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Incentives for Urban Redevelopment Michigan Chamber Continuing Education February 17, 2016 Introduction Tom Wackerman, CHMM, CET, EP President/Founder ASTI Environmental 810-225-2800 (w) 810-599-5463 (c) twacker@asti-env.com www.asti-env.com ASTI Environmental Nationally Since1985 Over 90% Repeat/Referral Over 10,500 projects in the United States Projects in Canada, Mexico and the Czech Republic 1.800.395.2784 www.asti-env.com Investigations Compliance Remediation Restoration Incentives Project Locations February 17, 2016 1

Class Summary Incentives are generally still available for development on challenging sites (referred to as Brownfields but more realistically including all urban properties), but not all incentives are what they appear, and not all communities are eager to support incentives. More importantly, when determining which incentives are appropriate the devil is clearly in the details. This session will discuss the available incentives and the eligibility requirements for each, and will use a case study to identify the real value of the key incentives to a developer. Outline Overview Incentive Programs Eligibility Criteria Community Approaches Pending Changes Case Study Q&A Overview Continuing Education February 17, 2016 2

Incentive Objectives 1. Leveling the Playing Field 2. Attracting New Investment (including jobs) 3. Seeding a Vision 4. Creating a Catalyst 1) Leveling the Playing Field Goal: Soften impediments to (re)development It is a game of inches How do you make it work? Creative purchasing and development Public/private partnerships Use of financial incentives Sequencing Purchase and Redevelopment 2) Attracting New Investment Tax Base and Jobs Competition with Other States Stretching Limited Funding February 17, 2016 3

3) Seeding a Vision First In Making a Vision Tangible 4) Creating a Catalyst Popcorn Development v. Critical Mass Area Wide Planning Catalytic Project v. Market Demand The Next Twenty Steps The Challenges of Incentives Applicability of Specific Project and Expenses Described by Statue Controlled by LUG and State Capturability of the Project Uncertainty of Estimates Communicating Need (The Story) Timing Time to Approve Time to Delivery February 17, 2016 4

Incentives Still Available Continuing Education Incentive Options Grants Loans Loan Guarantees and Enhancement Tax Increment Financing Tax Abatement Tax Credits In Kind Contributions Insurance Redevelopment Ready Preliminary Basic Assessment Planning - Visioning Committed Package Incentives Land Control Gap due to economics, demographics, brownfield, historic, encumbrances, title clearance, time, etc. $$ Cost Time Contact ASTI Environmental at 800-395-ASTI February 17, 2016 5

Redevelopment Ready Preliminary Planning Committed Package Incentives Land Control Increased Overall Costs Cost Increased Upfront Costs Increased Site Development Costs Time Contact ASTI Environmental at 800-395-ASTI Redevelopment Ready Cost Preliminary Planning Committed Package Incentives Land Control RLF Grants and Loans Façade Programs Targeted Funding Infrastructure Investment Grant Funding RLF Tax Incentives Lower Property Costs Land Assembly Land Bank Increased Upfront Costs Increased Site Development Costs Increased Overall Costs Location RLF Tax Incentives Tax Abatement Grants and Loans MSF Time Contact ASTI Environmental at 800-395-ASTI The Tool Box Tax Tools Brownfield Tax Increment Financing Tax Abatements Commercial Rehabilitation District Commercial Redevelopment District Obsolete Property Rehabilitation Tax Abatement Corridor Improvement Authority DDAs, LDFAs Federal Historic Rehabilitation Tax Credit Industrial Facilities Tax Abatement New Market Tax Credits List of Incentives http://www.michiganadvantage.org/fact-sheets/ February 17, 2016 6

