1210: ANALYSIS AS REPORTED FROM COMMITTEE (Date Completed: 9-11-12)

environmental activities before approval of a brownfield plan, in situations involving collaborative agreements.

-- Discontinue requirements that an authority reimburse the MSF or the DEQ for the cost of reviewing a work plan.

-- Include historic resources in the Act's definitions of "eligible property" and "eligible activities".

-- Expand the definition of "infrastructure improvements", allowing the use of tax increment revenue for additional types of projects.

-- Delete requirements that notice of certain public hearings be published in a newspaper.

-- Delete a requirement for work plan approval before an authority may spend money in a local site remediation revolving fund that is derived from school operating taxes.

-- Require authorities' annual financial reports to include additional information; require the MSF and the DEQ to submit a joint annual report to the Legislature; and otherwise revise reporting requirements.

-- Allow a brownfield plan to be abolished or terminated if a project failed to occur for five years after its approval, and make other changes concerning the abolishment or termination of a plan.

State Brownfield Redevelopment Fund

The bill would create the State Brownfield Redevelopment Fund as a revolving fund within the Department of Treasury. The State Treasurer would have to credit to the Fund money from the following:

-- All amounts equal to three mills of the State Education Tax deposited into the Fund as required by the bill, for a brownfield plan that included the capture of school operating taxes.

-- The proceeds from repayment of a loan from the Fund, including interest on those repayments.

-- Interest on money deposited into the Fund.

-- Money obtained from any other source authorized by law.

The Fund could be used only for the following purposes:

-- To pay administrative costs of the Michigan Strategic Fund and the DEQ to implement the Act and the administrative costs of Part 196 (Clean Michigan Initiative Implementation) of the Natural Resources and Environmental Protection Act (NREPA).

-- To fund a grant and loan program for the costs of eligible activities (for which MSF approval is required) on eligible property.

-- To make deposits into the Clean Michigan Initiative Bond Fund created in Part 196 of NREPA, for use only in providing grants under Part 196.

(Part 196 requires a portion of the money in the Clean Michigan Initiative Bond Fund to be used for grants and loans to local units of government and brownfield redevelopment authorities to investigate and remediate sites of known or suspected environmental contamination with redevelopment potential.)

Not more than 15% of the amounts deposited annually into the State Brownfield Redevelopment Fund could be used for the administrative costs described above.

The State Treasurer would have to direct the Fund's investment. Money in the Fund at the close of the fiscal year would have to remain in it and could not lapse to the General Fund.

MSF Grant & Loan Program

The bill would require the Michigan Strategic Fund to create and operate a program to provide grants and loans to fund eligible activities requiring MSF approval (for the use of school operating taxes) on eligible property. The Strategic Fund would have to develop and use a detailed application, approval, and compliance process adopted by resolution of the MSF board. The process would have to be published and available on the MSF website. Program standards, guidelines, templates, or any other forms to implement the grant and loan program would have to be approved by the board. The MSF could delegate its approval authority to a designee.

A person could apply to the MSF for approval of a grant or loan to fund eligible activities on eligible property. The MSF would have to approve or deny an application within 90 days after receiving an administratively complete application. If an application were neither approved nor denied within that period, it would have to be considered by the MSF board, or its designee, for action at or by the next regularly scheduled board meeting. The MSF could delegate the approval or denial of an application to the MSF chairperson or other designees determined by the board.

When an application was approved, the MSF would have to enter in a written agreement with the applicant. The agreement would have to provide all the conditions imposed on the applicant and the terms of the grant or loan. The agreement also would have to provide for penalties if the applicant failed to comply with it. After the Strategic Fund and the applicant entered into a written agreement, the MSF would have to distribute the proceeds to the applicant according the terms of the agreement.

Any proceeds from repayment of a loan, including interest, would have to be paid into the State Brownfield Redevelopment Fund.

