Detroit’s proposed Community Benefits Ordinance
PDF of article from ProfitWise News and Views: Issue 3, 2015 attached
Detroit’s proposed Community Benefits Ordinance
By Desiree Hatcher
The community benefits model
The Community Benefit Agreement (CBA) model was created in the late 1990s as a tool to ensure that neighborhood residents would benefit from economic development projects, which are often heavily subsidized by taxpayer dollars. A CBA is a project-specific agreement between a developer and a broad community coalition that details the project’s contributions to the community and ensures community support for the project. Properly structured CBAs are legally binding and directly enforceable by the signatories.1 According to The Partnership for Working Families, the Community Benefits Model works because, among other things, it: maximizes returns on local government investment in development; helps generate public support for economic development projects; and holds developers accountable for their promises to local governments and residents. As of 2013, there were approximately 17 CBAs in effect across the U.S. The majority (76 percent) pertained to developments in California.2
California is also home to what is considered the “First major Community Benefits Agreement.” The 2001 CBA was negotiated for the $400 million expansion of the Staple Center in Los Angeles, California. The development included $70.5 million in public money.3 The agreement broadened the earlier CBA model, which previously focused primarily on labor issues and job training, by widening the range of negotiations, including: environmental concerns, health impacts, traffic, congestion, noise, open space, and parkland.4 The CBA includes an unprecedented array of community benefits, including:5
• A developer-funded assessment of community park and recreation needs, and a $1 million commitment toward meeting those needs
• A goal that 70 percent of the jobs created in the project will pay the city’s living wage, and consultation with the coalition on selection of tenants
• A first source hiring program targeting job opportunities to low-income individuals and those displaced by the project
• Increased affordable housing requirements in the housing component of the project, and a commitment of seed money for other affordable housing projects
• Developer funding for a residential parking program for surrounding neighborhoods, and
• Standards for responsible contracting and leasing decisions by the developer
Of the CBAs identified by The Partnership for Working Families, the underlying developments range in cost from $36 million for a 33-acre industrial park in Los Angeles’ San Fernando Valley,6 to $11 billion for modernization of the Los Angeles International Airport.7 Further, not all CBAs are connected to receipt of public subsidies. LA’s Lorenzo Housing Development used no public subsidy; however, Planning Commission approval was needed because the development site was largely restricted to medical or educational uses.8 This serves as evidence that communities may have other sources of leverage to encourage developers to negotiate agreements.
Commercial development is often seen as a precursor to neighborhood development. Economic Development officials, often charged with attracting and retaining businesses, may make assumptions about resulting job creation and potentially other community benefits that do not necessarily pan out. Economic development is occurring in Detroit, primarily in the downtown and midtown areas, and much of this development derives in some part from public subsidy of one form or another. However, though taxpayers are subsidizing major developments, some question the actual impact for Detroit residents with respect to job creation and other benefits, and the efficacy of the strategy overall. As of December 2014, the city’s unemployment rate was approximately 12 percent, more than double the rate of 5.6 percent at the state level.9 In addition, at 42.3 percent, Detroit has the highest level of poverty of all U.S. cities.10
Good intentions
In 2007, Marathon Petroleum requested a $175 million property tax break from the city of Detroit as part of a $2.2 billion expansion of its Southwest Detroit refinery. According to an article in the Detroit Free Press, with the request came the following pledge:
“As we discuss job creation, please understand that we will do what we can to hire qualified Detroit residents,” then Marathon Senior Vice President Garry Peiffer wrote to City Council in 2007. “It is our intention to work closely with the Detroit Workforce Development Department and a local institution of higher education to develop curriculum and offer training for interested Detroit residents.”11
Since Detroit approved the tax break in 2007, Marathon has added nearly 200 new jobs at its expanded refinery. The company worked with Henry Ford Community College to develop a training program for interested Detroit residents, and paid $154,000 for 37 training program scholarships for Detroiters. Entry-level refinery jobs pay approximately $50,000 per year.12
Of the 37 scholarship recipients, four completed the process technology training program; met the company’s pre-employment testing requirements; worked a three- month internship; and obtained associate’s degrees. However, according to the February 2014 report to the Detroit City Council on the company’s hiring practices, of the four students who have successfully completed the program, none have been offered full-time employment by Marathon.13 In addition, as of January 2014, of the refinery’s 514 employees, 30 are listed as Detroit residents. In 2007, before the expansion, the company employed 15 Detroit residents. That means fewer than 6 percent of Marathon’s workers at the refinery live in the city, according to the company’s employment records, which
must be submitted to the city annually under terms of its abatement agreement.14 However, since the tax abatement contract does not require Marathon to provide a specified number of jobs to Detroiters, the provision of the scholarship and training program at Henry Ford Community College fulfills the company’s responsibility under the contract.15
