Archive for April, 2014

COUNTY “OPT-OUT” TO NEUTER MICHIGAN’S TIF

April 17, 2014

It was bound to happen….the destruction of Michigan’s most effective economic development tool.

Over the next several years, as new and updated Development and Tax Increment Financing Plans are adopted, it’s likely that more and more counties and colleges will “opt-out” reducing the amount of future funds available to Michigan’s Downtown Development, Corridor Improvement and a number of other specialized authorities created by Michigan local governments.

The impact is, and will be, pretty draconian to local community economic development.

A big loss of TIF revenue

A quick review of nine TIFs I have completed during the past five years in Southern Michigan shows that City/Village formed TIFs will lose between 20 to 50% of future revenue and township formed TIFs between 60 to 80%.

Ouch…is all Wayland City Manager, Michael Selden could say when I shared this information with him.   “This will surely change the way we go about the budgeting process for our Downtown Development Authority”, he added.

Opt-out “its” – why counties opt out

I first saw this coming a few years back when a small community used DDA funds to buy a snow plow truck “cause it will be used to plow downtown streets too”.

It became more evident when one community had in in excess of $500,000 in their industrial park TIF; funds sitting idle with the entire infrastructure installed and paid for

This was reinforced when the lack of DDA oversight in two communities led them into emergency financial problems due to the use of DDA funds for unauthorized purposes.

It’s also common practice to “slide over” typical general fund expenses to an authority for payment; things like pavement marking, street sweeping, landscaping expenses plus certain salaries & wages – expenses that normally would paid with general budgeted funds if there was no TIF revenue.

It’s pretty easy to grasp the reason for “opt-out”.

Why in face of county fiscal challenges should the county divert funds to sit idle in a local community’s bank account or pay for things that normally would be paid from the community’s general fund?

In the industrial park case, the diverted county funds held by the community would fully fund the projected budget deficit for the year.

The reason for opt-out is pretty simple, poor management and lack of oversight on the part of the local community and yes, the county (college and other tax capture entities) also.

More opt-outs to come

Since most TIFs are outgrowth of DDAs (and other authorities) formed about twenty years back, we can assume that more opt-outs will take place as communities are required by law to update their Development & TIF Plans.

Because there are no TIF police or required legislative compliance reporting, the number of TIFs that may be subject to opt-out cannot be easily determined.

Based on my experience I suspect, a large number of TIFs operate without an up-to-date Development & (separate) Tax Increment Financing Plan properly approved by the City or Village Council or Township Board.

Even where these documents currently exist, often times, they are not current, incomplete or do not correspond to the actual projects and funding decisions made by the authority board.

The TIF police function is solely the duty of the legislative body of the community that establishes the TIF, a duty typically unrecognized and rarely exercised by elected officials.

Good use TIF guide

With changes bound to happen here are some “good use” TIF operating principles:

Option 1 – Ø county funds

Under this scenario, there is no capture of county (or college) tax revenues.

The impact of this decision is to leave funding TIF expenditures solely with local government general fund sourced revenues.

Bridgman City Manager, Aaron Anthony questions the need for the city’s Corridor Improvement Authority “if we have to fund all of its expenses”.  Why don’t we just eliminate the CIA and do the projects ourselves”, he added.

But Michigan’s emphasis on central city “Place Making” requires a separate authority (DDA or CIA) to increase eligibility for state grant funding, to obtain redevelopment liquor licenses and to offer commercial renovation tax abatements.

“So even if we don’t ever form the TIF District and capture general funds, there’s a need for the CIA itself….I could run the CIA as a shelf organization and use it only when needed for these specific purposes”, quotes Anthony.

Option 2 – Cap the amount of county funds

Dan Fette, Berrien County’s Community Development Director, supports a somewhat different approach.  On his advice, the county adopted a policy that places a cap on the total amount of county revenue that can be captured during the life of a current TIF Plan.

The county and local government agrees, by contract, to a predetermined amount of future county revenue that can be captured. The amount is determined by projecting future tax revenue expected for new development and inflation increased existing property values documented within the TIF Plan adopted by Council or Township Board.

According to Fette, “this gives the County an opportunity to discuss what projects and activities will be funded and how much future County tax revenue will be diverted to support local economic development within each specific community……obviously good projects that increase employment and create additional tax base will be viewed differently than activities that don’t”.

