On July 18, 2023, Governor Gretchen Whitmer signed a series of bills that will dramatically update the state’s brownfield redevelopment laws to allow the use of tax increment financing for housing projects on brownfield sites and expand the kinds of taxes capturable by transformational brownfield plans (TBPs). The package of bills aims to address two issues at once — brownfields and housing shortages. The state has made clear that creative solutions are needed to address housing gaps. Michigan’s Senate Bill 129 (SB 129) and Senate Bill 289 (SB 289), and their companion bills, will make development of brownfields easier by including housing development activities as eligible for tax increment financing under the Brownfield Redevelopment Financing Act and by allowing capture of sales and use taxes for TBPs.
Senate Bill 129
The first group of amendments, led by SB 129, would expand the kinds of activities that are eligible to receive brownfield tax increment financing to include “housing development activities.” Some examples of qualifying housing development activities include rehabilitation of rental housing, demolition and renovation of existing buildings for income qualified purchasers (households with annual income not greater than 120% of the area’s median income), acquisition costs for blighted or obsolete rental units, costs for public infrastructure and safety improvements needed for a housing project, qualified rental assistance payments, and reimbursement for financing assistance of new housing for income qualified households.
To qualify, the community where the brownfield is located must have identified a specific housing need and the brownfield plan must include absorption data or job growth data. The bill assigns the Michigan State Housing Development Authority (MSHDA) the power to approve work plans and combined brownfield plans that request reimbursement for housing development activities. SB 129 also increases the amount of reasonable administrative costs that a brownfield plan or work plan implementation can claim, from $30,000 to $50,000.
In addition, SB 129 provides the ability for certain property taxes captured by existing authorities (e.g., downtown development authorities) to be captured even in the event that these authorities forego or transfer their taxes to support the brownfield plan.
The other amendments in this package of bills, Senate Bills 130, 131 and 132, would conform the General Property Tax Act, the Use Tax Act and the General Sales Tax Act to SB 129’s changes.
Senate Bill 289
The second key bill in the group of brownfield redevelopment amendments is SB 289. This bill provides key definitions and flexibilities to allow a wider range of communities to adopt transformational brownfield plans, or TBPs, a specific kind of brownfield plan. TBPs are only for mixed-use development and have tiered requirements for capital investment based on the size of the community (e.g., $15 million for a municipality of fewer than 25,000 people). The benefit of TBPs is that they may use specific tax revenues in addition to the property tax revenues that normal brownfield plans would use. The specific tax revenues they may use include construction period tax capture revenues, withholding tax capture revenues and income tax capture revenues.
With the passage of SB 289, TBPs may now include capture of sales and use taxes. The bill defines sales tax, use tax and their capture revenues and lays out how the state treasurer would calculate these for a TBP. Any provision of this act that allows for and proscribes requirements for the use of other specific tax revenues will now also apply to sales and use tax capture revenues. Prior to the passage of this bill, a TBP could not begin capturing tax increment revenues, withholding tax capture revenues or income tax capture revenues later than five years after the Michigan Strategic Fund approved the brownfield property in the plan. Now, the capture of these revenues and sales and use tax revenues can begin later than five years after approval if a brownfield redevelopment authority’s governing body and the Michigan Strategic Fund agree that the developer has worked in good faith and made substantial progress in redeveloping the site.
Additionally, the bill raises the cap on reimbursement of total annual capture of income tax capture revenues, withholding tax capture revenues and sales and use tax capture revenues from $40 million to $80 million for all TBPs. If the total annual tax capture was less than the amount scheduled to be dispersed for that year for approved TBPs, the undispersed amount rolls over for subsequent years, subject to other annual limits. The bill also removes the $800 million overall cap on income tax capture revenues and withholding tax capture revenues.
Finally, in order to allow more equitable distribution of TBPs, the bill requires the Michigan Strategic Fund to ensure that between 33% and 38% of TBPs approved before 2028 are located in cities, villages and townships with populations of fewer than 100,000 people. Additionally, between 33% and 38% of TBPs approved before 2028 must be in regions with between 100,000 and 225,000 people.
For more information on how these changes to brownfield redevelopment incentives may affect you or your business, please contact Jared Belka or your Warner attorney.
Warner Legal Consultant C.J. Biggs contributed to this eAlert.