Ludington's Economic Development Disparity

[XLFD]

Two buildings get the same tax break starting in 2017. One has their tax break revoked by the city council this year due to incomplete finishing of the interior and will now have to pay triple their normal tax rate. The other declares their interior is also woefully incomplete under the terms of their agreement, but uses that status to apply for $270,000 in forgivable loans courtesy of the taxpayer to do what they promised to do by the end of 2018. The city council is not poised to revoke their tax break, only to approve that infusion of over a quarter of a million that the other cannot qualify for. Here is the situation in detail with supporting documentation.

Introduction

The way property taxes work, there is little incentive for fixing up an obsolete or blighted property. If you spend hundreds of thousand of dollars in tripling the value of a building, you are 'rewarded' by having your taxes triple as well courtesy of the local assessor. The crafters of the Obsolete Property Rehabilitation Act (OPRA) recognized that natural disincentive to fix dilapidated structures and allowed for a period of adjustment, typically twelve years, where the property taxes would advance modestly as if no major improvements were made.

In general, city hall and most citizens see value in offering such inducements to cure a blighted building and developers see the potential economic benefit in doing recuperative work rather than building a new facility. Those who don't, generally do so on its fairness; they wonder why their property taxes don't behave the same way when they make improvements on their own well-kept home or business.

That fairness issue is debatable, but what is less debatable, regarding fairness, is that all OPRA projects in a city should be impartially moderated. Each should be guided under the same objective principles. If an OPRA certificate is given for one property, then another property under effectively similar circumstances should also be given one. Likewise, if an OPRA certificate is revoked for an owner's failure to follow the rules in the OPRA agreement for one property, it should be equally enforced for another property that does the same. This latter instance has a great and timely example.

102 Second Street

We have discussed many of the particulars of this property and adjacent vacant lot back when the city council established an OPRA district for them, and when they revoked the OPRA certificate at their last meeting, the links provided go into additional detail. It should be revisited that when Edgar Struble's company, Nolan Family Investments LLC (NFI) got their certificate from the state, 2017 was the first year it applied, and per the agreement with the City, it was expected to be a two year project starting from the year the certificate took effect.

Pictures show that the external areas of NFI's building has been rehabilitated with many new windows, siding, and that it no longer leans, indicating structural improvements to the walls. Internally, it looks as if they have not achieved their goals; however, the city assessor never did an interior inspection before reaching a conclusion, nor is there any written indication that NFI had been 'nudged' as claimed to be done by previous City Manager John Shay, who left when there was still plenty of time left for a full rehab.

The city assessor fails to point out any specific deficiencies in his letter to the city council urging revocation, nor does anybody else try to prove that in it's current state that it is still functionally obsolete. The only specific admissions about the interior was in Struble's E-mail sent after he was notified that they were planning on revoking his OPRA, and these suggest he's still about $200,000 away from getting the place to where he would like it to be for getting the upstairs apartments and downstairs ready for rent. Keep these numbers in mind when we move from the Fourth Ward to the downtown, and also keep in mind this paragraph of Struble's E-mail:

327 South James

Most may recall this building used by the St. Simon's Church as a thrift shop before they moved out; you can see city hall in the background to the right. On May 23, 2016, the Ludington City Council voted to make this building an OPRA district, nearly a half year later than NFI's approval but both OPRA certificates went into effect at the beginning of the 2017 tax year, a fact verified by assessing records.

Shay's memo (p.16) to council noted that the upper floors would be converted into three rental units as part of a $290,000 project. The owners (p. 23) state clearly in their description of improvements that construction would begin once state approval was given, and that the project would take 12-16 months. At 16 months, the project's due date would have been eight months prior to the due date for the NFI's Fourth Ward building and include finishing the apartments into a usable condition. The first picture in this story and the picture below is what that second floor area looks like right now:

We are two years past the scheduled point in their OPRA agreement of their completion of upstairs apartments, yet all they have are some studs up, unfinished OSB flooring, and no apparent utilities installed. City leaders know this to be the case, unlike they do at 102 Second Street because the owners of 327 S James are applying for some of those grants that Struble wondered about in his E-mail and they have sent these pictures to the community development director in order to get $270,000 in Community Development Block Grant (CDBG) Rental Rehabilitation Project (RRP) grants.