The Tool Box Tax Tools (continued) Neighborhood Enterprise Zones Various Renaissance Zones Empowerment Zones Tool and Die Recovery Zones Business Improvement Districts Principal Shopping Districts Business Improvement District Historic Neighborhood Personal Property Tax Relief (328) List of Incentives http://www.michiganadvantage.org/fact-sheets/ The Tool Box Grants/Loans Michigan Strategic Fund Grants and Loans Business Development Program (BDP) Michigan Community Revitalization Programs (CRP) Transportation Economic Development Grants EPA Site Assessment Grants EPA Site-Specific Specific Remediation Grants HUD Sustainable Community Grants Community Development Block Grants Signature Building Acquisition Grant Private Foundation Grants USDA Rural Economic Development Loans and Grants List of Incentives http://www.michiganadvantage.org/fact-sheets/ The Tool Box Grants/Loans (continued) Venture Michigan Fund Angels/Venture Capital Neighborhood Stabilization Program (3?, 4?) Targeted Research and Development Grants Rural Business Enterprise Grants (RBEG) Revolving Loan Funds Local Site Revolving Loan Funds Clean Michigan Initiative Small Grants Government - Grants.gov Foundations - fconline.foundationcenter.org/ List of Incentives http://www.michiganadvantage.org/fact-sheets/ February 17, 2016 7

The Tool Box Other Capital Access Program Charter One Job Creation Loan Program Industrial Development Revenue Bonds Land Banks EPA Brownfields Area-Wide Planning Program In Kind Contributions Conditional Land Use Transfer List of Incentives http://www.michiganadvantage.org/fact-sheets/ Eligibility Criteria Continuing Education Definitions General Greenfield: Undeveloped, un-impacted land Greyfield: Previously developed land, not requiring special controls or procedures Brownfield: Previously developed land requiring controls or special considerations Orangefield : Where you can make money (green) on a Brownfield February 17, 2016 8

Getting Incentives In general Must be Eligible Property or Project Applicant Can Not Be Responsible for Impacts At the Discretion of the Grant or Loan Administrator Requires Public/Private Partnership Some Provided for Specific Purpose, Others Flexible Some Are Incompatible (no Double Dipping) Takes 3 to 6 (24 for federal grants) months to complete process The Key Ingredients (The 4 Es) Must be an Eligible Property developed by an. Eligible Investor who Creates an Eligible Project that Incurs Eligible Costs after approval (with exceptions) Can complete the project within the defined time, investment or job creation goals Eligible Properties Include. Perceived Contamination/Impairment Traditional Brownfields (aka contaminated) Blighted and Functionally Obsolete Properties Adjacent and Contiguous Properties Historic Resources Manufacturing Facilities Mixed-Use Urban Redevelopments Properties in Targeted Areas Land bank Properties (Owned or Controlled) February 17, 2016 9

Brownfield Definition Federal (EPA) A brownfield is a property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant. www.epa.gov/brownfields Brownfield Definition Michigan For all Brownfields Contamination greater than the applicable Residential Clean-up Criteria under Part 201, or Is in a Land Bank Fast Track Authority In a Qualified Local Unit of Government, can be blighted or functionally obsolete Historic Resource Adjacent and Contiguous Properties TOD Related Development www.michigan.gov/deq Adrian Albion Alma Alpena Ann Arbor Baldwin Bangor Battle Creek Bay City Benton Harbor Benton Twp. (in Berrien Co.) Bessemer Big Rapids Bronson Buena Vista Twp. (in Saginaw Co.) Burton Cadillac Carson City Caspian Center Line Cheboygan Coldwater Coleman Crystal Falls Dearborn Dearborn Heights Detroit Dowagiac East Lansing Eastpointe Ecorse Escanaba Ferndale Flint Gaastra Genesee Twp. (in Genesee Co.) Gibraltar Gladstone Grand Haven Grand Rapids Grayling Hamtramck Harbor Beach Harper Woods Hart Hartford Hazel Park Highland Park Holland Inkster Ionia Iron Mountain Iron River Ironwood Ishpeming Jackson Kalamazoo Lansing Lincoln Park Livonia Ludington Manistee Manistique Marquette Melvindale Menominee Midland Monroe Mount Clemens Mount Morris Mt. Morris Twp. (in Genesee Co.) Mount Pleasant Muskegon Muskegon Heights Norton Shores Norway Oak Park Omer Onaway Owosso Pinconning Pontiac Portage Port Huron Redford Twp. (in Wayne Co.) River Rouge Royal Oak Twp. (in Oakland Co.) Saginaw Saint Louis Sault Sainte Marie Southfield Sturgis Taylor Three Rivers Trenton Traverse City Vassar Wakefield Warren Wayne Wyandotte Wyoming Ypsilanti Core Communities February 17, 2016 10

