‘ ‘ AN ANALYSIS III THE CONDITIONAL 'LAND‘IRANSIER ..
PROGRAM As A POLICY IooL FOR EcoNoNIc '
DEVELOPMENT IN MICHIGAN

. Plan B Paper foI the Degree III M 3.9
' MICHIGAN STATE UNIVERSITY , ..
ALEXANDER RAFAEL QUINONES " '
' ' 1999 ” ' ‘

 

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FEB 2 61999

MICH STATE UNIV

AN ANALYSIS OF THE CONDITIONAL LAND TRANSFER PROGRAM AS A
POLICY TOOL FOR ECONOMIC DEVELOPMENT IN MICHIGAN
By

Alexander Rafael Quinones

A PLAN B PAPER
Submitted to
Michigan State University
in partial fulﬁllment of the requirements
for the degree of
MASTER OF SCIENCE
Department of Agricultural Economics

Spring 1999

ABSTRACT
AN ANALYSIS OF THE CONDITIONAL LAND TRANSFER PROGRAM AS A
POLICY TOOL FOR ECONOMIC DEVELOPMENT IN MICHIGAN
By

Alexander Rafael Quinones

The Conditional Land Transfer Agreement Act, P.A. 425, 1984 (MCLA 12421-12429)
is a public policy tool designed to promote community economic development and
minimize the use of annexation in Michigan. Academic research to evaluate the impact
of PA. 425 on communities executing such contracts had not been conducted.
Therefore, the question of whether the Act had accomplished its intended objectives
remained unanswered. Data were collected from 26 units of governments that executed
PA. 425 agreements since 1984. The methods used to gather information in the research
were mail surveys and phone interviews. Descriptive statistics were used as the main
tool of analysis in this research. The results obtained indicate that infrastructure is a
precondition for economic development to occur. However, the analysis of the data also
indicates that once infrastructure is built, economic development does not necessarily

follow.

Dedicated to
My wife Carmen, my daughter Tina, and my son Jon.
For all the inspiration and unconditional support you have provided me through these

years to accomplish my academic goals. _

ACKNOWLEDGEMENTS

I would like to thank and express my appreciation to the members of my guidance
committee: Dr. Lynn R. Harvey, my major professor, and Dr. A. Allan. Schmid, for their
support throughout the development and accomplishment of my academic objectives and
for their suggestions and comments in the writing of this paper.

I would like also to thank my wife Carmen, and my kids Tina and Jon, who have
been a continuous source of inspiration and support. I wouldn’t have been able to make

it without your help.

ii

TABLE OF CONTENTS

List of Tables

111

Background

1.1 The Suburban Movement in the United States.

1.2 The Suburban Movement, Infrastructure and Economic Development

1.3 Infrastructure and Industrial Location.

1.4 Annexation, Jurisdictional Boundaries and PA425.
1.5 The Conditional Land Transfer Agreement Act.
1.6 Provisions of PA425 Agreements.

1.7 The Nature of the Problem.

Literature Review

2.1 Infrastructure as a factor of production and Economic Development.

2.2 Infrastructure and Firm Location Decisions.

2.3 Economies of Size in Infrastructure and Economic Development.

Research Methodology

3.1 Objective of the Paper.

3.2 Hypothesis.

3.3 Sample Size and Sampling Procedure.

3.4 Survey Design.

iii

vi

ON

11

14

16

17

21

23

23

33

39

47

47

47

48

51

IV

3.5 Data Collection.

3.6 Economic Indicators to Measure Economic Development.

3.7 Descriptive Statistics.

Results

4.1 Summary of PA. 425 agreements included in the sample
4.2 Contracts Rescinded

4.3 Contracts Completed

4.4 Contracts Still in Force

4.5 Economic Development Indicators

Summary and Conclusions
5.1 Financial Analysis of PA. 425 Agreements
5.2 The Township’s Perspective

5.3 The City’s Perspective

Appendix A

Summary of PA. 425 Agreements Filed Since 1985

Text of Law

Appendix B

Summary of P425 Agreements Included in Research Sample

iv

53

54

55

56

56

62

67

72

80

87

88

89

91

98

101

106

Appendix C
Financial Analysis of the Township Table 34

Financial Analysis of the City Table 35

Appendix D

Survey Samples

Bibliography

108

109

111

131

Table 1:

Table 2:

Table 3:

Table 4:

Table 5:

Table 6:

Table 7:

Table 8:

Table 9:

Table 10:

Table 11:

Table 12:

Table 13:

Table 14:

Table 15:

Table 16:

Table 17:

Table 18:

Table 19:

Table 20:

Table 21 :

LIST OF TABLES

Executing Period of PA425 Agreements: Research Sample
Purpose of PA425 Agreements: Research Sample

Length of Agreements: Research Sample

Parties to PA425 Agreements: Research Sample

Disposition at End of Agreement: Research Sample

PA425 Contracts Rescinded: Research Sample

PA425 Contracts Rescinded: Research Sample

Land Area of Transferred Parcel: Contracts Rescinded

Public Services Extended: Contracts Rescinded

Engage in other PA425 Agreement: Contracts Rescinded

PA425 Contracts Completed: Research Sample

Population, Land Area, and Millage Rate: Contracts Completed '
PA425 Contracts Completed: Purpose and Length

Expansion of Existing Firms: Contracts Completed

Contract Renewal: Contracts Completed

Annexation as Condition: Contracts Completed

PA425 Contracts Still in Force: Research Sample

Population, Land Area, and Millage Rate: Contracts Still in Force
Public Services Provided: Contracts Still in Force

Disposition at End of Agreement: Contracts Still in Force

Commercial Development Prior to PA425: Contracts Still in Force

61

61

62

63

63

65

66

67

68

69

71

71

72

74

74

75

76

77

78

78

79

Table 22:
Table 23:
Table 24:
Table 25:
Table 26:
Table 27:
Table 28:.
Table 29:
Table .30:
Table 31:
Table 32:
Table 33:
Table 34:

Table 35:

Commercial Development After PA4252'Contracts Still in Force
Infrastructure Development After PA425: Contracts Still in Force
Infrastructure Development After PA425: Contracts Still in Force
Residential Development After PA425: Contracts Still in Force
Intergovernmental Relationship Rating: Contracts Still in Force
Execute Another PA425 Agreement: Contracts Still in Force
Consider Annexation as Condition: Contracts Still in Force

Taxes Paid by Firms: Aggregate Level

Firms Established After PA425: City of Lapeer

Firms Established Before PA425: City of Lapeer

Net Present Value of Inﬁ'astructure Investment for Lapeer Township
Net Present Value of Infrastructure Investment for the City of Lapeer
Financial Analysis of Infrastructure Investment for Lapeer Township

Financial Analysis of Infrastructure Investment for the City of Lapeer

vii

80

80

81

81

82

83

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86

86

87

91

92

108

109

Chapter One: Background

Communities often realize that opportunities for economic development are
constrained by the availability of public services such as sewer and water. The
characteristic of natural monopolies present in the production and provision of sewer and
water gives the producer a strong bargaining position when negotiating the supplying of
these services. Consequently, the producer is able to extract premium rents or demand
annexation as a condition for access to such services (Harvey, et al, 1997). Historically,
townships and villages have systematically opposed the use of annexation or boundary
expansion by cities (Pan, 1988).. In Michigan, for example, annexation has been a long-
standing problem that has resulted in disputes damaging intergovernmental relationships
among local units of government. Furthermore, annexations at times have resulted in
long and costly litigation between parties. Annexationl was originally devised as a policy
instrument to encourage the economic development of communities. From this point of
view annexation, as a public policy instrument, failed to perform as originally intended.
Indeed, annexation was becoming an increasing source of conﬂict between cities that
under pressure to expand their municipal boundaries and capture tax revenue base,
attempted to annex the adjacent land in townships. The presence of conﬂict situations is
explained by the loss of revenues that annexation represents to the governmental unit
being attached. Consequently, both cities and townships have developed some strategies
to execute annexations and to oppose such actions. For example, many cities have
adopted a policy of “no expansion of sewer and water beyond the corporate limits of the

city”. This policy leaves townships adjacent to cities and in need of these services to

 

‘ Annexation — a means by which a city expands its geographical borders by capturing nearby property to
accommodate urban population growth or o stimulate economic development. Maureen Pan, 1988.

encourage their economic development with no option but to let the annexation procedure
to take place (V eerg, 1996). On the other hand, a strategy based on legal grounds is a
tool used by townships to oppose annexation. In Michigan, the State Boundary
Commission is the body that either approves or rejects annexation petitions. The State
Boundary Commission statute establishes that both units of government must be
contiguous for annexation to be approved. There is a documented case inwhich a
detachment of territory ﬁ'om the city and reattachment to the original township broke the
contiguity condition between the city and the parcel of land to be annexed (VerBurg,
1996). As a consequence, annexation was not executed. The legal framework of
annexation is a source of conﬂict because it creates winners and losers. In general terms
what have been the results of annexation? Further, how have these results affected
economic development? Conﬂicts between units of government scares off potential
developers who eventually establish their businesses in areas less subject to conﬂict.
Consequently, both communities involved lose as the beneﬁts and gains from economic
grth go to other communities. In addition, townships are denied access to the needed
services (i.e. sewer and water, infrastructure), discouraging potential residential,
economic and industrialdevelopment. Under these-circumstances, policy makers in
Michigan sought the development of new public policy tools to address the problems
associated with annexation. These alternative policy instruments must be characterized
by providing a legal framework that would encourage economic development and
minimize sources of conﬂict. In other words, a public policy tool designed to change the
performance of the current policy (i.e. annexation) was desired. The “Conditional Land

Transfer Agreement Act”, P.A. 425 (MCLA 12421-12429) was approved by the

legislature of Michigan and signed into law on December 28 of 1984. The act permits the
“conditional transfer” of land between two units of government for the purpose of an
economic development project. Such transfer of land is usually motivated by the lack of
infrastructure capacity and public services needed to promote the economic growth of the
communities located on the tract being transferred. The Conditional Land Transfer

Agreement Act (commonly referred to as P.A. 425) also represents a more attractive
A alternative to annexation Since it permits the sharing of revenues between the
governmental units parties to a contract. According to the statute, the maximum length
contracts can be executed is ﬁfty years. It is also possible to renew the agreements for a
period of time upon expiration. PA. 425 also prohibits annexation of the transferred land
while the contract is in effect. As a result of the latter characteristic of the Act, not
surprisingly it has been used as an instrument of warding off annexations in Michigan
(VerBurg, 1992). Since 1984, 130 PA. 425 contracts have been recorded in the Ofﬁce of
the Great Seal in Michigan. The purpose of the contracts registered varies ﬁ'om the
provision of water and sewer services, airport development, economic, industrial and
residential development, and ﬁre and police services provision. The increase in the
number of agreements in ﬁle since the act was passed may indicate that, as more
communities become aware of the existence of the PA. 425 program cities, townships
and villages choose the former on the basis of its economic and political advantages over
annexation.

Currently, no academic research has been conducted in the state of Michigan by

any institution to assess the effectiveness of RA. 425 legislation. Consequently, the

question of whether the act has actually promoted the economic development of

corrrrnunities in Michigan remains largely unanswered. Harvey claims that some
scenarios have been reported in which PA. 425 seems to achieve its intended goals
(Harvey, et a1, 1997). He also concludes in his paper that further research needs to be
conducted in order to provide a reliable evaluation of such a policy instrument. It is the
goal of this research paper to evaluate the effects of PA. 425 legislation and to suggest a
framework for analyzing the economic development of communities as a result of its
execution. The guiding question of this research can be summarized as does the
Conditional Land Transfer Agreement Act encourage economic development? In other
words, has the act achieved its intended purpose? The answer to this question is
complex, as there are several problems associated with measuring the effectiveness of
any public policy instrument. One of the problems that this research will encounter deals
with some other factors that also encourage community economic development, and
whose effects cannot be differentiated or separated from the effects of PA. 425. Harvey
States that tax abatements are also used as an instrument to attract industry (Harvey, et a1,
1997). Tax abatements are used in conjunction with some PA. 425 agreements to
stimulate the economic development of some regions by attracting industrial
development. Some researchers however, claim that the relationship between tax
abatements and industry location decisions is not very clear. Marvel (1993) for example,
maintains that tax abatements may not signiﬁcantly inﬂuence industry location decisions
since tax abatement values often represent a small proportion of the incentive package
being offered to a particular ﬁrm. Nevertheless, the offering of tax abatements can be
seen by ﬁrms as an indicator of a community’s interest to establishing a long-term

relationship with the locating ﬁrm and may in the end inﬂuence the ﬁrm’s decision.

Which of these policy tools is responsible for the economic development of the
community if multiple tools are employed? The answers to such questions are unclear.
Notwithstanding the limitations already speciﬁed, the current research is an attempt to
evaluate the Conditional Land Transfer Agreement program, its effects and to provide
and answer to the question of whether such a public policy tool satisﬁes the requirements
it was designed for in the ﬁrst place. In order to understand the essence of the
Conditional Land Transfer Agreement Act however, some other related topics such as
urban sprawl, annexation, economies of scale, economic development, industrial location
and the Conditional Land Transfer Agreement Act itself, need to be explored in a more '
detailed manner.

The Suburban Movement in the United States.

The “American Dream”, best described by real estate agencies as a two-story
house on a single tract of land in the rural suburbs, and a basketball hoop in the drive
way, embodies the predominant urbanizing’ trend observed in the United States in the last
ﬁfty years. Many experts agree that the suburban movement began in the United States
in the 19th century. As accurate as this claim may be, however, World War I and World
War II are two more recent landmarks in the suburban movement. After World War I,
the arrival of the automobile permitted the creation of suburbs that were ﬁnally
independent of older core cities (Muller, 1981). At the end of World War II, the
suburban movement was particularly strong. City dwellers were encouraged to move out
the cities by such diverse factors as media advertising, and available tracts of affordable
land in the peripheries of core cities (Stroud, 1977). Thomas Muller (1976) argues that

the suburban movement resulted from two factors he deﬁned as the “pull” and the “push”

factors. The “pull” factor is linked to people’s preferences for low-density
neighborhoods, cheap land in the edges of central cities, better transportation systems,
and advances in industrial technology. The “push” factor is the increased tax burden
imposed on city inhabitants that resulted ﬁom less revenue being collected to ﬁnance
public services. Another key factor that encouraged out-migration was the GI Bill of
Rights of 1946, which provided ﬁnancial incentives such as educational beneﬁts and
subsidized mortgage interests to GIS returning from WWII. Racial fears were also
considered a driving force, though this factor was not particularly strong until the 19505
(Stroud, 1977). The suburban movement was also distinguished by large masses of both
white people, and white-collar workers moving out the cities, leaving behind the less
economically afﬂuent sectors of the population (i.e. minorities and immigrants). This
pattern of land development, or suburban movement, has resulted in what is deﬁned in
the available literature as “current development” or “sprawl growth”. The importance of
urban sprawl for this research lies on its attributes. Sprawl grth is characterized by
being mostly composed of low density, single family residential housing, land
consumptive, inefﬁcient, and demanding of additional infrastructure such as sewer and
water, among other types of services (SEMCOG, 1997). In conclusion, urban sprawl has
resulted in increasing demand for sewer and water, among other community services for
residential development.
The Suburban Movement, Infrastructure and Economic Development.

The urban sprawl movement has had important socioeconomic consequences
whose effects are still being both discovered and researched. This paper is concerned

with three of these many consequences of current development. The ﬁrst concern is the

issue of “sprawl growth” and infrastructure. The research is interested on the relationship
between urban sprawl and the need for additional inﬁastructure, particularly sewer and
water. Does urban sprawl increase the demand for additional sewer and water
infrastructure? The importance of establishing a relationship between urban sprawl and
increased demand for sewer and water infrastructure lies on the perception that
infrastructure development is a prerequisite to achieve economic development.

Economic development is an important goal to most societies for it increases the well
being of communities and grants economic independence. Rural communities are an
example of communities pursuing economic development goals to enhance their
residents’ quality of life. However, economic development cannot be achieved or
sustained without adequate community services (Eﬁekhari, 1983). The Michigan Society
of Planning Ofﬁcials also supports Eﬁekhari’s assertion in its 1995 Working Paper on
“Water, Sewer, and Other Inﬁ'astructure Trends” in Michigan. The paper states that
“intensive grth and development will follow areas of primary infrastructure investment
such as roads, highways, and public sewer and water” (MSPO, 1995). This conclusion
highlights the importance of sewer and water services for economic development. The
second point this paper addresses thus, is the issue of economic development and sewer
and water infrastructure. Is there a relationship between economic development and
access to sewer and water infrastructure? The available literature reviewed seems to
suggest a general relationship between economic growth and infrastructure, though some
authors argue on the nature, direction (or causality), and the results of such relationship.
The third important issue refers to economics of scale in the provision of sewer and water

services. Public services that use relative large amounts of capital and relative small

amounts of other inputs (i.e. labor) can achieve signiﬁcant economies of scale over some
range of output in both the short and the long run (Cowing, 1976). An economy of scale
in the provision of certain public services is often cited as the most important factor
encouraging the merger of different units of government or merging selected community
services. Indeed, the economy of scale criterion is probably the most important reason
that determines planning for sewage facilities because economies of scale allow planners
to achieve substantial savings not only on the construction, but also in the operation of
these plants (Stroud, 1977). The impact of economies of scale in the provision of sewer
and water can be summarized as lower average per unit cost of the service, as more users
are hooked up to the central line or pipe (up to physical capacity of the line). Economies
of scale are important because they lower the unit price of the service for both residents
and industrial consumers. Public infrastructure services such as water and sewer,
transport, and electricity are intermediate inputs in the production process. The reduction
in per unit cost of any of these intermediate inputs can raise the proﬁtability of
production (Kessides, 1993). Similar to any other intermediate input, lower sewer and
water cost per unit can be translated into lower production costs for ﬁrms, and therefore,
more competitive prices. A study done by Pinnoi (1994) in four US regions in 1994
concludes that water and sewer services are a productive factor in the manufacturing
process. From this conclusion then, the provision of cheaper water and sewer services
not only encourages the economic development of communities but also provides a
competitive advantage to manufacturing industry (Kessides, 1993). In this sense, the cost
savings associated with the extension of sewer and water lines, as opposed to building a

new facility, are translated into lower costs of production to ﬁrms and more competitive

products. Nevertheless, distance between the facility and the unit being serviced is an
issue that must be considered. Oftentimes, it is more expensive to transport sewage long
distances than it is treating it at a local facility. Such fact renders the extension of
existing lines an economically unattractive alternative (Stroud, 1977).

The available literature on the subject of economies of size is extensive. Several
studies have found economies of scale in the provision of public services. For instance,
Eﬁekhari (1983) makes reference to a study conducted by Lansford in Texas to test for
economies of size in the provision of rural community services. Regression analysis was
used to determine for econorrries of scale to be present and the ranges of population over
which average and marginal costs were falling, constant, or rising. The report concludes
that econorrries of scale were present in the provision of community services at all levels
of governmental units tested (county, municipal, and school services), showing declining
average total costs up to a population of a least 25,000 people. A study conducted by
Luther Tweeten (1976) also shows economies of size in public services such as police
and ﬁre protection, hospitals, public schools, sewerage, and water services. Tweeten’s
research concluded that scale economies could be realized in water delivery systems if
the Size of the delivery systems were increased to certain dimensions. On the other hand,
Eftekhari’s research concludes that diseconomies of scale are present in the provision of
sewer and water in rural communities in Mississippi. This is a rather surprising ﬁnding
since water and sewer services are capital intensive services. The author’s hypothesis
was that sewer and water services presented increasing expenditures at a decreasing rate,

as opposed to increasing returns at an increasing rate.

There are some other economic impacts of Sprawl grth that have affected
communities across the United States, especially big cities. In Michigan for example, as
more people located their residences in the suburbs, manufacturing, shopping centers,
restaurants, transportation networks and the needed infrastructure followed (MSPO,
1995). This pattern resulted in economically deprived communities in the cities, and
underutilized public services, leading to unused excess capacity and increased costs. On
the other hand, the suburbs have thrived with more afﬂuent people moving in, less costly
public services and a lower tax burden. In this regard, the city of Detroit is a good
example. Detroit’s infrastructure was designed to accommodate approximately 2 million
people. However, the city’s population at present has declined to roughly 1 million
people (Wyckoff, 1996). Detroit has registered a population decrease of 821,000 people
(44%) in the period 1950-1990 (W yckoff, 1996). At the same time, neighboring counties
sr‘rch as Oakland and Macomb have increased their populations by 687,591 and 532,439
respectively (MSPO, 1995). How does this increasing population or immigration pattern
translate into ﬁscal impacts? On the city’s side the ﬁscal impacts are decreasing revenue
tax bases, lesser ﬁmds to ﬁnance public infrastructure and inereasing tax rates for cities’
residents. For the recipient communities additional inﬁastructure is required to provide
adequate services that guarantee a clean environment and the amenities that accompany
the better quality of life that attracted people to the community in the ﬁrst place.
Communities that beneﬁted from this immigration have been forced to develop new
inﬁ‘astructure capacity to accommodate such an explosive population growth. However,
inadequate infrastructure/services and poor plamring have contributed for environmental

problems to appear. For example, residents of Shelby Township, Macomb County,

10

abandoned their underground drinking water supply. due to nitrate contamination. The
most likely source of these contaminants was failing septic systems in the township
(MSPO, 1995).