“Use of an intergovernmental agreement sets in place the opportunity to introduce recapture processes for TIF funds used in violation of the terms agreed upon”, he notes.

Option 3 – Project specific revenue sharing

A variation to the Option 2 – Cap approach is to the limit County (or college) TIF funds use for specific agreed projects.

This is an interesting approach; In Michigan we have several specific authorizations that effectively do this now; the Water Resource Improvement Tax Increment Financing Act, PA 94 of 2008, being an example.

For these TIFs the County (and college) effectively make an “in-or out” decision to participate in the single purpose use of TIF funds by a local government.

This same idea to “opt-in, opt-out” of specific projects can be used “right now” by a DDA or CIA.

It‘s pretty simple according to Aaron Anthony, “all that’s needed is a Development Plan that contains specific projects with their estimated costs approved by the Council and ok’d by the County.  All tax revenue, both county and city, in excess of that needed would be considered ‘excess’ and, as required by law, returned to the city and county”.

Option 4 – Annual work program approval

Another approach, one this writer supports, is annual work program agreements between authorities and funders.

This was first introduced about five-years back in southern Michigan where authority Development and TIF Plan adoption ordinances, this writer prepared, added a provision that required the Chair of the authority and the chief elected official of the local government, to prepare and personally sign an annual report detailing accomplishments, expenditures and compliance with adopted plans.

The intent of this requirement was designed to serve as the basis for discussion of the past years use of TIF revenue and to discuss the use of TIF revenue for the coming year to assure that all funding was being used in accord with the terms of the approved Development and TIF Plans.

Unfortunately, this didn’t work well.

Neglected by the authority and the chief elected official and not “followed-up” by the county (or college), the reporting duty just became another disregarded task of local government.

Reforming TIF in Michigan

Michigan is a bit unique in use of TIF.

In other states, especially those that allow school tax revenue capture, the amount and purpose  of tax increment financing is more individual project focused and subject to a higher degree of  initial scrutiny and periodic performance review by the funders.

With this said, TIF is important to Michigan.

It is one of relatively few means for local government to incentivize a complex development or redevelopment project when applied in its truest form – “having new development tax payments fund needed infrastructure needs.”

(See: Michigan Tax Increment Financing: A Primer, Planning and Zoning News, December 2006, for an explanation and history of TIF use.)

Today in Michigan we need to return to the original purpose of TIF, funding needed infrastructure that results in new development and quit viewing, from the local governmental perspective, TIF being an opportunity to “leverage someone else’s tax revenue” to help support  local government economic development and desired day-to-day operating needs.

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PLANNING CHICAGO – A summary of Chicago Planning effort beginning in the 1950’s

April 10, 2014

PlanningChicagoFor us Chicago trained planners, Burnham’s Chicago Plan and the Chicago School of government planning never seems to escape interest.

The more years in the profession the more we tend to look back into history for guidance for the future.

Planning Chicago, by D. Bradford Hunt and Jon B. DeVries adds something to the base knowledge and historical understandings.

Chicago planning and real estate development has been, and always will be, I suspect, driven by a unique relationship between government, business and organized community interests.

It’s inbred into the political structure of city ward government, historical neighborhood enclaves that began with immigrant migration in the early 1900’s and the strong commercial real estate needs of growing businesses.

While some can argue that Chicago planning works, or doesn’t work, historical facts demonstrate that governmental and civic planning does work, maybe not the precise way of the planning text books, but, none the less, “the Chicago way”.

Planning Chicago adds much-needed information and insight to “the Chicago way” of planning, highlighting Chicago’s downtown, neighborhoods, and business strategic initiatives all-together shaping the Chicago’s growth into the next century.

Especially interesting to the reader will be the last chapter.

The writers challenge the concept of “the Chicago way” opining the era of “big plans” – another Burnham plan – cannot be produced to guide the future growth of the greater Chicago region.

It’s implied that traditional text-book planning approaches are passé, due to disconnect between traditional planning and the financing of projects that comprise these “big plans”.