State Education Tax Revenue

For a brownfield plan that included the capture of taxes levied for school operating purposes, the bill would require an authority to pay to the Department of Treasury at least once annually an amount equal to three mills of the taxes levied under the State Education Tax (SET) that were captured under the brownfield plan. The Department would have to deposit those funds in the State Brownfield Redevelopment Fund. (Under the Act, the term "taxes levied for school operating purposes" includes taxes levied under the State Education Tax Act as well as taxes levied by a local school district for operating purposes.)

If an authority paid to the Department of Treasury an amount equal to three mills of the SET on a parcel of eligible property, the percentage of local taxes levied on that parcel and used to reimburse eligible activities for a project under a brownfield plan could not exceed the percentage of local taxes levied on that parcel that would have been used to reimburse eligible activities for the project if the three SET mills levied on that parcel were not paid to the Department.

If, due to an appeal of any tax assessment, an authority had to reimburse a taxpayer for any portion of the three mills paid to the Department, the Department would have to reimburse that amount to the authority within 30 days after receiving a request for reimbursement from the authority.

Plan Approval

The Act requires the MSF to approve a work plan before January 1, 2013, if a brownfield plan includes the capture of taxes levied for school operating purposes and the taxes will be used for infrastructure improvements that directly benefit eligible property, demolition of structures or site preparation that is not response activity under Part 201 (Environmental Remediation) of NREPA, lead or asbestos abatement, relocation of public buildings or operations for economic development purposes, or acquisition of property by a land bank fast track authority. Eligible activities under Part 201 of NREPA must be consistent with a work plan approved by the DEQ before January 1, 2013, in order for an authority to use captured school operating taxes.

The bill would retain the requirements that a plan be approved, but delete the requirements for approval before January 1, 2013. The bill also would require approval of either a work plan or a combined brownfield plan. For plans that require DEQ approval, the bill would delete a requirement that an authority submit a separate work plan, or part of a plan, for each eligible activity to be undertaken.

For plans that must be approved by the Strategic Fund, the bill would authorize the MSF chairperson to approve combined brownfield plans and work plans for eligible activities totaling $500,000 or less, according to the Act's criteria for approval by the MSF.

Currently, an authority must reimburse the MSF or the DEQ for the cost to review a work plan. Under the bill, this requirement would not apply after December 31, 2012.

Combined Brownfield Plan

The bill would allow an authority, instead of seeking approval of a work plan from the MSF or the DEQ, to seek approval of a combined brownfield plan from the Strategic Fund or the Department, subject to the following provisions.

At least 30 days before holding a hearing on the combined plan, the governing body of the municipality that created the authority would have to notify the Michigan Strategic Fund or the Department, as applicable, that the authority would be seeking approval of a combined plan.

After approving a combined brownfield plan, the governing body would have to submit it to the MSF or the DEQ, which would have to review the plan. The MSF or the DEQ would have to give the authority one of the following written responses within 65 days:

-- An unconditional approval that included an enumeration of eligible activities and a maximum allowable capture amount.

-- A conditional approval that delineated specific necessary modifications to the combined plan, including individual activities to be added to or deleted from the plan and a revision of costs.

-- A denial and a letter stating with specificity the reason for the denial.

The approval of a combined brownfield plan would be final. If a combined plan were denied, it could be resubmitted.

If the MSF or the DEQ failed to provide a written response within 65 days after receiving a combined plan, the eligible activities would have to be considered approved as submitted.

When approving or denying a combined plan, the MSF would have to consider the criteria identified in the Act for approval of a work plan, to the extent reasonably applicable to the type of activities proposed as part of the combined plan.

The DEQ could approve a combined brownfield plan if the authority submitted the information that must be submitted for approval of a work plan (except a copy of the brownfield plan) and if the conditions for approval of a work plan were met.

