Brownfield Credits to 601 S. Forest

By the end of city council’s Monday evening meeting, which concluded at 1:15 a.m. Tuesday, the full range of brownfield credits for the 601 S. Forest project had been approved. It was a circuitous route to that conclusion – which included a proposed amendment requested by John Hieftje, Ann Arbor’s mayor, to restrict the brownfield credits to activities involved in environmental cleanup, an amount that would have totaled around $4 million. That amendment failed on a 5-5 tie vote (councilmember Ron Suarez was absent), with the full range of available credits – both for remediation of contamination and for site preparation, which totaled around $9.4 million – approved on a 6-4 vote.

Because the public hearing on the project’s site plan had been continued from previous meetings, speakers who attempted to speak again were not allowed a second turn. John Floyd, when he approached the mic, was informed that he had spoken at a previous convocation of the same public hearing on Aug. 8. His reply was good-natured: “I’m sorry. I forgot!” Tom Partridge was similarly declined a second speaking turn. Said Partridge, “We wouldn’t want to overdo it on freedom of speech, would we.” When Hieftje admonished Partridge that certain rules had to be followed, and Partridge appeared ready to debate the merits of the rules, Hieftje demanded that Partridge sit down.

Public Hearing on 601 S. Forest Site Plan

Dan Ketelaar: Ketelaar, one of the developers on the project, led things off by saying that a lot had been accomplished over the last two weeks since the reduced site plan (from 25 to 14 stories) had been introduced – by working steadily with planning staff and the city attorney’s office. He summarized the meeting with neighbors held the previous Wednesday, attended by councilmembers Leigh Greden and Stephen Rapundalo, as successful in providing the information that people felt they needed. He concluded by saying that the benefits to the public good outweigh the objections of a few who are not satisfied.

David Fisher: Fisher said he had not originally planned to speak, but found he couldn’t just sit there. He said that he came to Ann Arbor in 1963 and the South University area hasn’t changed very much since then: it’s a two-lane street that is virtually impassable. He questioned why the revised site plan (from 25 to 14 stories) was not sent back to the city’s planning commission.

Patrick Nicholas: Nicholas works at the Village Corner, which is a convenience store housed in a building that would be demolished if the 601 S. Forest project moved forward. Conceding that he might be a little biased, he expressed concern that competition among landlords would drive up prices. He called the Village Corner a “pillar of the community.”

Public Hearing on 601 S. Forest Brownfield Plan

John Byle: Byle is a partner with Warner Norcross & Judd LLP, and has been working on the brownfield aspect of the project with the developer. He thanked city staff Matt Naud (environmental coordinator), Tom Crawford (chief financial officer) and Jill Thatcher (historic preservation coordinator) for their work. Byle said that six months ago the plan had included $13 million in principle and $5 million in interest, compared to the current request for around $10 million. He described the pollution on the site as legacy contamination from dry cleaning plus petroleum from a gas station.

Ellen Ramsburgh: Ramsburgh said there can be no justification for subsidizing a developer. She said that the scaled down version of the project has the same problems as the larger one and characterized the amount of actual pollution as negligible. She said it was disheartening to the South University area for the city to settle for this project and questioned whether council, as good stewards for taxpayers’ money, could award brownfield credits to the project.

Glenn Thompson: Thompson asked council to consider the brownfield request in the context of the original Super Fund legislation – situations like Love Canal in which state and local government would help out only when owners would have to abandon the property otherwise. Thompson said while the clean-up will cost $3 million, the request is for more than that. If you can get that much for this level of contamination, Thompson asked, why would you ever clean up real pollution. Thompson’s concluding remark, that tax-incremented financing borrows from the future, was met with light applause. Hieftje admonished citizens in attendance that applause was not permitted.

Peter Nagourney: Nagourney’s remarks were challenging to hear over the noise of the opening of the room dividers to allow for some much-appreciated air circulation. He said that it is appropriate to hope for wisdom. Saying he understood how the site qualifies as a facility, he also understood how the award of brownfield credits is discretionary. To date, Nagourney said, there’s been a reluctance on the part of the city to use the leverage it has to get the developments it wants. He said that he wanted to see hard bargaining for project features that will serve the interests of the community.

Karen Sidney: Sidney pointed out that in addition to the over $9 million requested as brownfield credits, the developer would be requesting an additional $6 million from the state (Michigan Business Tax credit). She questioned whether the city’s chief financial officer should be spending time structuring real estate deals for developers, and said that he should focus instead on the impact of the coming deep recession on city finances. Sidney said that overbuilding in the 1980s led to a decrease in Ann Arbor property values, and that current overbuilding would have the same effect. She concluded by inveighing against giving away future tax dollars.