In response to criticism regarding the low number of Detroit residents in its workforce, Marathon representatives indicate that even though the company developed the training program and funds a scholarship program designed to promote local hiring, they are finding it difficult to find qualified workers. Twelve-hour shifts at the refinery and the specialized nature of some available jobs were indicated as challenges to hiring Detroiters.16
Subsidy equals investment
In rust belt municipalities where jobs and tax revenues have declined significantly, can communities afford to continue offering subsidized funding for large-scale projects that provide no benefit to the local community? “It’s about economic inclusion,” stated Ken Harris, president and CEO of Michigan Black Chamber of Commerce. “How many funders provide money with no expectation of a return on investment?” “And it is just that, an investment. Tax payers have skin in the game. Equity funds, angel investors, and venture capitalists all have requirements that must be met prior to delivering funding.”17
Many Detroit residents and community groups feel the same, and they want an opportunity to discuss ways in which providing subsidies can benefit both developers and the community. However, they are finding out that not all developers are willing to have this conversation.
Two developments,
two different experiences
The M-1 Project
The M-1 RAIL Woodward Avenue Streetcar Project, to be completed in 2017, started as a three-mile system, and later evolved into a light rail system approximately 9 miles in length. However, the city of Detroit, state of Michigan and Federal Transit Authority determined that under then current economic circumstances, and due to the lack of a Regional Transit Authority structure in Southeast Michigan, the $500 million project was not feasible. The project was then scaled down to a 3.3 mile streetcar circulator system connecting Woodward Avenue from the Riverfront to the New Center and North End neighborhoods.18 Although plans show that the M-1 RAIL will come into the North End neighborhood, it will not allow residents to board the rail in the North End neighborhood according to Reverend Joan Ross, executive director of the North End Woodward Coalition and Equitable Detroit Coalition member. She indicated that instead, the car will be cleaned at a maintenance station to be located in the North End neighborhood, and then sent back downtown.
Ross indicated that her organization’s attempts to meet with M-1 to express their concerns were unsuccessful. Instead, M-1 established a Consumer Advisory Council whose members were hand-picked and given no decision- making authority. Ross expressed that her sentiment about the project changed when it was scaled down. According to Ross:
“When it was M-1 RAIL Project and it was going to connect job centers, it was a great idea. But when it became the M-1 Streetcar Project that runs 3.3 miles, at a cost of $150 million, that comes into my neighborhood and will not pick up the people, then it became both an issue and an injustice.”19
Whole Foods Market (WFM)
Whole Foods, the upscale grocery store, opened its Detroit location in 2013. Initially, there was fear that the Whole Foods products would be too expensive for long-time residents; that it would threaten the viability of current food vendors; and was part of the gentrification of the city’s rebranded Midtown community. However, according to Myra Lee, former program coordinator of Detroit Food Justice Task Force and founding member of the Equitable Detroit Coalition, working with a high-end company like WFM was advantageous. Lee indicated that WFM provided a community liaison, Amanda Musilli, who was open to having residents provide input and help define community engagement in Detroit. Meeting discussions included: hiring locally; employment of reentries (from criminal justice system); helping Detroiters become vendors; a commitment to provide living wages; and career growth for employees. Although no formal community benefit agreement was made, the benefits realized from these meetings were no less impressive. WFM increased its commitment to local
jobs at the new store from 35 to 110 (70 percent of whom are Detroiters). The store also committed to promoting local food businesses and working with entrepreneurs to improve their products and form business relationships with the store.20
Equitable Detroit
In January of 2013, the Woodward North End Coalition, the Detroit Food Justice Task Force, and other Detroit community-based organizations came together to begin discussing the large scale development occurring in the city. This included: a $2.1 billion international bridge project; a $500 million hospital expansion project; a new $450 million hockey arena; and a $30 million grocery store. The collective group felt there was a need to frame an ordinance that would involve communities in early stages of planned development and to ensure benefits to the impacted neighborhoods. These meetings led to the formation of the Equitable Detroit Coalition, an association of individuals; small businesses; and neighborhood, faith-based, and community organizations. Equitable Detroit Coalition’s mission is “to foster beneficial relationships between developers and the Detroit community by facilitating open and honest dialogue and to assist developers, funded by public dollars, to become corporate neighbors who are transparent in their relationship with the community.”21 Equitable Detroit Coalition members then met with Detroit Councilwoman Brenda Jones to determine how to require large scale developers to engage local communities to this end. The Coalition was surprised to learn that a resolution for a similar ordinance had been on the city’s books since 1984. At the next council session, a motion was made by Councilwoman Jones and seconded by Councilwoman Joann Watson to look into an ordinance for community benefits.
