The Fight Over GMO Labels

Since the advent of agriculture, human beings have constantly sought to improve the crops they grow by selecting  for favorable characteristics that may make a crop easier to grow or better to eat. Initially, humans selected certain seeds that had favorable genetic characteristics for farming, such as being resistant to pests. Later, humans would come to understand the biological concepts of heritability of genetic traits and the possibilities of cross-breeding plant species to create genetic hybrids. This allowed humans to take the positive genetic traits from one crop and combine it with the positive genetic traits of another crop. Through seed selection and hybridization, humans have been able to drastically increase agricultural productivity by genetically modifying existing crops. However, up until recently, the genetic modification of crops was ultimately reliant on the naturally occurring genetic variations that result from cross breeding. In the 1970’s, biochemists developed a technique that involved cutting pieces of DNA from existing organisms and attaching the DNA to other organisms. To further complicate matters, in 1980 the United States Supreme Court held in Diamond v. Chakrabarty that a genetically modified organism (GMO) is a patentable subject matter. This created a legal distinction between hybrid crops and GMOs. Hybrid seeds could not be patented because they were the result of natural phenomena while GMO seeds could be patented because they are the result of human invention. Once the Supreme Court established the rule that GMOs could be patented, corporations looking to make a profit took notice. In 1983, Monsanto scientists began to genetically modify plants. By 1988, Monsanto had developed a genetically modified soybean that made it tolerant to glyphosate, an herbicide discovered by Monsanto in 1970 and marketed under the trade name “Roundup.” This GMO made the widespread application of herbicides directly to crops possible for the first time. Since 1998, several other genetically modified seeds have been introduced, including seeds that are resistant to insects. The increase in prevalence of GMO seeds is staggering. In 1997, genetically modified soybeans made 17% of U.S. soybean acreage. Today, genetically engineered soybeans make up 94% of U.S. soybean acreage. Likewise, genetically engineered corn accounts for 92% of U.S. corn acreage and genetically engineered cotton accounts for 93% of U.S. cotton acreage. While genetic engineering has generally been limited to a limited number of ubiquitous crops such as those described above, there have been pushes to expand the practice to other foods. In 2015, the FDA approved genetically modified salmon for human consumption and in doing so became the first government agency in the world to approve of the sale of a genetically engineered food animal. The genetically engineered salmon, which was developed by AquaBounty, grows twice as fast as a normal salmon and was engineered by combining the DNA of the Atlantic salmon, the Pacific Chinook salmon, and the deep water ocean eelpout. The FDA was sued earlier this year by nearly a dozen fishing and environmental groups in an action seeking to block the approval.

ge-salmon_paul-darrow-nyt-redux-1066

A genetically engineered salmon compared with a natural Atlantic salmon of the same age. The natural Atlantic salmon is in the foreground.

 

The positives of genetically engineered seeds are fairly obvious. For the farmer, having seeds that are resistant to herbicides and resistant to insects allows farmers increase their yields and decrease their costs while also limiting their direct exposure to toxic pesticides. For the public, the world’s farmers are able to feed an increasing global population. The negatives of genetically engineered seeds are often less obvious. Many concerns have been raised regarding whether consuming GMOs is potentially harmful to the individual consuming them and whether it impacts fertility or future offspring. There are also concerns that GMOs are less nutritious than natural foods. In addition to the GMOs themselves, there is a whole host of concerns regarding herbicide resistant GMOs. As mentioned above, one of the most ubiquitous uses of genetic engineering is to make crops more resistant to herbicides. This enables farmers to directly spray larger amounts of herbicides directly onto crops. As such, one of the main concerns regarding GMOs is the corresponding increase in herbicide usage and its impact both on human and environmental health.

 

Despite the rapid increase in prevalence in GMOs in our food supply, there is a great deal of consumer uncertainty as to the safety of food products that contain GMOs. A report from 2000 by a panel of the National Academy of Sciences endorsed the safety of GMOs and opined that inserting genes from one species into another was not inherently dangerous. However, consumers have nonetheless become alarmed. A lab test reported in the May 1999 issue of Nature showed that the use of genetically modified corn could kill Monarch butterfly larvae and the Monarch butterfly quickly came to symbolize the environmental hazards of GMOs. Public concern also prompted a number of food companies, such as McDonalds and Frito-Lay, to announce that they would not purchase any foods produced by genetically engineered seeds. Additionally, the European public and corresponding regulatory response to GMOs has been much more cautious. Partially in response to the rise of GMOs in the United States, the European Union issued a standard that required the labelling of foods that are comprised at least 1% of a GMO.

 

Today, consumer uncertainty regarding GMOs persists. There are widely conflicting scientific studies regarding the safety of GMOs. On one hand, consumers understand the benefits of higher agricultural yields that are enabled by GMOs and there are numerous studies that have found that consuming a genetically modified food is no more unsafe than consuming a GMO-free food. On the other hand, GMO critics often point to the lack of independent scientific studies on the long term effects of GMO plants on humans. To further muddy the waters, the World Health Organization recently announced that glyphosate, which is the herbicide that is being sprayed all over many genetically engineered crops, is probably carcinogenic to humans while the United Nation’s Food and Agriculture Organization found that glyphosate is unlikely to pose a carcinogenic risk to humans.

