Hudson’s deal, RenCen renew debate about corporate subsidies in Detroit

Incentives designed to create jobs and tax revenue have become increasingly controversial in Detroit as blockbuster developments fail to materialize or live up to their promised economic impact.

The likely struggle of the Hudson’s Detroit project to meet projected Detroit jobs and revenue is the latest large-scale project fueling the debate over the structure of tax-incentivized development.

There have long been concerns about “reshuffling jobs” among buildings in Detroit. The Hudson’s project will call for shuffling hundreds of jobs from one office tower to another as General Motors Co., brings staffers to the Bedrock-owned tower from the Renaissance Center. A $60 million incentive for the project was approved in 2022.

A BridgeDetroit analysis last month showed how Hudson’s Detroit will likely fall short on its job and tax revenue creation promises, which critics say is emblematic of the problems with taxpayer giveaways that provide more benefits to developers and their investors than neighborhood residents. 

Related:

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“A lot of these projects skate by and move through critiqued and unchallenged … so a lot of Detroiters think they bring the benefits that are promised,” said Theo Pride, who is among a core of city residents vocally opposing the incentives. “But we know a lot of the promises don’t come to fruition and this is an indictment of the whole structure of tax-incentivized development.” 

Some charge Bedrock and city officials with misleading residents, highlighting the need for more scrutiny and transparency up front, Pride said. 

Bedrock, Detroit Economic Growth Corporation officials and most of the Detroit City Council members who voted in favor of the Hudson’s incentive did not respond to requests for comment, but a spokesperson for Mayor Mike Duggan said the city’s high level of incentives have on balance been a winner for the city. 

Gilbert’s Bedrock promised 2,000 new jobs and $71 million in new tax revenue in its controversial bid for the incentive. General Motors’ move from the Renaissance Center to Hudson’s Detroit will affect an estimated 850 positions. 

Moving those positions between buildings in the city does not create new jobs or new economic impact as the positions already exist and contribute to local tax rolls.

District Detroit promises

Hudson’s Detroit is only one development drawing concerns. 

The Ilitch family failed to deliver on new neighborhoods and entertainment districts it promised would sprout around Little Caesars Arena in “District Detroit,” and as a second phase of the project struggles to get started. All told, taxpayers would cover about $1.8 billion, or 64%, of District Detroit’s cost, if it is built out. The Ilitch’s Olympia Development did not respond to a request for comment. 

Meanwhile, the Hudson project and three other downtown Gilbert projects received $618 million in state “Transformational Brownfield” incentives, plus local subsidies. The projects are heavy on office space and were projected to create about 7,300 new jobs, but may not be delivering.

Gilbert finished the mammoth Book Tower renovation, and the much smaller One Campus Martius renovation, but the company and officials have not said how many jobs at either site are new to the city. The Monroe Block project is stalled, and filling the Hudson building with employees already working in Detroit at the Renaissance Center, which will empty its offices, is not what was promised, said Michael LaFaive, an analyst with the Mackinac Policy Center, which tracks corporate subsidies. 

“It was sold as a ‘transformational’ project but we were never told that the transformation would only include moving a few jobs down the street,” he said. He noted academic research that casts doubt on the type of incentives and calculations Detroit uses. 

“The scholarship on this is decades old and there are hundreds and hundreds of studies that look at various economic development programs at the state and local level, and they have shown zero to negative impacts repeatedly,” LaFaive said. 

The questionable economic returns on subsidized office space are not unique to Detroit. 

Developers for New York City’s Hudson Yards project promised it would generate 55,000 jobs and $500 million in tax revenue in exchange for $2.1 billion in incentives. A peer-reviewed study found its economic impact was much lower because 90% of the jobs moved from elsewhere in Manhattan to Hudson Yards.

Hudson Yards’ developer is Stephen Ross, whose development company, Related Cos., in 2022 received a $100 million payment from Michigan state lawmakers for a University of Michigan office building and school in District Detroit. Though Hudson Yards’ supporters maintain it is a success, some officials concede it is much less so when already existing jobs are factored in.  

The only Detroit council member who supported the 2022 incentive deal for Hudson’s Detroit to return BridgeDetroit requests for comment was Mary Waters. She said the city got “played by a corporate shell game” and she is now turning her attention to what happens to the Renaissance Center. The building is “iconic” and should be redeveloped, she said, but Waters  is concerned that GM may ask for incentives, and she plans to ask the council’s Legislative Policy Division to look into the issue. 

“We need to know in advance what’s going to happen with that site, and we need the very best deal for Detroiters,” Waters said.  

Duggan spokesperson John Roach pointed to city figures showing Detroit has added 25,000 jobs since 2014, providing $153 million in new income tax revenue. The revenue has been used to fund park repairs, policing, ambulance services and “a whole host of other improvements that can be seen and felt by Detroiters across the city,” Roach said 

“The city’s economic strategy is having a direct and positive impact on most Detroiters,” he added.  

But the city’s argument rests on an often untrue assumption – the development would not have happened without the tax incentives, said Jacob Whiton, an analyst with Good Jobs First and a former Detroit Economic Growth Corporation official who worked on tax incentives for Detroit. That assumes the choice “is binary – either the development happens or doesn’t,” Whiton added. The Hudson was half built by the time Bedrock came back for more incentives, so Gilbert would not have abandoned it, but it would likely have been more “modest,” he said. 

There is also a “gold plating effect” in which developers know they can get an incentive so they create plans that include amenities or a size that is not necessary, Whiton said.  

“There may very well have been a profitable way to redevelop the Hudson site without this extent of public financial support – it just might not have been as tall or had as many hotel rooms,” Whiton said. “If we collected the tax revenue on that more modest project, then reinvested the money we saved, would the net economic impact have been greater?”

The city could also use incentives for smaller projects throughout the city. The Detroit People’s Food Co-op, a newly opened Black-led cooperative grocery store in the North End, received some incentives. Such projects serve a community function and are much more effective at spreading wealth among city residents instead of developers, Pride said. 

That is especially true as office buildings’ economic value plummets post-COVID, he added, and said the city “should use the opportunity to pivot.” 

“Grandiose projects like Hudson’s are not profitable for cities anymore so we need to be thinking about what other type of development we can be doing, and we should get creative and think about racial and economic equity in serious ways,” Pride said. 

Edythe Ford, a community organizer who also opposed the plan, said the city needs ordinances that require more equitable development instead of house flipping. Ford, who is also a member of Detroit’s Reparations Task Force, said the money could be used to provide easy access to grants for low-income home repairs, for example. 

“We need equitable development – everything can’t go to the areas that already got it going on,” she said.

Ford said residents also need more people to be more active with the issue and vote. 

“Citizens need to organize more and I don’t want to hear hollering about the mayor if you keep voting him in,” she said. “If we don’t start holding them accountable we’re going to keep hearing the same story.”