Definitions - Michigan Blighted Means Property That: Has been declared a public nuisance in accordance with a local housing, building, plumbing, fire, or other related code or ordinance; Is an attractive nuisance to children because of physical condition, use or occupancy; Is a fire hazard or is otherwise dangerous; Has had the utilities, plumbing, heating or sewerage disconnected, destroyed or rendered ineffective for its intended purpose; Has substantial subsurface demolition debris buried on site so that the property is unfit for intended use Applicable only in Michigan Core Communities Definitions - Michigan Blighted Means Property That: Is tax reverted property owned by a qualified local unit of government, by a county, or by the state (the sale, lease or transfer after inclusion in a brownfield plan shall not result in loss of the property status as blighted); or Is property owned or under the control of a land bank fast track authority, whether or not located with in a qualified local governmental unit - property included within a brownfield plan prior to the date it meets this requirement shall be considered eligible as of the date the property becomes qualified (the sale, lease or transfer after inclusion in a brownfield plan shall not result in loss of the property status as blighted). Applicable only in Michigan Core Communities and for Land Banks Definitions - Michigan Functionally Obsolete Property: Is property or equipment that is unable to be used to perform as intended due to a substantial loss in value resulting from: Overcapacity; Changes in technology; Deficiencies or superadequacies in design; Or other similar features that affect the property: (Or the property s relationship with other surrounding property.) Applicable only in Michigan Core Communities February 17, 2016 11

Definitions - Michigan Historic Resource: Is 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 Applicable only in Michigan Core Communities Definitions Urban Redevelopment Projects Downtowns or traditional commerce centers of Qualified Local Units of Government and County Seats Must.. Increase density Promote mixed use and sustainable development Address area wide redevelopment Address underserved markets of commerce Increased Benefits in Michigan Definitions - Brownfield Owned or Under the Control of a Land Bank Fast Track Authority; An ownership interest in the property, or A tax lien on the property, or A tax deed to the property, or A contract with this state or a political subdivision of this state to enforce a lien on the property, or A right to collect delinquent taxes, penalties, or interest on the property, or The ability to exercise its authority over the property February 17, 2016 12

Example Eligible Costs Continuing Education Example Eligible Costs - Key Programs Brownfield Tax Increment Financing Michigan Strategic Fund: Community Revitalization Program (CRP) Revolving Loan Funds (RLF) BFTIF Can Be Applied To All Brownfields for Environmental Investigations Preparation of Due Diligence Documents Remedial Activities Including Exposure Barriers Other Environmental Response Activities Demolition and lead abatement Brownfield plans Reasonable costs of environmental liability insurance Interest What? Eligible Expenses February 17, 2016 13

BRTIF Can Be Applied To Core Community Brownfields, or Property Currently Owned or Under Control of a Land Bank, for Infrastructure Parking Structures, Urban Storm Water Management Site Preparation Not a Response Activity Planning and Economic Strategies Building Rehabilitation Relocation of public buildings or operations for economic development purposes. What? Eligible Expenses Community Revitalization Program Grant, Loan or Combination Up to 25% of Eligible Investment, not more than $10,000,000 for any project (grants capped at $1,000,000) Support is Performance Based Grants and Loans may have claw-back provisions and are assignable, may have fees Economic Assistance may include loan enhancement What? RLF Eligible Costs Eligible activities on eligible properties Plan must clearly state usage State captured funds Require MDEQ or MEDC approved Work Plan Requires Reimbursement Agreement for TIF Properties located within municipality Maximizing Funding Sources What? February 17, 2016 14

