How Dan Gilbert just scored up to $1 billion in taxpayer money — and few noticed 

ROBERT NIXON
  • Robert Nixon

The story of greater downtown Detroit's redevelopment is well-known. The New York Times calls us the "comeback city" and says our downtown "roars." The Detroit Free Press characterized Midtown's turnaround and spike in property values as "insane." Crain's Detroit Business recently highlighted the ongoing "development rush" in downtown in which investment figures "jump off the page." National developers are elbowing their way into the market as the Detroit News forecasts "big demand" for housing in the coming years.

It's worth noting that much of the roaring and rushing took place after the state of Michigan eliminated generous redevelopment tax incentives in 2011. And yet in 2016 and again in 2017, Michigan's wealthiest developer and resident, Dan Gilbert, told lawmakers that he can't make the numbers work for two upcoming projects without a huge new pot of public money. Seeing the potential of what was in the offing, other wealthy developers lined up behind him.

And with that, lawmakers and Gilbert's lobbyists went to work, creating an opaque set of laws colloquially called the "Gilbert Bills" because their chief inspiration and design are to provide taxpayer assistance for Gilbert's projects.

They passed in May, but what few seem to understand is just how large of a gift our representatives arranged for him. The new laws make available up to $1 billion in taxpayer money for Gilbert's $775 million mixed-use tower planned for the site of the former J.L. Hudson's department store. Those funds could also be used for Gilbert's proposed nearby Monroe Street project. And whatever he doesn't cut out of that pie goes to other wealthy developers around the state.

To be clear, the laws — more formally called "Transformational Brownfield" bills — only put in place a mechanism to give Gilbert and other developers the money, and the exact figure will be determined as they apply for the funds.

It's possible — though unlikely — that Gilbert takes the whole pot. Perhaps he only gets $200 million for the Hudson site and another $400 million the following year for the Monroe Street project. There's no exact figure up front, and that's why his strategy is so savvy — the waters are muddy and opponents of corporate welfare won't know his haul until it's too late to put up any kind of fight.

But what is clear is that Gilbert stands to collect hundreds of millions of public dollars for his projects. That's despite the fact that the Hudson's site building could produce very few new permanent jobs, and there is no community benefits package to speak of. Claims that he's creating 24,000 new jobs downtown are misleading at best, but more on that in a minute.

The laws also create a situation in which taxpayers will essentially pay their taxes to Gilbert and other wealthy developers instead of the state. At tax time, Uncle Dan replaces Uncle Sam.

Some suspect that the controversial measures were made more digestible for legislators with campaign contributions. The bills' passage was verifiably preceded by execs from Dan Gilbert's Quicken Loans flooding the Legislature with cash. They received wide Republican support, and only three Democrats opposed them.

It's also worth noting that the $1 billion in corporate handouts comes after the state cut its public assistance for poor residents by $140 million since 2011, according to the Michigan League for Public Policy. At the same time, the state significantly lowered the corporate tax rate in 2011.

There's also no shortage of other local, state, and federal tax credits available to developers. And there's mounting evidence that none of the state credits were working nearly as well as hoped. A recent Upjohn and Pew Charitable Trusts study found that Michigan provides businesses with more corporate welfare than most states, but doesn't see the expected job growth.

That fact wasn't missed by Rep. Yousef Rabhi (D-Ann Arbor), one of the three Democrats to oppose the bills.

"We've almost come to the point where not only are businesses paying nothing in Michigan, but now we're asking taxpayers to pay business to come and stay here," he tells Metro Times. (Notably, the Michigan House Dems organization didn't respond to requests for comment. Gilbert's Quicken Loans and Rock Ventures also declined to comment.)

Rep. Martin Howrylak (R-Troy) also voted against the bills. He asks where the breaks are for the "unsung heroes, the folks who really roughed it out during the 2000s and financial crisis when other people were giving up on the city."