Current development, along with its distinctive land ﬁagmentation and low-
density pattern of growth, impacts the provision of public services. The infrastructure of
cities is underutilized as cities’ populations continue to decrease. Conversely, population
increases in the suburbs lead to a higher demand for public services (MSPO, 1995). The
overall result of this situation is unused or excess capacity of public services in the cities
(i.e. sewer and water), and new demand for infrastructure and related public services in
the suburbs. Demand for infrastructure and related services increases to. accommodate
residential, commercial and industrial growth. In addition, the availability of
infrastructure has an impact on regional economic development. Kessides’ report to the
World Bank (1993) concludes “infrastructure contributes to economic development not
only by increasing productivity but also by providing some amenities that improve the
quality of life”. Kessides also recognizes that inﬁ'astructure services have a structural .
impact on demand and supply by diversifying the economy. For example, in rural areas
inﬁastructure facilitates the creating of alternative sources of employment and
consumption possibilities. She also states that telecommunication infrastructure is a key
factor in helping the economy to react and adjust its demand and production in response
to changing prices signals.

Infrastructure and industrial Location.
There are some consequences associated with “sprawl growth” not only from the

land use/consumption perspectives, but also from the water and sewer provision

11

perspective. As residential, commercial and industrial development continues to locate in
the suburbs, the need for public services such as sewer and water, roads, public buildings
and other associated services, also increases. Commercial, residential, and industrial
development tends to locate where these services are already available. The Region 11
Planning Commission, Michigan Department of Transportation, supports this assertion in
its 1989 report. This governmental agency conducted research on the infrastructure of
Hillsdale, Jackson and Lenawee Counties, Michigan. The results indicate that 14 percent
of the local units surveyed believe that inadequate sewage prevented communities from
attracting industry. In addition, 13 percent also reported that an inadequate water system
actually deterred industry from locating in any community. Absence of adequate sewer
and water systems limits the economic development of communities. For example, in
Michigan, the Department of Natural Resources has the right to deny new construction
permits in an area that lacks sewer and water capacity to accommodate new growth
(MSPO, 1995). Does inﬁ'astructure, especially sewer and water, affect the location
decisions of ﬁrms? Though many studies of ﬁrm location have been carried out, these
studies have largely focused on taxes, ignoring some important infrastructure variables
and their effects on economic development (Immergluck, 1993). A study conducted in
1970 in the metropolitan area of Detroit by Chamey attempted to identify several factors
affecting the location decisions of ﬁrms. The results of Charney’s study showed that
water and sewer availability was an important factor considered by ﬁrms before deciding
where to locate. Availability of a well-developed infrastructure is often considered as the
main advantage industrial regions or large city areas offer to relocating ﬁrms. The

location decisions of automakers such as Saturn (Tennessee), Mercedes-Benz (Alabama),

12

and Honda (Ohio) provide an insight about the important role infrastructure plays when
ﬁrms make location decisions. Sufﬁce to say by now, that infrastructure availability was
a major concern for these ﬁrms during this decision making process. These examples are
explored further in the literature review section of the paper.

F tom the public policymaker standpoint, a question to study and answer is
whether the location of Saturn in the city of Spring Hill, Tennessee, Honda in Ohio, and
Mercedes-Benz in Tuscaloosa, Alabama actually promoted the economic development of
these regions. Furthermore, did these ﬁrms’ location decision create jobs, increase the
tax revenue base of the local government, further expand the economies of agglomeration
in the area, or increase residential development? These are important empirical questions
that only new research can answer. The available literature suggests that infrastructure is
an important factor ﬁrms consider when making location decisions. Areas served by
adequate infrastructure usually attract new development. The availability of
infrastructure stock permits ﬁrms to minimize beneﬁts and maximize proﬁts.
Consequently, ﬁrms can be more competitive and capture greater market share
(Irnmergluck, 1993). On the consumers’ side, buyers also prefer houses that are served
by water and sewer systems for they are more reliable, healthier and safer (MSPO, 1995).

The availability of sewer and water services, as well as other infrastructure, are
paramount factors that inﬂuence the location decisions of ﬁrms. However, it must be
said that closeness to markets for a particular ﬁrm’s product, availability of an educated
or trained labor force, closeness to raw materials, existence of agglomeration econorrries,
and transportation costs are some other variables that play a role in the location decisions

of ﬁrms (Marvel, 1993). Needless to say, good quality infrastructure can decrease the

13

costs of these factors and affect total costs of production. For instance, good educational
infrastructure permits for a well-trained work force to be available, decreasing ﬁrms’
training and searching costs of qualiﬁed personnel. Well-developed and maintained
highway infrastructure decreases transportation costs for goods can reach their
destinatiOn much quicker, reducing wages paid to drivers and truck wear.

Annexation, Jurisdictional Boundaries and RA. 425.

The deﬁnition of annexation in the current literature provides an insight as to how
the law making process can be manipulated to the beneﬁt of some stakeholders. Banks
(1988) supports this assertion in a report he wrote for the Michigan Municipal League in
1989. Banks states that “the personal opinions of property owners inﬂuence decisions
too easily” in the process of annexation. Even though the deﬁnition of annexation
highlights the “economic development” of communities as an important goal, such a
policy tool is more concerned with providing a solution to the ﬁnancial problems cities
were facing as the suburban movement expanded even further. Annexation is deﬁned as
“the means through which a city expands its geographical borders by capturing nearby
township property to accommodate urban population growth or to stimulate economic
development” (Pan, 1988). It provides the legal setting for central cities to expand their
boundaries and appropriate adjacent township property. As an obligation, cities would
have to provide public services such as sewer and water, police and ﬁre services to the
annexed communities. In general, most townships lack the infrastructure to handle the
increasing demand for urban type public services. By allowing central cities to expand
and provide the services needed by most suburban commrmities, policymakers hoped that

these communities would attract residential, commercial, and industrial development.

14

Annexation however, has been long opposed by most townships. Why do townships
oppose annexation, even though it would provide services needed to spur economic
development? Township ofﬁcials often state that higher taxes, destruction of the rural
character of the land, and loss of independence as the most important reasons against
annexation (Pan, 1988). However, at the root of the problem there are two important
reasons. The ﬁrst reason is money, a twofold argument. Small or suburban communities
pursue economic development as a means to expand their tax revenue bases, and improve
their ﬁnancial health. When a land area of a township is annexed, property tax revenues
assessed on the annexed land go to the city coffers, rather than'the township coffers.
From the standpoint of a township, annexation means loss of both tax revenues and land.
The second reason is a political boundary argument. As the city expands its limits, a
more heterogeneous mix of people is obtained. Large minorities in the cities argue that
incorporation of these suburban communities actually dilutes their voting strength, thus
translating annexation into loss of political power (Muller, et a1, 1976).

Another argument often cited by township ofﬁcials against annexation is that
citizens and businesses being attached to the city are not given the opportunity to vote on
the issue. This has proven to be an important source of disagreement for annexation
results in higher taxes to citizens and businesses in the annexed land to ﬁnance increasing
wages for municipal employees, and police and ﬁre services costs (Muller, 1976). The
passage of the Michigan Charter Township Act in Michigan, which grants legal
protection against armexation to charter townships, ﬁrrther complicated this problem.
Not surprisingly, the annexation process has been the source of simmering conﬂicts

between different units of government in Michigan (Harvey, et a1, 1997). This

15

Conclusion evidences the need for a policy instrument that addresses the problem of tax
revenue losses inherent to annexation. Such a tool is the Conditional Land Transfer
Agreement Act, or PA. 425, as it is popularly known.

The Conditional Land Transfer Agreement Act.

The “Conditional Land Transfer Agreement Act” (P.A.425) is a unique policy
instrument that permits communities to encourage their economic growth without the
traumas and costs associated with the process of annexation. The act originated when the
General Motors plant in the city of Flint, Michigan needed to expand its manufacturing
operations, but they were constrained due to the lack of suitable land. Arr adjacent
township, Genesee, had an industrial park vacant that suited the needs of GM. The city
and the township sat down and negotiated an agreement to transfer the land from the
township to the city in exchange for a share of the tax revenue collected. Though an
economic recession forced GM to drop its plant expansion plans in Flint, the negotiation
of a land transfer agreement was recognized as a landmark process in Michigan. Many
Michigan legislators observed the potential of a law permitting the transfer of land could
have as a means to spur economic development. They also viewed the land transfer
agreement as an alternative to the often bitter process of annexation. Land transfer
agreements create an environment of mutual cooperation because both parties to the
contract beneﬁt. In other words, it is a “win-win” situation, which markedly contrasts to
the “winner takes it all” perception of annexation (Martin, 1988). Harvey states that by
changing the structure of the incentives (from annexation to land transfer), the legislation
turned the win-lose situation of annexation to a win-win situation (Harvey, et a1, 1997).

For the city, the beneﬁts of transferring land can be translated into land for industrial

l6

expansion. For the township it means a share of the increased tax revenues collected by
the city on the land transferred.
Provisions of RA. 425 Agreements.

Several provisions of RA. 425 should be highlighted to assist in clarifying the
importance of the land transfer as a policy instrument. An important condition is that
there must be an economic development project planned to allow for such a transfer to be
executed. The kinds of projects accepted by RA. 425 could include residential
development, industrial park development, and port improvements. The time period by
which the property is being transferred from one unit of government to another cannot
exceed ﬁfty (50) years. Nevertheless, the act also establishes that the contract can be
renewed at the end of the period, provided that both parties agree to an extension. The
act also requires local legislative bodies to hold one public hearing before approving the
contract. In addition, the contract must be approved by a majority vote of legislative
bodies of both contracting parties. The major attraction of PA. 425 to townships is the
sharing of revenues collected according to a mutually agreed formula. This ﬂexible
provision negates the often expressed concerns of township ofﬁcials over the loss of tax
revenue. The contract itself is constrained by some provisions (Harvey, et a1, 1997). It
must have the following components: (1) method by which the contract could be
rescinded or terminated before the agreed expiration date, (2) a way of employing,
engaging, compensation, transferring, or discharging personnel required for the project,
(3) a method of collection, responsibility of charge and rental fees (if any), and method of
enforcement, should any of the parts not abide by the agreed terms of the contract, (4)

the manner in which purchases shall be made and contracts entered into, (5) statement

17

specifying whether gifts, grants, assistance funds, or bequests will be accepted, (6) a
provision addressing liabilities and insuring against any such liabilities that may be
incurred during the contract, (7) any other matter considered important to be in the
agreement contract by the involved units. In this last provision, the municipal services
being provided are fully identiﬁed as a means to reduce any possible conﬂict in the
future.

The approval of a PA. 425 agreement also conveys some obligations to both
contracting parties. The recipient government of the transferred land is obligated to
provide the speciﬁc public services described in the contract. This same unit of
government must pay the agreed share of the taxes in the “sharing revenue provision” to
the other party in the agreed manner. Usually, this provision states that the share should
be transfer to the recipient unit in no more than a month and half after they have been
collected. The residents of the parcel being transferred acquire the responsibilities of any
other citizen of the unit they are being transferred to. These obligations apply
particularly to taxes, and other payments associated to the provision of some other public
services. In addition, residents in the land transfer area are entitled to the full range of
beneﬁts, or city services.

There are two successful reported cases in Michigan that illustrate the
effectiveness of PA. 425 in achieving its objectives. The ﬁrst one is a P.A. 425
agreement between the village of St. Charles and Swan Creek Township; the second one
is a P.A. 425 contract between the City of Standish and Lincoln Township. In the ﬁrst
case Thompson Boat, a boat manufacturing ﬁrm and the largest employer in the city of

St. Charles needed to expand to meet the increased demand for its products. The current

18

location of Thompson’s factory, adjacent to a residential area, made expansion
impractical at such location. Swan Creek Township had a parcel of land that could
accommodate the expansion of the facility. The township, however, lacked the monetary
resources to provide the improvements needed to the site, public services and additional
infrastructure. Faced with these problems, local ofﬁcials of both units of government sat
down at the table and worked out an agreement in which 60 acres of land would be
transferred to the city of St. Charles. The township would use the tax increment
ﬁnancing to provide the improvements needed for a certiﬁed industrial park. In the end,
the ﬁrm expanded its facilities, the township obtained additional revenues, and both
communities beneﬁted from the 200 new jobs created by the expansion. In the second
case, economic development of an area south of city of Standish, Lincoln TOwnship was
constrained because of the lack of sewer and water services. The State of Michigan
owned the parcel and plans had been made to build a prison facility on it. Perrrritting the
city of Standish to annex the aforementioned parcel of land did not pose any problem to
the State. On the contrary, it would force the city to provide the needed services for the
prison facility. Using annexation as a means to provide the needed services, however,
meant that the city would end up getting all the beneﬁts, while Lincoln Township would
not share in the additional revenues. The State encouraged the city and the township to
work out a PA. 425 contract. The agreement transferred the land from the township to
the city. The contract permitted the township to continue to receive revenues from the
transferred land area. To cooperate even further in the economic development of the
region, the state extended water and sewer lines to the parcel of land, making these public

services available to the community and the prison facility. In the end, both the City of

19

Standish, and Lincoln Township gained beneﬁts as new jobs were created, public
services provided, and economic development fostered (Perlberg, 1990). These are two
good examples of successful negotiating processes. Even though there are transaction
costs associated with transferring a parcel of land, the parties to the agreement get some
tangible beneﬁts as increased tax revenues, and enhanced intergovernmental relations.
The beneﬁts derived from PA 425 agreements are the opposite from the performance
achieved through annexation procedures. Perlberg stresses the point by saying that it is
not too hard to agree to a P.A. 425 agreement when the alternative option means that both
units would end up worse off (Perlberg, 1990). Some important costs inherent to PA. 425
agreements are the transaction costs present in any process of negotiating, the loss of
community identity, and the loss of sense of community on the parcel transferred. In
regard to transaction costs, the provisions of the Act establish that the legislative bodies
of both parties must hold a public hearing before a contract can be approved.
Furthermore, the contract must be approved by the majority vote of the legislative bodies
of the parties to a contract. Sometimes, the costs of reaching a favorable decision with
these two provisions in place can be so large as to discourage any unit of government to
get involved in a PA. 425 contract. The land extension or size of the contracting units,
and the size and population of the parcel being transferred, seem to be important factors
affecting the type of decision made and the time needed to reach such a decision. The
identity and sense of community can also be affected when a parcel of land is transferred.
Since the transferred parcel depends on the recipient units for taxation, service provision,
and other purposes, residents of this land may soon forget their ties to the original

communities. The sense of community may be lost when the parcel of land (a small

20

parcel) is transferred to a bigger unit of government, expanding its boundaries, and
having more peOple in what once was a small community. Many PA. 425 contracts last
up to the maximum length of 50 years. The average length of the 130 PA. 425 contracts
on ﬁle is 36.4 years. The length of the contract period raises some important public
policy questions. For instance, upon contract expiration, ofﬁcials dealing with the
acceptance or return of the land involved in the agreement will in most cases not be the
same group that executed the initial contract. The problem could be even worse when the
“conditional transferred” parcel of land gets reverted to the original unit, and no plans
about receiving the land were made. Furthermore, once a contract is fulﬁlled, residents
may not want the land in the contract to be reverted to the township or unit of
government. In this sense, ofﬁcials must be aware of this possibility, and its
consequences.
The Nature of the Problem

The nature of the problem of annexation is that it ignores certain important issues
to the community being annexed. First, the problem of loss of tax revenues and land area
linked to annexation. Uncertainties are in place if a community encourages its economic
development only to have the growth captured by another community. Second, the only
legal tool available to stop any attempts of annexation is appealing to courts. This
provision makes annexation processes traumatic, bitter, and costly. Third is the issue of
the political costs of annexation, as pointed out by some researchers. Large minorities in
the city may feel that their voting power is diminished when different communities are
attached to their cities. Therefore, annexation is translated into a more heterogeneous

vote, which can be translated into loss of political power. An important question that

21

needs to be answered about the nature of the problem of annexation is the following: how
does PA. 425 change the aforementioned costs? The provisions of the Act eliminate the
costs associated with loss of tax revenues and land by permitting the share of tax
revenues, and by prohibiting annexation of the transferred land while agreements are in
force. In regard to the political costs via loss of vote homogeneity, it is very likely that
PA. 425 will not eliminate these costs as integration among communities is a dynamic
process the necessarily brings about changes in perceptions about political issues and
choices.

Policymakers in Michigan needed to ﬁnd a solution to the problems related to
annexation, and come up with a new policy instrument that not only solved these
problems, but also encouraged the economic development of communities. The
Conditional Land Transfer Agreement Act was their answer to the problem of
annexation. P.A. 425 made this possible by altering the structure of the rule, and
affecting its performance. The two examples addressed earlier suggest that PA. 425 does
change the structure of the incentives, facilitating the merging Of communities and the
provision of needed public services for economic development. Currently, no formal
research to uncover the effects of RA. 425 has been conducted in Michigan. This paper
is an attempt to reveal those effects, and provide policymakers with an evaluation of such

_ a policy tool.

22

Chapter Two: Literature Review.

To assess the effectiveness of the “Conditional Land Transfer Agreement Act” as
a public policy tool to promote the economic development of communities, the literature
available on the subject of public services and its relationship with econOmic
development needs to be reviewed. Other crucial subject for the purposes of this research
is the relationship between ﬁrms’ location decisions and public services availability (i.e.
does the availability of these services affects location decisions of ﬁrms?) A third
important topic to be reviewed is the presence of economies of scale or size in the
provision of public services such as sewer and water. Econorrries of size in public
services provision can affect ﬁrms’ decisions about pricing of ﬁnal products. All these
topics are important for the purposes of this paper, as previous research may have
established a link between infrastructure and community economic development.
Infrastructure as a Factor of Production and Economic Development.

Public capital can affect economic activity by several means. Public capital can
enter the production process of a ﬁrm as an unpaid factor, affecting both ﬁrms’ output
and productivity (Eberts, 1986). Infrastructure can enter production processes either as
an unpriced or priced factor of production or input. II‘E’ESIIUCIHI‘C such as streets,
bridges, and highways are usually unpriced unless of course, tolls are imposed. On the
other hand, sewer and water services are usually priced inputs. Public infrastructure is
used as a factor of production at lower costs than any other substitute because of the
characteristic of “publicness” of infrastructure services (Immergluck', 1993). Therefore,

adequate infrastructure enables ﬁrms to maximize proﬁts and rrrinimize costs, and be

more competitive in the market place. Conversely, absence of infrastructure can have

23

detrimental effects on economic activity. Ronald Moomaw (1995) claims that units of
government must compete among themselves to attract private investment. Inadequate
road infrastructure capacity that leads to more trafﬁc congestion, and saturated or
unavailable sewer and water systems impose real economic costs on ﬁrms, resulting in a
lower ability to compete against other ﬁrms located in better served areas. Frequent road
congestion increases total costs by raising shipping costs of goods and fuel consumption.
The unavailability or restrictions on sewer and water connections may also increase
ﬁrms’ production costs, as these inputs would have to be purchased at higher prices from
other suppliers. Public capital can also inﬂuence the location decisions of households
and ﬁrms and increase the agglomeration economies of a particular region.

Randall W. Eberts (1986) research on the subject of infrastructure and economic
development pinpoints a relationship between these two variables. Ebert’s research
estimated components of public capital stock for 38 metropolitan areas in the United
States using the perpetual inventory model. The model considers public capital as input
into a translog production function. The estimates of marginal productivities, returns to
scale, and elasticities in the model provide information about the effect of public capital
on output and the technical relationship between inputs. In the end, Ebert concludes that
public capital stock contributes signiﬁcantly to manufacturing output in the sampled 38
metropolitan areas. Second, the contribution of public capital is much less than the
contribution to output done by private capital and labor. The contribution of public
capital to output was not adjusted in this research to reﬂect the characteristics of
“publicness” of public capital. Third, public capital and labOr are complementary inputs.

Private capital and public capital, and private capital and labor, are substitutes. Ebert also

24

claims that public capital is a condition for future expansion in manufacturing ﬁrms.
This conclusion is supported by the ﬁnding that inﬁ'astructure and manufacturing
employment are complementary inputs in the production function of the regions under
investigation. Ebert concludes his research asserting that the economic grth of the
regions is affected by the growth rate of public capital.