Detroit’s proposed community benefits ordinance
In support of the Equitable Detroit Coalition’s efforts and at the request of the Detroit City Council, the Sugar Law Center for Economic and Social Justice developed a draft of the proposed community benefits ordinance (CBO) that was introduced in January 2014. The proposed ordinance, the first of its kind in the country, focused on developments expected to generate investment of $15 million or more and requested receipt of public support for investment. For these developments, the ordinance required that the developer negotiate a Community Benefits Agreement with the host community to address the following issues:22
- Targeted benefits or appropriately negotiated employment opportunities
- Job training
- Affordable housing
- Quality of life or environmental mitigations
- Neighborhood infrastructure and amenities, and
- Community representation for the benefit of the host community in the development and post- development process
Notably, the ordinance did not require the parties to reach an agreement to provide any particular benefit, only that each issue be addressed. John Philo, executive director and legal director of Sugar Law Center for Economic and Social Justice, indicated that there were no specific requirements in the ordinance as every community has different needs and every development differs in what it can offer. He indicated that “The main purpose was to get a discussion going between the developer and the community. The ordinance merely served as a blueprint for discussions.”23
For developments of more than $3 million, but less than $15 million, a community agreement would not be required. However, if no community agreement is executed, the developer would adopt and implement a “First Source Hiring Program,” which included provisions to promote the hiring, training, and employability of residents and displaced workers from the host community, including both construction and permanent jobs in connection with the project.24
Local opposition to ordinance
Not everyone felt that the Community Benefit Ordinance was a good idea. In an October 2014 Detroit News article, City of Detroit Mayor Duggan’s administration indicated that they believed the ordinance would be negative for Detroit, creating too many hurdles that could discourage development. They further indicated that the city has been successful in structuring agreements to make certain that there is a true community benefit.25 However,
Equitable Detroit Coalition contended that the city does not have the capacity to monitor compliance. Coalition members indicated that in the past, developers have made assurances, but since 2000, officials have been unable to document their impact.
State’s decision to ban CBOs
On December 2, 2014, Michigan legislators introduced a bill to prohibit local governments from making tax breaks or subsidies conditional on the wage, benefit, and hiring policies of businesses. “Local Government Employer Mandate Prohibition Act” (House Bill 5977) was passed by an 8 to 7 vote on December 9, by the House Competitiveness Committee. Legislative observers believed the Bill might have had a better-than-average chance of making it through the legislature and being sent to the governor. However, time ran out on the measure and it was never brought up for a vote in the House.26 On January 22, 2015, a similar bill was introduced, this time by the Committee on Commerce and Trade as “Local Government Labor Regulatory Limitation Act” (House Bill 4052).27 This time, new language was added to the final version of the bill that will allow cities to negotiate the terms and conditions of contracts with businesses outside of wages and benefits.28
House Democrats and five Republicans opposed the legislation and called it an “assault on local control and voters’ rights to determine what is best for their towns.” They tried unsuccessfully to get nearly a dozen amendments added to the bill that, in part, would have allowed communities to negotiate community benefit packages with companies that are receiving taxpayer dollars, and prohibited the law from invalidating ballot proposals passed by voters in communities.”29
The bill was passed by the House of Representatives by a 57 to 52 vote, passed by the senate, and signed into law by Governor Snyder on June 30, 2015. In its final form, the new law:
“prohibits a local governmental body from adopting, enforcing, or administering an ordinance, policy, or resolution that imposes certain requirements or regulations on an employer, including a requirement to pay more than the minimum hourly wage, provide paid or unpaid leave time, or provide benefits that impose a cost on the employer, or that regulated the employment relationship in a way that exceeds state or federal requirements.”30
Conclusion
The proposed community benefits ordinance was a major step toward the goal of community inclusion. The new law places significant restrictions on what local governments may request of potential developers, including cases where the developer requests public subsidies. However, there are developers who are willing to have these types of discussions outside of a formal agreement setting. These businesses have a history of commitment to community and a policy of serving the needs of residents. There is a strong benefit for cities like Detroit to use their limited resources to proactively attract and retain such companies. Detroit’s relationship with Whole Foods Market is one example of what can happen when communities and businesses work toward their mutual benefit in planning a new development.
