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09/24/2006
Developers net $4.5M credit from flawed testsmccoolrecordeagle@sbcglobal.net 
Stacks of concrete and PVC pipes await work crews at the Petoskey Pointe site in downtown Petoskey, which remains littered with the remains of old building foundations. PETOSKEY — Tests showing widespread soil contamination helped developers of a sprawling downtown project land a tax credit worth millions. The tests were wrong, though, and very little soil pollution existed at the site, according to state records obtained by the Record-Eagle under the state Freedom of Information Act. But Petoskey Pointe developers used the flawed information — weeks after their consultants acknowledged their errors to state regulators — in an application that led to a $4.5 million brownfield tax credit. Michigan Economic Development Corp. officials who administer the program never caught the mistake and don't plan to rescind the tax credit awarded in June to Lake Street Petoskey Associates. They contend the site still qualifies for the credit, despite the absence of significant soil contamination. "We don't see a problem with what transpired, frankly," said Mark Morante, vice president of Development Finance at the MEDC. "It was an error. Some people make errors all the time. We don't have a problem with it." Gov. Jennifer Granholm's office, though, wants more information from MEDC. "We are troubled by the notion that an application (for a tax credit) would include inaccurate information," said Granholm spokeswoman Liz Boyd. "We want them to fully review what occurred, whether things occurred as they should have, whether it impacted their final decision." The $60 million Petoskey Pointe project is slated to take up an entire city block downtown and has much in common with a Traverse City public parking deck proposal resoundingly rejected by voters in August. Petoskey Pointe also includes millions in taxpayer dollars and was put to a public vote. Petoskey residents in May 2005 upheld the hotel-condo development 1,144 to 934. Both projects qualified for state incentives as contaminated brownfield properties. In Traverse City, the state provided over $1.5 million in grants and loans to clean contaminated soil and groundwater before final environmental studies showed that despite supporters' claims, little if any soil or groundwater cleaning would be required. Downstate developer Michael Uzelac factors in both projects, and Northwestern Bank President and CEO Harry Calcutt III has land connections to both developments. In Traverse City, Calcutt is part of a family trust that owned land at the parking deck site. Property owned by the Calcutt family trust in Traverse City dramatically increased in value after it was designated a brownfield site. Northwestern Bank owns some of the Petoskey Pointe property and is expected to move into a new office there when the development is completed. Uzelac's cousin, David Jankowski, is a partner in the Petoskey project, and Uzelac's role in both projects included ushering development plans through the public process. Uzelac declined to detail publiclyhis financial stake in either project. And financiers of the Traverse City and Petoskey projects contributed thousands of dollars to State Sen. Jason Allen's political accounts. Allen received $20,000 from Louis Ferris Jr., CEO of the development company that proposed the Traverse City project. James Wilson, a Lake Street Petoskey Associates partner, contributed $1,000 to Allen's campaign fund in 2004; his wife, Joy, gave another $1,000 that year; and James Wilson made a $10,000 committee donation to Allen last year. Allen attended an Emmet County Brownfield Authority meeting Dec. 19, 2005, the initial brownfield meeting at which officials discussed the Petoskey Pointe project. It wasn't on the agenda, but a consultant for the developer made an informal presentation. Petoskey Pointe developers hired environmental consultant AKT Peerless to conduct soil samples, and their work began in earnest in May 2005, state records show. Peerless took 10 soil borings on the project site, and three showed high concentrations of tetrachloroethylene, commonly known as PCE. Peerless presented the results to Emmet County brownfield officials in January as part of a remediation work plan. The Emmet County Board of Commissioners approved the report Feb. 9, and it went to the state Department of Environmental Quality on March 28. Officials there almost immediately questioned the soil contamination results, according to state records. A letter DEQ project manager Elaine Pelc wrote on May 16 to developer James Wilson explained that on April 6, the DEQ requested that Peerless clarify its soil test results. Peerless responded April 7, Pelc wrote, and "indicated that PCE concentrations detected in the soil were from laboratory contamination or another source of container contamination and did not accurately reflect PCE concentrations in the soil on the subject property." Officials at Peerless, a Michigan firm with offices in Saginaw, Lansing