"What about the person who has no money but their contribution to the city has been cutting lawns on vacant lots? Or the people who in Southwest Detroit — who through thick and thin, through sweat equity — have built up that part of the city?" he asks. "Why should they be rewarded by taking their taxpayer dollars and handing it to a private developer for an uneconomic project?"

click to enlarge ROBERT NIXON
  • Robert Nixon

How to camouflage $1 billion

So how did so few catch any of this — especially given the continued frustration over the public's up-front contributions to the Ilitch and Gores families in the District Detroit development around the new Little Caesars Arena? (A resident filed suit in June, alleging Detroit's taxing authorities are illegally using tax revenues intended for the city's public school students to finance the developments.) A lot of it has to do with the deal's complexity, misleading marketing by developers' PR, slick politicking by Gilbert, and the local media's framing.

Regarding the former, the bills create an unusual arrangement because the public isn't handing over tax money up front, as it did with Little Caesars Arena. Instead, it's paying back Gilbert and other developers over the next 20 years when they collect income tax revenue that should go to the state.

That's done through a funding mechanism called a brownfield that the general public (and seemingly most reporters who have written about it) don't fully understand. While the remediation and redevelopment of brownfields are mostly considered to be a good thing, critics say what lawmakers passed for Gilbert is one in name, but not in function.

Put simply, brownfield designations allow developers to capture property tax revenue after they redevelop contaminated or seriously blighted property. That helps them cover the extra financial burden of remediation. But the new brownfield laws also allow Gilbert and other developers to collect up to $40 million of income tax revenue for 20 years, which equals $800 million.

For critics, that's partly a problem because the Hudson site project won't create many new permanent jobs or much new income tax. The revenue that Gilbert will collect already exists outside the Hudson site's building and currently goes to the state. But once a resident or business moves into the building, it will be collected by Gilbert instead of Michigan.

click to enlarge A rendering of Dan Gilbert’s proposed development for the site of the former J.L. Hudson’s department store. - COURTESY PHOTO
  • Courtesy photo
  • A rendering of Dan Gilbert’s proposed development for the site of the former J.L. Hudson’s department store.

Though the projects will create temporary construction jobs, Gilbert can also collect up to $200 million of construction workers' income tax, and he won't pay state sales tax on the Hudson's building materials.

In other words, money that was going to roads, schools, police, and to assist the state's poorest residents will instead go into the pocket of its richest resident.

Rabhi, who sat on the Washtenaw County Brownfeld Redevelopment Authority before running for state office and is an expert on the incentive, gave his take on the Gilbert Bills to MLive in May. "This is not a brownfield. This is completely different," he said. "This is corporate welfare."

Speaking to Metro Times, Rabhi says it's "misleading" to claim that this is a brownfield that will create new jobs and revenue.

"Gilbert [collecting income tax] from people that live and work there creates a fiefdom. That's unacceptable, and that's not how this is supposed to work," he says.

Howrylak raised similar concerns.

"The state constitution mentions nothing about paying a tax to a corporation or special interest," he told the Legislature before voting against the bills. "We have never — that I'm aware of — used business to supplant the government receipt of tax collection."

Rep. Stephanie Chang (D-Detroit) — one of the few who joined Rabhi in voting against the bills — says she did so because they're designed to only help "certain people."

"I try to keep in mind that the most vulnerable of residents in my district aren't the ones that are going to benefit from a big project like this," she tells us.

She and Rabhi proposed amendments to the bills that included a community benefits package, community oversight, and a 51-percent local hire requirement — but Republican House leadership shot them down.

Outside of the Legislature, groups on both the left and right opposed the Gilbert Bills. In a statement sent to Metro Times, Lonnie Scott, executive director of Progress Michigan, writes, "While working families in Michigan must earn every penny they get to cover the ever-increasing cost of living, college tuition, and health care, the corporate elite have received handout after handout."

Similarly, Michael LaFaive of the right-leaning Mackinac Center says, "Programs like this are fundamentally unfair because they effectively transfer wealth from the average Joe to Michigan's wealthiest citizens."

