ACT 425 AGREEMENTS: CAN THEY WORK FOR YOU? LAW, WEATHERS & RICHARDSON, P.C. 333 Bridge Street, NW, Suite 800 Grand Rapids, MI (616)

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1 ACT 425 AGREEMENTS: CAN THEY WORK FOR YOU? 333 Bridge Street, NW, Suite 800 Grand Rapids, MI (616)

2 ACT 425 AGREEMENTS: CAN THEY WORK FOR YOU? I. [1] General Background. At the heart of most turf wars is a proposed development project w/in township that needs public utilities. The neighboring city is unwilling to extend services w/out capturing the tax base to go along with it. Twp does not want to lose the development revenue. Results: scarred twp/city relations and a frustrated developer. A. History. 1. Back in the old days.... a. Annexation was the only tool to address boundary issues. b. It was a winner takes all game. c. No way to address the concerns of the parties, such as: (1) Loss of tax base. (2) Loss of planning and zoning control. (3) Loss of revenue sharing. (4) Effects on future annexation. d. Battles were: (1) Lengthy up to 2 years. (2) Expensive e. One successful annexation often led to another. f. Hard feelings resulted, some of which lingered for decades. g. Landowners and developers felt caught in the middle. 2. [2]The solution: Conditional Land Transfer Act : it permits 2 or more units to agree to conditionally transfer jurisdiction (or less than total jurisdiction) P.A. 425 was originally enacted to address a GM expansion in Genesee Twp that required Flint utilities. Act 425 has had far reaching impact, including: a. A way for the municipal units to work together. Most significantly, it allows for Page 2

3 millage to be split. b. To allow for creativity in the process. Ex: joint zoning approval, continued Twp fire services, etc. c. To allow the parties to promptly address developers requests. d. To assure those who are affected can have a voice the process (public hearings). B. [3] Dozens of Act 425 agreements each year in Michigan. 1. Numbers. a. 26 in b. 54 in c. 39 already by mid d. Average about 25/yr since 1996 or so. 2. Some are very creative: CAN BE USED TO GET COM DEV BLOCK GRANT $, ACQUIRE LIQUOR LICENSES, PROTECT WETLANDS II. [4] Act 425 Requirements. A. Work within the Definitions Provided MCL Economic development project includes a. Land and b. Existing or planned improvements (1) Includes necessary buildings, improvements, or structures (2) Includes the machinery, furnishings, and equipment c. Suitable for use, intended for use for or incidental to use for (1) Industrial enterprise (2) Commercial enterprise, (3) Housing development, or (4) Protection of the environment, including, but not limited to, groundwater or surface water. d. Includes Page 3

4 (1) Industrial park or industrial site improvements (2) Port improvements or (3) Housing development incidental to an industrial or commercial enterprise. 2. Local unit is a city, township, or village. B. [5] Requires a written contract MCL C. Requires consideration of certain factors MCL : 1. Demographic information. a. Composition of the population; population density; b. Land area and land uses; c. Assessed valuation; d. Topography, natural boundaries, and drainage basins; and e. Past and probable future growth, including f. Requires consideration of comparative data for: (1) Transferring local unit, and (2) Portion of the local unit remaining after transfer of the property. 2. Community services. a. Needs for organized community services; b. Present cost and adequacy of governmental services in the area to be transferred; c. Probable future needs for services; d. Practicability of supplying such services in the area to be transferred; e. Probable effect of the proposed transfer and of alternative courses of action on the cost and adequacy of services (1) In the area to be transferred and (2) On the remaining portion of the local unit from which the area will be transferred; Page 4

5 f. Probable change in taxes and tax rates in the area to be transferred in relation to the benefits expected to accrue from the transfer; g. Financial ability of the local unit responsible for services in the area to provide and maintain those services. 3. General effect upon the local units of the proposed action. 4. Impact of the proposed action to any established land use plan. D. 4 Required contract terms: length, sharing revenue, k enforcement, jurisdiction at end of k: MCL [6] The length of the contract. a. Maximum length is 50 years with the option to renew for up to an additional 50 years MCL b. Contract durations vary and they can differ for different parcels or phases. 2. [7] Sharing of revenues. Options include: - Set # of mills - Twp gets its mills plus additional millage - % of prop. tax revenues - % of state rev. sharing based on population that is transferred - % of user fees - Flat rate (or combination of above) a. Specific authorization for the sharing of taxes and any other revenues designated by the local units. b. Manner and extent to which the taxes and other revenues are shared shall be specifically provided for in the contract. (1) How much will be shared? (A) Sometimes the share increases or decreases over time. (B) Sometimes the share changes Page 5

6 depending upon the state of development. (2) How is it to be calculated? Usually requires some sort of formula. (3) When is it to be paid? (4) For how long is it to be paid? (5) Audit rights and remedies. 3. [8] Methods to enforce contract: a. Statute suggests possible return of the transferred area to the local unit from which the area was transferred. b. Agreement that specific performance and injunctions are appropriate. c. Attorneys fees. d. Who can enforce? (1) Either unit of government. (2) Government officials? (3) Developer or other beneficiary? e. Any pre-litigation requirements (i.e., last resorts prior to filing suit). For example: (1) Exchange of detailed, written positions. (2) Required meetings of officials and/or bodies. (3) Mediation or arbitration. 4. [9] Which local unit has jurisdiction over the transferred area upon the expiration, termination, or non-renewal of the contract. E. [10] Permissible contract terms MCL Any method for early termination of the contract. a. Any required notices. b. Cure periods. c. What gives rise for cause to terminate? d. What happens on termination? 2. Employee effects. Manner of employing, engaging, compensating, transferring, or Page 6

