Christopher Gulock, David Whitaker, Esq. ?it? at Eennit AICP Director Derrick Headd Irvin Corley, Jr. CITY COUNCIL Marcel Hurt, Esq. Executive Policy Kimani Jeffrey Manage, LEGISLATIVE POLICY DIVISION Anne Maria an R- Todd- 57- 208 Coleman A. Young Municipal Center Jamie Murphy 8 32:3; (33:13:? Detroit, Michigan 48226 Kim New [)8qu Director Phone: (3 13) 224-4946 Fax: (3 224-4336 Analine Powers, PILD. Jennifer Reinhardt LaKisha Barclit?t, Esq. Sabrina Shockley M. Rory Bolger, Thomas Stephens, Esq. AICP David Teeter Elizabeth Cabot. Eso. TO: COUNCIL MEMBERS FROM: David Whitaker, Directo Legislative Policy Division Staff DATE: December 11, 2018 RE: Development Incentives Flow of Funds In the Planning and Development Standing Committee, Council member Scott Benson requested that the Legislative Policy Division (LPD) work jointly with the Detroit Economic Growth Corporation (DEGC) to produce a report on the ?nancial impact tax abatements in general have on both the Detroit Public Schools (DPS) ?old? and the Detroit Public Community School District ?new.?1 In its report of December 2018, based on the City ?5 current tax abatement policy criteria and the provisions in State law, the DEGC determined: 0 Tax incentives in the City of Detroit are unlikely to negatively affect the Detroit Public Schools Community District?s operating funds. 0 A majority of the projects would not go forward without an abatement, given the City?s ?but for?2 determination criteria 0 Despite the fact that tax abatements result in a reduced tax bill on a future investment, which is realized by the developer, primarily, tax revenue for the schools increases. To demonstrate its point of increased school revenue with tax abatement projects, the DEGC used the Ford Corktown Project as an example. Ford requested four different incentives to support the project, Obsolete Property Rehabilitation Act, Commercial Rehabilitation Act, Neighborhood Enterprise Zone, and Renaissance Zone abatements. Detroit Public Schools (DPS) ?old" refers to the "old" Detroit Public Schools (DPS), which will remain in existence only for the purposes of levying mills to pay off debt. The Detroit Public Community School District "new" was established to continue all rights, functions, and reSponsibilities of educating children, with the exception of paying off old operating debt. PA 193 of 2016, MCL 12.252- l2.262 2 ?But for? is a reference to denote that the project would not go forward, without the incentive. .w . ?hm The impact of the Ford Corktown Project to DPS over the nroiet?s ?rst ?ve years: First Five Years of Ford Corktown DPS OperatiniMillaEe DPS Debt Millage Existing Revenue (Prior to Investment} $54,120 $39,085 Revenue Gain (After Investment] $11,705,272 $3,398,252 Revenue Forgone [Overall Abatement Impact) {$1,508,400} (53,280,433) Net Revenue Impact {After Abatement) $6,904 Final Net Revenue increase to DPS {Above Existing) 872 $117,819 IFinai Net Percc?ge increase to DPS (Above Existing] 5907.096 301.4% Prior to Ford?s approximately $738 million investment in the Ford Corktown Project,3 without any major investment, DPS was projected to levy and relalize $54,120 in operating millage revenue and $39,085 in debt millage revenue. Given the aforementioned $38 million investment, those ?gures would increase to $4,705,272 in operating millage revenue and $3,398,252 in debt millage revenue. Given the fact that the subject property was functionally and literally obsolete and there had been no investment or any viable commercial activity on the site for over 30 years, it is arguable that without any City incentives, the project and the investment would not occur. Therefore assuming the gross impact of the investment by Ford, if Ford did not obtain the abatement on the DPS operating millage revenue, the school district would receive $4.7 million. Upon appling the abatement of $1.5 million, leaves a net revenue of $3.35 million. Despite the abatement, this increases the revenue potential on the site of the project by $3.196 million (5907%), based on the new investment over the ?rst ?ve years The impact of the Ford Corktown Project to DPS over the proiet?s next 30 years, which includes the implemenatation of the Renaissance Zone that is ?illy reimbursed by statute4 by the State of Michigan, is illustrated by the following chart below: Next 30 Years of Ford Corktown DPS Operating Mill_age DPS Debt Millage Existing Revenue (Prior to Investment) $324,720 $234,510 Revenue Gain (After Investment) $59,086,844 $42,807,704 Revenue Forgone (Overall Abatement Impact) ($53,384,381) ($6,485,645) State Reimbursement $53,384,381 $0 Net Revenue Impact (After Abatement) $59.411__ .564 $6,556,569 Final Net Revenue Increase to DPS {Above Existing) $59,036,844 $36,322,059 Elna! Net Percentage increase to DPS {Above Existing] 181915.296 15488.596 Please let us know is we can be of any further assistance. 3 The Ford Corktown project will include development of a total of 1.2 million gross square feet of of?ce, retail, parking, and residential space across ?ve sites within the Corktown neighborhood. These properties are projected to provide a workplace for 5,000 workers. The aggregated total investment for this project is estimated at $738 million. 4 PA 376 of 1996, MCL 125.2692 Sec. 12. (2): Except as otherwise provided in subsection (6), this state shall reimburse local school districts each year for all tax revenue lost as the result of the exemption of property under this act from taxes levied under section 121 of the revised school code, 1976 PA 451, MCL 380.121 1, based on the property's taxable value in that year.