Gwen Nystuen: Nystuen traced the history of retail at the building site based on her inspection of the Polk city directories. The Bagel Shop site, she said, was a barbershop in 1947. In 1949 it was a was dry cleaner and laundry. By 1954 it had become Armen’s Cleaners, but no dry cleaning took place on that site – 630 S. Ashley was where they did their dry cleaning. The soil boring in the basement of that building, she said, found no contamination. She concluded by saying that while it qualified as a facility, there was no evidence it’s heavily polluted.

Bob Snyder: Snyder thanked councilmembers Greden and Rapundalo for their work, as well as the developer, Dan Ketelaar. He characterized the previous evening’s caucus as an open exchange. Snyder said that the city should offer the minimum amount of brownfield credits or none at all, saying that he didn’t think the project at any size is inherently worthy of using taxpayer money. It’s time, said Snyder, to be vigilant, tough and demanding, stressing that our homes and tax dollars are at stake.

Barbara Copi: Copi said that as a landlord renting to students for over 30 years, she predicted with 95% certainty that a project of either size (14 stories or 25 stories) was doomed to economic failure. When directed by Hieftje to speak to the issue of the brownfield plan, she declared, “I am!” Copi based her prediction for economic failure on the provision of less than one parking space per resident. She suggested that the $9 million should be saved for some other project.

John Floyd: Floyd pointed out that when the brownfield subcommittee met the previous week, Tom Crawford (the city’s chief financial officer) stated that the project is not viable without brownfield credits. If it’s not viable without a subsidy, said Floyd, it shouldn’t be built. Floyd said that if there’s something that needs to be cleaned up, that’s fine, otherwise that’s not a legitimate use of funds. During the public commentary reserved time at the beginning of the meeting, Floyd had drawn an analogy to a house on First Street he’d looked into buying. It had foundation problems. He said he didn’t ask for brownfield tax-incremented financing, but rather asked for a reduction in purchase price. Until the purchase price is bid down to zero, said Floyd, there’s no reason for the public to fund the cleanup.

Steve Bean: Bean suggested that the level of urgency was a useful way to look at the the issue. There’s urgency, he said, if there would be a public health threat if no cleanup took place. Bean stressed that the merits of the brownfield plan should be looked at separately from the merits of the building.

David Fisher: Fisher drew a comparison to the development at Zaragon Place, which required the sinking of pylons 67 feet deep. The greater mass of the 601 S. Forest project would require even deeper excavation anyway as a part of the construction process. On that basis, Fisher concluded that brownfield credits would amount to pork.

Tom Partridge: Partridge proposed that the most important criterion is equal access, saying that upper-income UM students think they’re entitled to live close to campus and entertainment. Partridge said that there are federal and state constitutional principles that speak against the awarding of brownfield credits, if the housing is not open and accessible on an equal basis to families and lower-income residents.

Yousef Rabhi: Rabhi said that his impression of student sentiment was that most students were against the development. He said he was not impressed with the case for brownfield credits. Other environmental concerns in Ann Arbor were more pressing problems, he said. For example, he said, the dioxane plume on the west side of town – that’s a legitimate thing to spend money on.

Council Deliberations on 601 S. Forest Brownfield Plan

Councilmember Joan Lowenstein led things off by saying that a lot of people don’t understand the difference between being nice to homeowners and rewarding investment in the community. It’s not just about tax money, she said. It brings in jobs and people, which is important given the community discussion about having denser development downtown. Lowenstein invited Matt Naud (the city’s environmental coordinator) to the podium to lay out some background on brownfield credits.

Naud stressed that Act 381 is voluntary on all sides. He said that in Michigan, the initial idea was to redevelop contaminated facilities, obsolete or blighted properties, but that it had been broadened to include the goal of overcoming hurdles to infill urban development. Related to that goal, Naud said, one could find brownfield credits applied to sanitary upgrades, footing drain disconnects, storm drain improvements and the like. The idea, said Naud, was to identify elements of a project that – if removed from the project – would result in a failed project. An example, he said would be the parking structure for the Lower Town project.

Naud said that Ann Arbor requires removal of contamination, as opposed to allowing containment of contaminants on site (institutional control).

