Brownfield redevelopment in Rochester

May 1, 2017

Costs associated with the cleanup of an environmentally contaminated property sitting vacant on the east side of Water Street in downtown Rochester shouldn't come as a surprise to city council members seeking $2 million in funding from the state of Michigan for brownfield redevelopment at the site.

Plans by developer Frank Rewold to construct a four-story office building on the site of a 100-year-old industrial property that has sat vacant in recent years has allowed the city to apply for partial funding from the state to clean up the site. Rewold, who owns the Royal Park Hotel and nearby Mills building, would provide much needed office space for the city, which could further help redevelopment in a downtown area that has sat unused for a number of years due to underlying problems with the property.

Rochester City Council members on Monday, April 24, were wise to approve a grant and loan application to the Michigan Department of Environmental Quality (DEQ) and its Clean Michigan Initiative program. The program, if the application is approved, will provide a $1 million grant from the state to cleanup the industrial site, and require an additional $1 million loan to the city for the project. Any cleanup costs beyond the $2 million would be paid for up front by the developer, and reimbursed through the brownfield district.

Brownfields are area sites that include properties that may be contaminated, blighted, functionally obsolete and can include historic properties. Certain development on such properties are typically hindered due to those underlying problems. By establishing brownfield districts, remediation to the sites can be done and paid for in the future through tax increment financing (TIF) districts, which capture new taxes generated at the site after redevelopment.

In the case of the Water Street property, use by ITT Automotive, as well as its predecessors, including automotive parts manufacturing and military flares, caused contamination to the soil. That contamination, which has spread north to city-owned property and the Paint Creek, has since been contained under an agreement with ITT and the DEQ. However, the source of the contamination remains at the site, with no current requirement to remove it.

Because redevelopment of the site is hindered by the contamination, and because there is no requirement for ITT to cleanup the source of that contamination, the property provides little value, as it is, to the city. The funds would kickstart the brownfield redevelopment project, and allow for the first of several long-term projects planned for the area.

Council on April 24 indicated they were caught off-guard that the tax capture for the proposed project could go beyond the repayment of the $1 million loan, which is part of the grant and loan program. However, the potential for additional years of tax increment financing shouldn't come as a shock, and we believe council should look at the long-term potential and understand that is what brownfield redevelopment offers.

Typically, brownfield redevelopment projects are paid only through such TIF districts, which means communities that use them must weigh the cost of redevelopment with the value prior to the project. In the case of the Water Street property, the benefits are new tax revenues in the future on property which currently generates very little.

While the city's brownfield authority is a newly formed board in the city, it will be key to controlling and scrutinizing the costs associated with the clean up of this and any other future projects. The fact that council has had a part in creating the authority should have foreshadowed things to come. 

The surprise for council shouldn't be the potential sticker shock of clean-up projects, but rather the availability of $1 million in grant funds to kickstart the project in a time when such funding is relatively scarce.

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