A study conducted by Biehl (1991) in several country members of the European
Community explores the relationship between infrastructure and economic development
as well. The method used by Biehl is the regional development potential approach
(RDPA). In this approach income, productivity, and employment levels of regions are
considered indicators of regional development. Biehl argues that infrastructure, along
with other factors such as location, agglomeration economies, and sectoral structure are
the main factors that determine the potential for development of a particular region. Biehl
deﬁnes these factors as follows. Location refers to the closeness of a region relative to
the centers of economic development. Agglomeration refers to the spatial concentration
of population, producers, and consumers in a particular area. It affects development for
more agglomerated regions present lower transportation and communication costs, and
therefore are more attractive to industrial facilities and manufacturing ﬁrms. However,
an Optimal degree of agglomeration is needed for these gains to be achieved. After this
optimal point or degree has been exceeded agglomeration economies can actually
increase total costs. Total costs are increased by negative external costs such as
pollution, time losses, and stress. Sectoral structure captures the relationship between
the size of agricultural, industry, and service sectors and the level of development of the

region in terms of income per capita, employment, and productivity. The underlying

25

argrunent is that low income regions typically present a higher share of agriCulture in
their economic structure, whereas high income regions have declining ratios of
agriculture and industry (or cOnstant), and increasing service sector ratios.

Biehl’s main argument is that regions endowed with a well-developed
inﬁ'astructure capacity increase the productivity of private investment and reduces private
costs. Industry and ﬁrms located within these well-endowed regions have a competitive
advantage over industry established on less endowed areas. Such an advantage shows up
in higher regional GDP per capita, and higher employment levels. From this standpoint,
productivity, income, and employment are an increasing function of the infrastructure
endowment of a region. In his research Biehl uses a quasi production function (QPF)
where infrastructure, location, agglomeration, and sectoral structure are considered
exogenous variables and the dependent variable is represented by one development
indicator (i.e. income). The general form of the QPF is speciﬁed as follows RDP = f (I,
L, A, S), where RDP is deﬁned as the regional development potential of the region, I is
infrastructure, L is location, A is agglomeration, and S is sectoral structure. In this
research the concept of infrastructure is expanded to include such categories as
environmental inﬁastructure (sewage, water, waste composting, incinerating), health,
social, and cultural infrastructure. Not surprisingly, the results of the study show that the
majority of the regions fell into either the “over-utilization” or “under-utilization” of
infrastructure category despite the QPF used. Nevertheless, the important ﬁnding of
Biehl’s research is that all the highly developed, agglomerated and well-developed
inﬁ'astructure regions were classiﬁed under the “over-utilization” category. Less

developed and less well infrastructure endowed regions fell all into the “under-

26

utilization” category. Biehl claims that such a ﬁnding supports his hypothesis that better
infrastructure endowment of regions increases their productivity potential. As a result,
these regions are more attractive to ﬁrms and labor. Randall Eberts (1988) refers to a
study conducted by Mera, which also reached a similar conclusion on the effect of public
infrastructure on regional economic grth for the United States. Mera examined the
patterns of economic development of the nine US census regions in the period from 1947
and 1963. He concluded that more-developed regions were growing as a result of public
infrastructure growth. Less developed regions, on the other hand, were growing because
of technological growth.

The Michigan Society of Planning Ofﬁcials’ working paper entitled “Water,
Sewer and other Infrastructure Trends” published in 1995 also highlights the importance
of the role of infrastructure in economic development. The paper concludes that the
economic prosperity of regions relies upon the provision of a solid inﬁ'astructure capacity
that can handle the increasing demand for public services associated with economic '
development (MSPO, 1995). The report also states that land use heavily depends on the
capacity of infrastructure systems to accommodate new growth. The relationship is such
that if infrastructure systems cannot handle additional growth or development, the
systems become inefﬁcient. As infrastructure systems become increasingly inefﬁcient,
the more expensive they become in terms of lost time, wages paid to workers to repair
failed systems, and resources used. New development will often try to locate in places
that already have infrastructure capacity to satisfy its demand for public services. New

development also will locate where these inefﬁciencies are absent, or minimized.

27

Available efﬁcient infrastructure will often attract new development for it provides the
needed services, and resources are available at known costs (MPSO, 1995).

An infrastructure study conducted by Bergman and Sun (1996) for North Carolina
counties also shows interesting results. It must be pointed out ﬁrst that the state of North
Carolina “has traditionally” depended on infrastructure development to encourage
economic growth. In the research infrastructure components are entered as co-production
factors in a Cobb-Douglas type production function. Bergman and Sun speciﬁed the
model as follows:

DEW/L): 130 + (51+Bz+1)108L + 1321080014) + 27090ng

Where Y, L, and K are output, labor and capital respectively. X, is the ith
infrastructure component, and or’s and [3’s represent the elasticities of the indicated
factors within the respective parenthesis. These parameters indicate the percentage
change in productivity due to a one percent change in infrastructure investment. The
results of the model indicate that a higher productivity is observed in the most urbanized
counties. The coefﬁcient of manufacturing productivity showed that one percent increase
in capital per worker, increases output per capita by 0.34 percent. An important ﬁnding
of Bergman and Sun study is that sewer and water capacity did not show any signiﬁcant
effects on productivity. Bergman and Sun concluded their research stating that overall
average labor productivity in the most highly urbanized counties is higher. This
conclusion also highlights the important role that agglomeration economies play in the
economic development of communities. The issue of agglomeration econorrries is
discussed in more detail in the review of ﬁrm location decisions and infrastructure.

Infrastructure availability acts as an incentive to ﬁrms to locate in determined areas.

28

Alice H. Munnell (1992) asserts that public infrastructure enables private ﬁrms to
produce their products at lower total costs. Consequently, the impact of infrastructure on
private sector output and productivity can be considered large. In her study, Munnell
analyzed the relationship between public infrastructure and economic performance in the
48 contiguous states in United States and identiﬁed three important factors. First, the
production function used in her model showed a signiﬁcant positive impact of public
capital on output. The output elasticity of public capital in the model was 0.15. Such
elasticity coefﬁcient indicates that one percent increase in investment in public capital,
increases regional output by 0.15 percent. The second ﬁnding Munnell reported refers to
whether public capital “crowded out” private capital investment or not. According to her
results, public capital investment actually stimulated private investment. Third, Munnell
found a positive and signiﬁcant relationship between public investment and employment
growth. She concludes that her results indicate that output, investment, and employment
grth show a positive relationship with public capital investment.

Ronald L. Moomaw, John K. Mullen, and Martin Williams (1995) analyzed state
estimates of the impact of public capital on regional output using a translog production
ﬁmction. Labor, private and public capital are entered in the production ﬁrnction as
separate inputs to “avoid the bias inherent in a Cobbeouglas speciﬁcation”. The data set
used corresponds to data on the already speciﬁed variables for the years 1970, 1980, and
1986. Highways, water and sewer systems, and other types of public capital are entered
as separate inputs in the production model so that their individual roles in determining
regional output can be observed. The results of MoOmaw’s research indicate that

aggregate public capital (i.e. highways and water and sewer systems) positively affect

29

states’ output. The output elasticities of water and sewer systems ranged from 0.0003
(Vermont) to 0.23 (Pennsylvania). In the Great Lakes region, four of the twelve states
(Ohio, Indiana, Illinois, and Michigan) recorded larger output elasticity coefﬁcients than
those found by Munnell’s research. In Michigan, such coefﬁcients were 0.1865 in 1970,
0.1312 in 1980, and 0.2261 in 1986. The researchers conclude that water and sewer
systems have a larger impact on output than highways and other public infrastructure. In
this regard, policies aimed to encourage the economic development of the Great Lakes
region may offer better results if investment is devoted to upgrade or construct sewer and
water facilities rather than highways. The authors also stress the point that due to
regional variations in these coefﬁcients of output elasticities, public policies intended to
promote regional economic development should take into account the impact of each type
of public capital on output.

The literature reviewed so far has documented only cases or studies conducted in
the United States and developed countries. The next portion of the review will address
some research conducted in some developing countries. The main sources for this review
are the 1993 World Bank Discussion Paper entitled “The Contributions of Infrastructure
to Economic Development” by Christine Kessides and “Infrastructure Development for
Economic Growth” edited by M.V Srinivasa Gowda and Susheela Subrahmanya.

In her 1993 report to the World Bank Kessides makes reference to some
landmark previous work on the topic of infrastructure and economic development. For
example, Kessides refers to a study conducted by Easterly and Rebelo in which both
historical time series and cross-country data on 28 developed countries is assembled to

determine the relationship between public capital investment and GDP. The authors’

30

ﬁndings Show a strong positive correlation between transport and communication
investment and growth. A study carried out by Binswanger in India is also referenced by
Kessides. In this study, Binswanger analyzed cross-country time data in 1987 and
cross-district data in 1989 in India to determine the effects of roads on agricultural
output. The results of the study indicated that roads have a strong positive effect on
aggregate agricultural output. Furthermore, availability of electricity/power also seems to
affect the decisions of ﬁrms and households regarding farm investment. Srinivasa (1997)
afﬁrms that infrastructure plays several roles in the economic development of
communities because it is essential for households, ﬁrms and governments to function.

In addition, he argues that success in economic activity depends upon the adequacy of
infrastructure to support such success. Srinivasa says that the 1994 World Bank
Development Report reveals a positive link between infrastructure and economic
development, measured as changes in the level of GDP. In the report, the World Bank
study shows that a one percent increase in the stock of infrastructure yields a one percent
increase in GDP across all countries. In addition, the provision of public infrastructure
helps to protect the environment. Environmental inﬁ'astructure such as clean water,
sewer, solid waste disposal, and management of trafﬁc in urban areas, among others,
provides environmental beneﬁts to society as a whole. Environmental infrastructure leads
to cleaner air and water, factors that in turn lead to a healthier and more productive
population. This argument is supported by Kessides (1993) in her report to the World
Bank as well. She afﬁrms that inadequate infrastructure can affect individuals’ health,
labor productivity, and quality of life. Water sanitation is a major ﬁeld in which the

effects of adequate infrastructure can be observed. AS safer water is provided, morbidity,

31

child mortality and risks of getting sick by water-borne diseases such as diarrhea are
decreased. It is important to mention that in order to accomplish these goals of
improving people’s quality of life, it is necessary not only to have adequate infrastructure
to deliver safe drinking water, but also adequate water sanitation facilities. Water
sanitation infrastructure makes the water safe for human consumption and renders
wastewater less harmful by treating it before release into natural ecosystems. Another
study cited by Kessides that is that conducted by Devarajan, Swaroop, and Zou in 1993.
This research however, reached opposite conclusions to those obtained by Kessides, and
the authors previously referenced. The study was conducted in 69 developing countries
and looked at GDP grth and investment in transportation and communications in a 20-
year period. The authors of this study found a negative and statistically signiﬁcant
relationship between investment in transportation and communications and GDP growth.

Most of the previously referenced studies pinpoint a strong positive relationship
between infrastructure and economic development. The provision of adequate
inﬁ'astructure encourages the economic development of communities for public
infrastructure has a positive effect on output, affects the location decisions of ﬁrms, and
therefore employment. Firms are attracted to areas already being served by public
services because adequate infrastructure (i.e. water and sewer) is used as input in the
production process and allows ﬁrms to maximize proﬁts and minimize costs. The work
of Ebert Randall, Biehl, and Mera, among others, highlighted the linkage between

inﬁ'astructure and economic development.

32

Infrastructure and Firm Location Decisions.

The previous section contained mostly research that establishes a link between
inﬁastructure and economic development. The goal of this section is to demonstrate that
infrastructure availability plays an important role in the location decision of ﬁrms. The
hypothesis guiding this segment can be stated as “municipalities with well-developed
inﬁ'astructure are more attractive locations to different types of ﬁrms than are areas with
less developed infrastructure”. In this regard, some research conducted in the United
States is reviewed next so that the link between inﬁ'astructure and location decisions of
ﬁrms is unveiled.

A study conducted by Alberta Chamey (1983) on the effect of local taxes as a
factor affecting the location decisions of ﬁrms in the three county metropolitan area of
Detroit between 1970-1975 is a milestone research. The research’s model is built on the
assumption that ﬁrms are proﬁt maximizers and therefore ﬁrms’ location decisions are
directed towards ﬁnding sites that permits ﬁrms to maximize total revenues over total
costs. Charney’s research also investigates on the relationship between infrastructure and
ﬁrms’ location decisions. The model used by Chamey states that manufacturing ﬁrms
require, among other inputs to their production process, public services such as water and
sewer. She also claims that the availability of water and sanitation services is a very
important consideration in the selection of a determined site by many industries. In
Charney’s investigation, the dependent variable is deﬁned as the ratio of locating ﬁrms to
land area in the jurisdiction being researched. In addition, proximity to highways and
sewer and water are also included as independent variables. The proportion of all land

served by sewer and water trunk lines deﬁnes the sewer and water independent variable.

33

Irnmergluck (1993) afﬁrms that sewer and water trunk lines can not be considered
equivalent to sewer and water net asset value. However, he agrees on that “it seems to be
a reasonable variable” that can capture the net value of these assets for the purposes of
Charney’s study. The ﬁndings of the study are as follows. The water and sewer
coefﬁcient and t-test results in the model’s regression show a positive and signiﬁcant
relationship at the one percent level of signiﬁcance of this variable. For all ﬁrms, an
increase of one percent in the ratio of sewer and water acres to total land results in a
0.476 percent increase in the ratio of relocating ﬁrms to total land. The variable
closeness to highways shows a signiﬁcant and surprisingly inverse relationship with the
dependent variable. Proximity to highways is signiﬁcant in this study at the 10 percent
level of signiﬁcance. Chamey gives no explanation for this ﬁnding. The property tax rate
variable shows an inverse relationship with the ratio of ﬁrm relocation. The t-test
indicates signiﬁcance at the one percent level and the coefﬁcient indicates a decrease in
2.45 percent of ﬁrms relocating in the area due to a one percent increase in property
taxes. High property tax levels in a community represent a disincentive to relocating
ﬁrms. Such a disincentive increases as frrrns’ size also increases. The explanation given
by Chamey of this ﬁnding is that property taxes represent a ﬁxed cost to ﬁrms. In other
words, ﬁrms have to pay such a tax regardless of whether they are making sufﬁcient
income to show a fair return. Consequently, property taxes take a larger share of a ﬁrm’s
gross revenues in bad times than in good times.

There are two reasons why the results of the study conducted by Chamey are
important for the purposes of this research. First, Charney’s study establishes an

empirical link between industrial location and public services availability, speciﬁcally

34

sewer and water and highways. Furthermore, it is demonstrated that the availability of
sewer and water services is considered an important factor by ﬁrms when making
decisions about where to locate. The second aspect of Charney’s research important to
mention is the inverse and signiﬁcant relationship found between the property taxes and
ﬁrms’ location decision variables. In this regard, communities seeking to encourage their
economic development but in need of expanding public infrastructure have to be aware of
the negative effects that increasing property taxes may have on industry relocation
decisions. Funding of inﬁ'astructure improvements entirely on property taxes may
increase the tax burden on existent ﬁrms within a particular jurisdiction and scare off
incoming businesses who may have considered the community an attractive location to
establish. In the end, the community may be left with a large bill forinfrastructure
improvements made and a decreasing tax base due to an increase in the number of
Outmigrating ﬁrms.

A study conducted by Erickson and Wasylenko (1980) in the city of Milwaukee
also shows a relationship between infrastructure and industrial location. Erickson and
Wasylenko assume that ﬁrms are rational economic agents and tend to maximize proﬁts.
They also brake down ﬁrms in two categories: manufacturing and retail and services
ﬁrms. Erickson and Wasylenko made such categorization based on the assumption that .
relocation decisions of manufacturing ﬁrms do not affect sales. Therefore, these ﬁrms’
objective is always to minimize costs of production. Retail and services ﬁrms’ costs and
sales on the other hand, are affected by relocation decisions of ﬁrms. These ﬁrms always '
tend to maximize proﬁts. The dependent variable of both models is speciﬁed as each

ﬁrm’s demand for land in one of the investigated 56 suburban cities and villages in the

35

Milwaukee SMSA. The independent variables included in the cost minimization model
(manufacturing ﬁrms) are the price of land, taxes, public services, and agglomeration
economies. For the proﬁt maximization model (retail sales and services ﬁrms) the
variables included are population density and per capita income. The expenditures of
municipalities on safety (police and ﬁre protection services) and services (streets and
sanitation) measure the public services variable in the former model. The results of
Erickson and Wasylenko research indicate that more than 50 percent of the variation in
the dependent variable is explained by each equation. Erickson and Wasylenko’s
research reaches some conclusions. First, agglomeration economies and availability of
labor are important factors attracting all industry sectors to any locality. Construction,
wholesale trade, and to some extent transportation, retail trade, ﬁnance, and services
ﬁrms tend to relocate in sites farther from the Central Business District (CBD).
Manufacturing ﬁrms, on the contrary, relocate near highways. Second, Erickson and
Wasylenko ﬁnd that taxes do not affect signiﬁcantly ﬁrm’s location deciSions. This
result is opposite to Charney’s ﬁndings in her research, where she determines taxes to be
an important factor inﬂuencing the location decisions of ﬁrms. Chamey claims that her
research avoids what she considers an empirical prOblem (insigniﬁcant taxes variable in
ﬁrms’ relocation decisions) encountered by Erickson and Wasylensko’s by dividing the
number of locating ﬁrms in a determined area by the land area of the jurisdiction
(Chamey, 1983).

Pascal and McCall, in their paper entitled “Agglomeration Eeonorrries, Search
Costs, and Industrial Location” (1980) also address the argument developed by Erickson

and Wasylenko that agglomeration economies inﬂuence the location decisions of ﬁrms.

36

Like Erickson’s paper, they argue that ﬁrms (especially young ﬁrms) locate where total
costs can be minimized. This is accomplished by locating where other prosperous ﬁrms
are already established. To explain such a behavior, Pascal and McCall argue that new
ﬁrms making location decisions face uncertainty about their own production function,
location of potential suppliers and workers, and customers. These factors are not clear at
the beginning for ﬁrms, rather they are known as ﬁrms engage in businesses and learn by
doing. The leam-by-doing process imposes some costs on ﬁrms. By following other
successful ﬁrms located in a determined area, newer ﬁrms diminish the costs of
assembling supplies and workers at an almost inﬁnite number of possible locations. In
summary, newer or younger ﬁrms have an economic incentive to locate where other
successful ﬁrms have already established, or agglomeration economies have been
realized. The economic incentive is represented by total costs diminished due to lower
costs of supplies, transport and information costs among other types.

General Motor’s Saturn division is an extraordinary good example of how sewer
and water availability inﬂuences industrial location. In January of 1984, GM announced
its plans to invest $ 3.5 billion in its newest division. Alter specifying how its factory
would promote economic development in the selected region (i.e. income and
employment created), GM also announced its conditions to build the factory in any
locality. The conditions established as “must meet conditions” the availability or supply
of four million gallons of water per day and a sewer system capable of handling 2 ‘/2 to 3
million gallons of discharge per day (Harrington, et a1, 1995). After approximately 1,000
proposals submitted to GM by municipalities across the country, the ﬁrm located its plant

in the city of Spring Hill, Tennessee, and distant just 35 miles from the Nissan factory in

37

Smyrna. The winning location, besides complying with the water and sewer
requirements, also offered both closeness to interstate highways and the advantage of
“economies of agglomeration” (Harrington, et al, 1995). The term “economies of
agglomeration” refers to other related industry already locatedin the area. For example,
Silicon Valley, California (electronics) and the city of Dearbom, Detroit (automobiles),
present econorrries of agglomeration. In Detroit, it is observed by the large number of
auto related ﬁrms (auto parts, tires, steering wheels, etc.) that have established and
ﬂourished in the region. Agglomeration economies is one of the main important factors '
that determine the development potential of a region (Biehl, 1991). Economies of
agglomeration permit the reduction of ﬁrms’ production costs though lower
transportation costs because of factory closeness. The consequences of such costs savings
are also translated into more competitive prices in local, as well as international, markets.
The importance of water and sewer availability for economic development is also
stressed by a study conducted in the United States claiming that 80 percent of US
communities cannot promote economic grth due to limitations in wastewater capacity
(Bamberger, et a1, 1985).

The location of Honda in Marysville, Ohio is another example of how
infrastructure and other economic incentives attract industry to certain areas. Marvel
reports that variables such as market location, good transportation systems, supply of
labor and parts, and industrial environment encouraged Honda to locate in Marysville.
The state of Ohio also offered an attractive incentive package to the automaker. The
package included $8 millions in upgrading local sewer and water facilities, $1.7 millions

in one-time site improvements, $35 millions in improvements to highways, and partial

38

property tax abatements. Marvel concludes that the direct economic beneﬁts of the plant
exceed the investment local and state government made at the initial stages of the project.