Community Approaches Continuing Education Incentives Challenge (Achieving Balance) 1. Threshold vs. Performance Criteria 2. Value of Incentives vs. Risk ( The Conundrum ) 3. Value of Incentives vs. Repayment Timing 4. Extraordinary Costs vs. On-Book Costs ( True Benefits v. Off-Set Benefits) 5. Effort (Brain Damage) vs. Value of Incentives Challenge #1 The Basic E 4 Equation Problem Eligible Project (Brownfield): Contaminated Above Residential Functionally Obsolete Blighted Historic Resource In a Land Bank Adjacent and Contiguous Desirable Project (Incentive Target) Create Jobs Sufficient Investment for Incentive Defined Need (Financing Gap) Contribute to Density and Area Wide Redevelopment Can Will be Successfully Completed Threshold Criteria v. Performance Criteria February 17, 2016 15

The Conundrum High High Priority Challenge #2 High Low Developer Sweet Spot Desirability Low Low High Probability of Success Low Priority Incentive Zone Low High Challenge #3 Value of Incentives vs. Repayment Timing Cost of Money Repayment Period vs. Exit Strategy Gap vs. Total Reimbursement CRP, BDP TIF Cost Grants Grants and Loans Time Contact ASTI Environmental at 800-395-ASTI True Benefits When incentives are applied to nonextraordinary costs When it can be used to secure or enhance a funding source Offset Benefits Challenge #4 When incentives are applied to extraordinary costs February 17, 2016 16

Project Funding Offset Benefits Challenge #4 True Benefits Summary of Funding Sources Environmental TIF Redevelopment Developer Investment Investments Total Cost Grant Funded Funded TIF Funded MBT Credit Site Acquisition $3,402,500 $0 $0 $0 $0 $3,402,500 Environmental Investigation $121,900 $15,300 $103,500 $0 $0 $3,100 Remediation Site Preparation $55,000 $0 $0 $0 $0 $55,000 Public Infrastructure $500,000 $0 $0 $500,000 $0 $0 Demolition $183,000 $0 $0 $183,000 $0 $0 Construction Costs $4,825,000 $0 $0 $0 $603,125 $4,221,875 Other Construction Costs $1,594,600 $0 $0 $0 $2,500 $1,592,100 Total Above $10,682,000 $15,300 $103,500 $683,000 $605,625 $9,274,575 Contingency 15% 15% 15% 15% 15% 15% $1,602,300 $2,295 $15,525 $102,450 $90,844 $1,391,186 Total With Contingency $12,284,300 $17,595 $119,025 $785,450 $696,469 $10,665,761 No Double Dipping Example Small Project 1 Brownfield TIF Brain Damage Challenge #5 Uncertainty: Incentives are not certain until approval, leaving no time for Plan B. Delay: Some expenses can not be incurred until after approval. Approval can take 3-12 months. Inflexibility: Project changes may restart the clock. Public Disclosure: Project plans and budget are presented to public entities. Timing: Which comes first, funding or incentives? Value of Incentives Public Infrastructure Costs $500,000 Developer Eligible Expenses $404,475 Developer Tax Credit $696,469 BRA Administrative Costs $21,000 Local RLF Funding $1,304,206 Increased Taxes to Jurisdictions $9,259,461 Challenge #5 Developer Benefits LUG Benefits Example Small Project 1 Brownfield TIF February 17, 2016 17

Demanding Performance Evaluation Basis for Incentive Amount Approved Job Creation Financial Need IRR Limiting Incentive to Financial Need Duration Based vs. Amount Based Transferring Uncertainty and Risk to Applicant Demanding Performance - Timing Unless otherwise agreed to in writing by the BRA, this Plan will expire and no longer be valid if the applicant does not execute a Reimbursement Agreement within one hundred and eighty days of the date the Plan is approved by City Council. To remain eligible for the approved incentives, eligible activities must start within eighteen months of Plan approval, construction must start within five years of the executed Reimbursement Agreement, and construction must be completed within three years of the estimated completion date. Demanding Performance - Clawback Job Creation and Investment Targets Must Be Met How much investment is substantially compliant? Strict Interpretation of Reimbursement Agreement Rigorous review of reimbursement requests Content and date of performance February 17, 2016 18

