Michigan “TIF on Steroids” is back. Infrastructure, and the financing of it, have become hot topics both in Michigan and nationally.
On December, 1, 2016 information was contributed about legislation expanding tax increment financing pursuant to Act 381 of 1996 for large “transformational” projects. Those bills did not pass in lame duck. Almost identical legislation was introduced on February 7 as Senate Bills 111, 112, 113, 114 and 115. These bills were reported out of Committee on February 21 and passed the State Senate on February 22. They were received by the State House and referred to the Committee on Tax Policy on February 23.
There are some new twists unique from the prior legislation. In additional to traditional tax increment revenue, both packages provide for the capture of incremental income and sales and use taxes. Both packages also limit the number of new Transformational Brownfield Plans (TBPs) to 5 per year, 1 per municipality. Both packages require the projects to qualify as “transformational”, with plans and projections being scrutinized and determined to be a net-positive for Michigan.
Most significantly, the 2017 legislation expands the definition of what constitutes eligible activities under a TBP to include construction and other building improvements not contemplated in traditional brownfield plans. Further, advances and prior expenditures for eligible activities can be reimbursed if included in the TBP. The 2017 legislation adds the capture of incremental “construction period taxes”, and “withholding taxes” but also places certain limits on the volume of capture and cumulative disbursements of captured taxes.
Captured revenues will be accounted for by the Michigan Department of Treasury and deposited in the State Brownfield Redevelopment Fund for disbursement for the benefit of all TBPs. A maximum of $40,000,000 in total tax capture for all TBPs may be disbursed in any one year. However, the balance of any amount not disbursed below the $40,000,000 cap can be rolled to the next year and disbursed in addition to that next year’s authorized $40,000,000.
The 2017 legislation limits the total income tax and withholding tax capture commitment and disbursement to $800,000,000. Total construction period tax capture revenue and sales and use tax exemptions are limited to $200,000,000. These amounts are independent, so the cap on total disbursements is $1.0 billion.
The fate of the 2017 legislation now rests with the State House and the Tax Policy Committee in particular. In the event that the legislation passes the House and is signed by the Governor, we expect there to be significant competition for the five authorized TBPs. In case the 2017 legislation is approved for immediate effect, the Michigan Strategic Fund and Department of Treasury are expected to quickly prepare the necessary guidance, applications and other materials for the TBPs and establish guidelines for how the TBPs will be determined in accordance with Act 381 of 1996. Contact Dykema for further questions or inquiries.