Council questions remain as District Detroit closes in on tax break approval
Detroit’s City Council could sign off on $750 million in tax breaks for District Detroit next week as some members push for time to address unanswered questions and others argue delays could threaten the deal.
Council President Pro Tem James Tate noted a Thursday committee meeting was the council’s first opportunity to dive into the implications of District Detroit, a joint project pitched by the Ilitch family’s Olympia Development of Michigan and Stephen Ross’ Related Cos. The developers are ready to kickstart long-stalled plans to build hotels, offices, apartments and business space near downtown entertainment venues. But the project relies on public support, and council members have pledged patience as they work through complicated questions around housing affordability, workforce development and tax abatements.
After roughly four hours of discussion, the committee advanced requests to reimburse developers with $616 million largely collected from state taxes plus $133 million from local property taxes over the next 35 years. That means the full council could approve the tax breaks next Tuesday, though Council President Mary Sheffield said she needs more time to ponder the complicated situation, and stronger commitments from the developers for promised benefits.
“With the amount of concerns and questions that were submitted, I would encourage the committee to bring this back in one week for us to be able to receive responses and appropriately digest all that is before us,” Council President Mary Sheffield said. “I’m not trying to hold this up, I just want to ensure that when it comes on Tuesday that we’re not doing the same thing with tons of people down here, getting people excited, and we’re not quite ready to move forward.”
An overview of tax abatements sought by District Detroit developers for 10 downtown projects. (Screenshot | City of Detroit)
Council Member Fred Durhal made the motion to send the tax abatement requests to next week’s formal session without a recommendation to approve them. Durhal said he’s concerned with the project’s timeline. The $616 million Transformational Brownfield Plan sought by developers also needs approval from the Michigan Strategic Fund, which meets once per month. City officials said the brownfield plan may not make it onto the MSF’s April meeting agenda, which could put the project behind schedule for the summer construction season.
“I do believe timing is of the essence,” Durhal said. “That being said, I’m very respectful of colleagues and some of their recommendations and questions that they still need to be answered for Tuesday.”
The council heard public comment from more than a dozen residents during this week’s formal session. Scores more are expected to weigh in after months of debate around the controversial tax breaks finally lands before the full council. Last summer, a similar situation unfolded when the council took months of delays before voting on tax breaks for another downtown project, which caused frustration for residents who appeared at council sessions week after week.
Sheffield said she supports downtown redevelopment, but the council needs an opportunity for “due diligence” to ensure benefits promised by the Ilitch-Ross team are factual. Council Member Scott Benson meanwhile, warned his colleagues not to take too long.
“There are many things that can kill a deal,” Benson said. “Bad management can kill a deal. Lack of financing can kill a deal, but time kills all deals. I’m hoping that we’re looking at the upside to our General Fund and our ability to pay for the great programs that we have as the City of Detroit. If you like programs and support low income families, homeless families, the disabled, these are the types of deals that help us pay for that.”
The council president focused her questions on a target by developers to spend $100 million on Detroit-based and “disadvantaged” businesses as defined by the city’s civil rights department. The spending goal is part of a benefits agreement negotiated between the developers and a neighborhood advisory council required by city law. Sheffield wants the language strengthened for a more binding commitment to spend $100 million.
“It is not actually securing a guarantee,” Sheffield said. “When I get letters from organizations that say they support this because it’s a $100 million commitment to disadvantaged businesses, I think that’s very misleading … This is a big part for me, to secure my support.”
Developers must comply with an executive order requiring that Detroit residents work 51% of the construction hours or face fines that fund city workforce training programs. Construction on the 10 planned buildings is expected to create 12,450 jobs paying an average wage of $61,921.
Council members considered it unlikely that developers would hit the hiring target for construction workers. Tate said three out of 10 projects hit the mark. District Detroit developers say the problem lies with a lack of Detroiters skilled in construction trades.
“This is a huge issue to tackle,” said Olympia Vice President Rian English-Barnhill. “It will take a village. This will need the work of developers, skilled trades unions, contractors and educators to really solve this pipeline shortage.”
Tate said developers have had years to come up with a strong plan to hire residents. He also pushed back on the idea that a worker shortage is to blame.
“I’ve gotten a number of calls from folk who are qualified and have worked on projects, one being the arena, and these are Detroiters who are out of work right now with all this development going on today,” Tate said. “We’re not talking about hiring or training new folks. I’m talking about folk right now who already have qualifications, certifications and have worked on these projects.”
Olympia President Keith Bradford said the company made a $6 million contribution to Detroit’s workforce programs, but Tate clarified that the funds were a penalty because Little Caesars Arena missed the 51% hiring threshold.
“We don’t anticipate 51%, and let’s be real,” Tate said. “You’re not going to hit that 51%.”
A large portion of Thursday’s questions centered on whether Detroit residents will have access to new jobs promised by the project. Less than half (48%) of employees at Little Caesars Arena are Detroiters, as of January.
Olympia and Related Cos. will lease office and retail space to tenants who are expected to create more than 6,000 post-construction jobs at full occupancy. Potential jobs include financial services, software developers, computer analysts, property managers, hospitality positions and food and beverage workers. The average salary is projected at $96,561.
A cost benefits analysis conducted by the Legislative Policy Division assumed city residents will hold 35% of the post-construction jobs and 25% of construction jobs.
The Detroit Law Department found it’s possible to ask developers to commit to having tenants hire a certain percentage of residents for post-construction jobs. Andrew Cantor, executive vice president of Related Cos., said tenants are “extremely reluctant” to have requirements placed on them “that might limit their ability to access talent to carry out their primary business.”
“In my experience, it would have a negative impact on our ability to fill the jobs and create jobs for Detroiters because it would limit the attractiveness of this development and this city to outside employers,” Cantor said.
Sheffield asked whether Olympia Development will direct revenue from Little Caesars Arena, possibly through a ticket surcharge on entertainment that takes place in the arena. Bradford said a different division of the Ilitch organization manages the arena.
“I would like to have further discussions with the Ilitch organization regarding this,” Sheffield responded. “We do not receive any direct revenue from the benefit of the entertainment taking place downtown, aside from income taxes. I would love to see some type of 2% ticket surcharge.”
Housing was another topic of questioning. Council Member Mary Waters asked how developers will mitigate displacement in the area surrounding the project, referencing a “growing body of evidence” that innovation districts tend to exacerbate gentrification. Developers said they’ve set aside one-fifth of the housing units for middle-income residents, and “zero displacement” will come from building on empty lots and structures that have no current tenants.
Ryan Friedrichs, vice president of Related Cos. and a former city development officer, said the project will also create $751 million in new tax revenue for the city. This funding, he said, would help support neighborhoods, workforce training programs and city services.
Waters said she’s disappointed the developers didn’t contribute to Detroit’s Affordable Housing Trust Fund.
“This is a huge issue for everybody across this city,” Waters said of housing. “It’s not enough on the table for Detroiters. Hopefully we can have some additional discussions.”
Council members thanked members of the neighborhood advisory council for negotiating with the developers. The council thanked Barbrie Logan in particular, who voted against the agreement, for offering a contrasting perspective.
“This is a democracy, and if we knew we’re gonna get all yes (votes) there would be no need for us to have an oversight body,” Benson said. “Dissenting voices are needed and they can hold people accountable and hold their feet to the fire.”
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