With this in mind, the authors call for restoring “planning” of the more traditional kind built upon grass root community activism conjoined with business and government interests. It’s believed that Chicago’s future must rely upon “a comprehensive plan that examines all aspects of the city, creates a shared purpose, raises consciousness about important challenges and summons the resources so they can be allocated effectively for future needs.

All that needed is the political will to do this”.

The authors have contributed a valuable resource to the history and contextual understanding of planning theory, especially planning activities influencing the greater Chicago Region.

This is a must read for all Chicago trained and Chicago interested planners.

Fredrick Law Olmsted A Clearing in the Distance

April 8, 2014

Fredrick Law Olmsted and America in the 19th Century

 An urban place making designer before his time.

FLO Clearing in the DistanceFor us schooled in the land use planning profession, especially those educated in the Midwest, two names have special meaning – Daniel Burnham and Fredrick Law Olmsted.

Burnham and his 1909 Plan of Chicago always seem to take center stage.

But Olmsted’s contribution to Chicago and Detroit among other Midwest cities is equally noteworthy.

Olmsted, labeled the father of Landscape Architecture, is credited with bringing parks and natural areas into the American planned landscape that city planners envision.

While best known for New York’s Central Park, Olmsted gave us Belle Isle in Detroit, Jackson Park and the Midway Pleasance in Chicago, and the Louisville Kentucky Parks and Parkway system in addition to spearheading the national park system movement of the late 1880’s.

Witold Rybczynski’s biography of Olmsted is a must reading for up and coming planners and landscape architects.

The “take away” from this reading is an appreciation of Olmsted’s understanding of “natural environment place making” the ability to use a natural environment, a park or other landscape area to contribute to the overall cityscape development pattern and influence the day-today living environment of city residents.

Today, Olmsted would be classified, not only a landscape architect, but a “urban place making designer” championing the notion of creating places to attract people and offer a respect from the built environment with stretches of trees, water features, meadows and grassed turf areas as “collective people places”.

He was truly “America’s park maker”.

MICHIGAN MODERN-DAY REGIONALISM

April 5, 2014

GOVERNORS’ REGIONAL PROSPERITY INITIATIVE TO REPURPOSE 40-YEAR OLD MICHIGAN REGIONALISM

Big changes in store for Southwest Michigan

Will Benton Harbor – St. Josephs’ future be a suburb of Kalamazoo or can Benton Harbor-St. Joseph rise to true metropolitan status?

Governing logo“Cities are going to be the engines of the future” announced Bill Rustem, Governor Snyder’s Director of Strategy, at the Governing magazine sponsored Michigan Leadership Form held in Lansing on April 2, 2014.

He announced’ “If Michigan is going to compete (globally) it needs cities that are competitive”

Under the Governors’ Regional Prosperity Initiative, “the state isn’t going to tell people what the state wants but defer to local decision makers and let them, as a region, tell the state what role in the State of Michigan they want to play in the future”, added Rustem

Region 10 mapThis challenges civic and governmental leaders in southwest Michigan to determine what the 10-county region wants to be and who it wants to identify with – Kalamazoo, South Bend or maybe Chicago & Northern Indiana.

Regionalism reinvention is upon us.

Underway are changes that will reorient nearly 40-years of regional planning history of Berrien, Cass and Van Buren counties which in the early 1970’s, abet under duress of the loss of federal and state funding, and came together as Planning & Development Region 4, one of 14 regional planning agencies geographically defined by gubernatorial executive order.

Failure to reach consensus on a state and global identity for the newly designated 10-county region, means that communities without a regional and city identity could become a “suburban location of nowhere”, according to Rustem.

To me, this is history repeating itself.

Back in the 1970’s, the Benton Harbor-St. Joseph greater Twin-Cities area was considered rural, even though it was home base for seven national firms; Whirlpool and & Clark Equipment, being best known.

Local leaders at that time realized being rural meant being overlooked by industrial development scouts, regional shopping mall developers and many other businesses including the emerging fast-food franchise industry.

The effort to make Benton Harbor-St. Joseph a Metropolitan city was successful in 1980 after locally sponsored lobbying for federal census rule changes redefining population requirements for metropolitan central cites – ironically labeled “the Benton Harbor rule” by the Chairman of the federal rule making committee.

However 40-years of history have failed to produce a statewide and global metropolitan identity.