But there didn't seem to be much of that sentiment in local reporting on the bills. Instead of framing the story as a massive giveaway to the state's wealthiest resident, the local media mostly presented it as a benign, do-good bill under headlines like MLive's "House passes 'transformational' bills" or the Detroit News' "Senate approves tax incentives for blight redevelopment." The Detroit Free Press even put together a borderline PR video after Gilbert announced he would create 24,000 jobs — instead of thinking for a second about the math behind his figure.

Conversely, national outlets went at it from a different angle. The Week wrote of the "outrageous" level of corporate welfare requested by Gilbert in its piece, "The dark side of Detroit's renaissance," while Deadspin did the same in its story "Dan Gilbert-backed bill would allow developers to pocket even more money."

A final reason that few seem to have noticed the giveaway has to do with Gilbert's coalition's politicking. In December 2016, the first version of the Gilbert Bills stalled in the Legislature because, generally speaking, key lawmakers didn't feel comfortable handing over such a huge amount of money to Gilbert. To gather more support from outstate reps, Gilbert and his team included more projects around the state. Not only would his Hudson's site project be eligible for the funding, other wealthy developers all over Michigan could get in on it.

But then something else happened simultaneously.

click to enlarge ROBERT NIXON
  • Robert Nixon

Gilbert floods the Legislature with money

When the laws unexpectedly resurfaced in early 2017, far more lawmakers threw their support behind Gilbert's effort, even though the laws' authors only tweaked the new version to include more developers.

Some suspect opinions on the bill also changed because five executives from Gilbert companies — along with lobbyists representing other wealthy developers — descended on Lansing at the end of 2016 and earlier this year to contribute money to lawmakers' campaigns and PACs.

In its examination of Quicken Loans' lobbying for the bill, Michigan Public Radio and the Michigan Campaign Finance Network reported that several legislators who publicly expressed reservations about the bills in 2016 — namely Republican speaker pro-tem Lee Chatfield and Rep. Jim Tedder (R-Clarkston) — supported it after receiving contributions of $1,000 and $2,500 to their respective committees.

In fact, MPR and the Campaign Finance Network found that in the first seven months of 2017, Gilbert's executives made contributions to over half of the members of the House of Representatives. (Fewer were made in the Senate, likely because the bill had more support there.)

Craig Mauger, executive director of the Campaign Finance Network, tells Metro Times that Quicken Loans and Gilbert's Rock Ventures disclosed spending $303,552 on lobbying in 2016 and the first seven months of 2017. That's more than the $263,954 they spent on lobbying between 2006 and 2015 combined.

"This is the kind of jump that would raise most people's eyebrows," Mauger tells us.

MPR also notes that the latest campaign finance disclosures show five Quicken Loans employees gave a total of $35,975 to 56 Michigan House members' committees through July 2017. All but eight of those lawmakers supported the Gilbert Bills.

That level of lobbying in Lansing is confirmed by representatives who opposed the bill, like Rabhi and Rep. Steve Johnson (R-Wayland), who told MPR that lobbyists visited the Capitol daily to discuss the bills.

"People are willing to throw around money," Johnson told MPR. "You know, you look at someone like that who stands to gain millions of dollars, with $100,000 he can buy off a lot of [legislators]."

Quicken Loans also focused on House leadership, including Democrats. Campaign finance records examined by Mauger show that the PAC connected to House minority leader Sam Singh, the top Democrat in the House, received $2,500 from a Quicken Loans employee while the PAC of House minority floor leader Chris Greig received $500. Republican leadership received similar contributions.

Though lobbyists and politicians named in MPR's and the Campaign Finance Network's report denied that money influenced their position, Mauger says this case presents a clear link "between money a company invests in lobbying and policies that are approved."

"Quicken has a very tangible benefit from these bills down the road," Mauger tells us. "They stand to financially benefit from approval of the bills, while at the same time its employees are financially investing in lawmakers. It's kind of a very clear example how money could help influence a person."

click to enlarge ROBERT NIXON
  • Robert Nixon

The case for welfare for the super rich

Although lobbyist money may be a motivating factor for some legislators, there were other reasons to back the bill, supporters contend.

