[CPEO-BIF] Petoskey Pointe (MI) tax credit debate

Wed Oct 25 17:59:57 PDT 2006

Barry,

I agree with you 100%.  You will note my email suggested the absurdity
of further compensating the developer if his rate of return was below
the target.  Yes, it is totally unworkable in practice and theory.  When
a public agency makes a deal with a developer, the developer needs the
certainty of knowing that it is final and that he or she can make
decisions based on the subsidy agreement.  The burden is on the agency
to be knowledgeable about conditions in the financial markets so that it
will make a subsidy agreement with the developer that fairly weighs the
public benefits and private costs of the developer.  

The key is for the agency to understand that conceptually the
appropriate subsidy should make the developer whole for the additional
environmental and other risks in terms of a target market rate of
return.  We should always assume that any given developer will ask for
the maximum subsidy permitted.  It should be noted that many
transactions involving environmental contamination are still so
lucrative that a developer may not need any subsidy (Bob Paterson's
point), but it is the agency's responsibility to ascertain that
information without looking into the pocket of the developer.

All lookbacks are unworkable since there are many factors that determine
the developer's final rate of return on a project and it is impossible
to separate out any particular risk.  All we can hope is that public
agencies will gain the market expertise to be considered as
knowledgeable "sellers" of subsidies on behalf of the public.

Bruce

Bruce-Sean Reshen

CEO, The MGP Group

733 Summer Street - Suite 405

Stamford, CT 06901

203-327-2888, X 18

email: breshen at mgppartners.com

www.mgppartners.com <http://www.mgppartners.com/> 

www.theguardiantrust.org <http://www.theguardiantrust.org/> 

-----Original Message-----
From: brownfields-bounces at list.cpeo.org
[mailto:brownfields-bounces at list.cpeo.org] On Behalf Of Trilling, Barry
Sent: Wednesday, October 25, 2006 4:24 PM
To: Bruce-Sean Reshen; Frink, Neal; Robert Paterson; lsiegel at cpeo.org;
Brownfields Internet Forum
Subject: RE: [CPEO-BIF] Petoskey Pointe (MI) tax credit debate

Bruce, I agree with Neal Frink to the extent that requiring a "look
back" in every transaction would probably kill the desirability of such
subsidies from the outset because it would destroy the foreseeability
and finality needed to accomplish financial planning, as well as impose
a likely unwieldy bureaucratic hand, where "process" usually dominates
"product" or "result."  On the other hand, I have no similar reservation
about random "non-recourse" audits which would provide the information
needed to make necessary program adjustments.

Barry
Barry J. Trilling 
Wiggin and Dana LLP 

400 Atlantic Street 
P.O. Box 110325 
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www.wigginENVIRONMENTAL.com 

-----Original Message----- 
From: brownfields-bounces at list.cpeo.org [
<mailto:brownfields-bounces at list.cpeo.org>
mailto:brownfields-bounces at list.cpeo.org] On Behalf Of Bruce-Sean Reshen

Sent: Wednesday, October 25, 2006 12:48 PM 
To: 'Frink, Neal'; 'Robert Paterson'; lsiegel at cpeo.org; 'Brownfields
Internet Forum' 
Subject: RE: [CPEO-BIF] Petoskey Pointe (MI) tax credit debate 

I think the issue that Bob Paterson and I were emphasizing is that
rarely do the public agencies that grant the subsidies incorporate a
"look back" requirement.  Thus, it becomes difficult to ascertain
whether or not the public benefits were appropriately distributed.

Bruce-Sean Reshen 
p. 203-259-1850 
c. 917-757-5925 

-----Original Message----- 
From: Frink, Neal [ <mailto:NFRINK at DINSLAW.com>
mailto:NFRINK at DINSLAW.com] 
Sent: Wednesday, October 25, 2006 12:23 PM 
To: Bruce-Sean Reshen; Robert Paterson; lsiegel at cpeo.org; Brownfields
Internet Forum 
Cc: Frink, Neal 
Subject: RE: [CPEO-BIF] Petoskey Pointe (MI) tax credit debate 

Yikes - I have to chime in: 

A "look-back" with a positive or negative true-up eats away at the
benfits of privatizing the effort, reducing the economic risk and
reward, not to mention making the process just that much more complex
(and less efficient).  This is not to say that there is not a
responsibility on the part of Grant authorities assess redevelopment
proposals on the front end to make sure the risk/reward balance is
appropriate.  The broad C/B analysis essential to public policy
questions -- how to allocate public funds to brownfields redevelopment,
public schools, or defense spending --- occurs at the legislative levels
where appropriations (funding) decisions are made.  Once at the
administrative/program level, the C/B analysis is appropriately focused
on achieving the policy objectives of the specific program.  Here, it
seems, the scoring criteria for awarding grant money needs to be
reflective of the program's policy objectives.  Perhaps the key thing
that is missing is post-project assessments to determine the extent to
which awarded grants actually deliver the results they projected (e.g.,
in terms of pollution reduction, jobs, public space/use, or whatever
caused the project to be scored out as a "winner").  The review process
then needs to feed back into the selection/award criteria for subsequent
rounds of funding (if any) and/or back to the legislature to shape
either the amount of funding appropriated or the policy objectives
sought to be achieved through this particular use of public funds
(again, weighed by the legislature against competing uses for public
funds).  Doesn't the legislation authorizing most of the brownfields
grant programs have just such requirement to report back on the benefits
realized from the program for just this reason?  One can almost
visualize the process flow diagram for fine-tuning (or eliminating or