A The decision of the world famous automaker Mercedes-Benz to locate in
Tuscaloosa, Alabama also pinpoints the importance of infrastructure to ﬁrms when
making location decisions. Camp (1994) claims that some factors that inﬂuenced the
ﬁnal decision made by Mercedes were the good quality infrastructure provided by the
selected community, its quality of life, availability of a qualiﬁed work force, and some
other requirements that met the needs of Mercedes. The presence of agglomeration
economies via a strong network of automobile parts suppliers was also an important
factor considered. The last assertion highlights the importance of agglomeration
econorrries to ﬁrms when deciding the best place to locate their businesses. The author
also remarks the economics beneﬁts to local communities brought about by Mercedes’
decision, $7.3 billion for state and local governments as a result of the 1,500 jobs created
directly by the automaker and 13,500 jobs in supporting industries over a period of
twenty years.

The previous section of the paper reviewed some literature related to
inﬁ'astructure and ﬁrms’ location decisions. The ﬁndings of authors such as Alberta
Chamey, Erickson, Wasylenko, Pascal and McCall, Harrington, Marvel, and Camp
suggest that infrastructure availability is an important variable affecting the location
decisions of ﬁrms.

Economies of Size in Infrastructure and Economic Development
The presence of econonries of scale in the provision of infrastructure is an

important topic that needs revision too. In increasing returns to scale output increases in

39

greater proportion than input use (Browning, et al, 1996). There are some factors that
lead to increasing returns to scale. First, specialization of tasks or jobs allows workers to
perform more proﬁciently their work and increase the amount of output produced by a
ﬁrm. A second source of economies of size is arithmetical relationships. In this regard,
the circumference of a pipeline (and the amount of material needed to create a unit of
pipeline) is deﬁned to be equal to the constant (It) multiplied by twice the radius of the
pipeline. If the radius of the pipeline gets increased from one to ten feet, the pipeline’s
circumference is likely to increase by a factor of ten (and corresponding construction
costs), but its carrying capacity is increased by a factor of a hundred (Browning, et al,
1996). In conclusion, increasing returns to scale imply that average unit costs are falling
(AC '= TC/Q). What is the importance of increasing returns to scale in the provision of
infrastructure and some public services such as water and sewer? Increasing returns to
scale lower the average cost of providing infrastructure capacity in some public services.
In the previous section, it was pointed out that some infrastructure, especially sewer and
water, enters the production function of ﬁrms as paid factors of production. The
providing of these services at lower average cost per unit is likely to translate into lower
production costs for ﬁrms allowing them to be more competitive in the market place.
Nevertheless, economies of size in the provision of some public services (i.e. water) are
limited by the density of population in the area to be served (Tweeten, 1976).

A study conducted by Tweeten and Brinlanan (197 6) on individual services show
economies of size for police protection, air pollution control, ﬁre protection, sewerage,
and water services. In their study Tweeten and Brinkrnan claim that a 60 percent cost

reduction per million gallons per day (mgd) is possible if the size of water delivery

40

systems is increased from 5 mgd to 50 mgd. In addition, 50 percent savings can be
realized in water transmission by increasing the size ﬁom lmgd to 2 mgd. The authors
also make references to a research conducted in 1972 that studied 57 water systems
funded by the Farmer’s Home Adrrrinistration (FmHA). The study concluded that '
distribution systems investment cost per customer declined from $1,041 for water
delivery systems with 4.1 customers per mile (average) to $539 for systems averaging
30.5 customer per mile. Tweeten and Brinkman also claim that the role of infrastructure
in encouraging economic development is not very clear. Furthermore, they say that
industrial managers, when rating the importance of location factors, usually rank public
services below nearness to markets, availability of inputs, agglomeration economies, and
transportation. Though their conclusion downplays the importance of infrastructure as a
key a factor in the economic development of communities, it also highlights the
importance of agglomeration economies in ﬁrms’ location decisions. Furthermore,
researchers such as Biehl claim that agglomeration economies are a result of availability
of infrastructure, which makes locations more attractive to industry and ﬁrms.

A study conducted by Eftekhari (1983) tested for economies of size in the
provision of community services in rural Mississippi. Though Eftekhari’s research
comprises a wide range of public services, this paper is particularly concerned with the
author’s methods and results related to sewer and water services. The data used by
Eftekhari to build his model of water and sewer costs by city size was for the 1980 ﬁscal
year and obtained ﬁom the Department of Audit in Jackson, Mississippi. The data set
contained 261 observations on expenditures in sewer and water ﬁom many communities

in the selected area. Eftekhari hypothesized that a growing population and rising incomes

41

imposes greater demands on water utilities. The general model used by the author to test
his hypothesis is speciﬁed as follows:

LnTOw, = a + bLnX + u,.

Where:

TOws = total operating expenditures on water and sewer services;
X = population size;

a and b = parameters to be estimated;

u, = disturbance term;

Based on this general model, Eftekhari tried several different functional forms for
his analysis. He claims that both the linear and quadratic models did not behave as
expected, though he does not explain the reasons for the failure either. Consequently, the
general model was changed and a log-transformation of the observations was made. This
resulted in a higher coefﬁcient of determination for this model. The resulting equation of
these manipulations is TOws = e 0‘0” X "004. In this model the coefﬁcient of the log x is
interpreted as the estimate of elasticity. The obtained coefﬁcient of 1.004 indicates that
for every one percent increase in population, there is a 1.004 percent increase in water
and sewer expenditures. Eftekhari’s ﬁndings indicate that there is no presence of
economies of size in the provision of water and sewer services in rural Mississippi. He
concludes that the expectations of the study were to ﬁnd increasing expenditures at a
decreasing rate (that would pinpoint the presence of econonries of scale), rather than
increasing expenditures at an increasing rate. The reasons for such expectations lie on
the fact that sewer and water services are capital intensive services. Consequently,

overhead costs are spread over more units of output produced, and lower average cost per

42

unit can be realized. Eftekhari does not offer a possible explanation as to why this is the
case in rural Mississippi.

To the extent that economics of size are present in the provision of infrastructure,
lower average cost per unit of the service provided is expected. Firms behaving
rationally are ﬁrlly aware that any reduction in the cost of these inputs to the production
process is translated into lower production costs, which in turn leads to more competitive
prices and higher proﬁts.

This section of the paper reviewed the literature available on the subject of public
capital as a factor of production and its contribution to the economic development of
communities. Infrastructure enters the production function of ﬁrms either as an unpaid or
paid factor of production. The absence or lack of adequate infrastructure was shown to
increase the costs of production of ﬁrms. The chapter also explored the relationship
between infrastructure and the location decisions of ﬁrms and households. The literature
consulted indicated that infrastructure’s quality and availability was an important factor
to be considered by ﬁrms when making location decisions. Bielh argued that regions
with well-developed infrastructure have an advantage over other less well endowed areas.
In this regard, the presence of agglomeration economies in a particular region serves as
an attraction pole to relocating ﬁrms. The incentive to relocate where agglomeration
economies are present is economic in nature. Closeness to suppliers, and availability of a
trained labor force are only two of the factors that permit ﬁrms to minimize their costs of
production, thus maximizing proﬁts. Agglomeration economies can also increase ﬁrms’
production costs. Frequent trafﬁc jams, failing sewer and water systems and power

outages due to overburden infrastructure capacity impose a ﬁnancial burden on ﬁrms. In

43

the speciﬁc case of trafﬁc jams, total costs can increase due to higher wages paid to truck
drivers, as well as higher tear and wear rates of truck’s components such as tires, and
brakes. The presence of economies of size in the provision of public services was also an
important issue examined in the literature review section of the paper. Studies conducted
in the United States showed that scale economies in the provision of public services such
as sewer and water could be realized. The presence of economies of size in public
services allows for the average cost per unit to decrease, as more units of the service are
produced. Rational behaving ﬁrms realize that lower average cost per unit of service
represents a reduction in the costs of these inputs (i.e. paid infrastructure such as sewer
and water) and therefore lower total costs.

The objective of Michigan’s Conditional Land Transfer Agreement Act (MCLA
124.21-124.29) is to promote community economic development ina broad spectrum.
PA. 425 was also designed as an alternative policy instrument to municipal annexation,
which was becoming a common source of conﬂict between townships and cities in
Michigan. The Act recognizes that a principal problem of annexation is the loss of
property tax revenues to the party being annexed. A key provision of RA. 425 permits
the sharing of revenues between the parties to a contract, thus minimizing the problem of
revenue losses associated with annexation. The Conditional Land Transfer Agreement
Act recognizes two important issues as well. The ﬁrst issue is that community economic
development is dependent upon infrastructure. In order to initiate or accelerate the
economic development of communities, infrastructure needs to be provided. Second, it
recognizes that public services such as sewer and water, police and ﬁre protection, and

other municipal services can achieve economies of scale. The fact that these services can

be provided reliably and at lower cost attracts ﬁrms and peOple. In addition,
environmental infrastructure also affects people and businesses location decisions as a
cleaner and safer environment is usually associated with a better quality of life. The
Conditional Land Transfer Agreement Act makes available the provision of public
infrastructure without the inherent problems of annexation. Inﬁastructure availability
encourages community economic development. In this chapter, it was argued that
inﬁastructure investment encourages the economic development of communities by
several means. First, infrastructure is used in the production process as either an unpaid
or paid factor of production, affecting ﬁrms’ output and productivity. Consequently,
adequate infrastructure permits ﬁrms to maximize proﬁts and minimize costs. Second,
infrastructure has been found to be a factor affecting both the location decisions of ﬁrms,
and the level of employment of the communities where ﬁrms decide to locate. Research
conducted in the United States have shown that availability of infrastructure such as
sewer and water, electricity, and highways, allow ﬁrms to minimize production costs as
well. For example, well-developed and maintained roads and highway networks permit
ﬁrms to transport their products in less time (by decreasing costs of drivers’ wages) from
factories to distributors or resellers. As a result, ﬁrms have incentives to locate at places -
where these types of infrastructure are available so that production costs are minimized.
The location decisions of automakers such as General Motors’ Saturn, Mercedes, and
Honda are examples of the importance of inﬁ’astructure to ﬁrms before deciding where to
locate factories, production lines, or plants. Third, infrastructure provision can achieve
economies of scale. To the extent that economics of scale are realized, average costs per

unit of public services decrease as more users are added to the service. From the ﬁrms’

45

standpoint, lower costs of inputs can be translated into lower costs of production, and
therefore larger proﬁts.

The Conditional Land Transfer Agreement Act is a public policy tool with the
potential to encourage the economic development of communities by providing public
inﬁastructure without the threats and problems of annexation, and at lower average costs
per unit of service provided. Lower costs of production can be translated into more
competitive products. Available infrastructure also acts as an incentive for ﬁrms to
relocate where these services are available, encouraging the development of
“agglomeration economies” in the area being serviced. The beneﬁts of “agglomeration
economies” not only are to be enjoyed by producing ﬁrms, but also by local economies
and units of government which can increase their revenues. However, care must be taken
as the capacity of public services is not to be exceeded for the quality of services being
provided can be affected negatively. Real economic costs can also be impose on ﬁrms

due to unreliable infrastructure or services that can disrupt production processes.

46

Chapter fﬂrree: Research Methodolegy.

Chapters 1 and 2 presented both the background and the literature review on the
paper. The literature reviewed referred to previous research conducted in both the United
States and other countries unveiling the relationship between infrastructure and
community economic development. The present chapter describes the methodology used
in this research to investigate the role that Michigan’s Conditional Land Transfer
Agreement Act (MCLA 124.21-124.29) has played in the economic development of
communities located on parcels of land transferred under the prOvisions of Act since
1984.

The objective of the paper

The objective of the paper is to evaluate the effects PA. 425 legislation has had
on the economic development of communities located on parcels of land transferred
according to the provisions established by such a statute. The research will focus on the
130 registered agreements that have been executed in the State of Michigan since the Act
was enacted in 1984. In order to accomplish such objective, data on economic growth
indicators pinpointing any economic development changes in these communities needs to
be generated. The ﬁnal goal is to draw conclusions from the collected data to answer the
question of whether such economic growth resulted ﬁ'om the execution of PA. 425
agreements. The hypothesis to be tested is speciﬁed next.

Hypothesis

The Conditional Land Transfer Agreement Act encourages the economic

development of the communities located on parcels of land transferred under the

provisions of the Act.

47

Sample Size and Sampling Procedures

The sample size for the research is set at 20 contracts executed and registered with
the Ofﬁce of the Great Seal of the State of Michigan between 1985 and 1997. The
universe from which the sample is being drawn is composed of 130 registered contracts
as of October of 1997.

The method used to select the sample units for this research is stratiﬁed
non-random sampling procedures. Stratiﬁed non-random sampling is used due to the
advantages such technique offers. Stratiﬁed sampling is a technique used when certain
speciﬁc units need to be included in the sample, resulting in a reduction of the overall
sample variability. This sampling procedure also increases the precision of statistical
estimates by maximizing the variability between strata and minimizing the variability
within strata. On the other hand, the use of random sampling procedures in this research
would have given an equal probability to each of the registered contracts to be picked out.
Nevertheless, due to the small number Of both contracts rescinded and contracts
completed in the universe of agreements available, using random sampling would have
resulted in a small number of these contracts being selected. As a result, these two types
of contracts would have been misrepresented in the sample. To minimize this possibility,
all registered contracts were classiﬁed in three different groups: “contracts rescinded”,”
contracts completed”, and “contracts in force for more than four years”.

As of October of 1997, six PA. 425 agreements had been rescinded and reported
to the Ofﬁce of the Great Seal of the State of Michigan. The Conditional Land Transfer
Agreement Act (MCLA 124.21-124.29) was originally designed as a legislation that

would provide economic gains to both parties to PA. 425 agreements (i.e. a “win-win”

48

situation for both municipalities) while accelerating the economic development of the
communities on the parcel transferred. As a consequence of these advantages, local
governments seeking to accelerate community economic grth had incentives to
execute PA. 425 contracts under the provisions or terms of the law. From this
standpoint, the structure of the Act provided no incentive to revoke any P.A. 425
agreement before completion. The evidence indicated that there were reasons for some
units of government to rescind PA. 425 agreements. A question that arises in the mind
of any policymaker is why these governmental units rescinded the contracts. What were
the reasons that prompted these municipalities to make such a decision? Getting to know
the reasons municipalities had to revoke these P.A. 425 contracts could be instructive to
policymakers. Data gathered ﬁ'om the units surveyed have the potential to provide
information on possible aspects of the law that need to be corrected or changed. T o
conclude, the objective of including the rescinded contracts in the sample is to elicit
information explaining the rationale for municipalities to terminate PA. 425 agreements
before completion.

The interest of the present research of including in the sample all PA. 425
contracts completed is threefold. The ﬁrst reason is to determine whether any type of
economic development had occurred within the communities located on the parcel of
land transferred. It is important to point out that in this category ﬁrms and businesses,
and commercial and infrastructure development located on parcels of land transferred
under PA. 425 legislation are differentiated based on a “before and after” criterion. The
reasons for using this principle are explained in the section addressing the design of the

questionnaires used to collect the data. Second, to determine if the contracts had been

49

renewed or renegotiated upon expiration. In this sense, agreements renewed would
suggest to the researcher that the original contracts were beneﬁcial to both parties, and
agreement renewal was a rational course of action. A third important issue for the
purposes of this research of including the contracts completed is to ﬁnd out whether any
changes had been made to the provisions of the original PA. 425 agreements. The goal
is to identify the reasons why such changes were introduced. The second and third
aspects are important criteria for this research. Nevertheless, a community economic
development change is by far the most important criterion this paper is concerned upon.
As of October of 1997, six PA. 425 contracts had been completed among several
municipalities in the state of Michigan. All these agreements were included in the
sample.

The third category of the sample is composed of contracts effective for more than
four years. There are several reasons why this criterion was used. First, a four year
period was considered by the researchers as a reasonable time span for any type of
economic development to occur in the communities located on transferred parcels of
land. Another important aspect considered when selecting the contracts to be included in
this category was the total time span agreements had been in force. Furthermore, PA.
425 contracts that had been executed for longer total periods of time were given priority
to be included in the sample. For instance, between two agreements that had been
effective for more than four years, the one that was executed ﬁrst (effective for more
years) was given priority. The rationale for using such a criterion is that longer time span
agreements would have more probabilities of any changes in economic development

resulting from the execution of RA. 425 legislation. In addition, the researchers could

50

obtain the data needed to conduct this study from contracts executed for longer periods of
time, as changes in economic development may have been recorded and quantiﬁed by the
municipalities directly affected by the agreement. As a result, important data for the
purposes of this research could be available. A total of eight contracts are included in
this category.
Survey Design

In order to generate the data needed to conduct this research, four survey
instruments were designed. These surveys are included in the Appendix of the paper.
The surveys on “contracts completed” and “in force for more than four years” are similar
since they both gather data on the same economic development indicators. They are
composed of ﬁve sections. The ﬁrst section collects information on demographics,
purpose of the contract as stated and public services needed that lead to the execution of
the agreement. The second, third, and fourth sections of these instruments collect data on
industrial and commercial development, infrastructure and residential development
occurred on the parcel of land transferred before and after PA. 425 agreements were
executed. The objective of gathering information on a “before and after” PA. 425
legislation being executed basis, instead of a “with” and “without” scenario, is to provide
the researcher with an idea of the degree or conditions of economic development on the
parcel transferred before and after a P.A. 425 agreement was executed. The ﬁfth section
of both questionnaires asks questions about the current status of the contract, whether it
was renewed after expiration or if the municipalities intend to do so upon termination.
The objective of this last section is to determine whether the units of government

involved in the execution of RA. 425 legislation were satisﬁed with the results achieved.

51

These two surveys are the core of the research for they were designed to generate data
providing insights as to whether the PA. 425 legislation has achieved its intended
purpose. Chapter four of the paper deals with the issue of presenting and analyzing the
data collected in a meaningful manner.

The survey designed to collect data on “contracts rescinded” is composed of two
sections. The ﬁrst section obtains data on the demographics and other aspects similar to
the ﬁrst section of the surveys for “contracts completed” and “in force for more than four
years”. The second section of the survey asks to identify the key factors that played a
role in rescinding the contract before the originally agreed time period. It also poses the
question of what changes would the municipalities make in the contracts in order to make
them more attractive to compliance. The objective of this last section of the survey is to
obtain ﬁrst hand information on what aspects need to be changed in the structure of the
law, so that policymakers are informed about alternative ways to redesign the current
statute.

The fourth survey was designed to collect information from commercial
enterprises, businesses, and industrial facilities located on the parcel of land transferred
before and after PA. 425 legislation was executed. The survey is composed of two
sections. The ﬁrst section gathers data on the characteristics of the business or ﬁrms
located on the transferred land on selected economic indicators. The second section of
the survey is designed to collect data on characteristics of the parcel that prompted ﬁrms
and businesses to locate in the area. Needless to say, the idea is to determine whether
public services (made available by RA. 425 legislation) played a role in the location

decision of the ﬁrm.

52

The survey is mainly concerned with collecting data from ﬁrms or businesses on
the number of employees, payroll size, and amount of property taxes paid within the
context of an ex-ante and ex-post analysis. Economic development changes in the
observed region are very likely to affect these indicators in several manners. For
instance, if regional economic grth is accelerated, the employment level in the area is
expected to increase as ﬁrms and businesses expand, or new businesses come in. Firms
established on the parcel of land before the execution of PA. 425 legislation are asked to
provide information on the number of employees, payroll size, and property taxes paid to
local governments the immediate tax year before agreements are executed and the 1997
and 1998 tax year. The next section of the chapter addresses the issues and methods
related to collection of the data needed to conduct this research.

Data Collection

The main procedure used to collect the data in this research is by mailing the
questionnaires to the parties to agreements included in the sample with follow-up phone
calls made one week later. In the case of the RA. 425 contracts rescinded, both local .
government units were mailed surveys. In contrast, in the categories “contracts
completed” and “contracts still in force” only recipient units of transferred land were sent
the surveys. The rationale behind such approach is that recipient units are the most
likely to have information about the economic indicators deﬁned to measure economic
growth in the communities located on the tract of land transferred. For “contracts
completed” and “in force for more than four years”, only the recipient units of land
received the questionnaire. Most questionnaires were addressed to township supervisors

and city managers for they were considered to be the most likely people to know or have

53

access to the information required to answering the questions in the surveys. In the case
that municipalities did not have managers, surveys were addressed to municipal
administrators and/or clerks. A week after the surveys were mailed out, the researcher
started to contact the official from each municipality to know if problems with answering
the questionnaire had arisen. In the follow-up interview most ofﬁcials said that the
surveys were easy to understand and ﬁll out.

The fourth survey (on economic development of communities and RA. 425) was
intended to be sent to commercial enterprises, ﬁrms, and businesses established on the
transferred land before and after PA. 425 agreements had been executed. Such an
approach was later changed to telephone interviews. Telephone interviews were
scheduled in order to converse with human resource managers, and other employees
within the ﬁrms considered being the most likely to provide the information needed.
Economic Indicators to measure Economic Development

The indicators selected to measure the economic development of the community
on the transferred land after P.A. 425 agreements were executed are changes in the
property tax base, the number of jobs created within the parcel of land, and ﬁrms’ payroll
size. The criteria used to select these indicators were based on the results of the literature
review conducted in chapter two. For instance, Biehl concluded in his research that
productivity, income, and employment are an increasing function of the inﬁastructure
endowment of a particular region (Biehl, 1991). From this conclusion then, changes in
the provision of inﬁastructure that resulted ﬁ'om the execution of RA. 425 agreements

should have an impact on these indicators on the community investigated. Measurement

54

of those changes is achieved by performing ex-ante and ex-post analysis of the data
collected.

