Detroit OKs $748M in tax breaks for $1.5B downtown redevelopment

City Council members spent hours in public tweaking a community benefits deal with District Detroit developers Tuesday before signing off on roughly $748 million in tax breaks for a new phase of downtown projects. 

Council President Mary Sheffield was the lone “no” vote, arguing that stronger language was needed to ensure the developers follow through on commitments to support Detroit businesses and hire residents. Other council members said the city needs jobs, housing and revenue promised by the $1.5 billion joint venture between the Ilitch family’s Olympia Development of Michigan and Stephen Ross’ Related Companies. 

After nearly six hours of discussion, the council voted to advance the tax abatements, despite opposition from residents who voiced growing resentment of massive tax subsidies for wealthy developers.

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“It’s our job to continue to further the negotiations,” Sheffield said. “There has to be stronger language to guarantee (this project) benefits Detroiters. The 6,000 (post-construction) jobs that are proposed, none were guaranteed for Detroiters. 

“We have to hold the Ilitches to a different standard. We have to think about the history of what they’ve done in Detroit,” she said. 

In a joint statement, developers said the future of District Detroit will bring “inclusive economic impact” to the city and state, including thousands of jobs and much-needed affordable housing. 

The project includes construction at 10 sites. Four existing buildings would be renovated while four surface parking lots and a vacant block would be turned into new buildings. Developers expect to create 1.2 million square feet of new office space, 140,000 square feet of ground-level retail space, 460 new hotel rooms, 695 new rental housing units and 504 parking spaces.

Final approval of the tax incentives is still needed, but the council’s vote is expected to unlock the public funding to spur the long-awaited redevelopment of a northwest section of downtown largely defined by surface parking lots.

Several proposals come together to form the overall incentive package. All together, developers expect $800 million in costs will be reimbursed with taxpayer funds over the next three decades. Council members approved $615 million in tax breaks from a Transformational Brownfield Plan and created special boundaries allowing for $133 million in tax breaks that will come back for a final vote later this year. 

Much of the discussion hinged on a community benefits agreement negotiated between the development team and a group of Detroit residents. Developers agreed to add the following provisions ahead of the vote at the request of council members:

• Donate $3.5 million to the city’s Housing Development and Preservation Fund over the next decade
• Give first priority for housing to residents who lived in Detroit for 10 years, then residents of five years and finally residents of three years. 
• Set a voluntary goal to spend 30% of construction costs on Detroit-headquartered businesses and Detroit-based businesses 

Sheffield asked the developers to volunteer a 2% surcharge on ticket sales from every entertainment event at facilities managed by the developers, but they declined. Detroit Corporation Counsel Conrad Mallett said it’s “impossible” under state law to voluntarily pay an unauthorized tax or surcharge. 

Council members, city attorneys and developers adjusted the agreement on the fly during Tuesday’s meeting and took multiple breaks to allow new language to be typed up, printed out and understood as the afternoon wore on. City attorneys and members of the development team drafted a resolution strengthening the deal. Council Member Angela Whitfield-Calloway said the first copy of the resolution had misspelled and missing words. 

More confusion stemmed from whether developers are required to dedicate 30% of the total value of contracts to Detroit-based businesses. Developers and the neighborhood advisory group said they believed the requirement did apply, until learning Tuesday that a 2014 executive order instead applies only to city contracts.

Sheffield said developers behind major projects like Ford’s Michigan Central Station volunteered to follow the executive order. The District Detroit developers agreed to add the commitment in writing during Tuesday’s meeting. 

“They (developers) say that their intent was to honor it, but there was nothing in writing stating that they would do that,” Sheffield said Tuesday. “That in itself really disappointed me. That’s a huge provision to leave out of the agreement.” 

An exasperated Jonathan Kinloch, a member of the neighborhood group, said Tuesday’s scene revealed major flaws with the city’s community benefits process. Kinloch said negotiations that took place from December to March lacked key information that should have been provided sooner. Council Member Latisha Johnson said she wants to revisit Detroit’s Community Benefits Ordinance to make improvements. 

The benefits agreement includes a commitment to spend $100 million on contracts with “disadvantaged businesses” and Detroit businesses under the agreement. Sheffield argued for a specific focus on disadvantaged businesses in Detroit. Mallett said that request was also impossible. The city would risk being sued, he said.

“We would be inviting litigation, and it’s not to the advantage of the city of Detroit to continue to fight this particular battle,” Mallett said. “(The term) disadvantaged will get us a long way, connecting it to Detroit headquartered or Detroit-based (businesses) is going to be unconstitutional.” 

Ilitch family past casts a shadow

Tuesday’s decision creates a clear path to the latest public subsidy for the Ilitch family’s development arm. Detroit previously approved hundreds of millions of dollars in public support to build Little Caesars Arena alongside other developments that largely didn’t happen as planned. 

Roughly a decade after Christopher Ilitch unveiled renderings of a downtown arena and entertainment district, Olympia Development came back to the city with a new vision for the area and a new partner, Ross.

Council Member Mary Waters said she likely would not have supported this new deal without the Ross involvement, given the Ilitch family’s track record. 

The new $1.5 billion plan sounds similar in broad strokes. The goal is to create a mixed-income, walkable urban environment with better connections between entertainment venues and surrounding neighborhoods.

One major difference is the University of Michigan Center for Innovation, a $250 million research and education facility supported with a $100 million donation from Ross and located on property owned by the Ilitch family. The innovation center isn’t part of projects receiving tax breaks, but developers say their efforts go hand-in-hand with U-M’s work to create a diverse tech campus in Detroit.

Those in favor of the deal held up the promised jobs and potential for better services stemming from a boost to Detroit’s tax base. They also argued Detroit needs more reasons to attract and retain recent college graduates.

