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Property that is blighted, contaminated with pollutants, or otherwise functionally obsolete can often become a burden on an entire community. There are many resources available to assist Michigan’s municipalities in developing these more difficult property scenarios, but a particularly helpful tool is the Brownfield Redevelopment Authority Refinancing Act and its newest component – The Housing TIF. This new housing option assists the existing development tool to address the state’s growing need for affordable housing in addition to the environmental and safety concerns otherwise noted in the Act. This month’s newsletter gives a brief overview of the background of Michigan’s brownfield redevelopment scheme and its newest housing development tools, and how your attorneys can assist your community in taking advantage of these processes.

Communities of all sizes across the state have seen the consequences of property left vacant, abandoned, or underutilized. These properties can be at best an eyesore, and at worst a serious public safety concern. Often, properties such as these are called brownfields, which are described by the Environmental Protection Agency as property of which the expansion, redevelopment, or reuse may be made difficult due to even the potential presence of a hazardous substance, pollutant, or contaminant. One of the tools developed by the Michigan legislature for helping these properties is the Brownfield Redevelopment Financing Act, which provides municipalities with the ability to create Brownfield Redevelopment Authorities to create and implement brownfield plans. Recent amendments to the Brownfield Redevelopment Financing Act expand how municipalities may improve underutilized areas and address housing shortage concerns.

Brownfield Redevelopment Authorities Generally

A Brownfield Redevelopment Authority (“brownfield authority”) is a local government entity with the purpose of redeveloping and revitalizing problematic property. This is accomplished through a brownfield plan, which includes eligible projects, proposed activities, and financial incentives. Brownfield plans are created between the local brownfield authority and an interested developer, and are carefully crafted to meet your community and the project’s needs.

Eligible activities can include items such as the costs to develop and implement brownfield plans, demolition of structures, industrial cleaning, and asbestos abatement. MCL 125.2652(o). The brownfield authority and developer may work together to determine what improvements need to be made to the property to render it usable. In the development of the brownfield plan, the brownfield authority has the ability to be creative in obtaining the results it wants for the property and its community.

One of the reasons a brownfield redevelopment is enticing to a developer is due to the use of Act 381 Tax Increment Financing (“TIF”) for certain redevelopment costs. The premise of TIF is that redevelopment of property creates an increase in value that results in an increase in property taxes to the municipality. That increase is the increment, which is then “captured” and used to reimburse the developer for eligible activities. After the developer has been reimbursed, the municipality then receives the benefit of the increase in tax revenue from the redevelopment. This structure provides a financial incentive to the developer, who can fund a portion of the project with the capture, and to the municipality, which ultimately receives greater tax revenue than it would have without the redevelopment.

Though brownfield TIF  has been associated with properties experiencing environmental contaminants, blight, or other contamination, amendments to the Brownfield Redevelopment Financing Act now allow brownfield TIFs to be used to address housing shortages.

New Housing TIF

In 2023, an amendment was made to the Brownfield Redevelopment Financing Act to address what has been dubbed as the “missing middle” housing gap that Michigan has faced in recent years. The 2023 amendments made changes to broaden the definition of “eligible property” and “eligible activities” to include housing items.

Prior to the amendments, property eligible for the TIF was limited to traditional brownfields, such as those with blight and environmental contaminants. MCL 125.2652(p), as amended by 2022 PA 178. The 2023 amendment added to eligible property “[h]ousing property for which eligible activities are identified under a brownfield plan . . . .” MCL 125.2652(p)(ii). Additionally, the 2023 amendments expanded the definition of “eligible activities” to encourage the creation of middle-income housing. While eligible activities previously referred to only activities such as lead, asbestos, and mold abatement, demolition of structures and removal of manufactured debris, the 2023 amendments added housing development activities and infrastructure improvements which are needed for housing development in communities that have identified a special need for housing. (Compare former MCL 125.2652(o) with MCL 125.2652(o)).

What the new housing amendments do for brownfield authorities is provide opportunities for funds to be utilized for eligible activities that include rehabilitation and building homes for purchase or for rent, among many other things. This includes significantly expanding the type of property that can be involved in a brownfield plan. While previously, the TIF was available to contaminated and blighted sites, now for housing projects, those are no longer requirements. The traditional eligible property can still be utilized for housing rehabilitation, as well as property where one or more residential units are proposed to be either constructed or rehabilitated, or if the units are located in a mixed-use project.

The amendments also provide new eligible activities related to housing, if a housing need is shown. There is not one specific way to show a housing need, and many municipalities already have the resources available to demonstrate the need through a housing study in a master plan, or a local, county-wide, or regional housing study. Once a housing need is shown, a brownfield plan can include a variety of additional eligible activities, while still including the traditional eligible activities. Some of these housing-specific activities are site preparation and infrastructure improvements to support housing development, temporary household relocation costs, and acquisition costs for blighted or obsolete rental units.

An important item to understand in the Housing TIF is the Income Qualified status. The phrase is used multiple times throughout the statute, but it simply means those living at or below 120% area median income (“AMI”). For these housing projects, the target is to provide rental and purchase opportunities for those living at 120% AMI, and those individuals or households are considered Income Qualified under the Act. To be eligible for these projects, there must be at least one Income Qualified person or household in each plan, though the local brownfield authority and MSHDA may well require there to be more. The required number of Income Qualified units, as well as rental units versus for-sale units, is up to the brownfield plan as negotiated by the brownfield authority and the developer. This is yet another area that provides significant flexibility amongst municipalities as the brownfield plan can be created to match what best fits your community needs.

The Michigan State Housing Development Authority (“MSHDA”) has provided guidance and resources related to the Housing TIF since its inception and promises to continue as the program is utilized. As a guideline, MSHDA will publish annual Control Rents by county that local brownfield authorities may utilize. Also, to assist in brownfield plans that undergo MSHDA review, MSHDA created a housing subsidy calculation to establish the reasonableness of housing activities by considering potential rent loss, potential development loss, and total housing subsidy. MSHDA’s resources may be utilized by brownfield authorities to assist in taking advantage of the TIF program.

Brownfield Redevelopment Authorities for All

The challenges addressed by brownfield authorities exist in all communities, not only larger municipalities. A municipality that encounters property troubled by environmental pollution or blight may benefit from the creation of a brownfield authority and implementation of brownfield plans. Additionally, a municipality may use the housing TIF to address concerns regarding housing shortages.

The processes for creating a brownfield authority and administering a brownfield plan can seem daunting, but your attorney can help ensure you are on the right track. This can include assistance in understanding the statutes involved, contract review, and general counseling on the process. Relying on outside consultants such as your attorneys to assist in making the process seamless to improve your community.

While brownfield redevelopment opportunities have existed for quite some time, the Housing TIF has brought a new light to the tool and provides even more opportunities for municipalities to redevelop undesirable properties and create new housing opportunities. If you have any questions regarding whether your municipality should create a brownfield authority, or whether your existing brownfield authority should work more actively on brownfield plans, or any other questions related to brownfields and the new Housing TIF, please contact the FSBR municipal attorneys.

By: Lindsey Gergel and Madelin Sholtz

This publication is intended for educational purposes only. This communication highlights specific areas of law and is not legal advice. The reader should consult an attorney to determine how the information applies to any specific situation.