Infrastructure also impacts employment by making a location more attractive to
ﬁrms, affecting the location decisions of ﬁrms. As ﬁrms establish on the parcel
transferred, employment opportunities are created, as well as income and the potential for
increasing property tax revenues.

Descriptive Statistics

Descriptive statistical procedures will be used to analyze the data gathered from
the selected units of government that engaged in PA. 425 agreements. The conclusions
drawn ﬁom the analysis of the data obtained will emphasize policy implications and

suggestions for future research on this interesting and yet not well researched topic.

55

Chapter Four: Results

The results of the current research are presented in this chapter. Descriptive
statistics are used as the main tool of analysis. The ﬁrst section presents a summary of all
P.A. 425 agreements included in the research sample. The second section of the chapter
presents an analysis of all the contracts in the sample broken down by categories. The
categories deﬁned in this research are contracts rescinded, completed, and in force for
more than four years. The third section of the chapter analyzes information obtained
from the fourth survey, which collected data on economic development indicators (i.e.
employees, payroll size, and property taxes), ﬁ‘om ﬁrms and businesses located on the
parcels of land transferred under the provisions of P.A. 425 legislation.

Summary of P.A. 425 Agreements included in the Sample

The research sample is composed of twenty contracts executed among various
municipalities in the state of Michigan since 1984. Appendix A provides a summary of
both the 130 agreements on ﬁle as of October of 1997, and the 20 P.A. 425 agreements
included in the research sample. Breaking down the period of execution of the contracts
included in the research sample pinpoints a difference between the number of contracts
executed with relation to time. In the sample, six agreements (30 percent) were executed
between 1985-1989. The remaining fouriC‘O‘ntracts (70 percent) were executed between
1990 and 1997 (Table 1). Such a difference could be explained by lack of knowledge
about the law after it was enacted. As the Act became widely known, more
municipalities engaged in P.A. 425 contracts as a tool to encourage community economic

development while mitigating the problems associated with annexation.

56

Table 1

Executing Period of P425 Agreements. Research Sample

 

 

 

 

 

 

 

 

PERIOD TOTAL PA425 SAMPLE
FILED CONTRACTS
1985-87 9 4
1988-89 23 2
1990-93 53 11
1994-95 30 2
1996-97 15 l

 

 

Municipalities executing P.A. 425 agreements cited reasons as to the purpose for
developing the joint agreement. In this regard, 12 agreements stated the provision of
sewer and water services as the objective of the contracts. This number of contracts
represents 60 percent of the sample. In addition, 25 percent of the agreements stated the
provision of municipal services as their purpose. The remainder of the contracts
established industrial, commercial, and economic development as the main reason for

P.A. 425 agreement execution (Table 2)

 

 

 

 

 

Table 2
Purpose of P.A. 425 Agreements. Research Sample
PURPOSE OF NUMBER OF
CONTRACT AGREEMENTS

Sewer and Water 12
Municipal Services 5
Industrial Development 1
Economic Development 1

 

 

Commercial Development

 

 

 

57

 

The average length of the contracts sampled is 19.75 years. A contract between
the City of Otsego and Otsego township holds the distinction of being the shortest
contract in the sample, one year. On the other hand, there are four P.A. 425 agreements
included whose length is 50 years, the longest time span permitted by the statute. The
highest frequencies of Contract length are 5, 10, and 50 years with four contracts being
executed in each category (Table 3).

Table 3

Length of Agreements

 

 

 

 

 

 

 

 

LENGTH OF TOTAL PA425 SAMPLE
AGREEMENT CONTRACTS
(YEARS)
1-10 1 5 1 1
1 1-20 14 2
21-30 18 , 2
31-40 1 1
41-50 82 4
Average 37.9 19.75

 

 

 

 

 

The parties to the agreements included in the research sample are presented in
Table 4. In the sample, 14 agreements fall in the category “township-city arrangement”.
Such ﬁnding is also consistent with the characteristics of the whole sample of 130 P.A.
425 agreements on ﬁle, where 112 contracts were executed under the same arrangement.
Harvey (1997) claims that the frequency of this arrangement shouldn’t be a surprise for
annexation disputes are most common between township and cities which makes P.A.
425 agreements more appealing to such governments. The frequency of other

arrangements is as follows: two contracts executed between township-township

58

governments, three agreements between township and villages, and one contract executed
under the city-city arrangement. The majority of P.A. 425 agreements mandate reversal

of the conditionally transferred parcel of land to its original unit of government

 

 

 

 

 

Table 4
Contract Participants to P.A. 425 Ajreements
GOVT UNITS TOTAL PA425 SAMPLE
CONTRACTS
Township-City . 112 14
Township-Township 7 2
Township-Village 10 3
City-City 1 l

 

 

 

 

 

upon termination of the contract. Thirteen agreements (65 percent) establish reversion of
the land after agreement expiration. On the other hand, seven agreements (35 percent)

require the land to be permanently transferred to the recipient unit of government.

 

 

 

 

Table 5
Disposition at End of Agreement
DISPOSITION UPON TOTAL PA425 SAMPLE
TERMINATION CONTRACTS
Reverts to Original 42 13
Jurisdiction
Permanently 57 7
Transferred
Renegotiate At 28 1
Expiration

 

 

 

 

 

The PA425 legislation contains permissive language for the development of a

revenue sharing agreement between local units. In most cases, a revenue sharing

59

agreement is developed that makes the transferring unit whole, that is, the unit
transferring land receives the same if not more revenue under the agreement for a. stated
period. The revenue sharing options are quite diverse and include: sharing of revenue
from a speciﬁc number of mills levied on the property transferred, providing bonus
revenues (replacing revenues the unit would lose plus additional incentives revenues),
paying a ﬂat amount per year to the transferring unit, paying a ﬁxed percentage of
revenues collected ﬁ'om the transferred property, sharing a portion of state shared
revenues with the transferring unit, and in some cases, no sharing of revenues.

This section of chapter four described some characteristics of all P.A. 425
agreements included in the research sample. The descriptive analysis of the sample
brings up some important aspects of the legislation such as length of time, disposition at
the end of the agreement, and the revenue sharing provision that need further research.
Thirteen agreements (65 percent) mandate reversal of the transferred land to its original
unit of government after contract termination. Agreements with short time spans and
reversal clauses present a potential problem to units of government extending public
services for at the time of contract termination the initial inﬁastructure investment made
could have not been recovered. For example, the agreement between the city of Otsego
and Otsego Township had a length of 1 year. In addition, no revenue sharing clause was
established in the contract. However, the agreement mandated permanent transferal of
the land to the township once the contract ended. In this particular case, the initial
investment made by the township in infrastructure and the provision of other public
services could be recovered once the parcel is transferred permanently to the township

upon contract expiration. There are some agreements in the sample however, that present

60

short times of execution and establish reversal of the land when the contracts expire.
Further research on this topic is recommended. Agreements executed for longer periods
of time and containing reversion provisions have the potential to create problems in the
long run. Common problems associated with such long agreements can be loss of
identity of the communities located on the transferred land and public ofﬁcials’ ignorance
about the status of P.A. 425 agreements executed in their jurisdiction. Upon contract
expiration, citizens established on the parcel of land subject to reversal may have
developed such a strong bond to the recipient municipality that they may not want the
land to be reverted back to the original government. Harvey (1997) claims that since
parties to the original agreement will not be around when contracts expire in most cases,
issues about the propriety of the land could also arise. Adversity between contracting
municipalities and damage of intergovernmental relationships can result ﬁom such
situation. The reversal problem could also lead municipalities to courtrooms as a means
of seeking a possible solution to the problem. The longer the contract is the higher the
probabilities such outcome will show up once it expires. In addition, longer contracts
also present the problem of public ofﬁcials’ lack of lmowledge about the status of P.A.
425 agreements. Public ofﬁcials in ofﬁce once an agreement expires may not be the
same who executed it. Ofﬁcials elected after the execution of P.A. 425 agreements may
not know the whereabouts of the contracts executed, and responsibilities associated with ‘
it. Such possibility raises the question of whether the objective of the agreement was not
only achieved, but also if the contract’s results have been recorded so that it can be
systematically evaluated. Policy makers and local public ofﬁcials need to be aware of

these problems, and their consequences.

61

Contracts Rescinded
Six of the 130 P.A. 425 ﬁled with the ofﬁce of the Great Seal were rescinded for a

variety of reasons. The rescinded contracts and units involved are displayed in Table 6.

 

 

 

 

 

 

 

Table 6
P.A. 425 Contracts Rescinded. Research Sample
DATE GOVT UNITS DATE
EXECUTED RESCINDED

03/27/89 Bagley Tw- City of Gaylord 08/92
09/11/90 Bagley Tw- City of Gaylord 08/92
06/03/91 Marengo Tw- City of Marshall 10/91
08/20/90 City of Marlette- Marlette Tw 01/95
10/24/88 Swan Creek Tw- St. Charles Village 10/94
05/11/93 City of Utica- City of Sterling Heights 06/96

 

 

 

 

 

In this category, surveys were mailed to all municipalities involved in contracts
that were rescinded. Ten of the 12 governments returned the surveys. The townships of
Marlette and Marengo did not return the surveys. Of the six contracts, four were
executed between townships and cities. The average length of time the agreements were
executed before rescission was three years. Such a short time period of execution raises
the question of whether enough time was-allowed for any type of economic development
to occur on the transferred parcel, and if any investment made by the recipient unit was
recovered.

The average population of the units of government that rescinded P.A. agreements
is 13,036 people. The City of Sterling Heights is the most populated with 117,810 people

living within its boundaries. Marengo township is the least populated with 1,810 people

62

(Table 7). Most of the other localities included in the category recorded populations

below 10,000 people.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 7
PA425 Contracts Rescinded. Research Sample
CONTRACT GOVT UNITS POP“ LAND AREA MILLAGE
(SQ MILES) RATE (1998)
1 Bagley Tw 4,929 33.0 6.33*
Gaylord 3,256 2.70 12.08
2 Bagley Tw 4,929 33.0 6.33“
Gaylord 3,256 2.70 12.08
3 Marshall 6,891 5.64 15.46
Marengo Tw 1,801 35.20 2.54
4 Marlette 2,060 1.0 0.02
Marlette Tw 1,910 1.61 195*
5 Village of St. 2,200 2.0 12.80
Charles
Swan Creek Tw 2,346 36.0 0.95
6 Utica 5,050 1.90 18.22
Sterling Heights 1 17,810 36.0 11.22
Average 13,036 13.08 10.80

 

 

 

 

 

* 1997 millage rate. ** 1990 US Census.

The average land area of the units of government is 13.084 square miles. The

average millage rate levied is 10.80. Millage rates for the 1997 tax year were used for the

township of Bagley since the township did not report such ﬁgures in the survey.

The average length of the agreements rescinded was 25 years. Such an average is

longer than the 19.8 average years found in the average research sample. In addition, the

average land area of the parcels transferred is 65.96 acres. Nevertheless, this average is

inﬂated by the agreements executed between the village of St. Charles and Swan Creek

township (60 acres) and between the city of Utica and Sterling Heights (320 acres).

63

 

Indeed, four of the revoked P.A. 425 agreements transferred land with total areas of less

than 10 acres.

 

 

 

 

 

 

 

 

 

 

 

 

Table 8
Land Area of Transferred Parcel. Contracts Rescinded
GOVT UNITS AREA PARCEL LENGTH OF
’ TRANSFERRED (ACRES) CONTRACT (YEARS)
Bagley Tw & Gaylord“ 10 5
Bagley Tw & Gaylord“ 2 10
*Marshall & Marengo Tw 0.50 50
*Marlette & Marlette Tw 3.26 40
Village of St. Charles & 60 30 '
Swan Creek Tw
*Utica & Sterling Heights“ 320 15
Average 65.96 25
* City

The purpose of the rescinded agreements was primarily deﬁned as commercial
and industrial development. This is not a surprising ﬁnding since the Act mandates the
' existence of economic development projects as a requirement for P.A.425 agreements to
be executed. However, ﬁve out of six units of government reported sewer and water as
the services needed that prompted the municipalities to engage in P.A. 425 legislation.
This ﬁnding seems to support the conception that availability of sewer and water services
is an important requirement for economic development to occur. The contract between
the city of Marlette and Marlette Township required the provision of municipal services.
Nevertheless, in this case a business located on the parcel of land transferred needed a

liquor license to operate, and the township had one available. Through the execution of a

64

 

P.A. 425 agreement the parcel was transferred and the license granted. Whether contract

execution made available municipal services to the transferred land or not is unclear.

 

 

 

 

 

 

 

Table 9
Public Services Extended. Contracts Rescinded
GOVT UNITS SERVICE

PROVIDED
Bagley Tw and City of Gaylord Sewer and water
Bagley Tw and City of Gaylord Sewer and water
City of Marshall and Marengo Tw Sewer and water
City of Marlette and Marlette Tw Municipal services
Village of S. Charles and Swan Creek Tw Sewer and water
City of Utica and City of Sterling Heights Sewer and water

 

 

 

 

The units of government surveyed expressed various reasons for rescission of the
agreements before completion. The developer’s unwillingness to pay the costs associated
with the extension of public services was cited as the primary reason in the contract
between the city of Marshall and Marengo Township. The agreement between the city of
Marlette and Marlette Township was terminated as a result of the property owner’s
request. Finally, the city of Utica and the city of Sterling Heights claimed legal reasons
as the driving force to rescind the agreement. A third party (Shelby Township) sued both
cities in a local court over the agreement. The Speciﬁc reasons why Shelby township
took such course of action are unknown since the township was not included in the
sample. The rest of the units of government in the category did not report the reasons for
rescinding the contracts.

Five units of government reported no change in their intergovernmental

relationships. This is a surprising ﬁnding for the researcher was expecting governmental

65

relationships to be stressed among these municipalities as a result of contract rescission.
The government reporting changes in intergovernmental relationships (2) claimed that
such a change had been for the better since their relations had improved. The city of
Marlette was the only government claiming that its governmental relationships had
deteriorated.

Two municipalities afﬁnned they would execute another P.A. agreement. The
remainder six units answering the survey claimed they either would not engage in another
agreement or didn’t know if they would do so in the near ﬁrture (Table 10)

Table 10
Engage In Other P.A. 425Agreement. Contracts Rescinded

ANSWER GOVT UNITS

 

 

 

 

Don’t Know 4
Yes 2
No 2

 

 

 

 

Units of government suggesting modiﬁcations to the agreements cited longer time
periods of execution as a change they would make to newer agreements. As to how long
they would increase the length is unknown. In this regard, the Act states 50 years as the
longest period of time contracts can be executed. In addition, the Act also establishes
agreement renewal up to the same time period if municipalities so desire. It is unclear
why municipalities would recommend a longer time limit with a renewal provision
available in the law. Transaction costs associated with executing agreements seem to be
part of the answer. To the extent that units of government perceive transactions costs of

reaching an agreement as being large, there is an incentive to enter in longer agreements.

66

From the public policy standpoint, government actions to eliminate or reduce such
transaction costs can relieve municipalities of the ﬁnancial burden they represent.

Four of the eight of the units surveyed considered annexation before engaging in
P.A. 425 agreements. The other four municipalities did not. As to the question of how
they had learned about the statute, the majority of the governments responded they knew
about P.A. 425 mainly from governmental and educational institutions.

This section of chapter four analyzed data collected from the units of government
that had rescinded P.A. 425 agreements before completion. The policy implications and
suggestions as to how interpret these results are discussed in chapter ﬁve.

Contracts Completed

The research sample included six P.A. 425 agreements completed as of October

of 1997. Table 11 contains all such contracts. As observed in the table, there are three

agreements executed under the city-township arrangement, representing 50 percent of the

 

 

 

 

 

 

 

sample.
Table 11
PA425 Contracts Completed. Research Sample
DATE GOVT UNITS COMPLETED
EXECUTED
06/19/90 Berlin Tw and City of Ionia 06/97
04/13/91 Big Rapids CT and Green Tw 04/96*
08/13/85 Caseville Tw and Village of Caseville 08/97
07/01/92 Grant Tw and Village of Rothbury 07/97
09/28/90 Livingston Tw and City of Gaylord 09/95
09/12/94 City of Otsego and Otsego Tw 09/95

 

 

 

 

 

* renewed upon expiration until 04/97.

67

Table 12 shows the population, land area, and millage rate of all governments

included in the category. The table also shows the average population (2,920 people),

land area of the units involved (19.5 square miles), and millage rate levied of 10.6 mills.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 12
Population, Land Area, and MillaﬂRate. Contracts Completed
CONTRACT GOVT UNITS POP” LAND AREA MILLAGE
(SQ MILES) RATE (1998)
1 Berlin Tw 3,610 42.10 093*
City of Ionia 5,935 2.80 6.97*
2 Big Rapids CT 3,100 29.0 258*
Green Tw 8,833 36.90 1.25*
3 Caseville Tw 2,139 13.90 104*
Village of 720 1.20 12.68*
Caseville
4 Grant T w 2,578 35.40 218*
Village of 407 1.0 7.0
Rothbury
5 Livingston Tw 1,755 34.30 060*
City of Gaylord 3,256 2.70 12.08
6 City of Otsego 3,937 1.80 13.34*
Otsego Tw 4,780 33.40 335*
Average 2,920 19.50 10.60

 

 

 

 

 

* 1997 millage rate. ** 1990 US Census.

The averages shown in table 12 differ ﬁ'om the same averages found in the

contracts rescinded category. The average population for contracts rescinded was 13,036

people. Nevertheless, this average was inﬂated by the city of Sterling Heights with a

population over 100,000 people. The policy implications and importance of population in

the provision of public services for local governments is discussed in the next chapter.

The average length of contracts completed is 6.5 years. The ﬁequency of agreements

68

 

executed to provide public services, specially sewer and water, reafﬁrms the perception

of the importance this type of infrastructure possess for economic development (Table

 

 

 

 

 

 

 

 

1 3).
Table 13
RA 425 Contracts Completed. Purpose and length
GOVT UNITS PURPOSE LENGTH
(YEARS)
Berlin Tw and City of Ionia Sewer and water 7
Big Rapids CT and Green Tw Sewer and water 5
Caseville Tw and Village of Caseville Water and roads 12
Grant Tw and Village of Rothbury Municipal services 5
Livingston Tw and City of Gaylord Sewer and water 5
City of Otsego and Otsego Tw Municipal services 1
Average 6.5

 

 

 

 

 

The agreement between Grant Township and the village of Rothbury presents a
characteristic highlighting the versatility of P.A. 425 legislation that needs further
discussion. In this case, a business located on the parcel of land transferred needed a
liquor license and the Village of Rothbury had one available. The business obtained the
license by executing a P.A. 425 agreement. The question that arises is what has a liquor
license got to do with the provision of municipal services and economic development
stated as the purpose of the contract? Phone interviews with public ofﬁcials at the village
of Rothbury showed that public services such as police protection, and sewer and water
were also needed to provide police services (public safety) and to support business

expansion after the license was granted.

69

In this category six units of government were mailed the surveys (recipients of
land). Three of them returned the surveys. Phone interviews with public ofﬁcials at
some of the municipalities that did not return the surveys indicated that costs associated
with getting the information (i.e. extension and value of infrastructure built) was a major
reason not to ﬁll out and return the surveys. Indeed, Green Township ofﬁcials claimed
that getting the information requested in the survey would require them to hire an
engineering consulting ﬁrm, a costly option the municipality either was unable to bear or
did not want to take.

These units aid complete the survey and provide insights as to the outcome from a
P.A. 425 agreement. The village of Caseville and Rothbury reported existing ﬁrms
located on the transferred parcel of land before execution of P.A. 425 agreements. These
ﬁrms are identiﬁed as Moco Thermal Industries Inc (formerly Michigan Oven Company)
in Caseville, and Double JJ Resort in Rothbury. They also reported no new ﬁrms coming
into the area after contract implementation. On the other hand, the city of Gaylord
reported the opening of a Taco Bell restaurant in the area after the contract was signed.
No commercial development was present in the area before. Caseville and Rothbury also
afﬁrmed that the extension of public services into the parcel resulted in expansion of
existing ﬁrms (Table 14).

Table 14
Expansion of Existing Firms. Contracts Com leted

GOTV UNITS ANSWER

 

 

City of Gaylord Not applicable

 

Village of Caseville Yes

 

Village of Rothbury Yes

 

 

 

 

70

The city of Gaylord reported infrastructure development occurring in the area
after the agreement was enforced. Nevertheless, the municipality did not identify the
Speciﬁc type of development and its value. The municipalities of Caseville and Rothbury
did not report any changes in infrastructure on the land after the agreements’ execution.
All units of government stated that no residential development occurred in the areas
covered by agreements.