Heard on the Hill Continuing Education Trends High Density, Mixed Use, Walk-able, Transportation Oriented Development Increased Competition for Fewer Incentives TIF/Abatement Backlash Prohibition on Tax Challenge Creative Use of Grants Collaborative and Area-Wide Focus Moving Away from Grants to Loans Demanding Performance Reauthorization Commercial Revitalization Act was reauthorized Extends the sunset to December 31, 2020 OPRA is up for reauthorization at the end of this year Senate Bill 673 would extend the deadline from December 31 of this year, to 2026 Energy EPAct Incentives were extended by two years February 17, 2016 19

Deauthorization Historic District Changes Removes.. Process Changes Opt-Out Provisions DIA and Zoo Already Opt-Out Starting with a push to exempt the publically popular library millage (Senate Bill 579) Case Study Continuing Education February 17, 2016 20

AAA Key Steps Assessment (Screening) Application Approval Does it Meet Regulatory and Policy Criteria? Is There Sufficient Time? Is Incentive Worth the Cost? Site Plan and Financials Tenant or Project Plan Complete Application Financial Review Community Participation Background Check Document and Report Performance Example Financial Evaluations $73M Investment 30 New Jobs Example Financial Evaluations $73M Investment 30 New Jobs Incentives TIF Over 12 Years $6.8M TIF $1.4M Interest $10M MBT February 17, 2016 21

But For Test What is the Financing Gap? Equity vs. Debt Debt to Equity Ratio Are Extraordinary Costs the Cause? What are the Other Incentives and are They First In? But For Test 8% Equity 73% Debt 19% Incentives 13% State 6% Local 8.9 to 1 Debt to Equity Unsubsidized Gap $13,990,571 The But Not Test February 17, 2016 22

Evaluate Need v. Incentive Assess Need Based on long term IRR not just Financing Gap Set Base Incentive on Need Adjust Base Incentive For Other Criteria Be Consistent with Policy and Objectives MEDC IRR Worksheet Subsidized IRR for Final Incentives Package Eligible Costs Included in TIF Threshold IRR v. Extraordinary Costs Using Interest All Eligible Extraordinary Costs Limited by Threshold IRR Note Contingency Interest Included Local Incentives February 17, 2016 23

Local Share Coordinating with State Programs Additional Local Capture Proportional Local Share State Share Consider Entire Incentive Package Additional State Capture Proportional State Share Match Payment Period to Prediction Assumed Completion Schedule One Year Delay in Assessment Assumed Future Taxable Value Assumed Total Costs to Capture Assumed Annual Appreciation Results in Final Payment Date February 17, 2016 24

Note Impact to Cash Flow and NPV Note Costs One Year Delay in Payment (P&I) Note Net Cost in First Two Years Note Discounted Resale Value (Award was $10M) Note NPV of Net Incentives (Award was $18,194,175) $8.4M In Base Taxes Means $23.2M in Additional Tax Revenue (176% Increase) Evaluate Revenues v. Incentive Look at 30-yr Tax Revenues $31.6M to Jurisdictions (71%) $8.2M to Applicant (19%) Evaluate Total Impact Look at 20-yr Impact $35.7M Impact $18.2M Incentive $9.3M Local Taxes February 17, 2016 25

Lessons Learned CBOR Continuing Education Lessons Learned For urban redevelopment, it s a question of how much uncertainty The full financial benefits are rarely available In many states, commercial and residential are the most difficult to obtain benefits Commercial and residential development are a major component of urban redevelopment demand A bad deal is still a bad deal It is all about the Story Q&A Tom Wackerman 810-225-2800 twacker@asti-env.com www.asti-env.com February 17, 2016 26