and two in the Detroit area, did not respond to numerous telephone and e-mail messages left by a Record-Eagle reporter. Pelc said the lab mistake should have been realized before the results ever made it into any report. "It's a big clarification issue that someone should have caught before it came to the department," she said. "The level of review probably should have been a little better — or a lot better." A little more than six weeks after Peerless confirmed the mistake with DEQ, the erroneous information was used in the application to the MEDC. It was received in Lansing May 30. The bad tests are prominently cited on page four of the application, under the heading "Contamination." They also show up multiple times in supporting documents Peerless sent along, records show. How closely anyone at MEDC reviewed the information is questionable, said Russell Harding, former head of the DEQ and today an employee at the Mackinac Center for Public Policy. "They just rely on what DEQ tells them," Harding said. "They're not going to question it. They don't have the expertise and their motivation is to get these credits out." Multiple telephone messages left by the Record-Eagle with development partners Wilson and Jankowski, of Lake Street Petoskey Associates LLC, were not returned. In addition to erroneous soil tests, the developers and Peerless submitted reports to Emmet County and the DEQ that estimated as much as 10,000 cubic yards of contaminated soil would be hauled away to ready the site for construction. Aside from the tax credit, developers asked the state to reimburse them an estimated $450,000 in remediation costs using statewide school funds to be captured through the county brownfield authority. The DEQ must approve such expenditures, and after the revelation about the bad tests, officials demanded justification for Peerless' initial 10,000-cubic-yard estimates. Gaylord DEQ Field Office Supervisor Robert Wagner told both county brownfield officials and Peerless in a May 19 letter that he had "insufficient information" to "justify using school tax capture for ... the entire 10,000 cubic yards of soil." Pelc said the early estimate "probably" was based on the erroneous PCE results. David Lindsay, a DEQ official who helped oversee the Petoskey Pointe project, said he wasn't sure what the 10,000-yard estimate was based on, only that it wasn't right. "Cast as wide a net as possible to get as much reimbursement as possible; that's one scenario that may apply," he said. Regardless of where the 10,000-cubic-yard figure originated, it found its way into the May 30 tax credit application. Morante, at MEDC, is credited as co-author of a June 13 memo recommending approval for Petoskey Pointe's $4.5 million brownfield tax credit. The 10,000 figure was prominently featured, state documents show. "A long-standing environmental problem will be addressed with the removal of up to 10,000 yards of contaminated soil," the memo reads. "This will protect groundwater and adjacent Lake Michigan from contamination." The memo was sent to the Michigan Economic Growth Authority Board, the public board that must approve large MEDC tax credits. The board approved the tax credit that day, and the MEDC issued a news release, attributed to Granholm, lauding Petoskey's anticipated "$60 million Make Over." James Epolito, head of the MEDC and also chair of the MEGA board, on Sept. 20 told a Record-Eagle reporter he would discuss the matter the following day. But Epolito failed to respond to repeated messages from the reporter on Sept. 21. On June 30, a little more than two weeks after Epolito and fellow MEGA board members approved the credit, Peerless wrote to the DEQ and consultants revised soil removal estimates to less than 1,000 cubic yards. On Aug. 22, the DEQ's Wagner sliced the contaminated soil figure again to just a few hundred cubic yards, state records show. State officials who approve brownfield tax credits are obligated to consider several factors, including public benefit, job creation, the area's level of unemployment and "the level and extent of contamination alleviated." Brownfield tax credits are awarded, according to the MEDC's Web site, "on a case-by-case basis to help with the expense of demolition, environmental cleanup and other remedial actions." But in this case, MEDC officials downplayed the importance of environmental cleanup against the other criteria. They point to jobs the Petoskey Pointe project is estimated to create — 115 full-time, when the project is done, according to the tax credit application, and other economic factors. MEDC spokesman Michael Shore said the Petoskey Pointe credit, regardless of the application process, serves a larger public good. "There was a public purpose well served here ... and we stand by it," Shore said. "I don't know whether the process was flawed or not." Morante called the misinformation on the application "unfortunate." "I am comfortable that if they (Peerless) made a mistake at all, it was an honest mistake," he said.
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