See more here. And just in case you still weren't sure that they have over a third of a million dollars work left to construct apartments in the upstairs, here's another section telling you they do and it fully describes what they haven't did over the last three years plus in terms of their OPRA agreement:

Two Buildings, Two Different Outcomes

Both buildings received their OPRA benefits at the beginning of 2017 for similar costing projects, 102 Second Street was due to have construction completed by January 1st, 2019, 327 S James was due to have theirs done by April 1, 2018. Neither were able to come close in completing their project by the proper time.

The owners of 201 Second Street were unceremoniously contacted and told their OPRA was going to be revoked almost exactly one year after the deadline. Despite inquiring about an extension after the notice, the OPRA was revoked unanimously by the city council.

The owners of 327 South James did not get any letter from the city assessor telling them that their time was up in April 2018 and their OPRA certificate would be revoked; nope, they were approached by the community development director at some point to facilitate their reception of $270,000 through CDBG in order to construct apartments that should have been made two years ago at the owner's expense. Their OPRA certificate doesn't look to be going anywhere for nine more years.

One owner will see his tax rate triple, much like he saw it increase 28-fold for his vacant lot and have to worry about a much increased tax burden while finishing his building up with his own funds. The other owner, beginning at the same starting point, will likely get rewarded with $270,000 for not complying with his OPRA agreement; their tax abatement will continue. Does that seem fair?

[Freedom Seeker]

Very interesting analysis, XLFD and brings many questions to mind. First, who gets to apply for these grants? Or how does a business gets selected? Of those three grants up for a public hearing, when was that decided? In a secret chamber? What are the qualifications? This information should be made known so not just friends of friends get in on the deal and there should be consistent standards applied all over the city.

In reply to completing projects, there should be some checks, else someone could get 12 year tax breaks and do nothing. It seems that the 102 Second St. building had code violations almost every month the report was shown, for not progressing on the work and complaints were made at council meetings by citizens. Maybe that was John Shays nudging? But why wasn't the 327 James St. Building also reported for not being completed? There is a disparity and to be rewarded with a $270,000 grant does not seem fair.

[XLFD]

Very good questions, FS, with no very good answers because the City's policy, the State's policy and the Federal policy concerning Rental Rehab Projects (RRP) don't appear to be followed by the actual process that got us to this public hearing.  

Here is Ludington's current RRP policy, it was started in 2009, was downloaded to the current city website in 2015, all prior RRPs were supposed to follow those guidelines, but the CD Director never followed them before, and still isn't.  

It is unclear how downtown building owners got notified that a new round of RRP money was available, perhaps they were on an old waiting list, but nothing in the newspaper or on the city website lets prospective qualifiers in on the aspect that they are available-- until these public hearings were scheduled.  The closed process compounds the issue and makes it look even more shady than what you find when you read through these applications.

The process entails a review of a preapplication by the Downtown Ludington Board (DDA); the records show there has been no review by the DDA of either of the 3 applications.  State guidelines mandate three project contractors submit bids, each of the three have only one.  No competitive bidding that leads to some incredibly high numbers that mysteriously fall at the maximum of the grant.  I will be going over one other of these in detail to show exactly how those involved messed things up and made a mockery of the process.

I will be working to get 327 S James' OPRA certificate revoked because 'fair is fair'.

[Freedom Seeker]

Thank you, XLFD, for the link to the Rental Rehab policy. Your research skills are extraordinary! Wow, there are a lot of discrepancies between policy procedures and what goes on out of public view. Fair is fair, I agree, in policy and procedure.