Yes, Dan Gilbert wants to use school money to fund his new downtown projects

Jan 11, 2018 at 8:53 am
click to enlarge Gilbert and Detroit city officials during the ceremonial groundbreaking for the Hudson site project. - Jordan Buzzy
Jordan Buzzy
Gilbert and Detroit city officials during the ceremonial groundbreaking for the Hudson site project.

Quicken Loans owner Dan Gilbert — who is Michigan's richest man and worth an estimated $6.2 billion — is requesting $618 million of state taxpayer money to help fund four downtown Detroit projects that he's developing.

The Michigan Economic Development Corporation will likely consider his request in March. As part of the PR push to gain support for the plan in the meantime, Gilbert's team is claiming that their public money haul won't impact Detroit Public Schools.

"There’s no impact on the school district. It's a very positive day all around for the city," Quicken Loans vice president of government affairs Jared Fleisher told the Detroit News just after the Detroit City Council approved $250 million of public money for Gilbert in November. 

Fleisher made similar statements in a "fact sheet" sent to Metro Times, but an investigation into the funding source found the claims to be misleading at best. While it's true that Gilbert's project wouldn't use money that's specifically designated for Detroit Public Schools, it would use tax money intended to fund schools statewide.

We spoke about Gilbert's claims with officials from the Michigan Economic Development Corporation, city of Detroit, and State Rep. Yousef Rabhi (D-Ann Arbor), who used to work with the Washtenaw County Brownfield Redevelopment Authority. They all confirmed that Gilbert is indeed requesting tax money meant for schools.

click to enlarge Protestors outside the Hudson site groundbreaking. - Jordan Buzzy
Jordan Buzzy
Protestors outside the Hudson site groundbreaking.

So how does all this work when you get down in the weeds? One incentive Gilbert is using is called a "brownfield." It allows developers like him to collect property tax revenue to pay for remediation costs after they redevelop contaminated or seriously blighted properties.

In a hypothetical scenario that illustrates how brownfields work, Gilbert's Hudson site property is valued at $100 in 2018. Let' say later this year, the city and state approve a brownfield incentive for it. Next, Gilbert builds on the land, so it's worth $150 in 2019. The city and state continue to collect tax revenue off the original $100, but Gilbert collects tax revenue off the $50 increase.

Gilbert then captures tax revenue off the property tax increases for the next 20 years. So if the property is worth $1,000 in 18 years, Gilbert collects tax revenue off of $900, and the city and state still only collect it off of $100.

The property tax money that the government collects goes to several "jurisdictions," including schools, libraries, parks, jails, cities' general funds, and more. According to the MEDC, Gilbert will be collecting tax money intended for jurisdictions that fund education at the county and state level. So when the property tax revenue collected from that $900 goes to Gilbert, it doesn't go to schools.

In that way, Gilbert's use of the brownfield impacts schools.

But there's another layer. The projects are in Detroit's Downtown Development Authority district. The DDA currently receives the tax money that Gilbert will use — not the schools. Thus, Gilbert can claim that schools aren't impacted because the money is diverted from the DDA to his company. However, the DDA takes the money from the schools, so education taxes are ultimately what funds Gilbert's projects.

The next logical question is "Do Gilbert and the DDA need the money more than the school district"? Perhaps, but that's a whole different conversation.
The MEDC and developers frequently point out that the schools don't actually receive less money when a brownfield is in place, and developers create revenue that didn't previously exist. That much is true. But future money generated by the increase in property value that by law should go to the schools instead goes to a developer, so schools do lose funding.

Further complicating the situation is Gilbert's use of a brownfield along with a new type of incentive his allies helped design called a "transformational brownfield." Transformational brownfields allow developers to collect residents' income tax instead of property tax. Thus, the schools aren't directly impacted when developers use income tax money for their projects.

It's also worth noting that brownfields previously limited developers to collecting tax revenue to pay the cost of remediating contaminated or blighted land. Under the new transformational brownfield, developers can use tax revenue to pay their construction costs. That means one less limit on how much taxpayer money Gilbert can walk away with.

Confused yet? That's what they count on to get this stuff through.

On a related note, Gilbert previously called those who oppose public funding for his projects irrational.

"I don't think they understand it," he told the Free Press at the Hudson site groundbreaking in December. "You know, you read some of the 'they give away tax breaks to billionaires' stuff, and you have to really do the work and read and understand what this is. I think once you do, if you're rational, you understand that's not the case at all."

In the end: Is this not a billionaire asking for a lot of tax breaks?