Past, Present, Future?
TRAVERSE CITY – Raymond Minervini II is angry. He believes the state has reneged on a promise to him and other Renaissance Zone developers, a move that could affect growth at The Village at Grand Traverse Commons.
"I understand the state is going through a lot right now," he says. "But it's throwing the baby out with the bathwater."
The Renzone incentives were established in the early 2000s as a way to encourage redevelopment of rundown properties. The former state hospital grounds were one of more than 150 Michigan blighted sites to qualify for benefits like near-zero property and income tax rates, which last for more than a decade.
The former state hospital had been sitting vacant on 135 acres adjacent to Munson Medical Center for years when The Minervini Group took advantage of the blighted-site tax breaks to spearhead the $60 million redevelopment of the abandoned property into The Village at Grand Traverse Commons.
"Without those tax breaks and incentives from the state, it would have been very difficult to get the project up and running," Minervini says.
So what changed? In May, Michigan Gov. Rick Snyder signed a tax reform law. On January 1, 2012, the state income tax abatements and other incentives in Renzones will be eliminated for both residents and some businesses, instead of being phased out gradually. C-corporations (companies that pay income directly) for instance, will start paying a 6 percent tax, instead of the next-to-nothing amount they currently pay. The property tax abatements, however, will remain intact.
The reason for these changes? The governor's office has said the breaks are ineffectual, and would rather give tax breaks to all businesses around the state, rather than a select few, effectively leveling the playing field.
Michael Shore, with the Michigan Economic Development Corporation, explains it this way: "Let's say you need to buy a box of cereal. In the past, the state would give some people a coupon for 75 cents off to help pay for it. Now, instead of coupons, the state will mark down the cereal by 80 cents for everyone."
Minervini worries that ending the Renzone tax breaks will make future businesses less likely to move into the former brownfield site. Currently only 30 percent is developed.
"The state has taken away the competitive advantage for doing business in the Renaissance Zone," he says.
He adds that the tax breaks were a huge marketing point for his development.
"We kept our promise in developing this area. Will the state honor its commitment to us?"
Gerard Grabowski opened Pleasanton Brick Oven Bakery at the Commons four and a half years ago. He says the tax incentives were crucial to his business' survival and worries about future small businesses being able to open up shop.
"Five years ago, every penny counted," he says. "And to be honest, if I didn't have the tax breaks, I don't think I would have been able to open the bakery."
Grabowski also believes he's doing his part to boost the economy by hiring 11 workers who didn't have jobs, but are now working and paying taxes.
Other local developers say the new tax law is not a "deal breaker" when it comes to future projects. Bob Jacobson of 630 Lofts, and the forthcoming Cottage 36 residences, says the stripped incentives are "a small piece but not a driving force" in his business. He says it will affect his tenants and other people living at the Commons more than it will affect his company.
Christine Krzyszton moved to the Commons three years ago. Under the new law, she'll have to start paying state income taxes next year. Krzyszton says the tax break incentives made it possible for her to buy her main residence and two other rental units.
"The tax benefits were part of the whole package when I bought the units," she explains. "With this new law, the package just became a little less desirable." Krzyszton quickly adds the quality of life at the Commons outweighs the extra money she'll now have to pay the state.
Tino Breithaupt, the former senior V.P. of Economic Development at the Traverse City Area Chamber of Commerce and current manager of business retention and growth for the MEDC, shares the frustrations of the business owners and residents.
"We are concerned about the impact and effect this will have," he says. "We are watching Lansing closely and hope they will put these tax benefits back on the books."
Minervini also has the support of State Rep. Wayne Schmidt (R-Traverse City), who chairs the House Commerce Committee.
"I understand the state had to scale back," says Schmidt. "But its existing parameters should stay intact. I will be talking to the administration to let them know how successful the Grand Traverse Commons have been." BN