 

Based on this uncertainty, many consumers in the United States have called for a GMO labelling standard that would mandate that foods that contain GMOs to be labelled as such so that they may be readily identified by consumers that may want to take precautions and avoid GMOs. However, GMO advocates have been resistant to such regulations which they say will only feed into the uninformed fears that people have regarding GMOs. States were the first to jump in and require labelling for foods containing GMOs. As of the summer of 2016, 14 states were considering bills that would required the labelling of GMOs and 3 states had enacted such laws.

 

One such state with a GMO labelling law was Vermont. Effective July 1, 2016, a food offered for sale in Vermont by a retailer must include a GMO label if it contained genetically engineered materials that account for 0.9% or more of the total weight of the processed food. The GMO label was required to state that the food was “partially produced with genetic engineering, “may be produced with genetic engineering”, or “produced with genetic engineering.” Any such food was also prohibited from being labelled as “natural”, “naturally made”, “naturally grown” or “all natural.” Before the law was effective, it was challenged by several food companies that alleged that the Vermont GMO labelling law violated their First Amendment right to free speech. However, the lawsuit became a nullity when President Obama signed the bill that amended the Agricultural Marketing Act to include the National Bioengineered Food Disclosure Standard on July 29, 2016.

abc_m_m_package_jef_160322_4x3_992

Example of a food product with a GMO label as would be required under Vermont law

The law signed by President Obama is the first federal law regarding the labelling of food products containing GMOs. It requires the United Stated Department of Agriculture to develop a national mandatory bioengineered disclosure standard with respect to any bioengineered food and to develop a method of disclosure to be displayed on food packaging within two years. While this may appear to be a victory for GMO critics,  they have lambasted the law for two reasons. First, the labelling requirement is rather weak. Unlike the Vermont law, the federal law does not require the packaging of a GMO food product to explicitly state that it contains GMOs. Rather, the federal law requires the packaging to contain an electronic or digital link or a telephone number with language that prompts the consumer to “scan here for more food information” or to “call for more food information.” The obvious concern is that such a disclosure will not adequately inform consumers of the fact that the food product contains GMOs. Secondly, the federal law expressly overturns any existing state law that regulates the labelling of food products containing GMOs and prohibits states from enacting any such laws in the future. Thus, Vermont and the other states that either already have such laws or which were considering such laws are now not permitted to do so.

images

So here we are. The federal government will develop regulations over the next couple of years, and those regulations will require that some food products that contain GMOs to be labelled as such. However, it’s unclear how much GMOs a food product must contain before it is required to be labelled as such under the to-be-developed federal regulations. Further, the labelling requirements for GMO foods will be very lax. There will be no requirement that that food product explicitly state that it contains GMOs. Lastly, Michigan and other states are now largely prohibited from creating their own GMO labelling programs. Moving forward, it seems that Americans are destined to continue to wallow in uncertainty not only regarding the safety of GMOs, but also in knowing which foods contain GMOs and which do not as the federal law, with its lax labelling requirements, will likely be of little help to most consumers. The best bet for consumers that are skeptical of GMOs is to continue to rely on the non-GMO verification label that is placed on products that have been independently verified by the Non-GMO Project.

 

 

Urban Agriculture and Green Infrastructure

Carbon dioxide has long been regarded as the primary driver of climate change and, in 2013, the global concentration of carbon dioxide in the atmosphere hit 400 parts per million for the first time in recorded history at an observation station in Hawaii. Even more alarming than passing the 400 parts per million carbon dioxide threshold has been the rate that carbon dioxide emissions have been increasing. Between 2005 and 2014, the atmospheric growth rate for carbon dioxide was 2.11 parts per million per year, which outpaced the growth rate of any other decade in recorded history.

 

While the 2015 United Nations Climate Change Conference in Paris signaled that the great majority of the world’s leaders are at least aware of the problems that increased greenhouse gas emissions will have on our planet, the data cited above suggests the international community may be doing too little too late. The Paris Agreement, which was the global agreement regarding how to address climate change that resulted from the 2015 conference, would require zero net anthropogenic greenhouse gas emissions by 2050 at the very latest to avoid a global warming of 2 degrees Celsius. While there were 180 states that signed the Paris Agreement, only 23 of those states have ratified the agreement and none of the top emitters of greenhouse gases have ratified it. Efforts to address climate change have also stalled out in the United States. President Obama’s efforts to utilize to the Clean Air Act to regulate greenhouse gases was stalled by the Supreme Court this year when it granted a stay pending a decision by the U.S. Court of Appeals. The Republican Party has walked backwards on the issue and have repeatedly called into question the very existence of climate change and have asserted that the party would completely forbid the Environmental Protection Agency from regulating carbon dioxide emissions. Obviously, climate change is a complex problem both in terms of defining the impacts and identifying solutions. However, it is the later problem that is flummoxing both the international community and the United States government. The world is still operating and developing on an intensive diet of fossil fuels and marshalling the requisite resources and political will to reverse that course will be a Herculean task.

joecallphotographyhp

However, while climate change is an international problem, impacts are often felt locally. For example, as extreme rainstorms become more intense and more frequent, it will be Detroit residents’ basements that flood. This reveals one of the more unique aspects of climate change: it is often a local problem that ultimately requires a global solution. As the international community and federal government continue to struggle to craft an effective global solution, many local governments are realizing that local solutions need to be created for the local problems that are being causes by climate change.

