Delays continue to plague a proposed $60 million tax break for the Hudson’s site downtown as the council’s highest ranking member presses for affordable housing, small business investment and other guarantees amid community opposition.
The City Council’s vote on the controversial request from Dan Gilbert’s Bedrock Management Services was postponed Tuesday for the third time. This time, the Gilbert firm sought to push back the decision, noting the need for more time “to work through the process.”
For Detroit City Council President Mary Sheffield, whose district includes the downtown, that process should include firm commitments from Bedrock to support affordable housing and local entrepreneurs.
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“We’ve been working with Bedrock,” said Sheffield, adding she’s undecided on the abatement and it’s unclear when the request could come back to the council for a vote.
“My concern, and what I’m hearing (from constituents), is how does this benefit Detroiters? I’m trying to take those concerns and figure out tangible ways to incorporate that into some type of agreement,” she said.
Sheffield said she’s seeking to broker a deal with Bedrock to make 30% of its housing portfolio affordable for people earning 80% of the area median income, which is $50,160 for a single-person household and $64,480 for a family of three in Wayne County.
Sheffield also wants Bedrock to set aside 20% of its street level retail space for Detroit small businesses and community programs, commit $5 million to support the city’s Neighborhood Improvement Fund and another $1 million to develop small businesses.
If approved, the deal provides Bedrock with a reduced tax bill for 10 years, limiting revenues collected by the city’s Downtown Development Authority.
Bedrock representatives have argued that the abatement is vital to making the $1.4 billion project financially feasible, while community groups and some council members question whether Michigan’s wealthiest businessman truly needs help from the city.
“He (Gilbert) has the gall to ask for more money because this council has the will to give him more money, in spite of the fact that the people are asking you not to,” Detroit resident Earl Hughes told the council on Tuesday.
Jared Fleisher, vice president of government affairs for Rocket companies and Gilbert’s top lobbyist, told BridgeDetroit that tax abatement is needed to secure $400 million in loans.
Fleisher said $1 billion of the project’s cost is being covered by equity and the remaining amount will be borrowed. Denying the tax abatement, Fleisher said, “would pull out the rug” on attempts to secure the loan.
“You wouldn’t have a project if they don’t approve the abatement because the whole financial structure is built on it,” Fleisher said. “The cash support for that loan has been dramatically changed (if the abatement is denied). The bigger issue is, holy (expletive), this thing that the project has been predicated on for five years has just been eviscerated.”
Asked whether she believes the project can’t be completed without the abatement, Sheffield said based on the information she’s seen, Bedrock’s development plan would at least have to change.
“I don’t think they would just abandon Detroit, but I do think that the project will have to be scaled down in some respect,” she said.
A majority of Detroiters who provided public comments during recent City Council meetings have expressed opposition to the tax break. Detroiters who spoke Tuesday, including some organized by community activist groups, accused Gilbert of fleecing the city. Others threatened to recall council members who ultimately vote in favor of the $60 million abatement.
“It is beyond egregious, it’s a crime to give tax credits to a man whose only interest is the bottom line,” Detroit resident Malik Shelton told the council on Tuesday. “Dan Gilbert is going nowhere. He already cleaned up on brownfield credits, tax captures and other public funds. He’s not going to pull up stakes if y’all vote no. The people, they’re watching and will be holding those who vote for this tax abatement to account.”
Natalie Gallagher, who identified herself as a resident of southwest Detroit living under the “Gilbert empire,” said Bedrock’s claim that the tax break is needed to create jobs puts the city in a “hostage situation.”
“All this feels like is (the City Council) speaking over the will of the people,” Gallagher said.
Karen Hammer told the council she’s seen a decline in housing, schools, transportation and libraries over her 45 years in Detroit. Hammer blamed policies that benefit big business, like the diversion of property taxes to the Downtown Development Authority.
Fleisher said even with the abatement the project will only provide a 1.6% annual return on the investment. That meager amount, he said, shows Gilbert’s project isn’t very profitable, which speaks to Gilbert’s larger goal of bringing benefits to downtown Detroit.
