Brownfield Redevelopment

Incentives in Michigan

In Michigan, brownfields are considered properties that are either contaminated, blighted, or functionally obsolete. Brownfield sites can be found in cities with long histories of heavy industry and large-scale manufacturing activity and also in small towns and rural areas in Michigan. Brownfield redevelopment can yield significant benefits for developers, employers, and communities. There are, however, two issues unique to brownfield projects. The first is liability protection (i.e., not being held responsible for prior contamination). The second is utilizing incentives to decrease the cost of brownfield redevelopment. There are several such incentives including grants, loans, tax increment financing, and tax credits.

Brownfield Grants and Loans

Brownfield grants and loans are administered by the Michigan Department of Environmental Quality (MDEQ). These grants and loans are awarded to local units of government for use on a specific project and are specifically targeted to promote economic development of brownfield real estate. Each government entity is limited to one grant per year ($1 million cap). Grants are typically awarded only when private investment is well above the increase in taxable value.

State Revitalization Loans are sometimes used to decrease the size of a grant or to aid in payment when tax increment financing alone is not sufficient to support the proposed redevelopment. These loans must be paid back within 15 years but no scheduled payments are required, and interest does not accrue for the first 5 years of the loan.

Additional information about the grants and loans is available on the MDEQ Brownfield Development Grants and Loan Program fact sheet and the Michigan Brownfield Cleanup Revolving Loan Fund web site.

Tax Increment Financing (TIF)

The Brownfield Redevelopment Financing Act 381 of 1996 created mechanisms for local authorities to promote brownfield redevelopment using TIF. A local unit of government establishes a Brownfield Redevelopment Authority that reviews and approves requests for TIF.

TIF can be used for the incremental costs of developing a brownfield site vs. a greenfield site. These include Baseline Environment Assessments (BEAs), due care activities, remediation, and additional construction or renovation costs due to the presence of the contamination. In some communities, TIF can also be used for asbestos abatement, lead abatement, infrastructure improvements, etc.

The TIF can include local tax and school tax. If school tax will be captured for environmental costs, the MDEQ must review and approve a work plan. The Michigan Economic Development Corporation (MEDC) must also approve work plans including school tax capture for economic development costs.

Additional information about the TIF is available at the MEDC Brownfield TIF web site and the MDEQ Land Redevelopment web site.

Michigan Business Tax (MBT) Credits

The Brownfield MBT, Act 143 of 2000, as amended, provides an incentive in the form of a tax credit for eligible redevelopment investments on brownfield property. The following three categories of MBT credits are administered by the MEDC: "Large" credits (investment greater than $10 million, "small" credits (investment between $2 and $10 million, and "mini" credits (investment less than $2 million). Credits are available for up to 12.5% of eligible investments or 20% for certain Urban Development Area Projects as designated the the Michigan Economic Growth Authority (MEGA) Board. The eligible investments include demolition, construction, renovation, site improvements, and personal property. The MEDC typically uses a "but for" test for this type of assistance, essentially meaning, "Will the project go forward even without the MBT credits?" If not, credits are more likely to be awarded. MBT credits are issued at the completion of a project. For more information about MBT credits, see the MEDC Brownfield MBT web site.

Also, please consult the MEDC's Brownfield Tax Incentives fact sheet for more details on both TIF and MBT credits.

Related Project Summaries

Please feel free to contact Mark Westra for more information.

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