expanding) brownfields redevelopment grants (or tax incentives, or other
governmental aid) through such an iterative process.

Neal Frink 
Dinsmore & Shohl, LLP 
1900 Chemed Center 
255 East Fifth Street 
Cincinnati, OH 45202 

(513) 977-8359 
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-----Original Message----- 
From: brownfields-bounces at list.cpeo.org [
<mailto:brownfields-bounces at list.cpeo.org>
mailto:brownfields-bounces at list.cpeo.org] On Behalf Of Bruce-Sean Reshen

Sent: Wednesday, October 25, 2006 11:34 AM 
To: 'Robert Paterson'; lsiegel at cpeo.org; 'Brownfields Internet Forum' 
Subject: RE: [CPEO-BIF] Petoskey Pointe (MI) tax credit debate 

Bob, 

I agree with you that our area of disagreement is narrower than it would
seem.  The fundamental point I was stressing is that subsidies are not
wrong in themselves.  However, unnecessary subsidies are wasteful and
misdirect "social" resources. 

As economists we learn that it is possible to measure market rates of
return at a given time, provided there are other projects in development
at the same time that are unsubsidized.  While precise measurement is
impossible, general ranges of market rates of return are attainable. The
key to the process is that the developer must be willing to "open his
books".  If actual achieved rates of return prove to be well above the
target market rate, then the developer should either return the subsidy
pro rata or provide equivalent social development value.  The
willingness of developers to allow such a "look back", should be an
absolute requirement of the process to protect society.  An interesting
further question is whether society should be willing to further
subsidize a developer who does not achieve the target market rate of
return.  In fairness, if we require a "look back", it should allow
either a positive or negative adjustment.

The key point here is that one should not be outraged by the concept of
subsidies in general.  We both agree that over subsidizing a private
developer is a waste of public resources.  Likewise, I believe that
under subsidizing that same developer makes no sense if we want to
efficiently achieve our social goals (environmental cleanups, jobs,
community revitalization).  Much greater effort needs to be focused on
the design and measurement of appropriate subsidy levels to achieve our
public goals.

Bruce 

p.s., My kind thanks to Peter Meyer for helping me to clarify these
issues. 

Bruce-Sean Reshen 
CEO, The MGP Group 
733 Summer Street - Suite 405 
Stamford, CT 06901 
203-327-2888, X18 
email: breshen at mgppartners.com 
 <file:///\\www.mgppartners.com> www.mgppartners.com 
 <file:///\\www.theguardiantrust.org> www.theguardiantrust.org 

-----Original Message----- 
From: brownfields-bounces at list.cpeo.org [
<mailto:brownfields-bounces at list.cpeo.org>
mailto:brownfields-bounces at list.cpeo.org] On Behalf Of Robert Paterson 
Sent: Wednesday, October 25, 2006 10:02 AM 
To: 'Bruce-Sean Reshen'; lsiegel at cpeo.org; 'Brownfields Internet Forum' 
Subject: RE: [CPEO-BIF] Petoskey Pointe (MI) tax credit debate 

I don't think we disagree here, IMO based on economic development
incentive programs across the US, not much "calculation" has gone into
"packages" and in many cases (e.g., public stadia for example for
private use) almost no serious B/C analysis with any sophistication is
done at all....societal opportunity costs are real but often not
recognized in any meaningful way as incentive packages are assembled.
Not all brownfield sites need substantial public subsidy, and some get
too much, which does translate into greater private profit at public
expense (that subsidy might be better used for other social, economic
and environmental programs elsewhere in the community with a greater
societal return on investment), the question is how do we do a better
job of assigning incentive packages where they are most needed? If
others on the list are involved in such packaging, it would be
interesting to hear what they have to say about "qualifying" sites for
incentives (e.g., property tax abatements, TIF financing etc.,) and
examples of where the package was not enough or too much? In their
opinion....

Kind regards 

Bob 

Robert G. Paterson 
Associate Professor 
Co-Director, Center for Sustainable Development 
1 University Station B7500 
School of Architecture 
The University of Texas 
Austin TX 78712-1160 
512-471-0734 
Fax 512-471-0716 
rgfp at mail.utexas.edu 

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