Questions 5.1 through 5.4 in the survey address the issue of contract renewal upon
expiration (Table 15). The city of Gaylord and the village of Rothbury renewed the
agreements after they expired. In addition to renewing the agreement, the village of
Rothbury also changed the revenue sharing. The village of Caseville, the only
government that did not renew the contract claimed administrative procedures as the

reason for not renewal (i.e. was not applied for).

 

 

 

 

Table 15
Contract Renewal. Contracts Completed
GOVT UNITS CONTRACT MADE
RENEWAL CHANGES
Gaylord Yes No
Caseville No N/A
Rothbury Yes Yes

 

 

 

 

 

In the sample, only the city of Gaylord considered annexation as a condition to
extend public services into the parcel of land transferred. Other governmental institutions

continue to be the predominant means of knowing about the Act (Table 16).

71

Table 16.
Annexation as Condition. Contracts Completed

 

 

 

 

GOVT UNITS CONSIDER ANNEXATION LEARN ABOUT
AS A CONDITION? PA425
Gaylord Yes Government Institution
Caseville No Educational Institution
Rothbury No Government Institution

 

 

 

 

 

Contracts Still in Force
The sample category deﬁned as “contracts still in force” is composed of eight
P.A. 425 agreements. The break down of the agreements is discussed next (Table 17).

Two agreements are executed between the city of Charlotte and Carmel township; a

 

 

 

 

 

 

 

 

 

Table 17
PA425 Contracts Still in Force. Research Sample
DATE EXECUTED GOVT UNITS

01/01/92 Carmel Township and City of Charlotte
07/19/93 Carmel Township and City of Charlotte
02/ 13/92 Eaton Township and City of Charlotte
03/29/85 Lapeer Township and City of Lapeer
07/17/86 York Township and City of Milan
11/04/96 Alpine CT* and Plainﬁeld CT*
12/13/94 Lenox Township and

City of Richmond
11/01/86 Richmond Township and

City of Reed CitL

 

 

 

 

* Charter Township.
contract between Eaton Township and the city of Charlotte; an agreement between

Lapeer township and the city of Lapeer, a contract executed between York township and

72

the city of Milan; Alpine charter township and Plainﬁeld charter township; Lenox
Township and the city of Richmond; and Richmond Township and the city of Reed City.
Seven of the eight contracts are executed between a city and a township. One contract is

executed between two charter townships.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 18
Po ulation, Land Area, and Millage. Contracts Still in Force
CONTRACT GOVT UNITS POP" LAND AREA MILLAGE
(SQ MILES) RATE (1998)

1 Carmel Tw 2,433 34.1 093*
Charlotte 8,083 5.20 14.53

2 Carmel Tw 2,433 34.10 093*
Charlotte 8,083 5.20 14.53

3 Eaton T w 3,492 32.80 093*
Charlotte 8,083 5.20 14.53

4 Lapeer Tw 4,519 32.0 1.70*
Lapeer 7,759 4.50 8.79*

5 York Tw 6,225 35.20 1.61 *
Milan 5,000 2.35 14.75

6 Alpine CT 9,863 35.90 2.41 *
Plainﬁeld CT 28,750 35.50 2.35*

7 Lenox Tw 5,400 38.80 231*
Richmond 4,141 2.50 18.11*

8 Richmond Tw 1,722 33.20 1.0*
Reed City 2,379 2.50 14.84

Average 6,773 20.0 5.85

 

 

 

 

 

* 1997 millage rate. ** 1990 US Census.

The average population for the municipalities included in the category is 6,773

people (Table 18). Plainﬁeld Charter Township presents the largest population with

28,750 people. The second party to this contract, Alpine Charter Township, has also a

73

 

larger population than any other unit of government in the sample with 9,863 people.

The least populated unit of government is Richmond Township, which reported 1,722
people. The average land area of the units involved in the agreements is 20 square miles.
The average millage rate is 5.85 mills, with the highest at 18.11 mills, and the lowest at
0.93 mills. The city of Richmond levies the highest millage rate of all units included in
the research sample. Carmel and Eaton Townships are the governments assess the lowest
millage rate, 0.93 mills.

The services extended or provided due to the execution of P.A. 425 agreements
are primarily sewer and water services (Table 19). The contracts executed between
Carmel Township and Charlotte, Eaton Township and Charlotte, and Alpine Charter
Township and Plainﬁeld Charter Township state municipal services as the services being

provided. Such a category includes sewer and water services as well.

 

 

 

 

 

 

 

 

 

 

Table 19
Public Services Provided. Contracts Still in Force
GOVT UNITS SERVICE LENGTH OF
PROVIDED AGREEME
Carmel Tw and Charlotte Municipal services 10 ~
Carmel Tw and Charlotte Municipal services 10
Eaton Tw and Charlotte Municipal services 10
Lapeer Tw and Lapeer Sewer and water 50
York Tw and Milan Sewer and water 50
Alpine CT & Plainﬁeld CT Municipal services 24
Lenox Tw and Richmond Sewer and water 6
Richmond Tw and Reed Sewer and water 50
Average 26

 

 

 

 

 

74

The contract between Alpine Charter Township and Plainﬁeld Charter Township
is broader in scOpe than any of the other seven agreements. This contract provides
municipal services in general, which also include cemetery, library, emergency medical,
and planning and development services among others. The length of the agreements
extends from six years 0 the maximum allowable time of 50 years. The average length of
the agreements is 26 years.

Upon completion, ﬁve of the agreements transfer the land permanently to the unit
of government providing the service, whereas three of them mandate the land to be
reverted to its original unit (Table 20).

Table 20
Dis osition End of Agreement. Contracts Still in Force

DISPOSITION NUMBER OF
AGREEMENTS

Transfer to recipient Unit 5

 

 

 

Reverts to original Unit 3

 

 

 

 

The survey in this category was sent to the eight units of government that received

transferred land, and seven municipalities returned the completed surveys.

 

 

 

 

Table 21
Commercial Development Prior to P.A. 425. Contracts Still in Force
COMMERCIAL DEVELOPMENT GOVT UNITS
PRIOR TO PA 425?
Yes 3
No 3
Didn’t answer 1

 

 

 

 

75

The cities of Lapeer, Milan, and Richmond reported some type of economic
activity occurring on the transferred land before agreement execution (Table 21). In the
case of Lapeer three retail, a service oriented, and heavy industrial ﬁrms were identiﬁed.
The cities of Milan and Richmond listed retail ﬁrms on the parcel as well. Only the city
of Lapeer agreed on the statement that the extension of municipal services into the
transferred area resulted in expansion of the existing ﬁrms. 0

The cities of Lapeer and Milan also recorded growth in the areas transferred after
P.A. 425 agreement implementation. The ﬁve new ﬁrms established in Lapeer, as well as
the one established in Milan, were all retail and service oriented businesses (Table 22).
The list of these ﬁrms and their impact on the economic development of the area, as
measured by their contribution to local tax revenue bases, is the subject of analysis of the
next section of this chapter. In addition, four municipalities did not observe any kind of

economic development on the parcels transferred

 

 

 

 

Table 22
Commercial Development After P.A. 425. Contracts Still in Force
COMMERCIAL DEVELOPMENT GOVT UNITS
AFTER PA 425
Yes 2
No 4
Didn’t answer 1

 

 

 

 

The charter township of Plainﬁeld was the only municipality recording any type
of infrastructure on the transferred parcel before the execution of P.A. 425 legislation.
Plainﬁeld did not disclose the value of such infrastructure. Table 23 on the other hand,

shows the answers given by the seven municipalities to the question of whether any

76

infrastructure development had occurred after implementation of P.A. 425 agreements.
The cities of Lapeer, Milan, and Richmond, and Plainﬁeld Charter Township reported

infrastructure development on the parcels.

 

 

 

Table 23 ,
Infrastructure Development After P.A. 425. Contracts Still in Force
INFRASTRUCTURE GOVT UNITS
DEVELOPMENT AFTER PA
Yes 4
No 3

 

 

 

 

The extension and value of the infrastructure developed by these units of
government are shown in Table 24. The city of Lapeer recorded various types of
infrastructure development occurring on the parcel subject to transfer. The inﬁ'astructure
built in Lapeer is broken down as follows: 5,484 linear feet of sewer lines with an
approximate value of $543,590; approximately 5,581 linear feet of watermain lines with a
reported value of $554,660; and 6,183 linear feet of storm pipe with a value of

$618,300. The total value of this infrastructure development is approximately

 

 

 

 

$1,716,550 (Table 24).
Table 24
Infrastructure Develo ment After P.A. 425. Contracts Still in Force
GOVT UNITS QUANTITY APPROXIMATE
VALUE
Lapeer 17,248 linear feet $1 ,716,550
Milan 600 linear feet Not provided
Plainﬁeld 15,840 linear feet $450,000

 

 

 

 

 

77

The city of Milan did not report the approximate value of public services
extended into the parcel. However, it did indicate the break down of new infrastructure
built in the area: 400 linear feet of sanitary sewer, and 200 linear feet of water lines.
Plainﬁeld Charter Township accounted for 3 miles (14,544 linear feet) of water lines built
with a total value of approximately $450,000. The city of Richmond did not provide both .
the type and value of public infrastructure constructed. F ollow-up with this municipality
may provide future research with the needed ﬁgures.

Six municipalities did not report any residential development occurring on the
transferred land after agreement implementation. Plainﬁeld Charter Township did not

provided answers to the questions in the survey (Table 25).

 

 

 

 

Table 25
Residential Development After P.A. 425. Contracts Still in Force
RESIDENTIAL DEVELOPMENT GOVT UNITS
AFTER P.A. 425
Yes 0
No 6
Didn’t Answer 1

 

 

 

 

Most units of government rated their intergovernmental relationships with the
other parties to the contract between fair and excellent. Table 26 below provides the
types and numbers of the speciﬁc responses. The municipality of Richmond did not

answer the question presented.

78

Table 26
Inter-governmental Relationshi Rating. Contracts Still in Force

 

 

 

 

 

RATING GOVT UNITS
Excellent 4
Good 1
Fair 1
Didn’t answer 1

 

 

 

 

The cities of Lapeer and Milan afﬁrmed that the economic development of the
transferred parcels had been accelerated. by the execution of P.A. 425 agreements. The
cities of Charlotte and Richmond on the other hand, claimed that no economic
development had occurred after the implementation of any of such agreements.

As to the question of whether they intend to renew the contracts upon expiration,
the cities of Milan and Charlotte were the only municipalities reporting that they would
renew the agreements. The contract Charlotte intends to renew is the Carmel 1993
Township agreement. The city of Lapeer, which recorded a considerable amount of
economic development in the area due to P.A. 425 agreement, did not provide an answer
to the question.

Other governmental units and institutions continue to be the main source by
which municipalities learned about P.A. 425 legislation. Five of the municipalities
surveyed afﬁrmed they knew about P.A. 425 through ofﬁcial institutions. In addition, 86
percent of the units in the sample afﬁrmed they would execute another P.A. 425 contract

(Table 27)

79

Table 27

Execute Another P.A. 425 Agreement. Contracts Still in Force

 

 

 

 

ENGAGE IN ANOTHER GOVT UNITS
P.A. 425 AGREEMENT

Yes 7

No l

 

 

Four municipalities in the category considered annexation as a condition for

providing public services (Table 28). Two of them did not see annexation as an

alternative

Table 28

Consider Annexation as Condition. Contracts Still in Force

 

ANNEXATION AS
ALTERNATIVE

GOVT UNITS

 

Yes

4

 

No

2

 

Didn’t answer

 

 

 

 

Economic Development Indicators

The preceding sections presented and analyzed the data compiled on general
aspects of P.A. 425 legislation. This section of chapter four is oriented toward the
examination of data obtained on the economic development indicators selected in chapter
3 as proxies to measure economic grth occurring on the parcels of land transferred.

The parameters selected to measure the economic grth on these parcels are the number '
of employees, the total payroll size, and the amount of property taxes paid to local
governments by each individual ﬁrm identiﬁed by the municipalities surveyed as located

on the parcel. Information on the property taxes variable is intended to be collected both

80

 

on the immediate tax year before agreements were executed and the 1997 tax year. The
rationale for selecting a the 1997 tax year, as opposed to collecting data on all years after
agreement implementation is that the last year would provide a snap-shot of the amount
of taxes collected by the local government. This amount then, could be used as an
estimator of the taxes paid by the ﬁrms for the previous years. Problems associated with
availability of the information, and unwillingness to provide “sensitive” or “privileged”
information by the ﬁImS proved to be major obstacles this study faced. These issues
however, are addressed in more depth in the conclusions below.

The only economic indicator on which complete information could be obtained
was property taxes paid by the ﬁrms to local governments. The property tax amounts
were obtained through phone interviews with tax assessors and treasurers of the
municipalities surveyed. Data on the number of employees of certain ﬁrms was collected
as well. However, most ﬁrms did not disclose any information on the number of
employees, payroll size, and taxes paid in the 1997 tax year. Human resources
managers, personnel managers, and other interviewees contacted at the ﬁrms stated .
internal policies as being the primary reason not to give out such information.
Notwithstanding all these problems, useful information was gathered. First, the data is
presented at the aggregate level, indicating total taxes paid by all ﬁrms located on the
transferred land. Second, the data is broken down by units of government in order to
assess the magnitude of any economic growth processes taking place within the selected
municipalities. The data collected on munber of employees are presented at the
individual level. Several municipalities reported ﬁrms and businesses of various types

established on the transferred land before execution of P.A. 425 agreements. Obtaining

81

the information on taxes paid by these ﬁrms the immediate tax year before such
agreements were implemented proved to be a difﬁcult task. The older the agreement, the
more difﬁcult it was to obtain the needed information.

Six writs of government reported a total of 16 ﬁrms located on the parcel of land
transferred. Nine of these businesses located there before P.A. 425 legislation was
executed. Data on property taxes paid by businesses located in the Village of Rothbury
and the city of Milan was not obtained. The city of Lapeer and the village of Caseville
did not provide the amount of taxes collected from the ﬁrms the previous years to
agreement execution. Table 29 below shows the amount of property taxes collected by
the municipalities before and after P.A. 425 legislation was executed. The city of
Richmond was the only unit of government that provided ﬁrm’s tax information the

immediate year prior to contract execution.

 

 

 

 

 

 

Table 29
Taxes Paid by Firms. Agregate Level
GOVT UNIT BEFORE AFTER PA425
PA425 (1997 TAX YEAR)
Caseville Village Not available $22,101.68
City of Gaylord Not applicable $14,490.64
City of Lapeer Not available $217,325.39
City of Richmond - $18,053.48 $17,133.06

 

 

 

 

 

The city of Lapeer seems to have gone through an accelerated process of
economic growth after the execution of RA 425 legislation (Table 30). In this regard,
ﬁve new ﬁrms located on the parcel of land transferred bringing in jobs and increasing

the tax paid to the local government during the 1997 tax year. The total amount of taxes

82

collected by the city of Lapeer from these ﬁrms ascends to $ 147,038. Such an amount
represents approximately 3 percent of the total taxes collected by the city in 1997. The
big retailer Wal-Mart and Central Michigan Lumber also reported employing 225

“associates” and 41 employees respectively. The remaining ﬁrms coming into the area

after P.A. 425 did not disclose any information on the number of on-site employees.

 

 

 

 

 

 

 

Table 30
Firms established after P.A. 425. City of Lapeer.
FIRM 1997 PROPERTY
TAXES
Wal—Mart $95, 499.12
McDonald’s $15,845.61
Rowely Development $8,8 15.06
Central Michigan Lumber $22,686.43
Lapeer Auto Plaza $4,192.53
Total $147,038.75

 

 

 

 

No buSiness included in the list was able to provide information about the location
decision aspects considered by the ﬁrms before choosing to establish on the transferred
parcel of land. One aspect explaining such an outcome could be traced to the fact that
location decisions are usually made by boards of directors at corporations’ headquarters.
In addition, many of the managers interviewed were not working for the ﬁrms when they
decided to locate on the parcel. In some other instances, current owners acquired the
business after it was established on the transferred parcel. Table 31 shows the amount of
taxes paid by local ﬁrms established on the transferred land before the P.A. 425

agreement between the city of Lapeer and Lapeer Township was executed. The total

83

amount of property taxes paid to the city of Lapeer by these ﬁrms is $70,286,64, which
represents approximately 1.5 percent of the total collected in the year. It was the original
intention of this research to determine the amount of taxes paid by the same ﬁrms the
immediate year before P.A. 425 was implemented. However, when requested, most
municipalities did not have the information available. The problem increased the older
the contract. Obtaining the information would require many resources most units of
government were not willing to devote to conduct a search. The ﬁrms did not disclose

data on the number of employees and payroll size.

 

 

 

 

 

 

 

Table 31
Firms established before P.A. 425. City of Lapeer
FIRM 1997 PROPERTY
TAXES
Bessetes Body Shop $10,426.47
Cambridge Industrial $38,424.44
Gregory’s Canvas $2,736.80
Lapeer Rent All $15,772.91
Short Stop Party $2,926.02
Total $70,286.64

 

 

 

 

Moco Thermal Industries, Inc. was located on the parcel of land transferred from
Caseville Township to the village of Caseville before the agreement was executed.
Furthermore, the main reason the village and township engaged in the agreement was to
provide Moco with additional sewer and water capacity that would allow the ﬁrm to
expand in the area. As a result, Moco would create 40 additional jobs, contributing to the

overall economy of the region, and the local tax revenue base. To provide the ﬁrm with

84

more incentives, the local units of government conferred an industrial facility tax (IF T) to
Moco. Such IF T was effective until the year of 1998. Interviews held with the village’s
treasurer indicated that the economic development of the parcel had not been enhanced as
a result of public services extension. Moco paid $22,101.68 in property taxes in 1997.
Information about the same variable on the immediate tax year before contract execution
was not available either from the village or the ﬁrm.

An interesting ﬁnding ﬁom the research is the sharing revenue agreement reached
by the parties to the contract. In this sharing revenue agreement the sununer property
taxes would belong to the village, and winter taxes would be allocated to the township.
Interviews with managers at the ﬁrm did not provide the researcher with the relevant
information needed to determine whether the ﬁrm had contributed to the economic
development of the area. The interviewee did not answer location decision questions in
the survey. As before, the main reasons not to answer these questions was plainly lack
of knowledge about the decision making process. This type of limitation seems to be
akin to big ﬁrms or corporations (i.e. McDonald’s and Wal-Mart) where managers
located at national headquarters, and usually far apart from the location of interest, make
the location decisions.

The city of Gaylord reported some commercial development occurring on the
transferred parcel after the execution of a P.A. 425 agreement. Gaylord informed the
establishment of a Taco Bell restaurant in the aforementioned area. The restaurant
contributed $14,490.64 to the local tax revenue base in 1997. This information was

obtained from the treasurer of the city of Gaylord. The on-site manager did not want to

85

disclose any information on payroll size, number of employees, and property taxes paid
in the 1997 tax year. The manager did not answer any location decision questions.

The city of Richmond reported the taxes paid by Reas Chevrolet, a car dealer,
before and after the 1994 P.A. 425 agreement was executed with Lenox Township. The
property taxes paid by the dealer totaled $18,053.48 in 1993, and $17,133.06 in 1997,
which amounts to a grand total of $35,186.54. Information on the other economic
indicators was notpossible to obtain. Data on these variables would have shown whether
the ﬁrm expanded over the years, creating more jobs, and enhancing the economic
development of the region. The reason public services extended into the parcel of land as
stated by the city of Richmond was to provide the dealership with inﬁ'astructure such as
sewer and water to meet the environmental requirements imposed by local laws.

This chapter presented the results and interpretation of the data collected from the
surveys sent to municipalities in the 20 agreements selected. The data was broken down
by contracts’ categories to facilitate the analysis. According to the results, sewer and
water availability seem to be an important precondition for any economic development
process to take place at a particular site. However, the provision of these services does
not necessarily come with increasing economic development of the regions observed.
The unavailability of data to analyze the municipalities’ process of economic
development is a factor that makes the current research fall short. Future research on the
Conditional Land Transfer Agreement Act is encouraged, however, care and awareness
of the problems encountered in this study is also advised as not to repeat the mistakes and

limitations of this research.

86

Chapter Five: Summag and Conclusiona

State policy makers faced the problem of rising annexation disputes in Michigan
brought to courts by local governments and through the lobbying efforts of local
government organizations adopted legislation addressing both annexation and economic
development. The Conditional Land Transfer Agreement Act, P.A. 425, 1984 (MCLA
124.21-124.29) was originally designed as a tool to promote community economic
development and to serve as an alternative to armexation. The Act is a unique public
policy instrument in the state of Michigan. The loss of tax revenues and land resulting
from annexation represented an important issue to cities and townships. The
attractiveness of P.A. 425 stems from the legal framework that encourages economic
development through intergovernmental cooperation. The legislation diminished the
need for annexation as a means of obtaining infrastructure improvements and provided
ﬁnancial incentive for collaborating units of government. The Act permits the sharing of
revenues, and eliminates the possibility of annexation of the land transferred while
agreements are in force.

