The Granholm administration has decided to target tax credits for the redevelopment of contaminated properties toward areas it believes it can turn into "cool cities." According to a CNN report in October, Gov. Granholm has described "cool cities" as "… areas where people with talent and imagination can find work, along with rich cultural, social and recreational opportunities — ingredients for a quality lifestyle."
Of course, this is simply a jazzed up version of a very old political phenomenon. Instead of allowing people to decide through their economic actions which properties will be developed and which will not, government bureaucrats are going to play favorites with the tax code — a method that won’t work any better for Michigan cities than it did for the old Soviet Union.
Tax credits have been a popular incentive for promoting the cleanup of abandoned industrial sites, known as "brownfields," the hope being that rebuilding on these areas will save outlying rural areas from development. The tax breaks are intended to offset some of the additional costs related to brownfield redevelopment, including the removal of contaminated soil or underground tanks.
In 2000, the Michigan Legislature added blighted and functionally obsolete properties in core cities to the list of properties eligible for the tax credits. This allowed a greater share of the credits to go to Michigan cities.
Now, the Michigan Economic Development Corporation (MEDC) has been designated as the official arbiter of "coolness." At the governor’s behest, MEDC officials recently adopted new criteria that base brownfield redevelopment tax credit eligibility on whether the development would support a "cool city." The development must occur in "core communities" and in downtown areas or near-downtown areas.
Unfortunately, to the extent that our state government imposes more stringent regulations or employs disparate tax treatment, progress on brownfields will falter. State bureaucrats will inevitably designate areas for tax credits that hold no interest for developers, and fail to designate areas that do. Michigan citizens should cheer the cleanup of a brownfield anywhere, not just in places designated as "cool cities" by state bureaucrats.
"It would be a shame if we could not redevelop our numerous old landfills in Oakland County because they are not in a ‘cool’ city," said Martin Seaman, of the Oakland County Brownfield Redevelopment Authority.
Of course, the governor’s intentions are laudable. Her idea is that the new tax credit eligibility standards will help to revitalize Michigan cities and slow urban sprawl. The problem with this is that site contamination is only one of a myriad of factors that discourage urban redevelopment.
For example, basic services in some cities lag behind those provided in suburban communities, while big-city bureaucracies challenge the patience and pocketbooks of businesses and homeowners alike. Moreover, major crime rates in Michigan’s larger cities exceed the statewide average, as do school dropout rates. The governor would do far better to try to address these problems, rather than using the power of the state to influence what should be a function of the free market.
Government is notoriously inept at predicting investment decisions. A study by the Mackinac Center for Public Policy found little evidence that brownfield cleanups funded under the Clean Michigan Initiative attracted private investment to urban areas. For example, of the brownfield cleanup projects initiated in 1999 and rated as having "excellent" potential, none had been redeveloped by 2002. In other words, government bureaucrats cleaned up areas developers weren’t interested in. Only two of the 12 projects initiated in 1999 and rated as having "good" potential actually drew investment.
Michigan has a solid record of progress in fostering brownfield redevelopment. The Engler administration in 1995 dramatically lowered the regulatory obstacles inhibiting brownfield reclamation. No longer would every brownfield development require soil antiseptic enough for humans to ingest. Instead, state cleanup criteria are now based on the proposed use of the property, be it commercial, industrial or residential.
More important, perhaps, liability for cleanups no longer is imposed by the state on any and every landowner or tenant of the despoiled property. Only those who actually caused the pollution in the first place are liable for cleanup, as long as new owners document the existing contamination with "baseline environmental assessments" and contain the damage.
These reforms have made a difference. The number of brownfield site assessments filed with the state rose from just 69 in 1995 to 290 in 1998. And the number of such filings has remained relatively constant in the years since.
But at a time when economic growth and job creation are lagging in Michigan, we should not make brownfield redevelopment more difficult. Nor should politics drive development decisions. Projects will only succeed if they satisfy economic, not political criteria.
If Gov. Granholm wants to encourage "cool cities," her administration should curb overregulation, lower taxes, establish a level economic playing field, and allow the free economic decisions of Michigan citizens to create them.
Russ Harding is senior environmental policy analyst for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich.