State Officials 'Stretch' the Law to Award Special Tax Deal to Troubled Business

Editor's note: The Michigan Economic Development Corporation has been no stranger to controversy during this year, with perhaps the most exceptional case being its attempt to give a special tax deal to a company run by a convicted felon. This week, MichCapCon.com will be reviewing another MEDC project that has become mired in controversy.

In 2008, the newly built Pinnacle Race Course in Huron Township was eligible for more than $48 million in tax incentives over 30 years. The MEDC trumpeted this project as "the beginning of a world-class commercial and industrial complex and transportation hub that will mark the entry of western Wayne County into the global economy."

But today, county officials say the track has liens on it and has unpaid property taxes for 2009 and 2010. One horse racing organization says it has given more than $1 million to keep it operating.

Using a Freedom of Information Act request, MichCapCon.com has acquired more than 500 pages of documents that show a rare inside look at the policy and politics of how a state-subsidized economic development deal doesn't pan out as expected.

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Officials from the Michigan Economic Development Corporation - the state's flagship economic development agency - changed their mind about not giving a now-financially troubled race track millions in tax subsidies. This came after an original rejection of the deal by the MEDC led to queries from top Wayne County executives and the governor's office.

In 2008, Pinnacle Race Track officials said in documents that tax subsidies called "brownfields" were "critical" to the completion of the race track. The MEDC touted the project as a tourist attraction that would bring thousands of jobs, lure tourists from surrounding states and Canada, and generate millions in tax revenue.

Instead, Pinnacle Race Course is late in paying property taxes to Huron Township, has reportedly had its water and electricity temporarily turned off for non-payment, and Wayne County officials say the property has liens against it. Gary Tinkle, executive director of the Michigan Horsemen's Benevolent & Protective Association, said his organization has given the track more than $1 million to keep it operating.

The track first drew attention after the owner - Post-It Stables, Inc. - bought 240 acres of land for $1 from Wayne County in 2008 and then turned around and sold a seven-acre parcel for $179,000 to an Indian tribe this summer. Land owned by the Indians comes off the property tax rolls. An attorney for Post-It Stables said there are plans to sell at least five more parcels.

MichCapCon.com requested documents from the MEDC related to the race track in a Freedom of Information Act request. The more than 500 pages of documents reveal the politics involved in bringing about the millions of dollars in tax incentives the state gives out. And in this case it even shows the top official at the MEDC lamenting that the state agency may be bending the rules to give out the subsidies, and worried over potentially heavy criticism if the special treatment is made public.

Brownfields are tax incentives offered by government that are supposed to be used to help developers clean up polluted or blighted property considered "functionally obsolete." E-mails show the track was eligible for up to $48 million in tax incentives over 30 years, including up to $45.6 million in brownfield credits.

But in an April 8, 2008 e-mail, then-MEDC CEO Jim Epolito told the MEDC's Mark Morante that the site was not a brownfield.

"Mark, is not the core issue here the fact that this investment will happen no matter what the state does," Epolito wrote. "Then, the fact that this site does not qualify as a Brownfield! Period! Finally, we will all be highly scrutinized and criticized for stretching BF law for incenting horse race gambling? Is there another tool? This is not a Brownfield, period."

Morante responded in an e-mail, "You are substantially correct, though a good consultant can, and, in this case, has made this 240 acre greenfield site technically qualify as a brownfield by finding $50k worth of needed cleanup."

Later in the e-mail, Morante wrote: "Yes, I can see us widely criticized for stretching the brownfield acts to their limits."

The possibility that the project could be derailed by a refusal to grant it millions in brownfield subsidies caught the attention of Gov. Granholm's office and the top official in Wayne County government.

Wayne County Executive Robert Ficano sent a letter on March 25, 2008 to Epolito saying the county supports a brownfield tax credit for the project. Ficano said in that letter that Wayne County had an agreement with Post-It Stables for the county to do financing and construction of "at least" $20 million for public infrastructure improvements on the property.

Michael McInerney, president of Post-It Stables, sent a letter on May 16 to Azzam Elder, Deputy Administrator of Wayne County, thanking him for his efforts in supporting the project's request for brownfield tax credits.

McInerney's letter of thanks came a day after Elder sent a letter to Daniel Krichbaum, the governor's chief operating officer, disagreeing with the MEDC's initial ruling that the site didn't qualify for a brownfield tax credit.

Regina Bell, the governor's policy director, sent an April 8, 2008 e-mail to Morante asking the MEDC to make sure "that they truly do not qualify as a Brownfield." In her e-mail, Bell stated that Ficano had approached the governor "regarding having the site designated as a Brownfield."

Documents show that early discussion among MEDC officials raise doubts about a brownfield designation. One MEDC document that tracked "activity history" of the race track project raised several questions.

"The site doesn't look like a traditional brownfield. The development would primarily take place on a greenfield, raising issues of promoting sprawl. ... How is it qualifying? Doe Ag. Property qualify for a brownfield credit based on its commercial use? Also, is the contamination based on release from illegal dumping, or is it related to generally accepted farming practices? Should MEDC be supporting this style of development with our MBT credits?"

Beth Vens, project manager for the Department of Environmental Quality, explains in an April 21, 2008 e-mail that the project met the standard to be a brownfield property.

"There are two small areas (from a paint spill and a solvent spill, both likely due to poor housekeeping) and soils are impacted in both areas above Part 201 criteria," Vens wrote. "Ammonia is also present, due to historical farming most likely that also qualify the property as a 'facility.' "

Russ Harding of the Mackinac Center once worked for the MDEQ and is considered an expert in brownfields.

"In just about any area in southeast Michigan, if you look hard enough, you can find some excuse to do environmental cleanup," Harding said. "This is a clear abuse of government power and a waste of taxpayers' dollars."

Richard Barr, an attorney representing Post-It Stables, said in an April 14, 2008 e-mail, "All parties understand that this project is not grossly contaminated, but it is greatly challenged by the airport flight patterns and construction limitations."

Barr was the only person involved in the 2008 negotiations that spoke on the record to MichCapCon.com. He said last week that the MEDC struggled with the idea of giving money to clean up what was essentially a cornfield.

"They looked at cornfield and farming issues as non-issues," Barr said. "Farming operations can cause contamination, too."

Barr said the MEDC didn't have a lot of experience with farming type brownfields and "had a generalization that former farmfields are not problems."

"We needed contamination," Barr said. "It wasn't going to be functionally obsolete."

The MEDC didn't respond to an email asking for comment.  Liz Boyd, the governor's spokeswoman, didn't respond to an email asking for comment.