LANSING – On Wednesday, legislation that would allow Michigan developers to capture a portion of sales, use and income taxes to redevelop brownfield sites through projects deemed transformational to the community was approved by a House committee.

SB 111, SB 112, SB 113, SB 114 and SB 115 cleared the House Tax Policy Committee on 10-3 votes with six Republicans and four Democrats in support and three Republicans – Rep. Martin Howrylak of Troy, Rep. Steve Johnson of Wayland and Rep. Jim Lower of Cedar Lake – voting no.

The idea behind the bills is to create an incentive for the redevelopment of large brownfield zones in a way that could serve as a catalyst to further economic development. It marks a major break in the tax philosophy adopted since the onset of the administration of Governor Rick Snyder, who had criticized targeted tax incentives, preferring an overall lower tax climate.

But business leaders have increasingly complained that the state lacks sufficient mechanisms to attract large developments, and Snyder has come around to their side on the issue.

Developers could capture the equivalent of the income tax revenues generated by the construction costs of the project and up to 50 percent of the income tax revenues generated by those newly working and living within the development. And the purchase of personal property that would be made a structural part of the development would be exempt from sales and use taxes.

There are caps on the value of the incentives – no more than $40 million annually in income tax capture and withholding across all projects – and both the local government and Michigan Strategic Fund would have to approve the project to qualify. No more than $1 billion in incentives could be awarded during the life of the program.

At a previous meeting, the committee made some changes to the bills, notably a five-year sunset and a requirement that 35 percent of the approved plans be located in communities with fewer than 100,000 people.

Under the legislation, minimum investment thresholds would exist, depending on the population of the city, to qualify. In Detroit, for example, the investment would have to be $500 million to qualify. And all projects must be mixed use, combining retail, office, residential or hotel uses.

A similar package passed the Senate last year, but died in the House when it arrived with relatively little time remaining in the term. Initially, House Republicans sounded skeptical about the legislation, saying they were hesitant to pass business tax relief when they also want to pass income tax relief too.

Rep. Jim Tedder (R-Clarkston), the Tax Policy Committee chair, said thought possibly the full House would act on the legislation in the next three weeks, but also noted that’s not up to him and budget work is heavy at the moment.

Tedder said discussions of reducing the income tax cut continue, but that is not a reason to hold up action on the brownfield bills when there’s agreement to support them.

“There’s no question that there are many of us in the House still advocating for meaningful income tax reform,” he said. “Those discussions will ensue but we also have to be mindful where we have common ground with our Senate counterparts.”

Tedder said what swayed him to support the legislation were the additional protections the House committee added, like the sunset, and the need to address blighted areas. He noted areas in or near his district like the Pontiac Silverdome and the long vacant Summit Place Mall that need a jump-start on redevelopment.

“I’m excited and optimistic that this will be a critical tool in helping to eliminate blight across the state,” he said.

Lower said he is not convinced only new revenues would be captured under the legislation. He pointed to the provision allowing the developer to capture an amount equal to 50 percent of the income tax revenues generated from those living or working in the new development.

Unless those are residents or workers who came from other states, that’s going to be a revenue loss, Lower said. He said he’d like to see language added beefing up the fiscal protections.

“They’re going to call it new revenue, but it’s not new revenue,” he said. “Looking forward in time, this could create a big problem for the state’s budget.”

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