On the issue of exactly what taxes are involved, Naud explained that brownfield credits allow collection on the increment from all taxing millages, which is currently 56.5 mils: 24 mils for schools and 32.5 for the city. Existing taxes continued to be collected by taxing entities, so there is no reduction in taxes. With respect to schools, Naud said, Proposition A requires all school taxes to go first to the state, which then pays schools on a per-student basis, and that level of payment is guaranteed by the state. The state has the right, through MEGA, to deny the award of brownfield credits by a local brownfield authority.

The security for the city is that brownfield credits are only paid as reimbursements for actual costs paid by the developer, and this is why developers can also ask for brownfield credits to cover interest – in the case of 601 S. Forest, they are not. In response to a later query by Councilmember Margie Teall, Naud would clarify that reimbursement was the rule not just for environmental cleanup, but also for other eligible activities like site preparation.

In response to a query from Councilmember Marcia Higgins about the seriousness of the contamination on the site, Naud said that when there is a contaminant level measured above state standards, then it’s worth investing new tax dollars to clean it up and to determine the full extent of the contamination.

Councilmember Sabra Briere asked Naud to review which previous projects with a brownfield plan had been built in Ann Arbor. Naud said that there had been three approved plans, but none have been built (Lowertown, 200 S. Ashley, William Street Station). Of those, only two are still moving forward – council previously pulled the plug on William Street Station, citing project mismanagement and missed deadlines by the developer.

Councilmember Stephen Kunselman, said that while the state will allow paving over and institutional controls of contamination, the developer is not doing that in this case – he’d be digging a hole and needed some place to dispose of the soil. So what Kunselman wanted to hear from Naud was the separation of costs for disposing of soil that’s contaminated versus disposing of soil that’s not contaminated. Naud stressed that whatever the costs involved were – $5 a cubic yard or $100 a cubic yard – they would only be paid as reimbursements.

Kunselman asked Mark Lloyd (the city’s chief of planning) to come to the podium to confirm that other buildings had been built in the downtown entailing the digging of deep holes, and that had required upgrading of water mains, sanitary sewers and the like, without requiring brownfield credits to support it. Lloyd confirmed that this was the case.

Greden made an effort correct the perception that awarding brownfield credits costs taxapayers money that could be used on something else. That’s false, he said. We’re just reimbursing developers with the new tax dollars. A key assumption, said Greden, was that without the brownfield credits, the developer would build the project anyway. Greden then responded to Briere’s earlier discussion with Naud about the stalling of existing projects with brownfield plans. He took this as evidence that there’s no guarantee of success for a project, even with the award of brownfield credits.

Greden drew an analogy between awarding brownfield credits and the decision some years ago to award Pfizer’s tax abatement. In the case of Pfizer, tax revenues went up, even with the abatement, he said. He continued, saying we don’t approve abatements for situations where tax revenues go down. Greden acknowledged that this project is not a mini-Pfizer, but that economic development goes beyond the creation of jobs. Greden said he was skeptical that the market for upscale student housing existed to the extent that developers believed it did, but concluded that it was not the council’s business to determine that.

Councilmember Mike Anglin called on his colleagues to remember the fundamentals and reminded everyone that we are in dire financial straits in Michigan. He pointed out that the city lost $54 million in its retirement fund last week (out of some $400 million). Echoing the same thoughts that John Floyd had conveyed during the public hearing, Anglin said that if there was serious contamination of the property, it would have been purchased at a depressed price. The fact that it was purchased for over $10 million, which he said was not a depressed price, led him to conclude it was not a site with serious contamination. The original intent of the brownfield legislation has morphed into a fraud, Anglin concluded.

Councilmember Chris Easthope said he understood that people think it’s a giveaway, but that what’s being given away is a portion of the increase. He said that by insisting on a higher standard for cleanup (removal as opposed to on-site containment) we are giving our community more protection in cleanup. On the question of whether the award of brownfield credits amounted to a subsidy, Easthope said that we already have city services in that area, our infrastructure exists there, and that’s where new development belongs. Easthope stressed that the normal tax base will exist for the city, and that taxpayers don’t stand to lose money on this project.

Kunselman said that comparing the three different brownfield plans on the evening’s agenda – the others being Maple Shoppes and MichiGinns – the 601 S. Forest plan was pure pork. If the brownfield plan were for affordable housing, he’d be more inclined to help it out. Kunselman said he had a problem helping to support luxury student housing,

Briere focused on the fact that other projects have somehow managed to get built without getting support to help make them more fiscally sound. She felt that the developer should not include storm sewers, water mains and foundation walls in the brownfield plan. Most developers, she said, pay for this themselves.

