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ESCANABA -- The Escanaba Brownfield Authority met Wednesday to hear a unique proposal from the owners of the former Super One building: If the owner blighted the property themselves would the authority approve the designation that could lead to the reimbursement of hundred of thousands of tax dollars?
In October, the authority rejected a proposal to designate the property as brownfield eligible based on functional obsolescence, a special designation for properties that are no longer able to adequately perform the functions for which they were intended. This could be due to a substantial loss in value or from other factors, such as being overcapacity, changes in technology, or deficiencies in design.
Dial Companies, which owns the building, had argued the property was functionally obsolete because the company could not find a tenant for the building based on its size, and a letter from Juli Kolbe, a level 4 assessor who serves as the equalization director for Delta County, agreed the building was functionally obsolete "with the lack of ability of the improvements to satisfy market standards of demands."
Nevertheless, the authority did not agree that the property was brownfield eligible, noting accepting the designation would provide fodder for an ongoing lawsuit with Menards over the taxable value of their Escanaba store. The so-called "dark store case" dates back to 2014 when Menards won a state appeal with the Michigan Tax Tribunal stating the retailer's property taxes should be based on the value of a closed and empty building, also known as a "dark store." The decision forced the city to adjust the retailer's 2012 property taxes, and resulted in a series of legal battles that are currently ongoing.
Wednesday, Dial Companies tested the waters with the authority over the possibility of the Super One store becoming blighted in the future, but no official designation could be made because the store is not currently blighted.
"To have a hypothetical conversation about if all of a sudden this building became a nuisance or all the utilities were permanently disconnected -- how do you respond to that? It's just an odd… it's an odd thing to ask about a property that's not blighted," said authority member Joseph Kaplan.
Specifically, Dial Companies expressed they would be prepared to blight the property by permanently disconnecting, destroying, removing, or otherwise rendering in effective either the utilities, plumbing, heating, or sewage for the building -- which would meet the legal definition of blight under Public Act 381, also known as the "Brownfield Redevelopment Financing Act." The law does not explicitly state that blight cannot be caused by the owner.
"Basically the building's vacant. It's not doing anybody any good and we're happy to remove the water or whatever and do that. It's not an issue -- or sewer. Sewer might be better," said Chris Held of Dial Companies.
Dial Companies' ultimate goal for the property is to demolish the Super One building and construct a Hampton Inn Hotel where the former grocery store stands. Prior to Wednesday's special meeting, the plan had included leaving a portion of the building intact for the creation of storefronts, but that has since been dropped.
"We're not trying to make the building any more worse than it is. Obviously, at some point we'll have to take a wrecking ball and knock it down unless we can find a lease, which doesn't seem likely," said Held, noting the brownfield benefits would be used to offset the cost of demolition and make the property more appealing to investors.
Demolishing the entire building as opposed to just part of the structure is significant. The demolition of a building falls under the scope of the Public Act 381, but would not fall under the scope of the Obsolete Property Rehabilitation Act, also known as OPRA. In the past, Dial Properties had used both state laws in tandem to get the maximum tax benefit on the the Delta Plaza Mall property, which they also own.
While the OPRA designation allows a property to be exempt from property taxes for up to 12 years, a brownfield designation allows for a property to collect tax incremental financing. Essentially, the amount the city would collect on the Super One build if it is designated a brownfield would remain the same for a set number of years. Any increases in the value of the property resulting from the development would be reimbursed to Dial for certain eligible expenses in a plan approved by the city council.
At this point, Dial estimates the total amount that would be reimbursed to them as between $200,000 and $300,000. That number could shift depending on which costs are included in a plan approved by the city council or if costs change. Current estimates for demolition are between $150,000 and $350,000. After the store is demolished, constructing the new hotel could cost between $8 million and $10 million.
When the reimbursement period is over -- which could theoretically be up to 30 years under the law, but will be dependent on the amount to be reimbursed -- the city would collect the new tax rate based on the value of the newly developed property.
"Once this is paid off -- which should be paid off fairly quickly -- then you'll have that tax base. So from an economic standpoint, you know, you get that hotel up and start paying taxes, and that's new tax revenue versus a vacant building tax revenue," said Held.
City Manager Patrick Jordan supported the proposal to move forward with the brownfield eligible designation if the blight was caused by Dial.
"I think they're just trying to recapture their investment values, and it's not such a bad thing," said Jordan.
The authority's vice-chair, Elizabeth Keller, also supported the idea of designating the property as brownfield eligible. In October she made a motion to approve the designation based on functional obsolescence, but the motion died for lack of a second.
"My personal feeling is that I don't want to see any property in Escanaba -- and we already have quite a few -- that are languishing and deteriorating and just blights on the landscape," said Keller, who also stated she felt the property was an "undesirable site" that would only be developed if the former grocery store was torn down.
Others on the authority were less willing to support the idea, expressing they felt it was setting a bad prescient.
"I wouldn't encourage an owner to blight a property. I mean the whole idea of Brownfield is to prevent that sort of thing," said Kaplan. "… It can be (redeveloped), it's just whether or not the public assistance supports private development or if free market takes care of it like it's supposed to in a capitalistic society."
In an effort to give Dial some idea of the authority's position on the matter, Keller made a motion that "if a property is brought to (the authority) under the brownfield legislation and appears to qualify, it will be considered as a potential brownfield site."
The authority board's reaction was mixed and the motion ultimately failed. Keller voted in favor of her own motion, as did Member Matthew Sviland, who felt the motion was essentially restating the mission of the board. Kaplan abstained, noting he didn't know why the board would approve a motion restating its reason for being. Authority Chair Randy Godlewski voted nay, and Member Monte Morrison abstained.
"I'm just afraid that we're going to open up a can of worms and not be able to put the cover back on," said Morrison.
Kaplan noted he would be looking for case law on whether or not eligible blight can be caused by an owner.
In other business, the authority recognized an unrelated property located at 1204 Ludington St. as brownfield eligible.