Letter from the Editor: Brain Power

R.J. King
R.J. King

One figure that jumped out in the recent discussion asking the Michigan Legislature to approve a tax incentive plan that would propel more large-scale development projects in urban districts was this: Michigan loses between $800 million and $900 million in annual tax revenue from college students who leave the state following graduation.

In December, Dan Gilbert, founder and chairman of Quicken Loans Inc., told the House Local Government Committee the estimates were based on statistics pertaining to graduates from the University of Michigan and Michigan State University. The estimate pushes past $1 billion when all of the state’s colleges and universities are added into the mix.

Gilbert, who has acquired 95 buildings in Detroit since moving Quicken Loans to the city from the suburbs in 2010, is asking lawmakers to approve the plan as he believes large, mixed-use developments will help attract more local graduates to work, live, and play in urban
districts. The measure would allow developers to capture sales and use taxes paid by new tenants to assist in financing projects built on contaminated brownfield sites.

As it stands, when everything is factored into building a mixture of offices, stores, restau-
rants, residences, and entertainment venues on a local brownfield parcel, the profit margin is 2 percent. With the ability to capture future taxes under the proposal before lawmakers, the profit margin would rise to 6 or 7 percent. 

With the measure in hand, banks and financial institutions could lend more money to build bigger projects on parcels such as the former Hudson’s site at Woodward and Gratiot avenues, the Monroe Block just east of Campus Martius Park, land east of General Motors Co.’s world headquarters at the Renaissance Center, and three midrise towers — along with stores, restaurants, and a soccer stadium — planned at the former Wayne County jail site at I-375 and Gratiot.

The measure would require that development proposals be of a certain size based on local population figures, and each municipality would have one “transformational” project they could ask the Michigan Strategic Fund to review on an annual basis. Overall, the state could approve five such projects per year, allowing up to $50 million in total annual tax captures.

That means cities across the state could apply for the incentives. “These are projects we’re looking at that are so significant they literally transform the community,” says Sen. Ken Horn, R-Frankenmuth, who sponsored the legislation. In February, he introduced a new measure, called MI Thrive, which could be paired with a simpler job attraction tool.   

If anything has proven to be accurate since 2010, it’s that young people and empty nesters largely favor living in urban districts where they can walk to work, exercise, take in a
dinner and a show, or shop for retail goods. That’s why it’s difficult to find an apartment to rent, let alone a condominium to buy, in downtown Detroit or Midtown. 

Gilbert, for example, moved around 2,600 workers to Detroit in 2010, and since then his workforce has risen to more than 14,000 employees among the dozens of firms he has relocated downtown. Scores of other companies moved in, as well, which has led to high occupancy rates. To keep the momentum going, and thereby boost tax revenue and the overall economy for years to come, the state should act to capture more of our brain power.

— R.J. King, rjking@dbusiness.com at the end