Teall based her intended support of the plan on a commitment to invest in and encourage increased residential development and to clean up contaminated sites as well as the city can.

Rapundalo said that there is a non-negotiable environmental problem and that there’s an obligation to mitigate it to the highest standard possible. He objected to calling the award of brownfield credits a subsidy and said it’s an incentive – otherwise there would not be a development there. Rapundalo said he was appalled that a number of his colleagues continued to make misstatements in the interest of delivering a great soundbite. He continued by saying he thought it bordered on being irresponsible in this day and age to not promote economic development with every possible tool to ensure that the community grows economically. He noted that the Oxbridge Neighborhood Association supported the current proposal.

Hieftje began by acknowledging the differences around the table, but said awarding brownfield credits is not akin to opening a checkbook and paying out money – it’s using future new taxes. He said that on a walk with Peter Calthorpe and Doug Kelbaugh through the area of South University, they recognized underutilization of the area. Hieftje stressed the same point that he had emphasized at the previous evening’s caucus: the developer would likely revert to the original 25-story proposal if brownfield credits were not approved.

Then, in a move for which many key players in the room were unprepared, Hieftje asked that an amendment be added to the resolution that would put a cap on the brownfield credits at $3.5 million, to be used only for environmental cleanup and not for site preparation.

Higgins and Greden pressed for details about what exactly the activities were that would be covered, with Higgins weighing in on behalf of including the asbestos remediation. Tom Crawford went to the podium to remind council that there was a revolving fund that should be factored into the mix. Greden then appealed to Matt Naud and Jeremy McCallion, brownfield planner for the Washtenaw County Brownfield Redevelopment Authority, to step forward to make sure that appropriate attention was paid to the county’s administration fees. As Naud and McCallion worked through the calculations with the various TIF tables, Hieftje hurried them along: “Would you please give us a number?”

Analytical Interlude

Given that the developer had made clear to all parties that if no requested brownfield credits were approved, he would revert to the original 25-story project, it’s a fair question to ask: so what impact would approval of a partial amount of those credits have on the developer’s plans?

Council Deliberations (continued)

To get the answer to that question, Teall called the developers to the podium. Ron Hughes was fairly clear: “We have spent time to make compromises. We can go back up to 25 stories.”

Hieftje forged ahead, making the case for the reduced award of brownfield credits, saying that if it were passed, it would put 601 S. Forest on a level playing field with other sites like Zaragon Place. Kunselman joined the mayor in making the case, raising the specter of practically every future development asking for brownfield credits, without a legitimate environmental basis. There’s bound to be a little asbestos in nearly every old building, he said. Kunselman added that LEED certification is not a public benefit – it’s a benefit to the developer.

Briere pointed out that the developer would be applying for additional state tax credits for its Michigan Business Tax above and beyond the brownfield credits.

On this point concerning the MBT credits, John Byle provided the view that based on his experience working on 40-50 different brownfield plans, the failure of “full local participation” put the MBT tax credit in jeopardy. Without approving the site preparation portion of the brownfield credits, local participation would not be seen as “full.” In a comment directed at Kunselman, Byle sought to dispel the notion that asbestos in a building was sufficient to qualify as a facility under brownfield legislation.

The vote on the amendment was as follows. Yes: Hieftje, Briere, Greden, Kunselman, Anglin. No: Lowenstein, Rapundalo, Teall, Higgins, Easthope. Absent: Suarez. The 5-5 tie resulted in a failed motion.

The vote on the the un-amended resolution for brownfield credits covering both environmental and site preparation activities in the amount of $9.4 million differed from the result on the amendment only by Greden’s vote. No: Hieftje, Briere, Kunselman, Anglin. Yes: Lowenstein, Rapundalo, Greden, Teall, Higgins, Easthope. Absent: Suarez.

And with that 6-4 vote, the brownfield credits were approved. The site plan was also approved.

What’s next: The county board of commissioners needs to set a public hearing on the brownfield plan, which they will likely do on Nov. 5. The date they will set will likely be Nov. 19. If the plan is approved by the board of commissioners, it will then be sent to the state.

Present: Mike Anglin, Sabra Briere, Chris Easthope, Leigh Greden, John Hieftje, Marcia Higgins, Stephen Kunselman, Joan Lowenstein, Stephen Rapundalo, Margie Teall.

Absent: Ron Suarez

Next council meeting: Thursday, Nov. 6 at 7 p.m. in council chambers, 2nd floor of the Guy C. Larcom, Jr. Municipal Building, 100 N. Fifth Ave.