If the MSF or the DEQ approved a combined plan unconditionally or conditionally, the municipality's governing body or its designee could administratively approve any modifications to the combined plan required by the written response, without following the notice and approval process required for amendments to an approved brownfield plan, unless the modifications added one or more parcels of eligible property or increased the maximum amount of tax increment revenue approved for the project.

Brownfield Plan Preapproval Exceptions

Environmental Assessment Activities. As a rule, the Act prohibits an authority from using taxes captured from eligible property to pay for eligible activities conducted before a brownfield plan has been approved by the governing body of the municipality that created the authority. An authority may use tax increment revenue attributable to local taxes, however, for the costs of the following activities before a brownfield plan is approved:

-- Site investigation activities required to conduct a baseline environmental assessment (BEA) and to evaluate compliance with Section 20107a of NREPA (which sets forth the duties of a person who owns or operates property that he or she knows is a site of contamination).

-- Completion of a BEA report.

-- Preparation of a plan for compliance with Section 20107a.

Under the bill, an authority could use taxes levied for school operating taxes for those costs before a brownfield plan was approved.

As a rule, an authority currently may not use taxes levied for school operating purposes for response activities that benefit a party liable under Section 20126 of NREPA (e.g., an owner or operator who is responsible for causing a release). Under the bill, this limitation would not apply to the activities listed above.

Additional Preapproval Exceptions. The bill would make the following exceptions to the prohibition against using captured tax revenue before approval of a brownfield plan.

For tax increment revenue attributable to taxes levied for school operating purposes, the prohibition would not apply to eligible activities associated with unanticipated response activities conducted on eligible property if that property had been included in a brownfield plan, provided the DEQ was consulted on the unanticipated response activities before they were conducted and the costs were subsequently included in a brownfield plan approved by the authority and a combined brownfield plan or a work plan approved by the DEQ.

Also for tax increment revenue attributable to school operating taxes, the prohibition would not apply to eligible activities involving infrastructure improvements conducted on eligible property or prospective eligible properties before approval of the brownfield plan, if those costs and the eligible property subsequently were included in an approved brownfield plan and work plan.

For tax increment revenue attributable to local taxes, eligible activities could be conducted on eligible property or prospective eligible properties before approval of a brownfield plan, if those costs and the eligible property were subsequently included in an approved brownfield plan.

Limit on Authority Costs

Under the Act, in each fiscal year, the amount of tax increment revenue attributable to local taxes that an authority may use for reasonable and actual administrative and operating expenses and baseline environmental assessments, due care activities, and additional response activities related directly to work conducted on prospective eligible properties before approval of a brownfield plan, is limited to the following:

-- $100,000, for authorities with five or fewer active projects.

-- $125,000, for authorities with six to 10 active projects.

-- $150,000, for authorities with 11 to 15 active projects.

-- $175,000, for authorities with 16 to 20 active projects.

-- $200,000, for authorities with 21 to 25 active projects.

-- $300,000, for authorities with 26 or more active projects.

Under the bill, those amounts could be increased by 2% for each written agreement entered into by an authority in either of the following situations, up to a total maximum increase of 10%:

-- The authority was established by a county and entered into a written agreement with one or more municipalities within the country to serve as the only authority for those other municipalities.

-- The authority entered into a written agreement with one or more other authorities to administer one or more administrative operations of those other authorities.

(As used in these provisions, "active project" means a project in which an authority is currently capturing taxes under the Act.)

Historic Resource & Infrastructure Improvements

The bill would include a historic resource within the Act's definitions of "eligible property" and "eligible activity". "Historic resource" would mean that term as defined in Section 90a of the MSF Act (i.e., a publicly or privately owned historic building or structure located within a historic district designated by the National Register of Historic Places, the State Register of Historic Sites, or a local unit acting under the Local Historic Districts Act).

Eligible activities under the Brownfield Redevelopment Financing Act include infrastructure improvements that benefit eligible property. Infrastructure improvements include streets, parking facilities, bridges, sewers, utility lines, transit-oriented facilities, and other improvements owned or used by a public agency and designed to benefit the public. The bill specifies that infrastructure improvements also would include one or more of the following, whether publicly or privately owned or operated or located on public or private property:

-- Underground parking.

