Rural SW Michigan project scores $30M brownfield tax incentive

An $80 million redevelopment of a paper mill in Southwest Michigan stands as just the second project to receive an enhanced tax incentive reimbursement offered by the state. 

Detroit billionaire Dan Gilbert’s real estate venture last summer was the first to receive the state’s so-called “transformational” brownfield tax incentive, part of a $618 million package for downtown Detroit developments. Now Paper City Development, which plans to redevelop a historic paper mill in the village of Vicksburg just south of Kalamazoo with a population of about 3,300 people, stands as the second recipient. 

Jackie Koney, chief operating officer for Paper City Development, said the developers plan a mix of hotel and residential space, food and beverage manufacturing, on-site breweries and other amenities like public greenspace and a Michigan brewing museum. 

The board of the Michigan Strategic Fund (MSF), which oversees the state’s economic development incentive programs, voted Tuesday morning to authorize an approximately $30 million incentive package spread out over 30 years. 

The package includes the state’s brownfield program, which allows for a developer’s upfront costs to be offset by foregoing certain tax payments on revenues generated by the project, which also will clean up a contaminated site. 

The state’s transformational brownfield program — designed for projects with significant environmental contamination — was approved by Republican former Gov. Rick Snyder in 2017 and is set to sunset at the end of 2022. 

To qualify for the incentive, a project must be considered large enough to have a significant impact on a community’s economy. The program mandates minimum investment levels, depending on the municipal population. 

For instance, a municipality with fewer than 25,000 people requires a minimum investment of $15 million. 

Greg Tedder, executive vice president and chief community development officer for the Michigan Economic Development Corp. (MEDC), which administers the MSF, notes that the incentive is structured to allow small towns to benefit.

“I think that we’re very excited that the … incentive is able to help make this project work in such a small community as compared to the last project that was approved,” Tedder told the Advance. “The population of Vicksburg is under 5,000 and I think it really highlights the flexibility of this tool and how it can benefit communities in all corners of our state.”

Still, these types of deals have no shortage of critics. John Mozena heads the Michigan-based national economic development watchdog group Center for Economic Accountability. 

Speaking during an event earlier this month in Grand Rapids, Mozena noted that the additional taxes captured by developers using the transformational brownfield tool come from income taxes paid by workers on the project that would otherwise go to the state. 

“We suck; we really do. We’re one of the worst states for [these deals],” Mozena said. “[With] transformational brownfield, the developer basically gets to have his construction workers pay him income taxes. They don’t have to pay sales tax on the materials that go into these buildings. … That’s all money that could be going to public schools.” 

As part of the paper mill redevelopment, the village of Vicksburg will forego almost $11.5 million in local taxes over 30 years, according to figures from the MEDC. Municipal officials, however, say the investment in the project will pay dividends for years. 

“Revitalizing The Mill and bringing it back to life is going to have such a positive impact for future generations of Vicksburg families,” Vicksburg Village Manager Jim Mallery said in a statement. “The Village of Vicksburg is very appreciative for the opportunity to work alongside professionals from county and state governments.”

The Mill redevelopment is estimated to generate 221 new full-time jobs paying an average wage of $20 per hour, according to state figures. The state has used clawback provisions in certain instances where incentivized projects have failed to live up to their commitments. 

There is some research to support that the transformational brownfield does have a positive economic impact. Gilbert’s projects in Detroit were studied last year by the think tank W.E. Upjohn Institute for Employment Research and the University of Michigan. Their analysis determined that the state would see a net fiscal benefit of $596 million.

Koney, with the development firm, said it’s unlikely the Mill redevelopment would have been viable without the enhanced incentive program. 

“It’s awfully difficult to make any brownfield site commercially viable. The expenses are much higher than on a [non-contaminated] greenfield site,” Koney told the Advance. 

“[We’re] trying to turn it into something that will impact the whole region. We didn’t just want to do a piece of it. We needed something big. To do that is a very expensive proposition and the transformational brownfield program. … It seems like we’re the perfect fit for that.”