To:Michigan Strategic Fund Board Members

MEMORANDUM

Date:December 21, 2011

To:Michigan Strategic Fund Board Members

From:Peter Anastor, Director of Policy

Subject:Approval of the Michigan Business Development Program and the Michigan Community

Revitalization Program and their GuidelinesUnder Enabling Legislation and Allocation of Funds

BACKGROUND

The Michigan Business Development Program (“MBD Program”) and the Michigan Community Revitalization Program (“MCR Program”) are new economic development incentive programs that will replace a number of tax credit incentives that are being eliminated due to the tax restructuring and creation of the new Corporate Income Tax. These new economic development tools are funded with a $100 million appropriation included in the fiscal year 2012 budget bill for the Michigan Strategic Fund (Public Act 63 of 2011).

The transparent, appropriated funds will allow the MSF to continue to provide economic development incentives for impact projects that lead to jobs and investment or help to revitalize Michigan communities. The funding replaces existing tax credit programs, including Michigan Economic Growth Authority (MEGA) tax credits, as well as Brownfield and Historic tax credits.

The MBD Program will provide incentives to businesses that are creating jobs and making investments in Michigan and is designed to replace the MEGA tax credit program. The MCR Program will provide incentives to applicants that will redevelop property in our regional urban areas and is designed to replace the Brownfield and Historic tax credit programs. Unlike the traditional investment programs of the MSF, these programs have the primary outcome of its return on investment in the form of community redevelopment and creation of jobs.

Funding became available on October 1, 2011, the beginning of the 2012 fiscal year. The MSF Board will have oversight over both of these programs and all projects funded under these programs will need MSF approval. The MSF will also approve the guidelines and other materials necessary to operate the programs, including application templates, agreement templates and the general processes necessary to efficiently run the programs. The programs will be administered by the MEDC and applicants seeking funding will have to complete an application and due diligence process that will evaluate each project.

The Michigan legislature recently passed legislation authorizing the creation and operation of the MBD Program and the MCR Program. The programs are funded with a $100 million appropriation in the FY 12 MSF budget and include $25,000,000 from the 21st Century Jobs Trust Fund and $75,000,000 from the General Fund. Through the authorizing legislation, the General Fund appropriation will be placed in the 21st Century Jobs Trust Fund as well. The MSF Board may then allocate the funds from the 21st Century Jobs Trust Fund to the MSF for each program.

The guidelines for each program were approved under the general powers of the MSF, and will be revoked by the new resolution providing approval under the new enabling act. As such, the recommended guidelines for each program, under the new legislation, are being presented for board approval. MEDC staff will work with the MSF Fund Manager to develop the application and processes going forward.

MICHIGAN BUSINESS DEVELOPMENT PROGRAM

The MBD Program will provide funding to qualified businesses for impact projects that make new investment and create jobs in Michigan. Funding will be available in the form of a grant, loan, or other economic assistance and the disbursement of funding will be based on an agreement, which will include milestones the business would have to meet in order to draw down funding. Each agreement will include repayment provisions in the event a project did not proceed as promised. Each project seeking funding under this program will be evaluated on its net positive return to the state, with higher impact projects receiving greater consideration. Other recommended program criteria are included in the recommended program guidelines attached to the proposed resolution for this program.

MICHIGAN COMMUNITY REVITALIZATION PROGRAM

The MCR Program will provide funding to applicants for projects that revitalize our regional urban areas. Funding will be available in the form of a grant, loan or other economic assistance and the disbursement of funding will be based on an agreement which will include milestones the applicant would have to meet in order to draw down funding. This program will also include repayment provisions that are part of the agreement in the event a project does not proceed as anticipated. Projects will be evaluated on several criteria which are included in the recommended program guidelines attached to the proposed resolution for this program.

RECOMMENDATION

The MEDC recommends the establishment of the MBD Program and the MCR Program and the approval of the guidelines for each program under the new legislation, and revoke the establishment and approval under the general powers of the MSF.

The MEDC further recommends the MSF Board request that the Michigan Department of Treasury transfer $100 million from the Michigan 21st Century Jobs Trust Fund to the MSF for the MBD Program and the MCR Program. Staff recommends that once funds are received from the 21st Century Jobs Trust Fund, they be allocated to the MBD Program and the MCR Program, with at least $20 million being allocated for the MCR Program.