Absent from metropolitan growth research and pundit commentary about of central city place making is any mention of the Benton Harbor-St. Joseph Twin Cities metropolitan area – it’s just not on these folks radar screens.

So here we have history repeating itself.

Back 40-years ago, the Benton Harbor-St. Joseph Twin Cities Area was “just another undiscovered rural area”.

Today, the Benton Harbor-St. Joseph Twin Cities Area again is an “unrecognized slow/no-growth small metropolitan area”.

The Benton Harbor-St. Joseph Twin Cites Metropolitan Area has failed to grow into a dominate “regionally recognized city center” that businesses and people, especially young talented people identify.

Truth is – change needs to happen for a successful growing population future.

It’s no longer acceptable to look at self-contained inward growth policies but to reach out and connect with others.

This is a “tough job” recognizing the Benton Harbor-St. Joseph Twin Cities area is relatively self-contained economic market surrounding by smaller cities better connected to more vibrant larger central city markets, some in Michigan and some in Indiana.

This message is a wakeup call.

It’s time to begin a process of regional planning, to lock in some of the past success in collaboration and cooperation to forge a global regional identity, whether that be a stand-alone Benton Harbor-St. Joseph Twin City identity, a Kalamazoo suburban-based small metro identity, a South Bend suburban-based small metro identity or something different connecting with the Chicago multi-state metropolitan identity.

Bill Rustem is not only a good policy wonk but a strategist who can look through a clear-lens and see both long and short-term strategies that can be implemented to achieve public policy objectives.

His message at the Leadership Forum is quite clear, “the Governor is giving Michigan’s local leaders and the public an opportunity, to work with the public and business community to create Michigan’s Future”. 

The message is pretty clear, its central cities and regions that matter.

Failure to recognize and accept these changes, or resist them, means one, or both, will lose.

TRANSFORMATIONAL MUNICIPAL LEADERSHIP

April 1, 2014

Why some small & medium sized communities are successful with economic reinvention and others become ghost towns!

Richard G. Longworth in his book “Caught in the Middle – America’s Heartland in the Age of Globalization”,  lays the historic groundwork explaining why some communities become ghost towns – the failure to adjust to change…being transportation, communications or market force changes that reshape the local economy. Today similar changes such as a lack of direct interstate roadway or high-speed internet connectivity are reshaping future sustainability of many smaller communities, especially those not having connection to a metropolitan area. There is ample evidence that metropolitan regions are the collectors of population growth, increased household wealth, creative workforce talent and ultimately future prosperity. As the concentration of growth trends continue to accumulate in metropolitan areas, smaller communities, especially those lacking connectivity to metropolitan areas, will face economic sustainability challenges. While a large number of smaller communities will inevitability be unable, or unwilling, to make necessary political and civic changes leading to prosperity, others will “take-on” challenges to reinvent themselves for the future. Study of successful smaller communities, over the past 40-years has led me to identify ten key ingredients, which will separate ghost towns from successful small towns of the future:

 1. Transformational LeadershipDilbert leadership

Every successful community has one – they are “action figures” persons with the personality and leadership “karma” drawing together differing, and at times conflicting, pathways into a single direction – “they’re the lead dog in the sled team and pilot the direction for others to follow along.”

Successfully communities in the future will all have a leader, a single person who collects and draws together ideas, combines individualized personal commitments, plots-out a uniform action strategy and sets-in-place the deployment process to implement change.

 2. Long-term Consensus Strategy

In today real world agreement doesn’t exist anymore comments Aaron Anthony, Bridgman MI, City Manager, “it’s a generally held conclusion that 100% agreement is a figment of imagination and that we can get everyone on the same page when forming community strategy”. But successful community development is founded on the premise that we can set aside our differences and reach agreement upon certain principles that result in a strategy that all parties accept and will implement.

Successfully communities in the future will be guided by a generally recognized, and community accepted, long-term consensus strategy that in general terms, tells where the community wants to be in the future – a compass point showing direction rather than specific GPS instructions for the journey.