-- Multilevel parking structures.

-- Urban storm water management systems.

Notice of Public Hearings

The Act allows a local unit's governing body, by resolution adopted by a majority of its members elected and serving, to declare its intention to create and provide for the operation of a brownfield redevelopment authority. In the resolution of intent, the governing body must set a date for holding a public hearing on the adoption of a proposed resolution creating the authority. The bill would delete a requirement that notice of the public hearing be published twice in a newspaper of general circulation in the municipality, not less than 20 or more than 40 days before the date of the hearing.

Similarly, the Act requires a governing body to hold a public hearing before approving a brownfield plan. The bill would delete a requirement that notice of the public hearing be given by publication twice in a newspaper of general circulation designated by the municipality, not less than 10 or more than 40 days before the date of the hearing.

Local Site Remediation Revolving Fund

The Act allows an authority to establish a local site remediation revolving fund, consisting of available tax increment revenue and money appropriated or otherwise made available from public or private sources. The bill would delete provisions under which an authority may not use funds from a local site remediation revolving fund that are derived from school operating taxes unless the activities to be conducted are consistent with a work plan approved by the DEQ or the MSF.

The bill also would delete a requirement that an authority separately account for money deposited into the fund that is directly derived from tax increment revenue levied for school operating purposes.

Reporting Requirements

The Act requires an authority to submit an annual financial report on the status of the authority's activities to the local governing body and the State Tax Commission. Under the bill, the report would have to be submitted to the local governing body, the DEQ, and the MSF. The information required to be reported includes the captured taxable value realized by the authority; the bill would require that information for each eligible property subject to the brownfield plan. The bill also would require the report to include the following:

-- The amount of actual capital investment made for each project.

-- The number of residential units constructed or rehabilitated for each project.

-- The amount, by square foot, of new or rehabilitated residential, retail, commercial, or industrial space for each project.

-- The number of new jobs created at the project.

The bill would delete a requirement that the report include information concerning any transfer of ownership of or interest in each eligible property.

The Act requires the State Tax Commission to collect the financial reports, compile and analyze the information contained in them, and submit an annual report based on the information to certain committees of the Legislature. The bill, instead, would require the DEQ and the MSF to collect the reports; compile a combined report, including the use of local taxes, taxes levied for school operating purposes, and the State Brownfield Redevelopment Fund, based on the individual reports and any additional information considered necessary; and annually submit a report based on that information to each member of the Legislature.

The bill would require the owner or developer of an active project included in a brownfield plan to submit annually to the authority a report on the status of the project. The report would have to be in a form developed by the authority and contain information necessary for the authority to submit its financial report. The authority could waive this requirement.

Beginning on January 1, 2013, the MSF and the DEQ, on a quarterly basis, would have to post on their websites the name, location, and amount of tax increment revenue, including taxes levied for school operating purposes, for each project the Strategic Fund or the Department approved under the Act during the immediately preceding quarter.

Brownfield Plan Abolishment or Termination

Currently, a governing body may abolish a brownfield plan when it finds that the purposes for which the plan was established were accomplished, but not until the principal and interest on bonds issued under the Act and all other obligations to which the tax increment revenue is pledged have been paid or funds sufficient to make the payment have been segregated. The bill would delete that provision.

Under the bill, a brownfield plan or plan amendment could be abolished or terminated subject to all of the following:

-- The governing body could abolish a brownfield plan when it found that the purposes for which it was established were accomplished.

-- The governing body could terminate a brownfield plan or plan amendment for an eligible property if the project in the plan or amendment failed to occur with respect to the eligible property for at least five years after the date of the resolution approving the plan or amendment.