“I understand the sentiment, I truly do,” Fleisher said. “But you have to take a step back and say ‘what actually is in the best interests of the city and its citizens?’ Is it having a public policy where the Hudson’s Site sits empty for another decade or more because financially nothing can be executed and sustained there? Or is it better for the citizens of Detroit to have $71 million generated in the first 10 years and $450 million generated over 30 years?
“Emotion is one thing and it’s understandable, but there’s a phrase ‘don’t drive angry,’ for a reason,” Fleisher said.
Several critics argue the deal will steal funds away from Detroit schools and libraries. However, Bedrock officials note that property taxes from the Hudson’s site are collected by the city’s Downtown Development Authority, which captures a portion of property tax revenue raised in the downtown area and reinvests it in downtown projects. The DDA captured $55 million in property taxes during the 2020-21 fiscal year, an increase of $6 million from the previous year.
Supporters of the abatement have pointed to Gilbert’s philanthropic efforts in Detroit. A statement provided by Bedrock notes the 10-year, $500 million commitment made by The Gilbert Family Foundation and Rocket Community Fund to improve Detroit’s neighborhoods.
City Councilwoman Gabriela Santiago-Romero, who represents District 6, told BridgeDetroit last week that she plans to vote against the abatement. Santiago-Romero said she sees room for a larger conversation about reforming the city’s broken tax structure, which makes it difficult for developers to find financing for their projects without public assistance in the first place.
“If Dan Gilbert really wants to change the City of Detroit, he should be using all of his lobbying power and all of his money to lobby the state to change our tax system to have a graduated income tax (and) a split-rate dual tax system,” Santiago-Romero said last week. “There are things that he can be doing that will support us, but quite frankly, I don’t know what that’s going to look like when he’s benefiting from the system as it is right now. If City Council continues to give him abatements, he will continue to benefit from the system.”
Santiago-Romero said additional time to discuss the abatement will benefit those who are engaging residents about the pros and cons of tax incentives. But she doesn’t expect the Bedrock deal to die.
“Do I think it’ll change the votes? Unfortunately, probably not,” Santiago-Romero said. “I do think it allows for more conversations, more engagement and, honestly, more accountability on our part.”
The Hudson’s project consists of two structures separated by an open space that will host outdoor events. A “block” building will include commercial space for offices, retail, restaurants, events and concerts. A “tower” building, slated to be the tallest on Detroit’s skyline, will contain apartments, a hotel and space for events, food and beverage options. The project also includes 815 parking spaces.
Development on the 2.3-acre site started in 2017, but the project faced a series of setbacks and redesigns that pushed it two years behind schedule. The tower shrunk from 800 feet tall to 684 feet and the project’s overall price tag grew from $908 million to $1.4 billion.
State law allows the City Council to revoke the tax deal if Bedrock does not proceed in good faith to complete the project.
Derrick Headd, a fiscal analyst with the council’s Legislative Policy Division, told the council earlier this month that the abatement is a positive tradeoff. The property generates $620,461 in taxes each year, but that would increase to $2.6 million during the 10-year abatement and jump to $8.1 million after the abatement expires, according to city documents.
Bedrock received financial incentives from the state in 2017 when the Hudson’s site was bundled with three other projects to qualify for a “transformational brownfield plan.” Approval from the Michigan Strategic Fund allows Bedrock to recoup a portion of the total cost of the four projects by getting a 20-year reimbursement of state income taxes collected from residents and employees and exemption from the state sales tax for construction materials.
A previous iteration of the City Council voted in 2017 to create a neighborhood enterprise zone at the site, the first step to qualify for the tax break being sought today. Bedrock representatives and supporters argue that the five-year vote was a commitment to approve the tax incentive.
Detroit Regional Chamber CEO Sandy Baruah and Patrick Devlin, secretary and treasurer for the Michigan Building & Construction Trades Council, argued in favor of granting the tax abatement in an op-ed published in The Detroit News on Tuesday. They argue that the city’s revitalization “will be set back, perhaps irreversibly, if Detroit’s signature development becomes stalled, incomplete, or is not allowed to reach its full potential.”
They also warned that denying the abatement would send a negative message to the development and investment community at large.
“Detroit remains Michigan’s image to the country and the world,” they wrote. “As we compete nationally and globally for investment, the Hudson’s site is the ultimate symbol that Detroit remains on the rise and is reaching new heights. We must not send the exact opposite message.”