 3. Dedicated “Single-Focus” Management

Unlike 40-years back where community leaders had a limited number of issues to handle, today’s municipal community development function is far more complex, governed by a greater number of laws and regulations, influenced by a larger number special interest groups and susceptible to increased legal intervention. Constantine MI, City Manager, Mark Honeysett sums it up quickly, it’s easy to get to many things on the plate at the same time and get nothing accomplished.  The result is more time, more money and more complexity in carrying-out both the civic and governmental community development function”.

Successfully communities in the future will those communities who recognize and realize that a community cannot address every issue at the same time and direct both human and financial resources to a prioritized list of needed accomplishments.

 4. Long-term Funding Mechanisms

Transformation according to Bridgman MI, Manager, Aaron Anthony, “is not an “annual pay-as-you-go proposition, but a multi-year commitment of interconnected projects that required several years of funding to achieve best results.   Communities that recognize implementation does not comply with election cycles or annual budget cycles have a better chance for success”.  Modern municipal project management requires identification of all potential funding sources with their probability of funding success as part of the project planning process to help communities better define the overall project scope and anticipate costs in an effort to achieve greater implementation success.

Successfully communities in the future will recognize the value of multi-year project budgeting opposed to annually deciding what can spent and how to use the annual community budget.

 5. Leverage Funding Opportunities

Change is costly with most major “transformational” projects exceeding the annual tax revenue of most communities.  This results in reliance upon other funding sources. Federal and state grants are always viewed as the first supplemental source, but tax increases, tax increment financing, borrowings and even private donations all have place in leveraged funding opportunities.

Successful communities in the future will rely on realistic expectations of  grant and other funding sources and consider the ability to complete projects using only local funds.

 6. Experienced Technical Guidance

Local elected officials “don’t have to be smart – only popular enough to get elected” was told to me many years ago Cass County, MI Commissioner Johnnie Rodebush, “the best thing we can do is hire smart guys, like you, to help guide us in making things work.” It is uncommon occurrence that once elected, the elected official has comprehensive knowledge of the vast number of governmental programs available leading to  reliance upon technical help and services to assist in successful project implementation.

Today and even more in the future, successful communities will realize navigating the complex, ever-changing, municipal world, requires good advice and technical assistance from qualified and experienced help for success.

 7. Appetite for Civic & Political Risk

Supporting civic and governmental change implies taking risks – risk of criticism, risk of losing an election and possibly loss of community status and position in social and civic organizations.

Successful communities in the future will identify risk taking as an accepted part of a successful transformation process and celebrate rather than shy away from possible adverse effects of implementing change.

  8. Acceptably for System Changes Needed for Success

Government structure, especially in some Midwest states, was born in the late 1800’s and remains in place today.  However, the reliance on single government solution, guided by independent separatist elected bodies at times hinders the ability to solve problems which span multiple government jurisdictions such as potable water supply and sewerage collection/treatment, storm water management and transportation.

Successfully communities in the future will have relinquished some of today’s commonly held duties in favor of multi-jurisdictional delivery systems that may offer cost savings, provide superior services and more efficient management oversight.

 9. Unrelentless Pursuit of Success

Author Tom Peters, in his 1980’s book “In Search for Excellence” chronicled the theory of successful companies based on a total commitment and passion for excellence.  So too with community development, strategy a long-term passion for success always trumps stop-and-start attempts.

Successful communities in the future will not only subscribe to a passion for success but leverage this passion in pursuit of continual success.

  10. Civic Acceptance of Need for Success

Bob Gets, Village of Baroda MI, President, credits Baroda’s nationally recognized economic reinvention success to the community acceptance that “if we didn’t make a change we would become another Michigan ghost town” upon realization, in 2004,  that the loss of  over 10 tool & die shops with over 220 employees would never return. Most communities need a life-or-death realization to create the wanna-factor and wake-up a passive community mind-set that changes must happen.

Successfully communities in the future will have a civic “wanna-factor” for a successful future and economic sustainability – a spirit that is communicated and is easily recognizable outside of the community.

FINAL THOUGHTS

 Successful smaller communities need transformational leadership for success.

As Longworth states “like it or not, it’s the cities that are the economic engines of the 21st Century.  The small towns may be the spiritual anchors of the Midwest, but they no longer serve as the economic engine of the future.  Only those smaller communities that have the courage and political ability to reinvent themselves and integrate themselves in the new economy will prevent the ghost town from becoming reality”.