7 discharging personnel required for the economic development project to be carried out under the contract, subject to the provisions of applicable civil service and merit systems. (EX: Twp. firefighters may be transferred to City) 3. Municipal control who does what. a. Setting and collecting charges, rates, rents, or fees. b. Adoption and enforcement of ordinances. 4. Purchasing and contracting. 5. [11] Acceptance of gifts, grants, assistance funds, or bequests. a. Which jurisdiction may apply for grants, loans, etc.? b. What if the loan is not to be paid off until after the expiration of the agreement? c. If a gift or grant is tied to the property, what happens at the end of the agreement if the property reverts back to the original municipality? d. What about gifts, grants, loans, etc. in place at the time of the Act 425 agreement? 6. The manner of responding for any liabilities that might be incurred through performance of the contract and insuring against any such liability. 7. Any other necessary and proper matters agreed upon by the participating local units. F. [12] Jurisdiction MCL Unless the contract specifically provides otherwise, property which is conditionally transferred by a contract under this act is, for the term of the contract and for all purposes, under the jurisdiction of the local unit to which the property is transferred. 2. Can be in one or the other jurisdiction for varied purposes [zoning, fire services, etc]: police, fire, zoning. G. [13] Procedural requirements - MCL ; ; & a. Page 7

8 1. Public hearings MCL a. The legislative body of each local unit must hold at least 1 public hearing before entering into a contract. (1) Can hold more than one. (2) Often a single public hearing is held jointly. b. Notice of the hearing shall be given in the manner provided by the Open Meetings Act. (1) Posting is all that is required. (2) No minimum notice period. 2. Majority vote MCL a. Requires a majority vote b. Of those members elected and serving on the legislative body of each affected local unit. 3. Right of referendum: 2 ways referendum may come about MCL a. If the governing body of one of the local units adopts a resolution calling for a referendum, that local unit may enter into the contract only if a majority of the electors voting on the transfer approve it. b. Petition. (1) Must be filed within 30 days after a public hearing. (2) Must be signed by: (A) Either 20% or more of the registered electors residing within the property to be transferred, or (B) If no registered electors reside within the property to be transferred, it may be signed by persons owning 50% or more of the property to be transferred. (3) Petition requirements MCL a. (A) If signed by electors, the petition, including the signing and circulation of the petition, must comply with 488 of the Michigan Election Law (MCL Page 8

9 ). (B) If there are no electors and it is signed by property owners, that provision does not apply. (4) Election is held only in the local unit where the persons reside or where the property is located. (5) If a majority of the electors voting on the transfer approve the transfer, that local unit may enter into the contract. c. If no petition for a referendum is filed and neither local unit adopted a resolution requiring a referendum, the local units may enter into the contract to transfer the property. (Note: This effectively requires a 30-day waiting period after the public hearing.) H. No other annexation MCL While an Act 425 contract is in effect, another method of annexation or transfer shall not take place for any portion of an area transferred under the contract. 2. Often additional annexation limitations are included. I. Filing requirements MCL Clerk of the local unit to which the property is to be conditionally transferred shall file a duplicate original of the contract with: a. County clerk of the county in which that local unit, or the greater part of that local unit, is located and b. Secretary of state. 2. County clerk and the secretary of state shall enter the contract in a book kept for that purpose. 3. Copy of the contract certified by that county clerk or by the secretary of state is prima facie evidence of the conditional transfer. III. Practical approaches. A. [14] The deal is for the policy makers to make. Only the documentation is for the attorneys. Page 9

10 1. Elected and appointed officials should meet to confer on the deal. 2. Attorneys can document the deal once it is made. 3. This is about forging a cooperative arrangement so official cooperation is important. B. The discussion is not about yesterday. It is about tomorrow. 1. How you got to the situation that exists (distrust, acrimony, development pressure, lack of cooperation, etc.) is of little importance other than for understanding. 2. This is not about blame. 3. It is about creating a mutually acceptable (or even advantageous) future. 4. Leave the past in the past. C. Try to determine what is motivating each party. 1. What are the fears each party has what does each party wish to avoid? 2. What does each party desire? 3. What factions, political influences and other issues lie in the background for each party? D. [15] Where are there points of agreement? 1. Work first with these to be sure there is full agreement. 2. If there are small differences, work to resolve them. E. Where are there points of disagreement? 1. Set these aside until all points of agreement have been addressed. 2. Break the points of disagreement into smaller issues. a. Try to find agreement on the smaller issues. b. Then re-assemble. F. [16] Be willing to accept that policies may need to change as communities change. 1. Why are your policies as they are? Page 10

11 2. Are you willing to change policies if the other party also makes some change? G. Think holistically, long-term and can-do. 1. Assume there is a way to resolve any issue. 2. Compile a wish list of what the relations with the other party should look like 10, 20, 50 years hence. 3. It may be advisable to include forced meetings and/or cooperation. H. [17] If there is a particular developer or other particular beneficiary of an agreement, perhaps the parties should impress it that they might look more favorably on an Act 425 agreement if the beneficiary showed its public spirit in some way (e.g., donation of land for a park, donation of funds or books for a library, donation of equipment for a joint fire department, land use restrictions, walking or biking trails available to the public, conservation easements, etc.) Page 11