Twelve of the twenty agreements (60 percent) in the research sample stated the
provision of water and sewer services as the principal reason prompting local units of
government to engage in P.A. 425 legislation. If the contracts providing municipal
services are included in this category, the ﬁgure climbs to 17 agreements (85 percent).
This ﬁnding supports the general perception that sewer and water services are a
precondition for economic growth to occur. This perception is also supported by various
research cited in the literature review. Another important ﬁnding is the types of

government arrangements implementing P.A. 425 agreements. Fourteen agreements in

87

the research sample (70 percent) are executed under the city-township arrangement. The
fact that most annexation disputes occur between cities and townships, indicate that a
P.A. 425 agreement is indeed considered an alternative to annexation. This assertion
seems to be supported by the ﬁnding that nine units of government in the research sample
indicated they had considered armexation before executing PA 425 legislation. Most
governments in the research sample indicated that no changes had occurred in their
intergovernmental relationships with the other parties to the agreements. Indeed, in the
contracts rescinded category, two municipalities reported improvements in the
relationships between the two governments. The city of Marlette was the only
government reporting deteriorating intergovernmental relations after the execution and
rescission of their P.A. 425 agreement. The cities of Utica and Sterling Heights
rescinded their P.A. 425 agreement due to a third party lawsuit. However, the rescission .
raises important questions and concerns about the effect P.A. 425 agreements may have
on other governments exogenous to the contracts. Further research on this subject has the
potential to answer these concerns. Seven governments rated their government relations
with other parties to the agreement between excellent and fair.
Financial Analysis of P.A. 425 Agreements

The question of whether a P.A. 425 agreement is attractive to municipalities can
be answered by a ﬁnancial analysis of the costs and beneﬁts of the P.A. 425 contract
executed between the city of Lapeer and Lapeer Township. The ﬁnancial analysis is
presented in two scenarios, the township (unit transferring the land) and the city (unit
receiving the land). The ﬁgures used to conduct the analysis are taken ﬁ'om the costs of

infrastructure and tax revenues reported in the survey on economic development

88

answered by the city of Lapeer. Only the cost of infrastructure construction is included in
the analysis due to constrains in obtaining other expenditures such as operational costs of
the project (i.e. treatment plant). The 1997 millage levied by both governments, and the
revenue sharing arrangement established by the P.A. 425 contract is used in analysis.

The length of the analysis covers 50 years, which corresponds to the contract’s length. '
The discount factor is calculated at 5 percent, which is very close to the current market
interest rate. There are some characteristics of the analysis that need to be discussed.
First, the cash ﬂows obtained by both governments while the contract is in force are not
adjusted by inﬂation. Second, it is assumed that no new development occurs in the parcel
over time. Third, the millage rate of both units of government is kept constant over the
contract’s life span. Though somehow unrealistic, these assumptions make the ﬁnancial
analysis easier to conduct.

The Township’s Perspective.

The city of Lapeer reported the existence of ﬁve ﬁrms in the transferred parcel
before the contract was executed. The ﬁrms had a total taxable value of $7,996,204 times
the township’s millage rate of 1.7 mills yielded $3,593 in property tax revenues. The
$13,593 represents the amount of taxes Lapeer Township would collect if the project
were not executed. Such ﬁgure is found in Table 34 in the Appendix under “inﬂows”.
Since the township does not receive any other revenues, “total inﬂow” equals “inﬂows”.
Consequently, the net beneﬁt for Lapeer Township under the “without project” scenario
is $13,593.

After the parcel of land was conditionally transferred to the city 5 new ﬁrms were

established adding $16,727,958 of taxable value resulting in a total taxable value of

89

$24,724,162. The PA 425 agreement requires the city to annually reimburse the

. township 1.5 mills times the taxable value of the transferred property ($24,724,162 * 1.5
mills) which yields $37,086 in property tax revenue. The $37,086 is then adjusted by the
amount of taxes Lapeer Township would receive without the project being executed
($37,086 - $13,593), a net yield of $23,492. This amount is shown in Table 34 under
“inﬂows”. In this case, “inﬂow” equals “total inﬂow” due to the assumptions made at the
beginning to conduct the analysis. The expenditures in the “with project” scenario are
zero for the township since it does not invest any money in the construction of new
inﬁastructure. This can be observed in Table 34 under “outﬂow” and “total outﬂow”.
The incremental net property tax for the township is given by subtracting the net property
tax obtained under the “without project” scenario from the net property tax obtained from
the “with project” scenario. The $ 9,900 incremental net property tax is the cash ﬂow

used in Table 32 below to determine the net present value of the project given a 5 percent

 

 

 

 

 

 

 

 

discount rate.
. Table 32
Net Present Value of Infrastructure Investment for Lapeer Township
YEAR INCREMENTAL DISCOUNT PRESENT
NET TAXES FACTOR (5%) VALUE
1 9,900 0.95 9,424.80
2 9,900 0.91 8,979.30
3 9,900 0.86 8,553.60
4 9,900 0.82 8,147.70
5 X 9,900 0.78 7,761.60
6-50 9,900 13.18 130,482.00
NPV 173,349.00

 

 

 

 

 

 

90

The net present value (NPV) of the project for Lapeer Township is $ 173,349.
Such a positive net present value indicates that it is proﬁtable for the township to execute
the project. The economic incentive is represented by the discounted incremental net
property tax of $ 9,900 the township receives during the 50-year life of the agreement
The City’s Perspective

Inﬂows, total inﬂows and net beneﬁts in the “without project” scenario are zero
for the city. Table 35 in the Appendix provides all the relevant ﬁgures. Under the “with
project” scenario the outcome is different. First, the inﬂow for the city is
$217,325. This amount is obtained by multiplying the total taxable value of
$24,724,162 of all ﬁrms established in the transferred land (old and new) by the 1997
city’s rrrillage rate of 8.79 mills. The outﬂows are represented by the one time
infrastructure investment of $1,753,5502 made by the city and the $37,086 yearly
payment made to Lapeer Township according to the provisions of the contract. These
two amounts add up and represent total outﬂows. The net property tax is negative in the
ﬁrst year of the project (-$1,536,311). However, such property tax is positive in
subsequent years at $180,239. These two amounts also represent the incremental net
property taxes needed to compute the present value of the project. The procedure is the
same previously applied and explained in the township’s perspective section above.
Table 33 below shows the calculation of the net present value of the project for the city of

Lapeer. The net present value (NPV) of the investment for the city of Lapeer is

 

2 Assuming the infrastructure investment is paid for using property taxes collected. However, it is most
likely that inﬁ'astructure improvements are paid for by hookup fees, readiness to serve charges and
operating charges in which case the collected payment tax revenues are used to offset the costs of providing
the full scope of municipal services (i.e. ﬁre, police, etc.)

91

$1,521,829. Such positive ﬁgure indicates that the project is proﬁtable and should be

executed.

Table 33
Net Present Value of Infrastructure Investment for the City of La eer

 

 

 

 

 

 

 

 

YEAR INCREMENTAL DISCOUNT PRESENT
NET TAXES FACTOR (5%) VALUE

1 -1 ,536,311 0.95' -l ,462,568.07

2 180,239 0.91 163,476.77

3 180,239 0.86 155,726.50

4 189,239 0.82 148,336.70

5 180,239 0.78 141,307.38
6-50 180,239 13.18 2,375,550.02
NPV 1,521,829.29

 

 

 

 

 

 

The results of the ﬁnancial analysis at the township and the city lei/e1 indicate the
project is proﬁtable for both governments. However, attention is given to the fact that
expenditures included in the analysis are only the cost of infrastructure investment and
the revenue paid to the township according to the revenue sharing proportion agreed upon
in the contract. Operational costs of the treatment plant, if large enough, could decrease
net property taxes as to make incremental net property taxes negative during the life time
of the project. If this is the case, the project should not be executed. Information on the
operational costs of the treatment plant, and their inclusion in the calculation of the net
present value, has the potential to present a more realistic and stronger case in the

ﬁnancial analysis.

92

Institutional memory about the reasons for and resulting action upon termination
of P.A. 425 agreements becomes muddled as the time between contract execution and
expiration lengthens. In this regard, especial attention is given to the number of contracts
that mandate reversion of the transferred land to the original government upon agreement
completion. Agreements of short duration (less than ﬁve years) may not be a problem.
However, long term contracts have the potential to create signiﬁcant public debate over
the appropriateness of returning land area containing city funded public infrastructure
improvements back to townships. Who bears the costs of the improvements? Will
residents and business owners accept a changed status from city resident to township
resident? One could argue that such a transfer would have associated high transaction
costs.

The research encountered several problems in collecting data. Several factors
played a role in shaping such outcome. Lack of cooperation from both ﬁrms and local
units of government to provide the information requested is an important factor. Firms
and businesses did not disclose the information for most of the time they considered such
information was “sensitive” or “privileged”. Local governments did not provide it due to
either unwillingness to cooperate or lack of resources to do so. The case of Green
Township is an example worth mentioning. Public ofﬁcials at the township stated that to
obtain the information requested, they would have to hire an engineering consulting ﬁrm
to determine the extension and value of infrastructure built. This option was costly for
the municipality to undertake. It is acknowledged that the data collection methods used,
mail and phone interviews, were factors that contributed to collect both insufﬁcient

quality data. Personal contact through on-site interviews is suggested in future research

93

as these techniques have the potential to generate a better data set. Such an option may
be more expensive. Another important factor affecting data collection and retrieval
relates to institutional memory of local governments. Municipalities’ institutional
memory becomes blurred as time prolongs. Many public ofﬁcials currently in ofﬁce
when asked about their P.A. 425 units’ agreements expressed their lack of knowledge
about the implemented agreements. This may explained by the fact that many ofﬁcials
were not in ofﬁce when the contracts were executed. Such ﬁnding raises the question
and possible outcome that as contracts become older, the original reasons for execution
fade, leaving future research with fewer options or choices to investigate on the impact of
the Act. Consequently, data collection continues to be a potential problem for future
research regardless of the collection method selected.

The previous paragraphs convey the idea that the Conditional Land Transfer
Agreement Act has been successful at providing an alternative to annexation.- However,
is the statute really accomplishing its intended objective of encouraging economic
development?

Expansion and building of existing and new infrastructure, along with all the
changes such expansion brings into the local economy, is a measure of whether the Act
has accomplished its objective. The expansion of existing ﬁrms, along with the entering
of new businesses, also pinpoints economic grth occurring in the land transferred. The
city of Lapeer and the villages of Caseville and Rothbury reported expansion of existing
ﬁrms after execution of P.A. 425 agreements (Table 14). Lapeer, Gaylord and Milan
reported the establishment of new businesses and ﬁrms after agreement execution as

well. These ﬁrms contributed to the local economy by creating new jobs and increasing

94

revenue tax bases. Nevertheless, most municipalities in the category of contracts “still in
force” did not report any changes in economic development occurring in the area. Table
22 indicates that four out of seven governments surveyed did not experience any
commercial development once contracts were implemented. This number represents 57
percent of the contracts in the research sample. From a public policy perspective,
questions arise about the validity of P.A. 425 legislation if this percentage is indeed
representative of all the 130 P.A. 425 contracts on ﬁle. Three out of seven municipalities
indicated that infrastructure development had occurred after P.A. 425 agreement
execution (Table 24). The literature review indicates that infrastructure availability (i.e.
sewer and water) is a critical factor for economic development to occur. However, two
important questions that derive from the previous ﬁnding are whether economic
development actually follows infrastructure availability, and whether it is ﬁnancially
attractive for governments to engage in P.A. 425 agreements. In the former question, it is
of paramount importance to determine whether P.A. 425 agreements are being used for
speciﬁc projects, or if the legislation is being used as a broad base development tool 4
similar to industrial parks. Needless to say, only further research can answer these

questions.

95

APPENDICES

96

APPENDIX A

Summary of P.A. 425 Agreements Filed Since 1985

P.A. 425, 1984 — Text of Law

97

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100

INTERGOVERNMENTAL CONDITIONAL TRANSFER
OF PROPERTY BY CONTRACT
Act 425 of 1984

AN ACT to permit the conditional transfer of property by contract between certain local
units of government; to provide for permissive and mandatory provisions in the contract;
and to provide for certain conditions upon termination, expiration, or nonrenewal of the
contract.

History: 1984, Act 425, Eff. Mar. 29, 1985.

124.21 Deﬁnitions.

Sec. 1. As used in this act:

(a) "Economic development project" means land and existing or planned improvements
suitable for use by an industrial or commercial enterprise, or housing development, or
the protection of the environment, including, but not limited to, groundwater or surface
water. Economic development project includes necessary buildings, improvements, or
structures suitable for and intended for or incidental to use as an industrial or
commercial enterprise or housing development; and includes industrial park or industrial
site improvements and' port improvements or housing development incidental to an
industrial or commercial enterprise; and includes the machinery, furnishings, and
equipment necessary, suitable, intended for, or incidental to a commercial, industrial, or
residential use in connection with the buildings or structures.

(b) ”Local unit" means a city, township, or village.

History: 1984, Act 425, Eff. Mar. 29, 1985;-Am. 1990, Act 22, lmd. Eff. Mar. 6, 1990.

124.22 Conditional transfer of property; period; written contract; renewal.

Sec. 2. (1) Two or more local units may conditionally transfer property for a period of not
more than 50 years for the purpose of an economic development project. A conditional
transfer of property shall be controlled by a written contract agreed to by the affected
local units.

(2) A contract under this act may be renewed for additional periods of not to exceed 50
years upon approval of each legislative body of the affected local units.

124.23 Formulation of contract; factors.

Sec. 3. When formulating a contract under this act, the local units shall consider the
following factors:

(a) Composition of the population; population density; land area and land uses;
assessed valuation; topography, natural boundaries, and drainage basins; and the past
and probable future growth, including population increase and business, commercial,
and industrial development in the area to be transferred. Comparative data for the
transferring local unit and the portion of the local unit remaining after transfer of the
property shall be considered.

(b) The need for organized community services; the present cost and adequacy of
governmental services in the area to be transferred; the probable future needs for
services; the practicability of supplying such services in the area to be transferred; the
probable effect of the proposed transfer and of alternative courses of action on the cost
and adequacy of services in the area to be transferred and on the remaining portion of
the local unit from which the area will be transferred; the probable change in taxes and
tax rates in the area to be transferred in relation to the beneﬁts expected to accrue from

101

the transfer; and the ﬁnancial ability of the local unit responsible for services in the area
to provide and maintain those services.

(c) The general effect upon the local units of the proposed action; and the relationship of
the proposed action to any established city, village, township, county, or regional land
use plan.

124.24 Public hearing; notice; majority vote required.

Sec. 4. (1) The legislative body of each local unit affected by a proposed transfer of
property under this act shall hold at least 1 public hearing before entering into a contract
under this act. Notice of the hearing shall be given in the manner provided by the open
meetings act, Act No. 267 of the Public Acts of 1976, being sections 15.261 to 15.275 of
the Michigan Compiled Laws. ‘
(2) A decision to enter into a contract under this act shall be made by a majority vote of
those members elected and serving on the legislative body of each affected local unit.

124.25 Compliance as condition to entering into contract; resolution; referendum;
approval by majority of electors; petition; effect of not filing petition or adopting
resolution.

Sec. 5. (1) A contract shall not be entered into under this act except in compliance with
this section.

(2) If the governing body of a local unit involved in a transfer of property under this act
adopts a resolution calling for a referendum on the transfer, the local unit may enter into
the contract only if the transfer is approved by a majority of the electors voting on the
transfer.

(3) If, within 30 days after a public hearing is held under section 4, a petition signed by
20% or more of the registered electors residing within the property to be transferred is
ﬁled with the clerk of the local unit in which the property is located, a referendum on the
transfer shall be held in that local unit. If a majority of the electors voting on the transfer
approve the transfer, the local unit may enter into the contract.

(4) If no registered electors reside within the property to be transferred and if, within 30
days after a public hearing is held under section 4, a petition signed by persons owning
50% or more of the property to be transferred is ﬁled with the clerk of the local unit in
which the property is located, a referendum on the transfer shall be held in that local
unit. If a majority of the electors in the local unit voting on the transfer approve the
transfer, the local unit may enter into the contract.

(5) If a petition is not ﬁled or resolution is not adopted as provided in this section, the
local unit may enter into the contract to transfer the property.

124.25a Violation of §§ 168.1 to 168.992 applicable to petitions; penalties.

Sec. 5a. Except as othewvise provided in this section, a petition under section 5,
including the circulation and signing of the petition, is subject to section 488 of the
Michigan election law, 1954 PA 116, MCL 168.488. A petition under section 5(4) that is
signed by landowners because no registered electors reside within the property to be
transferred is not subject to section 488 of the Michigan election law, 1954 PA 116, MCL
168.488. A person who violates a provision of the Michigan election law, 1954 PA 116,
MCL 168.1 to 168.992, applicable to a petition described in this section is subject to the
penalties prescribed for that violation in the Michigan election law, 1954 PA 116, MCL
168.1 to 168.992.

109

124. 26 Contract; provisions.
Sec. 6. (1) If applicable to the transfer, a contract under this act may provide for the
following.
(a) Any method by which the contract may be rescinded or terminated by any
participating local unit prior to the stated date of termination.
(b) The manner of employing, engaging, compensating, transferring, or 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. An
employee who is transferred by a local unit due to a contract under this act shall not by
reason of the transfer be placed in any worse position with respect to worker's
compensation, pension, seniority, wages, sick leave, vacation, health and welfare
insurance, or any other beneﬁts that he or she enjoyed before the transfer.
(c) The ﬁxing and collecting of charges, rates, rents, or fees, where appropriate, and the
adoption of ordinances and their enforcement by or with the assistance of the
participating local units.
(d) The manner in which purchases shall be made and contracts entered into.
(e) The acceptance of gifts, grants, assistance funds, or bequests.
(f) The manner of responding for any liabilities that might be incurred through
performance of the contract and insuring against any such liability.

(9) Any other necessary and proper matters agreed upon by the participating local units.

124.27 Contract; additional provisions.

Sec. 7. A contract under this act shall provide for the following:

(a) The length of the contract.

(b) Speciﬁc authorization for the sharing of taxes and any other revenues designated by
the local units. The manner and extent to which the taxes and other revenues are shared
shall be speciﬁcally provided for in the contract.

(c) Methods by which a participating local unit may enforce the contract including, but
not limited to, return of the transferred area to the local unit from which the area was
transferred before the expiration date of the contract.

(d) Which local unit has jurisdiction over the transferred area upon the expiration,
termination, or nonrenewal of the contract.

124.28 Conditionally transferred property; jurisdiction.

Sec. 8. 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.

124.29 Other method of annexation or transfer prohibited.
Sec. 9. While a contract under this act is in effect, another method of annexation or
transfer shall not take place for any portion of an area transferred under the contract.

124.30 Effect of ﬁling contract; entering contract in book; contract as prima facie
evidence of conditional transfer.

Sec. 10. The conditional transfer of property pursuant to a contract under this act takes
place when the contract is ﬁled in the manner required by this section. After the affected
local units enter into a contract under this act, the clerk of the local unit to which the
property is to be conditionally transferred shall ﬁle a duplicate original of the contract with
the county clerk of the county in which that local unit, or the greater part of that local unit,
is located and with the secretary of state. That county clerk and the secretary of state

103

shall enter the contract in a book kept for that purpose. The contract or a copy of the
contract certiﬁed by that county clerk or by the secretary of state is prima facie evidence
of the conditional transfer.