-- A brownfield plan or amendment could not be abolished or terminated until the principal and interest on bonds issued under the Act and all other obligations to which the tax increment revenue were pledged had been paid or funds sufficient to make the payment had been identified or segregated.

If a brownfield plan or amendment were terminated because a project failed to occur, the governing body could approve a new brownfield plan or amendment for the eligible property for up to 30 years.

MCL 124.2652 et al.

ARGUMENTS

(Please note: The arguments contained in this analysis originate from sources outside the Senate Fiscal Agency. The Senate Fiscal Agency neither supports nor opposes legislation.)

Supporting Argument

Michigan's pioneering brownfield redevelopment law has served as a model for other states in encouraging the cleanup and redevelopment of urban areas instead of the development of pristine green spaces. This effort helps to preserve undeveloped property for agriculture, wilderness, and recreational use. Brownfield redevelopment also benefits urban centers by returning contaminated, blighted, or obsolete property to productive use and providing for the generation of tax revenue. Now that the Act has been in place for over 15 years, experience has revealed several shortcomings with the statutory requirements and limitations. For example, municipalities can find it cumbersome to prepare two separate plans in order to capture school operating taxes, and the involvement of two different State departments can be confusing. The ban on using captured school operating taxes for activities undertaken before a brownfield plan has been approved can be overly restrictive, particularly with respect to environmental assessment activities. In addition, the amount of local tax increment revenue that an authority may use before a plan is approved, based on the number of active projects, does not always cover operating and administrative expenses.

Suggestions to improve the law and streamline the program have been made by a work group consisting of representatives of State and local government, brownfield authorities, environmental practitioners, and a brownfield association. The work group began to review the program in January 2012 and submitted its recommendations in April, and the bill reflects agreed-upon recommendations. In addition to eliminating what amounts to a sunset on the program, the bill would remove barriers and streamline the program in a number of ways.

The bill would increase the program's flexibility and effectiveness by allowing the use of school operating taxes before approval of a brownfield plan for environmental assessment activities, for unanticipated response activities (subject to requirements that the site already be included in a brownfield plan and that the DEQ be consulted before the activities were conducted), and for infrastructure activities subsequently included in an approved plan. The bill also would improve flexibility and effectiveness by providing the option of a single combined brownfield plan, instead of a brownfield plan plus a work plan; extending the program to additional activities, such as underground parking structures and storm water management; and providing clarity regarding the termination of a brownfield plan. The bill would help streamline the program by authorizing the MSF chairperson to approve projects that would not cost more than $500,000.

The revisions to the Act's reporting requirements would make the reports more meaningful, and facilitate better program evaluation. Among other things, authorities' annual reports would have to be made to the local governing body, the DEQ, and the MSF, rather than the State Tax Commission, and would have to contain additional information, including the number of jobs created. Also, the owner or developer of an active project would have to submit annual reports to the local authority, although the authority could waive this requirement.

The proposed State Brownfield Redevelopment Fund could be used for multiple purposes, including supplying the up-front money needed to get some projects off the ground. The funding under the grant and loan program would be in addition to the tax increment revenue available to an authority. If the cost of a project totaled $20.0 million, for example, but the authority could capture only $19.0 million in tax increment revenue, a grant or loan could supply the balance needed.

In addition, the bill would benefit municipalities by eliminating requirements for them to pay for the MSF or the DEQ to review a work plan; deleting the requirement for newspaper publication of public hearing notices; and deleting provisions that prevent an authority from spending school operating tax revenue deposited in a local site remediation revolving fund unless the DEQ or MSF has approved a work plan. The bill also would encourage regional cooperation among authorities by providing a financial incentive for those that entered into collaborative agreements with neighboring communities.