Council Member Angela Whitfield-Calloway said although it’s not perfect, the project is a step toward “our future” and that the Center for Innovation will create pathways “for a new generation of students to call Detroit home.”

Critics said the job projections shouldn’t be trusted. People who spoke against the tax abatements urged council to improve the deal, reiterating the concept of imposing a 2% surcharge on ticket sales or having developers contribute to an affordable housing trust fund. Others said the deal is fundamentally unfair when residents who were illegally overtaxed by the city haven’t been compensated, and called for fully-funding Detroit’s legal aid program for residents facing eviction.

Mayor Mike Duggan’s administration publicly advocated for the proposal in emails to residents and several videos posted to social media in the leadup to Tuesday’s vote. Videos featuring Rev. Dr. Wendell Anthony, Rev. Dr. Steve Bland Jr., Pastor Maurice Hardwick and nonprofit CEO Darryl Woods touted “Detroit religious leaders and community activists are urging you to support the District Detroit development.” 

None of the videos mentioned the total amount of tax breaks sought for the project, though supporters cited the specific number of promised jobs and city revenue increases. BridgeDetroit asked Duggan’s spokesman how much the videos cost to produce, but did not receive an answer Tuesday.

In a statement after the vote, the mayor said the council “voted for a future where all Detroiters who want a good paying job can find one.”

“Our young talent shouldn’t have to leave Detroit for Atlanta or Chicago or Miami to pursue their dreams,” Duggan said. “With today’s vote, many more of those dreams will be achieved right here in a growing and vibrant city.”

Council members who supported the tax abatements said agreements with developers are not perfect, but will bring benefits to Detroit.

“What is more important for opportunity is not just what is in front of us, it’s what will be in front of us,” Council Member Fred Durhal said. “The ability to send a strong signal that Detroit is a place that is growing and wants to create opportunity for its residents, come do business here. That’s the message we have to send here in the City of Detroit. That’s why I’m supportive of those projects. I want to get folks back to work and build our middle class back. Projects like this do that.”

Transformational impact promised

As suggested by the name, Transformational Brownfield Plans are expected to have a significant impact on economic development and community revitalization. That’s part of why multiple projects are bundled together in the proposal, and why the state allows developers to capture tax revenues from sources that are unavailable in traditional brownfield projects. 

City Council doesn’t have final say on the $615 million brownfield plan. Board members of the Michigan Strategic Fund, a state economic development body, must sign off at an upcoming monthly meeting in Lansing. 

Developers say their investment will spark construction of new real estate, increase population density and support sports, entertainment, shopping and dining destinations. The brownfield plan also promises “symbiotic growth” between business and educational institutions like Wayne State University and Cass Technical High School, TechTown, the Ford Mobility District and DTE’s Detroit corporate campus.

The project is expected to encourage new residents to move into Detroit from throughout the state. Developers say college graduates will also have more reasons to stay in Michigan, which has long been a priority for state and local policymakers.

The two planned hotels are expected to attract conventions and business trips as well as longer “staycations” around sporting and entertainment events in the area. 

Developers won’t receive the tax revenue if they don’t follow through. The brownfield plan can be terminated if the developer fails to make any steps toward building the sites within two years, or if no actions are taken at a specific site within five years.

The project is expected to create $751 million in net revenue for Detroit over the 35-year brownfield plan. State revenue is expected to increase by $1 billion over the lifetime of the deal. 

Detroit’s Downtown Development Authority is also expected to receive $349 million in additional tax revenue during the next 35 years. Other taxing jurisdictions like the Detroit Institute of Arts, Wayne County, Detroit Public Schools and the Detroit Public Library will receive $49 million total.

Expectations for jobs, salaries and other associated benefits are based on financial projections and could change based on a variety of factors. A cost/benefits analysis by the Detroit Economic Growth Corp. assumed Detroit residents will hold 26% of on-site construction jobs and 35% of post-construction jobs. This includes an expected 4,250 office jobs, 1,110 retail jobs, 30 property management jobs and 390 hotel jobs.

The developments are estimated to create 12,450 on-site construction jobs with an annual average wage of $70,000 per year, and approximately 5,790 post-construction jobs with an average annual income of $95,000 per year. 

Anticipated wages for non-office workers are much lower. Retail, hotel, food and beverage employees are expected to earn between $28,510 and $31,938. That’s less than the median income in Detroit. 

Overall, the 695 planned apartment units are anticipated to create homes for 1,228 residents. Developers project 30% of the tenants will be new Detroit residents and 16% will be new to Michigan.  

One-fifth of the housing units are earmarked as affordable for people earning at or below 50% of Area Median Income. Developers also agreed to accept Section 8 vouchers, which would allow people making even less to afford the discounted units.

A single-person who earns $31,350 is expected to qualify for the project’s “deeply affordable” apartment units. 

The brownfield plan says Detroit’s “remarkable rebound” since bankruptcy is part of why tax incentives are needed. Renewed urban investment caused high demand in the construction industry, according to the document, which raised the cost of labor and materials above many major cities.

Detroit also has lower rental rates for office space and housing, according to the brownfield plan, which means developers are making less money on more expensive projects.

Many of the sites once held buildings with a variety of similar uses. Some were demolished, while others are vacant but remain standing. Three sites are considered historic resources: The Detroit Life Building, American Hotel and Fox Building.

Construction is expected to start this summer on office buildings and underground parking proposed for a surface lot directly west of Comerica Park at 2200 Woodward Avenue. The other projects would start between spring 2024 and fall 2026. All projects are expected to wrap up by the end of 2028. 

Developers must begin construction within one year of the brownfield plan’s approval. Detroit Brownfield Redevelopment Authority guidance states all construction must be completed within three years, but in this case the authority supports a five-year timeline.