Notes
- Miller Kittredge, Betsy, 2012, “Policy & Tools: Community Benefits Agreements and Policies,” The Partnership for Working Families, October.
- MillerKittredge,Betsy,2013,“
Policy&Tools: CommunityBenefitsAgreementsand Policies in Effect,” The Partnership for Working Families, October. - Seehttp://basketball.
ballparks.com/NBA/ LosAngelesLakers/newindex.htm. - Kaye, Laurie, and Jerilyn Lopez Mendoza, 2008, “Everybody Wins: Lessons from Negotiating Community Benefits Agreements in Los Angeles,” available at http:// imanibrown.com/adaptive/cba/
EverybodyWins.pdf. - MillerKittredge,Betsy,2013,“
Policy&Tools: CommunityBenefitsAgreementsand Policies in Effect,” The Partnership for Working Families, October. - Robinson, Karen, 2000, “Developers Showing New Industrial Strength,” Los Angeles Times, April 11.
- MillerKittredge,Betsy,2013,“
Policy&Tools: CommunityBenefitsAgreementsand Policies in Effect,” The Partnership for Working Families, October. - McDonnell, Patrick J., 2011, “City planners approve $250-million residential-retail complex in South L.A.,” Los Angeles Times, February 11, available at http://articles. latimes.com/2011/feb/11/local/
la-me-lorenzo-development- 20110211. - Seequickfacts.census.gov.
- McCarthy, Niall, 2014, “Detroit Comes First for Poverty in the United States,” The Statistics Portal, July 24, available at http://www.statista.com/chart/
2493/detroit- comes-first-for-poverty-in- the-united-states. - Guillen, Joe, 2014, “$175M tax break for Marathon refinery buys Detroiters only 15 jobs,” Detroit Free Press, March 14.
- Guillen, Joe, 2014, “Detroiters who finished training program didn’t get Marathon jobs,” Detroit Free Press, June 1.
- Guillen, Joe, 2014, “Detroiters who finished training program didn’t get Marathon jobs,” Detroit Free Press, June 1.
- Guillen, Joe, 2014, “$175M tax break for Marathon refinery buys Detroiters only 15 jobs,” Detroit Free Press, March 14.
15. Guillen, Joe, 2014, “Detroiters who finished training program didn’t get Marathon jobs,” Detroit Free Press, June 1.
16. Guillen, Joe, 2014, “$175M tax break for Marathon refinery buys Detroiters only 15 jobs,” Detroit Free Press, March 14.
17. Harris, Ken, 2015, interview with president and CEO of Michigan Black Chamber of Commerce, February 12.
18. Seehttp://m-1rail.com/about-m-
19. Ross, Joan, 2015, interview with executive director of the North End Woodward Coalition, February 12.
20. See www.cdad-online.org/community-
21. Seewww.equitabledetroit.org.
22. City of Detroit, 2014, “Detroit Proposed Community Benefit Ordinance,” November 11, available at www.detroitmi.gov.
23. Philo, John, 2015, interview with executive director and legal director of Sugar Law Center for Economic and Social Justice, February 12.
24. City of Detroit, 2014, “Detroit Proposed Community Benefit Ordinance,” November 11, available at www.detroitmi.gov.
25. Ferretti, Christine, 2014, “Duggan team warns against development ordinance,” The Detroit News, October 24.
26. Spencer, Jack, 2014, “Bill to Curb Local Government Meddling Dies in House,” Michigan Capital Confidential, December 17, available at http://www. michigancapitolconfidential.
27. See www.legislature.mi.gov.
28. Gray, Kathleen, 2015, “Ban on local wage ordinances becomes newest state law,”
Detroit Free Press Lansing Bureau, June 30, available at http://www.freep.com.
29. Gray, Kathleen, 2015, “Ban on local wage ordinances becomes newest state law,”
Detroit Free Press Lansing Bureau, June 30, available at http://www.freep.com.
30. Senate Fiscal Agency, 2015, “H.B. 4052 (S-1): Summary as Passed By the Senate,”
Biography
Desiree Hatcher is the community development and Michigan state director in the Community Development and Policy Studies Division of the Federal Reserve Bank of Chicago.
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