Response: It would be helpful to some communities, especially those that are large and have numerous brownfield redevelopment projects, if the cap on administrative expenses were raised. Currently, $300,000 is the maximum that an authority may use from local taxes for administrative and operating expenses and preliminary environmental activities before a brownfield plan is approved. It may cost a large city more than that, however, to administer its program. Grand Rapids, for example, presently has 36 active projects and a program budget of approximately $470,000. While some of that is covered by application fees and other grant revenue, the city relies on local tax revenue to pay most of its overhead. Brownfield redevelopment is a highly successful urban revitalization program that generates jobs and drives investment, and municipalities should have access to the funds they need to take full advantage of the program.

In another matter, it has been pointed out that, by requiring an authority to pay three mills of the State Education Tax on eligible property to the proposed Fund if the authority captures school operating taxes, the bill would lead to a shortfall in the amount of captured tax revenue available to reimburse a developer and could increase the portion of local tax revenue required for a project. It has been suggested that the bill should allow an authority to continue capturing school operating taxes after a project was completed, or otherwise include some mechanism that would reimburse an authority for the lost revenue.

Legislative Analyst: Suzanne Lowe

FISCAL IMPACT

The proposed State Brownfield Redevelopment Fund would be authorized to receive revenue from several sources, primarily the revenue equivalent to three mills of captured brownfield tax increment finance revenue from taxes levied for school operating purposes. Currently, this revenue goes to local brownfield development authorities with approval to capture school operating taxes. Uses of the Fund would consist of a program of grants and loans for eligible brownfield activities administered by the Michigan Strategic Fund agency, deposits into the Clean Michigan Initiative Bond Fund for grants and loans, and administrative costs of the Michigan Strategic Fund (MSF) and the Department of Environmental Quality (DEQ) related to the programs. Use of the proposed Fund for administrative costs would be limited to 15.0% of the annual revenue to the Fund. The bill does not specify how the money in the Fund would be allocated between the Clean Michigan Initiative and the Michigan Strategic Fund agency program of grants and loans for brownfield activities.

Annual revenue to the State Brownfield Redevelopment Fund is estimated at $1.5 million to $4.0 million per year; however, initial revenue would be lower and is expected to increase over time. The amount of revenue would depend on local authority activity, the pace of development, and the amount of captured taxable value. Local brownfield redevelopment authorities would have less revenue under the bill due to this shift of a portion of the captured school operating taxes to the proposed Fund, potentially delaying repayments to developers or other eligible local projects. The proposed Fund would make revenue available for grants and loans to local governments for brownfield projects selected by the MSF by board action or delegated authority and according to the DEQ procedures for distributing funds from the Clean Michigan Initiative Bond Fund. After December 31, 2012, local authorities would no longer be required to reimburse the DEQ or the MSF for the actual costs of plan review. The administrative portion of revenue to the proposed Fund would be available to pay these costs. It is unknown at this time whether the administrative portion of the Fund would be sufficient to cover these costs. Any costs in excess of available revenue would be borne by existing DEQ or MSF resources.

Under current law, an authority is prohibited from capturing taxes levied for school operating purposes for any work plan that is not approved by December 31, 2012. The bill would remove this sunset provision to allow newly approved work plans or combined brownfield plans to continue to capture taxes levied for school operating purposes.

The expansion of the definition of "infrastructure" under the bill would permit use of captured tax revenue for underground parking, multilevel parking structures, and urban storm water management systems, whether or not those improvements were publicly or privately owned or operated. Under current law, all types of infrastructure improvements are required to be either owned or used by a public agency or demonstrate a public benefit for the protection of health, welfare, or safety. This would permit captured tax revenue to be used for privately owned or operated underground parking, multilevel parking structures, or urban storm water management systems without the demonstration of public benefit that is required currently.

The State Brownfield Redevelopment Fund would be created in the Department of Treasury. Money in the Fund would not lapse to the General Fund, but would carry forward at year end, and the Fund would retain interest earnings on its balance. Repayments of loans made under the program would be deposited into the State Brownfield Redevelopment Fund. Administrative costs of the program would be supported from the Fund.

Fiscal Analyst: Elizabeth Pratt

Josh Sefton

This analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent.