least competitive. Local brownfield redevelopment authorities can motivate development by reimbursing developers from future property taxes for some of their costs.
A site that is contaminated, blighted, or obsolete probably has a low taxable value. When it’s redeveloped, the taxes go up because the cleaned-up property with a new business is worth more. The difference between the old tax amount and the new tax amount is the tax increment. The tax increment, consisting of local and some state taxes, can pay for eligible brownfield costs like asbestos abatement, demolition, environmental investigations, cleanup, and sometimes for new infrastructure and site preparation costs. The local government continues to collect the baseline (predevelopment) tax amount until the brownfield costs are reimbursed.
Brownfield TIF can even reduce development costs on sites without typical brownfield challenges like abandoned buildings and contamination. For example, Fishbeck’s Brownfield Redevelopment team partnered with developer North River Hills LLC, the Newaygo County Brownfield Redevelopment Authority, and the State Land Bank Authority (SLBA) to use TIF for a new residential development in Newaygo, maintaining home affordability for buyers in the $200,000 market.
Our innovative approach was to transfer a non-traditional brownfield property from its private owner to the SLBA, then back to the owner for development, to make the site eligible for brownfield incentives only available for land bank-owned property. The transfer means North River Hills LLC can be reimbursed for site preparation and infrastructure costs from homeowners’ future property taxes following appropriate government approvals. The developer lowers its bottom line and passes the incentives to home buyers in the form of lower home prices. The plan helps buyers who otherwise might be excluded from new home ownership by record high construction costs. Newaygo County, the City of Newaygo, and the State will all see increased tax revenues when the vacant property is developed, and eligible costs are reimbursed.
Every brownfield project is different, but experts can help find creative solutions and provide property transaction environmental services to get it started on the right path.