Sen. Steve Bieda, a Warren Democrat who sponsored one of the tax capture bills, told the Detroit News in February that "Michigan 'unilaterally disarmed' when it eliminated several economic development tax credits in 2011."

Yet the city's urban cores have experienced an unprecedented amount of redevelopment since 2011, and did so without those incentives. And, again — there are already plenty of other incentives out there.

"The state's economic health improved since then," says the Mackinac Center's LaFaive. "I'm not implying causation, but these incentives are so poor they have no power to change the economy in general."

Though there are claims of job creation and flashy headlines about Gilbert creating those 24,000 new jobs, evidence suggests that the vast majority of companies who use credits inflate their job-creation numbers. Beyond the aforementioned Upjohn and Pew study, a Mackinac Center investigation found that only 2.3 percent of projects using similar tax incentive programs produced the jobs promised.

"There's a real cost to running these programs," LaFaive tells us. "I would argue that you get more bang for the buck by ensuring sound public services. How much money could be used for police or road repairs? Or how about an across-the-board tax cut?"

Job creation claims are especially dubious when you consider that most of the new permanent jobs that the Hudson site's project will create are in the new building's management.

Still, unions supported the bills because they create temporary construction jobs. But critics say accepting $1 billion in corporate welfare in exchange for a small number of temp jobs seems short-sighted.

Regardless of everything, Gilbert's work in redeveloping downtown has earned him a lot of support and goodwill. However, it's also worth noting the character of the guy to whom we're handing over bales of public money.

As we reported last month, there's plenty of evidence to suggest that Gilbert built his fortune partly by preying on poor people and approving bad mortgages. We examined the litany of Quicken Loans' misdeeds in recent lawsuits and investigations into the company's lending practices. It paints a different picture of Gilbert and Quicken Loans than the company usually presents. It's enough to make critics wonder if this guy is a worthy welfare recipient.

But worthy or not, he'll get the public's money.

"The rich capitalists bought their way into these bills," Rabhi says. "That's messed up. The people who get screwed are the people of Michigan who are still paying taxes while rich folks walk away with extra money."

Who got what?
The following politicians received contributions from Quicken Loans employees

Five current and former Quicken Loans or Rock Holdings executives donated to legislators’ campaigns. That includes William Emerson, vice chairman of Rock Holdings; Quicken Loans’ vice president of government affairs Jared Fleisher; Quicken Loans’ executive vice president Shawn Krause; and retired Quicken Loans executive David Carroll.


Rep. Abdullah Hammoud (D-Dearborn)
Amount given: $250.00

Rep. Adam Zemke (D-Ann Arbor)
Amount Given: $500.00

Rep. Ben Frederick (R-Owosso)
Amount given: $1,000.00

Rep. Brandt Iden (R-Kalamazoo)
Amount given: $1,000.00

Rep. Brett Roberts (R-Charlotte)
Amount given: $250.00

Rep. Bronna Kahle (R-Adrian)
Amount given: $500.00

Rep. Chris Afendoulis (R-Grand Rapids)
Amount given: $500.00

Rep. Chris Greig (D-Farmington Hills)
Amount given: $500.00

Sen. Coleman Young (D-Detroit)
Amount given: $2,000.00

Rep. Curt VanderWall (R-Ludington)
Amount given: $250.00

Rep. Daire Rendon (R-Lake City)
Amount given: $750.00

Rep. Daniela Garcia (R-Holland)
Amount given: $1,000.00

Rep. Darrin Camilleri (D-Brownstown
Township)
Amount given: $250.00

Sen. Darwin Booher (R-Evart)
Amount given: $500.00

Rep. David Maturen (R-Vicksburg)
Amount given: $1,500.00

Rep. Donna Lasinski (D-Scio Township)
Amount given: $250.00

Rep. Eric Leutheuser (R-Hillsdale)
Amount given: $1,000.00

Rep. Erika Geiss (D-Taylor)
Amount given: $250.00

Rep. Fred Durhal (D-Detroit)
Amount given: $4,000.00

Rep. Gary Glenn (R-Midland)
Amount given: $500.00 (Voted against the bills)