W

4AA

APPENDIX B

Summary of P.A. 425 Agreements Filed Since 1985

Research Sample

105

 

8.2 2 =8 32 2 28.8”. .82 2222. 8. .20 .2 28 .32 .2 2.... 8 2.. .283 .838 8...... 8 .20 a 3» 8.. 8.. :3
8.2 2 .8 3» 2 2.2.8 8828. 8 $8 8 883 .838 88 8 20 w 32 2.8.5.”. 8.8.:
8.2 2 =8 .20 2 222.2» 82.2 .288... 288.2. 3 8 228298 228 88.6.”. 8 .20 a 3» 283 38:2
8.2 2 =8 .20 2 88:22 2.2 N: F 8 .22... .838 .88.. .o .20 a 32 .88.. 8.8.8
8.2 2 =8 .20 2 2222.. .2... F 2 80.28 882:... 2.2.9.0 8 .20 a 3» :28 8.9.8
8.2 2 =8 .20 2 222...» 2.... . 2. 80.38 8.22.... 2.2.2.0 8 20 a 32 .9280 8.2.8
8.2 2 =8 .20 2 2228.2 =2 . o. «8.3.8 8.25.... 2.2.2.0 8 20 a 3» .8280 8.6.5
8.2 2 .8 3.. 2 2.262 22...... 8.. 88 a 88.... 3.. 2.2.0 2822.. a 32 .285 822.. 8.3.:
8.2828 2.82.52 2 2222.. 8.8..» 222.... oz . 2828.838 ...8m 32 0820 a 88.0 8 .20 3.2.8
88.8.8 832.2 32.... 3.— 2 2.92. 8...... 282.. 2222. 3. m .283 .88 22.50 8 .20 a 3» 228...... 8.38
88.2.80 3» 2 2.2.3. 82.5 2 8. a .3» 2 .2» .8... 882...". 8 80.3.8 8.25... 3323. 8 82.5 a 3.. 220 8.3.3
88.280 3» 2 2.2.8 t. 8 28 N. 882 .88.... 2.3860 8 82.5 a 3.. 8.880 88.8
88.228 3.2.3 .2... 82.2.2 .228”. 2a 2 28.8”. 8.8m 2m .2 8:8. 882. .8 2.8.2.2. 9.2.. 2 83.832 82 n 883 .838 32 .820 a 32 2.2.0 8.8m. 9m 3.2.3
88.8.8 3» 2 2832. 8...... N .. .22... .838 «22 8 .20 a 3h 2.8 8.2.8
8.8 88.83. 8.5 2 28.8”. 3:26. x2 28 .o 8...... n m. 883 .838 2228: 8228 .o .20 a 8.5 8 .20 8.. =8
8.2 88.88 32 2 2.2.2.. 282 8 8.2.88 2.. 82.5 8220 .8 a 3.. .820 88 8.8.9
8.8 88.82 222.38.. 2 2222.. 88.. .8 88 9. 883 .838 3.. 28.82 a 28.8.... .o 20 8.8.8
8.9 88.38 3» 2 2.28m .22 .20 8 $8. 2 8 8...... N 8 82:8 8.28.2 .2222 .o .20 a 3p 8.8.22 8.8.8
8.8 88.88 3p 2 2838 .98. 3» 223:8 o. 883 .838 22.60 8 .20 a 3» .888 8.. :8
8.8 88.82. 3» 2 28.6m 2.8. 32 anzalom m. 883 .838 223.0 8 .20 a 32 88a 8.58 .
2.28. < 2.28.3 2828.3
8 .38 28 828...... 02.28 2225. 28> .823 8222. 2...: 8E

 

 

 

 

 

28.8 8.882 2 88.2. 28229.. 83:. 8 .8228

106

APPENDIX C

Financial Analysis of Infrastructure Investment

P.A. 425 Agreement Executed between the City of Lapeer and Lapeer Township

03/29/85

107

 

x8... .82 5:02.20...—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ooad oomd oomd oomd oomd oomd
81mm mavdw 81mm 81mm mmvdw mmvdm 82 «82
o o o o o 0 305:0 .80..
.2800 3:28.30
.55 2.85.8.2
o o o o o o 2.95895 2.05:0
8.8de oodmtmw 8.8de oodmvdm cadmium oodmvdm 36c... .80..
2:02.889... @0QO
80”. .8:
8.8de oodmtmw oodmtmm oodmtmm oodmvdm 8.3de $me 26:5
omé m v m N v 28>
82225.2.
8.8%? 8.8de 88%.? 8.809 8.899 8.899 xm... .82
o o o o o o 305:0 .80...
.2800 8:28.80
28?. 2.25.8.2
o o o o o o 2.958%: 265:0
88%.? 008mm,? 88%.? 8.8%? 8.899 8.899 2.0:... .80..
2:82.888. 5.095
88”. .8...
88%.? 8.802 8.8de 8.8%? 8.89m. 8.899 8me 26c...
omé n v m w P 88>

 

 

82281255.;

 

 

 

3:82.53. 2: .0 28:26. 3.0.8:.“—
3 win...

108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

00.08.09 00.08.00. 00.08.09 00.08.00. 00.08.09 $085.08. 3 x0... .02 55220:.
808.00.. 00.08.00. 00.08.00. 00.08.00. 00.08.00. 20.05.08. 3 x0... .02
8.08.5 8.08.5 8.08.5 8.08.5 8.08.5 8.000.005; {65:0 .80...
8.08.5 8.08.5 8.08.5 8.08.5 8.08.5 8.08.5 8:20 03:05”.
0.000 0:80.000
.:0.n. .:0E.00....
- - - - - 8.80.0 2.. P 20.5035 265:0
00.08... N 00.08... K 8.08... «N 00.8w... Pu 8.08.5 PN 00.80... 3 305.. .Sot
02300002 .0880
000". .00:
00.08.... PN 00.08... «N 00.08.» E 00.08... F. 00.08... «N 00.08.» 5 00x0... 2605
00.0 m v m N .. .00>
8...... 5.3
- - - - . - xah .02
o o o o o 0 305:0 .80....—
3000 5:80.000
E0... 20.500;
0 o o o o o .:0:..00>:_ 305:0
- - - - - - 300:. .80...
$c0E00000< 0.0000
000“. .00:
- - - - - - 00.8% 260:.
00.0 0 v m N F 50>
«8.9... 52...; ._ _

 

 

 

3.0 a... .o «3222 .282...

mm 030...

109

APPENDIX D

Survey Samples

110

SURVEY ON THE EFFECTS OF PA425 AMONG CONTRACTING UNITS OF
GOVERNMENT
(Contracts Rescinded)

Conditional Land Transfer Agreement between:

 

 

 

 

and
Respondent Name Unit of Government
Position Phone Number

 

 

General Instructions: For each question, record only one answer, unless otherwise
stated. For questions with pre-coded responses, circle the respondent ’5 answer and then
write the pre-coded response number in the blank on the right side of the questionnaire.
If the respondent is unable to provide an answer to the question, enter a -9 in the blank.

I. BACKGROUND INFORMATION AND DEMOGRAPHIC ASPECTS.

1.1 Population

 

1.2 What is the land area of this unit of government? sq miles/acres
1.3 Land area of the parcel transferred? sq miles/acres

1.4 Operating Millage levied by this unit of government in 1998?

 

1.5 What was the length of the PA425 agreement? . years

 

1.6 The reason(s) or purpose for the transfer of land as indicated in the agreement?
(3) Residential Development (4) Commercial Development

(5) Industrial Development (6) Other:

 

1.7 What speciﬁc public services were needed that prompted the contracting units to
engage in the Conditional Land Transfer Agreement program?

(3) Sewer and water (4) Electric utilities

(5) Street/roads (6) Other:

 

II. CONTRACT STATUS.
2.1 Please Identify the reason(s) why the contract was rescinded?

2.1.1

 

2.1.2

 

2.1.3

 

2.1.4
2.1.5

 

2.2 Have your intergovernmental relations with the other party to the contract been
altered in any way after the contract was rescinded?

(0) No (1 ) Yes

If no, go to question 2.4
2.3 How have you relations with the other party to the PA425 agreement been
affected?

(1) Have deteriorated (2) Have improved (-9) Don’t know

2.4 Would you engage in another PA425 contract?

 

(0) No (1) Yes (~9) Don’t know

2.5 If you were to sign another PA425 contract today, would you make any changes to
the contract?

(0) No (1) Yes

2.6 Please, list the changes you would make to the contract.

2.6.1

 

2.6.2

 

2.6.3

 

2.6.4
2.6.5

 

2.7 Prior to the execution of the PA425 agreement, did the unit consider annexation as a
condition of providing inﬁastructure extension (i.e. sewer, water, utilities) to the area?

(0) No (1) Yes

2.8 How did you know about PA425?

 

(1) Government institution (2) at work (3) newspaper/TV

(4) Educational institution (5) from a friend (6)0ther:

 

We have ﬁnished the interview, I’d like to thank you for the opportunity and
the time you have contributed to this research.

Thank you!!

113

SURVEY ON THE EFFECTS OF PA425 AMONG CONTRACTING UNITS OF
GOVERNMENT
(Contracts Completed)

Conditional Land Transfer Agreement between:

 

 

 

 

and
Respondent Name Unit of Government
Position ' Phone Number

 

 

General Instructions: For each question, record only one answer, unless otherwise
stated. For questions with pre-coded responses, circle the respondent ’s answer and then
write the pre-coded response number in the blank on the right side of the questionnaire.
If the respondent is unable to provide an answer to the question, enter a -9 in the blank.

I. BACKGROUND INFORMATION AND DEMOGRAPHIC ASPECTS.

1.1 Population

 

1.2 What is the land area of this unit of government? sq miles/acres
1.3 Land area of the parcel transferred? sq miles/acres

1.4 Operating Millage levied by this unit of government in 1998?

 

1.5 What was the length of the PA425 agreement? years

 

1.6 The reason(s) or purpose for the transfer of land as indicated in the agreement?
(3) Residential Development (4) Commercial Development

(5) Industrial Development (6) Other:

 

1.7 What speciﬁc public services were needed that prompted the contracting units to
engage in the Conditional Land Transfer Agreement program?

(3) Sewer and water (4) Electric utilities

(5) Street/roads (6) Other:

 

II. INDUSTRIAL AND COMNIERCIAL DEVELOPMENT.

2.1 Prior to the land transfer agreement execution, was there any commercial and
industrial development in the transferred land?

(0) No (1) Yes

If yes, ﬁll out the box below and answer questions 2.2 and 2. 3, otherwise go to question
2. 4.

 

Name of Firm Industrial Dev. Commercial Dev. Contact Person
Phone Number

 

Light Med Heavy Retail Serv Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.2 Did the extension of municipal services into the transferred land result in expansion
of existing ﬁrms?

(0) No (1) Yes
2.3 Was the transferred land incorporated into existing industrial parks?
(0) No (1) Yes

2.4 After the PA425 agreement was executed, were new ﬁrms or commercial enterprises
established on the transferred parcel of land?

(0) No (1) Yes

If no, go to question 3.1

2.5 Indicate the name and type of new ﬁrms located on the transferred land after the
PA425 agreement was executed.

 

Name of Firm Industrial Dev. Commercial Dev. Contact Person
Phone Number

 

Light Med Heavy Retail Serv Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

III INFRASTRUCTURE DEVELOPMENT.

3.1 Was there any type of infrastructure development such as sewer, water, and other
utilities on the transferred parcel prior to the execution of the agreement?

(0) No (1) Yes
If no, go to question 3.3

3.2 Please, specify the type of infrastructure, quantity, and approximate value.

 

Type of Infrastructure Quantity Approximate Value
(miles, linear feet) ($ thousands)

 

 

 

 

 

 

 

 

 

 

3.3 After the PA425 agreement was implemented, did any infrastructure development
initiate/occur on the transferred parcel of land?

(0) No (1) Yes

If no, go to question 4.1

 

3.4 Specify the type, extension, and approximate value of the infrastructure created after
the agreement was executed.

 

Type of Infrastructure Quantity Approximate Value
(miles, linear feet) (S thousands)

 

 

 

 

 

 

 

 

 

 

IV. RESIDENTIAL DEVELOPMENT

4.1 Previous to the execution of the PA425 contract, was there residential development
on the parcel of land transferred to the city/village?

(O) No (1) Yes
If no, go to question 4.3

4.2 Specify the type, number of units, and SEV of the residential development located on
the parcel, prior to execution of the PA425 agreement.

 

Type of Residential Dev. Number of Units 1998 SEV

 

 

 

 

 

 

 

 

 

 

4.3 Did residential development on the parcel transferred expand after the PA425
agreement was executed?

(0) No (1) Yes

If no, go to question 5.1

117

4.4 Please, indicate the type, number of units, and SEV of the residential development on
the parcel transferred after the agreement was executed.

 

Type of Residential Dev. Number of Units 1998 SEV

 

 

 

 

 

 

 

 

 

V. CONTRACT STATUS.
5.1 Was the contract renewed or extended upon expiration?
(O) No .(1) Yes

If no, go to question 5.4

5.2 Did you make any changes to the provisions of the new PA425 agreement?

(0) No (1) Yes

5.3 Please, list the changes made to the new PA425 contract.

5.4.1
5.4.2
5.4.3
5.4.4
5.4.5

 

 

 

llR

 

5.4 Please, list the reason(s) why the contract was not renewed.

5.5.1
5.5.2
5.5.3
5.5.4
5.5.5

 

 

 

5.5 Did the land revert to the township after the contract was completed?
(0) No (1) Yes
If no, go to question 5.8

5.6 Did you recover the value of the investment made in the infrastructure needed to
provide the public services speciﬁed in question 1.7 (refer to question if necessary)

(0) No (1) Yes

5.7 Have your intergovernmental relations with the other party to the contract been
alteredin any way after the contract was completed?
(0) No (1) Yes
If yes, specifv
how?
5.8 Prior to the execution of the PA425 agreement, did the unit consider annexation as a

condition of providing infrastructure extension to the area?

(0) No (1) Yes

5.9 How did you learn about PA425?

 

(1) Government institution (2) at work (3) newspaper/T V

(4) Educational institution (5) from a ﬁiend (6)0ther:

 

iiii

5.10 Would you engage in another PA425 contract?

 

(O) No ( 1) Yes (-9) Don’t know

We have ﬁnished the interview, I’d like to thank you for the opportunity and
the time you have contributed to this research.

Thank you!!

1")“

 

SURVEY ON THE EFFECTS OF PA425 AMONG CONTRACTING UNITS OF
GOVERNMENT
(Contracts Enforced more than 4 Years)

Conditional Land Transfer Agreement between:

 

 

 

 

and
Respondent Name Unit of Government
Position Phone Number

 

 

General Instructions: For each question, record only one answer, unless otherwise
stated. For questions with pre-coded responses, circle the respondent ’3 answer and then
write the pre-coded response number in the blank on the right side of the questionnaire.
If the respondent is unable to provide an answer to the question, enter a -9 in the blank.

I. BACKGROUND INFORMATION AND DEMOGRAPHIC ASPECTS.

1.1 Population

 

1.2 What is the land area of this unit of government? sq miles/acres
1.3 Land area of the parcel transferred? . sq miles/acres
1.4 Operating Millage levied by this unit of government in 1998?

 

1.5 What was the length of the PA425 agreement? years

 

1.6 The reason(s) or purpose for the transfer of land as indicated in the agreement?
(3) Residential Development (4) Commercial Development
(5) Industrial Development (6) Other:

 

1.7 What speciﬁc public services were needed that prompted the contracting units to
engage in the Conditional Land Transfer Agreement program?

(3) Sewer and water (4) Electric utilities

(5) Street/roads (6) Other:

 

121

II. INDUSTRIAL AND COMMERCIAL DEVELOPMENT.

2.1 Prior to the land transfer agreement execution, was there any commercial and
industrial development in the transferred land?

(0) No (1) Yes

If yes, ﬁll out the box below and answer questions 2.2 and 2. 3, otherwise go to question
2. 4. '

 

Name of F inn Industrial Dev. Commercial Dev. Contact Person
Phone Number

 

Light Med Heavy Retail Serv Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.2 Did the extension of municipal services into the transferred land result in expansion
of existing ﬁrms?

(0) No (1) Yes
2.3 Was the transferred land incorporated into existing industrial parks?
(0) No (1) Yes

2.4 After the PA425 agreement was executed, were new ﬁrms or commercial enterprises
established on the transferred parcel of land?

(0) No (1) Yes

If no, go to question 3.1

1')"

2.5 Indicate the name and type of new ﬁrms located on the transferred land after the
PA425 agreement was executed.

 

Name of Firm Industrial Dev. Commercial Dev. Contact Person
Phone Number

 

Light Med Heavy Retail Serv Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

III INFRASTRUCTURE DEVELOPMENT.

3.1 Was there any type of infrastructure development such as sewer, water, and other
utilities on the transferred parcel prior to the execution of the agreement?

(0) No (1) Yes
If no, go to question 3.3

3.2 Please, specify the type of infrastructure, quantity, and approximate value.

 

Type of Infrastructure Quantity . Approximate Value
(miles, linear feet) ($ thousands)

 

 

 

 

 

 

 

 

 

 

123

3.3 After the PA425 agreement was implemented, did any infrastructure development
initiate/occur on the transferred parcel of land?

(0) No (1) Yes
If no, go to question 4.1

3.4 Specify the type, extension, and approximate value of the infrastructure created after
the agreement was executed.

 

Type of Infrastructure Quantity Approximate Value
(miles, linear feet) (5 thousands)

 

 

 

 

 

 

 

 

 

 

IV. RESIDENTIAL DEVELOPMENT

4.1 Previous to the execution of the PA425 contract, was there residential development
on the parcel of land transferred to the city/village?

(O) No (1) Yes
If no, go to question 4.3

4.2 Specify the type, ntunber of units, and SEV of the residential development located on
the parcel, prior to execution of the PA425 agreement.

 

Type of Residential Dev. ‘ Number of Units 1998 SEV

 

 

 

 

 

 

 

 

 

 

1‘74

4.3 Did residential development on the parcel transferred expand after the PA425
agreement was executed?

(O) No (1) Yes
If no, go to question 5.1

4.4 Please, indicate the type, number of units, and SEV of the residential development on
the parcel transferred after the agreement was executed.

 

Type of Residential Dev. Number of Units 1998 SEV

 

 

 

 

 

 

 

 

 

 

V. CONTRACT STATUS.

5.1 How would you rate your intergovernmental relations with the other party to the
contract?

(1) Excellent (2) Good (3) Fair (4) Bad
5.2 Has the economic development of the transferred parcel been changed after the
execution of a PA425 contract?

(0) No (1) Yes
If no, go to question 5.4
5.3 How would you say PA25 has affected the economic development of the parcel
transferred?

(1) increased/accelerated (2) Nothing has happened (3) Decrease

125

5.4 Do you intend to renew the contract once it expires?

(0) N0 (1) Yes

5.5 How did you learn about PA425?

(1) Government institution (2) at work

(4) Educational institution (5) from a friend

5.6 Would you engage in another PA425 contract?

(0) No (1) Yes (-9) Don’t know

 

(3) newspaper/TV
(6)0ther:

 

 

5.7 Prior to the execution of the PA425 agreement, did the unit consider annexation as a

condition of providing infrastructure extension to the area?

(0) No (1) Yes

We have ﬁnished the interview, I’d like to thank you for the opportunity and

the time you have contributed to this research.

Thank you!

126

SURVEY ON THE EFFECTS OF PA425 ON COMMUNITY ECONOMIC
DEVELOPMENT
(Only to be ﬁlled out by businesses)
Conditional Land Transfer Agreement between:

 

 

 

 

 

And
Recipient Unit of Government
Business/F inn Respondent Name
Position Phone Number

 

 

Date of Contract Execution

 

General Instructions: For each question, record only one answer, unless otherwise
stated. For questions with pre-coded responses, circle the respondentlb' answer and then
write the pre-coded response number in the blank on the right side of the questionnaire.
If the respondent is unable to provide an answer to the question, enter a -9 in the blank.

I BACKGROUND INFORMATION

1.1 Please deﬁne the type of economic activity the business/ﬁrm is engaged in.

 

I INDUSTRIAL COMMERCIAL RESIDENTIAL I
IHeavy Med Light Retail Service Other Apart Houses Other I

 

 

 

 

 

 

 

 

 

 

1.2 Was the ﬁrm established on the transferred parcel of land before the P.A. 425
agreement was executed?
(0) N0 (1) Yes

If no, go to question 1.6

127

1.3 Please indicate the number of employees, total payroll size, and annual amount of
property taxes paid to the local government by the business/ﬁrm in the immediate tax

year before the P.A. 425 agreement was executed.

 

NUMBEIUAMOUNT

 

Employees

 

Total Payroll Size

 

Property Taxes

 

 

 

 

1.4 Did the execution of the P.A. 425 agreement result in expansion of the ﬁrm/business?
(O) No (1) Yes
If no, go to question 1.6

1.5 Was the ﬁrm established on the transferred parcel after the P.A. 425 agreement was
executed?
(O) No (1) Yes

If no, go to question 2.1

1.6 Please indicate the number of employees, total payroll size, and annual amount of

property taxes paid to the local government by the business/ﬁrm in the 1997 tax year.

128

 

 

NUMBER/AMOUNT

 

Employees

 

Total Payroll Size

 

Property Taxes

 

 

 

 

1.7 Did the ﬁrm receive any tax abatements in order to locate on the transferred parcel of
land?

(0) Yes (1) No

11 LOCATION DECISION FACTORS
2.1 Please name in order of importance (most important to least important) the factors

that affected the business/ﬁrm decision to establish on the transferred parcel of land.

2.1.1

 

2.1.2

2.1.3

 

2.1.4

2.1.5

 

We have ﬁnished the interview; I’d like to thank you for the opportunity and
the time you have contributed to this research.

Thank you!
Please return the questionnaire in the self-addressed envelope to Lynn R.

Harvey/Alexander R. Quinones. 48 Agriculture Hall. East Lansing. MI.
48824-1039.

129

 

BIBLIOGRAPHY

130

Bibliography

1. Bamberger, Rita, Blazar, William, and Peterson, George E. Infrasﬂcture Sapport
W. Chicago: American Planning Association, 1985.

2. Banks, Kip B. Annexation Practices in Michigan: The gig Pegpective Part 11.
Michigan: Michigan Municipal Review, 1989.

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