Detroit council vows ‘deep dive’ into District Detroit subsidies
City Council members are vowing tough questions and to dig into the details of a request to approve $616 million in public subsidies for the $1.5 billion Ilitch-Ross District Detroit project.
Olympia Development of Michigan and Stephen Ross’ Related Companies are partnering on a vision for hotels, apartments and office buildings in “District Detroit,” an area on the north end of downtown largely defined by sporting arenas, event venues and empty parking lots.
The development team is seeking $800 million in public funding to reimburse costs, including $616 million under a Transformational Brownfield Plan that was introduced Thursday to a City Council committee.
The request for subsidies kicks off what will likely become a heated debate at the council table over who benefits from large development projects, with Council Member Latisha Johnson stressing that the city’s elected officials have a responsibility to ask tough questions while considering the tax incentives.
“People just want to know, where’s the benefit to them?” Johnson said during Thursday’s meeting. “Where’s the benefit to their community?”
Council President Pro Tem James Tate said elected officials will take another “deep dive” into the $616 million brownfield plan in the committee next week before moving it to the full council for a vote.
Developers say the projects will create thousands of jobs and millions of dollars in new tax revenue while building a vibrant neighborhood that improves the surrounding area. However, most residents who attended Thursday’s meeting urged the council to reject the brownfield plan.
Detroiters objected during public comment to what they called “racially unjust corporate welfare” for wealthy developers, arguing that the subsidy is unfair when the city has yet to reimburse majority-Black residents who were overtaxed $600 million.
“If the Ilitches are scared to gamble on their own project with their own money, I don’t want them gambling with mine,” resident Siri Simpson told the council. “You need to repay the overtaxation of Detroit citizens and the pensions of city workers, not give it to people that we have been giving money to since the Coleman Young administration.”
A minority of residents who spoke Thursday countered that the project will create good-paying jobs and simulate the city’s economy.
“When you think about the wages associated with these opportunities in these projects, we’re talking about putting individuals into the middle class,” said John Perkins, a representative for the Michigan Council of Carpenters and Millwrights, who has worked on Ilitch development projects in the past.
Besides the brownfield proposal, the developers are also seeking $133 million in additional tax breaks which are pending approval from the council. District Detroit already received a $25 million reimbursement and $24 million loan from the city’s Downtown Development Authority.
(Image provided by the City of Detroit)
The new vision for District Detroit includes four mixed-income residential buildings, four commercial office buildings, two hotels and outdoor community spaces. Overall, the project includes 1.25 million square feet of commercial office space, 146,000 square feet of retail space, 467 hotel rooms and 695 residential units.
At least 20% of the residential units will be available to rent at rates affordable to those earning less than 50% of the area median income of the Detroit metro region. Those cheaper units should be affordable for a two-person household earning $35,800 per year. The average Detroit household earns $34,762.
Andrew Cantor, executive vice president for Related Cos., said during Thursday’s meeting that the District Detroit plan “does not lead to the displacement of any residents” because no one lives in the buildings slated for renovation. But residents say those who live in the area could be displaced if their rent rises when the new housing is built.
The former Loyal Order of Moose lodge at 2115 Cass Ave. is slated to become a business incubator under the District Detroit redevelopment plan. (BridgeDetroit photo by Quinn Banks)
Brownfield plan unlocks public funding
If approved, the brownfield plan would allow developers to receive $402 million in state taxes and $214 million in local property taxes over the next 35 years to reimburse 40% of the development cost. This includes $138 million collected from school taxes.
The Detroit Economic Growth Corp. argues the incentives are needed because Detroit’s construction costs are among the highest in the country while office rents are among the lowest. The DEGC reports that the returns on the District Detroit project would be 2% without incentives and 4% percent with incentives. Without the incentives, according to DEGC, the project would not be financially viable.
The tax incentive is based on performance, so developers won’t receive any funds if they fail to produce the estimated jobs and financial impact. An analysis by the council’s Legislative Policy Division found the city has a lot to gain by approving the tax breaks.
LPD’s report found Detroit will receive $751 million in net financial benefit over the next 35 years, including $113 million over the next decade. Michigan would also gain $1 billion in revenue during the brownfield plan.
“This is the people’s dollars, as folks say, however we’re trying to generate more of the people’s dollars with projects like this,” noted Council Member Fred Durhal III.
(Image provided by Detroit Brownfield Redevelopment Authority)
Other taxing jurisdictions will see revenue increase by $442 million once the projects are completed, most of which ($423 million) will go to the Downtown Development Authority. Tax revenue for Detroit schools is estimated to increase by $11 million, while tax revenue for the Detroit Public Library is estimated to increase by $460,000.
The projects are also expected to create 12,450 temporary construction jobs, plus 6,000 ongoing jobs once completed.
Durhal said the expected job creation “will be a big part of my decision” on the brownfield plan.
“I do understand the importance of getting folks back to work, that is what I truly believe impacts the neighborhoods,” Durhal said.
Mayor Mike Duggan signed an executive order requiring Detroit residents to work 51% of the construction hours for publicly-funded construction projects. Johnson said developers often fall short of the requirement, which results in a fine used to fund workforce training programs.
Data collected by Detroit’s civil rights department shows Olympia developments like Little Caesars Arena and the Eddystone building did not hit the 51% requirement.
Rian English-Barnhill, vice president of government and community affairs for Olympia Development, said Thursday that there are “strides being made” toward hiring majority Detroiters. Developers are partnering with local trade unions and the city’s workforce development agency to connect residents to jobs.
“Also, we know that we need to work with our school system to get more young people interested in the skilled trades,” English-Barnhill said. “We want to retain the talent even if the trades aren’t appealing to our young people. We want them to stay in the city and we want to address that with our 6,000 permanent jobs.”
Other benefits are expected to come from an agreement negotiated between developers and a neighborhood advisory council over the last three months. Developers committed to spend $12 million on community initiatives like employment training programs, infrastructure projects, arts programing, and support for local retail tenants.
The developers also agreed to spend $100 million on goods and services from disadvantaged Detroit-based businesses and establish a $1.5 million bond fund for small businesses to participate in construction.
First published at https%3A%2F%2Fwww.bridgedetroit.com%2Fdetroit-council-district-detroit-subsidies%2F
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