Community | Entrepreneurship | Real Estate

Community benefits: Does everyone agree?

Detroit City Council is considering an ordinance that would require developer consultation with communities in exchange for large public subsidies for developments. What exactly is it and should they pass it?

The ordinance

On October 9, Detroit City Council’s Planning and Economic Development subcommittee discussed a resolution for an “Urban Development Agreements” ordinance.

The ordinance would require developers to consult on a package of community benefits with community stakeholders (area residents and businesses) when they obtain large tax subsidies.

The hope is that this negotiation would result in a signed (legally binding) Community Benefit Agreement (CBA) between developer and community groups – similar to the sort that developers put in place with their own sub-contractors.

It is not every development – fear not, that loft extension is unaffected! CBA’s would only be sought where the developer receives over $300,000 worth of public subsidies in the form of tax abatements, credits, grants, sub-market land sales and incentives. And it would be attached only to developments of $15-million or higher, or expansion projects of $3-million or more.

One way of seeing CBA’s is as a way to ensure that tax breaks and subsidies paid for by residents delivers real value to the community.  A plug for what is commonly known as the ‘leaky bucket problem’, where investment is poured into an area, but is not retained locally.

England has, for over 25 years, had something called Section 106 obligations that are similar to CBAs – but are between a local authority and developer and are required even where no subsidy is involved. They were introduced by the pro-enterprise, free-market government of (Reagan-ally) Margaret Thatcher who felt negotiation with communities led to better developments.

At-Bridge-Rally-a (1)

James Hunter of Stronger Michigan Communities campaigns for CBAs around the new international bridge project in South West Detroit (source: Sugar Law Center)

The ordinance aims to encourage good placemaking/regeneration

I recently heard a leading Detroit community activist say “if you’re not at the (negotiation) table, you’ll be on the menu”. This was said about another policy context but seems to sum up what the ordinance is all about.

The suggested language is practical and simply requires a developer receiving tax dollars to negotiate with the people who are paying for part of his/her funding on the impact and outcomes.

No specific benefits are stipulated in the ordinance but amongst suggested ‘asks’ of developers are for jobs and contracts go to City of Detroit residents and businesses, respectively. Certainly past CBAs have successfully provided training opportunities and examined hiring processes for improved local employment results.

Other areas for negotiation include offsetting negative impacts such as displacement of homes and jobs, extra traffic, extra demand for local housing; extra users for local parks and libraries etc.

Successful CBA negotiations can save time for developers by eliminating surprises in the development approvals process and allowing developers to work with a unified coalition rather than having to engage community interests one by one.

The ordinance has its opponents

Opponents of CBA’s argue that development is the benefit – through job creation, blight reduction, and increased payment of taxes by the businesses that occupy the developments and the homeowners that live in homes built.

They see the ordinance’s aims as laudable but feel that mandating these is guaranteed to deter investment in a market that is just picking up. CBAs are an additional cost that lowers scheme viability.

There is also a questioning of the scale threshold – namely whether $300,000 of public money (and the $15m size threshold) is enough public investment to ask a developer to demonstrate local returns, beyond the “Hey, I developed in a difficult City!”

All of these concerns can be addressed by better tailoring the contributions to make it less burdensome on developers.

Since the amount of tax breaks that can be awarded by the City are finite in the short to medium term, this leaves three main courses of action:

  • Ask less of developers – CBAs will be undemanding or only demanding in the future event of a booming city economy;
  • Ask the same of fewer developers – strong CBAs with tax breaks on fewer (but more rounded) development projects;
  • Ask more without affecting viability – CBAs go ahead as planned but with new ways to keep schemes viable.

The latter is clearly the most desirable course for well-rounded inclusive ‘leak-plugging’ development.

On the scale issue, smaller development projects would presumably not be asked to fund a new construction training center – merely to contribute (with other developers) to worker training costs.

England offers some recent lessons around securing benefits in times of economic uncertainty

The 2008 economic downturn saw creativity in how developments could go ahead in an unfavorable market without giving up on community benefit requirements. Most common in this creativity were:

  • Disclosure – Developers ‘opened their books’ to planners to show where requirements made development unviable.
  • Overage clauses – Developers face reduced demands but agree to pay more if the scheme makes more in future.
  • Postponement – Certain benefits (and, perhaps, parts of a development) are postponed until market conditions pick up.

US cities can learn from this – and, to it, might add foundation support (foundations are much smaller in English cities) and fundraising through various means.

Disclosure should be straightforward as U.S. developers are (presumably?) asked to demonstrate need when seeking subsidy.

_72047311_skaters

This skate park in Brighton, England was partly paid for by a Section 106 agreement – the English equivalent of a CBA (source: BBC)

So…

It can be done. Nationally there have, since the 1990s, been dozens of successfully negotiated CBAs of differing scales. And these have been in cities with varied market conditions and development pressures – from Rustbelt to Sunbelt.

Detroit is fortunate to have several organizations that have built up knowledge in this area. There are also organizations in other cities that can share knowledge and a national organization, Partnership for Working Families, working on CBAs.

The city’s comeback cannot be stalled but it also cannot be a comeback that bypasses many of the city’s neighborhoods. An effective way to secure benefits from developments is something that Detroit will have to address sooner rather than later.

 

Gareth is currently looking to establish an organization to exchange international best practice around ways to sustain community and civic assets such as parks, libraries and museums. Prior to arriving in Detroit he undertook a German Marshall Fund international Urban and Regional Policy Fellowship (in the Twin Cities, Detroit and Baltimore) looking at these same issues. Before coming to the US Gareth worked in central government as a policy advisor in the Cabinet Office (Office for Civil Society and Strategy Unit). He holds a Ph.D. in economic geography (the role of universities in regional economic development), as well as a first degree in social policy and administration and a Masters in civic design (urban planning). Follow him on Twitter @garethpotts1.