Rep. Henry Vaupel (R-Fowlerville)
Amount given: $1,500.00

Rep. Henry Yanez (D.Sterling Heights)
Amount given: $250.00

Sen. Jack Brandenburg (R-Harrison
Township)
Amount given: $1,000.00

Rep. James Lower (R-Cedar Lake)
Amount given: $150.00 (Voted against the bills)

Rep. Jeff Noble (R-Plymouth)
Amount given: $500.00 (Voted against the bills)

Rep. Jeremy Moss (D-Southfield)
Amount given: $1,000.00

Rep. Jewell Jones (D-Inkster)
Amount given: $250.00

Rep. Jim Ellison (D-Royal Oak)
Amount given: $250.00

Rep. Jim Lilly (R-Park Township)
Amount given: $200.00

Sen. Jim Stamas (R-Midland)
Amount given: $1,000.00

Rep. Jim Tedder (R-Clarkston)
Amount given: $2,500.00

Rep. Joe Bellino (R-Monroe)
Amount given: $250.00

Rep. John Chirkun (D-Roseville)
Amount given: $250.00

Rep. John Reilly (R-Oakland)
Amount given: $75.00

Rep. Joseph Graves (R-Argentine Township)
Amount given: $500.00

Rep. Julie Alexander (R-Hanover)
Amount given: $250.00

Rep. Kim LaSata (R-Bainbridge Township)
Amount given: $250.00

Rep. Klint Kesto (R-Commerce Township)
Amount given: $1,000.00

Rep. Larry Inman (R-Williamsburg)
Amount given: $250.00

Rep. Lee Chatfield (R-Levering)
Amount given: $1,000.00

Rep. Leslie Love (D-Detroit)
Amount given: $1,500.00

Rep. Michele Hoitenga (R-Manton)
Amount given: $250.00 (Voted against the bills)

Rep. Mike Webber (R- Rochester Hills)
Amount given: $750.00

Rep. Peter Lucido (R-Shelby Township)
Amount given: $1,000.00

Sen. Peter MacGregor (R-Cannon Township)
Amount given: $2,000.00

Rep. Rob VerHeulen (R-Walker)
Amount given: $250.00

Rep. Roger Hauck (R-Mt. Pleasant)
Amount given: $250.00

Rep. Ronnie Peterson (D-Ypsilanti)
Amount given: $250.00

House Democratic Leader Sam Singh
(D-East Lansing)
Amount given: $2,500.00

Rep. Scott Dianda (D-Calumet)
Amount given: $250.00

Rep. Scott VanSingel (R-Grant)
Amount given: $250.00

Rep. Stephanie Chang (D-Detroit)
Amount given: $250.00 (Voted against the bills)

Sen. Steve Bieda (D-Warren)
Amount given: $1,000.00

Rep. Steve Johnson (R-Wayland)
Amount given: $150.00 (Voted against the bills)

Rep. Steve Marino (R-Harrison Township)
Amount given: $150.00

Rep. Sylvia Santana (D-Detroit)
Amount given: $1,000.00

Rep. Terry Sabo (D-Muskegon)
Amount given: $250.00

Rep. Thomas Albert (R-Lowell)
Amount given: $250.00

Rep. Tim Sneller (D-Burton)
Amount given: $250.00

Rep. Triston Cole (R-Mancelona)
Amount given: $1,000.00 (Voted against the bills)

Rep. Wendell Byrd (D-Detroit)
Amount given: $500.00

Rep. Winnie Brinks (D-Grand Rapids)
Amount given: $250.00

Newsletters

Never miss a beat

Sign Up Now

Subscribe now to get the latest news delivered right to your inbox.

© 2017 Detroit Metro Times

Website powered by Foundation