 

One key problem that is becoming an increasing focus in Detroit is stormwater management. Detroit’s sewer system is one of the largest in the country. The city’s wastewater treatment plant not only services Detroit, but also 127 other communities in the metro-Detroit region. All told, the plant treats approximately 650 million gallons of waster water per day. All of the waste water that arrives at the treatment plant gets there via a combined sewer system that contains everything from raw sewage, industrial waste water, and storm water runoff. This means everything from what you flush down your toilet to the rain water running down the street goes to the same sewage system. When Detroit’s enormous waste water treatment plant is overwhelmed by the amount of sewage flowing to it and is unable to process it, a problem occurs. Either the untreated sewage that contains everything from your toilet to the storm water on the street is discharged into the Detroit River or Rouge River, floods the basements and streets of Detroit, or both.

 

 

 

 

For decades, Detroit has struggled to manage its sewer system, specifically during periods of heavy rain. As depicted in the picture above, Detroit streets and basements regularly flood during periods of heavy rain due to the sewer system’s insufficient capacity to handle the large amounts of stormwater. As extreme rain events become more intense and more frequent due to climate change, flooding may become more frequent and more severe. Comprehensively updating Detroit’s sewer system would involve tearing up streets and installing new sewer lines. Unfortunately, this solution is financially infeasible for Detroit and many other older cities. However, an alternative approach utilized by Detroit and many other cities has been to invest large sums of money in green infrastructure. While green infrastructure can mean many different things, for the purposes of this blog post it is essentially a project which seeks to reduce the amount of stormwater that goes into the sewer system and instead keeps it within the natural hydrologic cycle. Common examples include rain gardens and installing permeable pavement rather than impermeable pavement.

screenshot-2016-09-11-15-51-14

In 2013, the Michigan Department of Environmental Quality mandated that the Detroit Water and Sewage Department develop and implement a Green Infrastructure Plan for a 37.5 square mile area in Northwest Detroit. This plan is required by the permit that the Detroit Water and Sewage Department is required to obtain under the Clean Water Act in order to operate its water treatment facility. In addition to the Plan requirement, the permit also requires the Detroit Water and Sewage Department to spend, on average, $3 million per year until 2019 and an average of $2 million dollars per year between 2019 and 2029. All told, the Detroit Water and Sewage Department is required to spend $50 million on green infrastructure development over a course of 20 years. While the City has started to develop some green infrastructure projects, most of its activity to date has taken the form of planning.

 

 

Another large problem that Detroit struggles with that is perhaps more well-known is its problem with vacant land. When considered together, the problems of excessive stormwater and vacant land may seem oxymoronic. If a lot is vacant and only consists of an unmanaged lawn and no structure, one might think that any water that falls on that lot permeates into the soil. However, an analysis of the soil of vacant urban lots suggests that they may be part of the storm water problem as well. Considering that most vacant lots in urban areas once had structures on them, the soil that exists on vacant lots is usually very compact which limits the amount of stormwater that can filter into the ground. Fortunately, one of Detroit’s most ubiquitous solutions for vacant lots may also be one of its most ubiquitous solutions for storm water management. While not always referred to as green infrastructure, traditional urban agriculture that involves working with existing soil, adding compost, and planting fruit trees and vegetable crops is a very effective way to reduce stormwater runoff from vacant lots. In fact, a recent study found that tilling soil and adding compost alone can reduce stormwater runoff from a vacant urban lot by 65%. Another study found that every vacant land in Cleveland that is converted for agricultural use provides $103,185 in benefits to local residents. Ecological benefits, primarily in the form of reduced stormwater runoff, accounted for 65%, while 33% was a direct monetary benefit to the farmer and 3.22% was a benefit to surrounding property owners in the form of increased property values.

 

Clearly urban agriculture has a role to play in Detroit’s effort to reduce the amount of stormwater that is entering its sewer system. However, obstacles do exist. First, best management practices that focus on utilizing urban agriculture to reduce stormwater runoff must be developed. Questions of how to design an urban farm or which crops to select to maximize reductions in stormwater runoff remain largely unanswered. Second, and perhaps most importantly, cities such as Detroit must recognize urban agriculture as green infrastructure and integrate it into green infrastructure planning. As mentioned above, Detroit is obligated to contribute $50 million to green infrastructure development. Many of Detroit’s urban farms and gardens typically lack access to start-up funds. If even a small percentage of the $50 million that Detroit is obligated to spend for green infrastructure were utilized to help urban farms and gardens overcome the financial burdens of starting a new urban farm or garden, Detroit would not only be reducing stormwater runoff, but it would be helping local businesses turn vacant lots into food production sites that provide a multitude of benefits to the community.

Do I Have An “Urban Farm” or an “Urban Garden”?: Proposed Amendments To Detroit’s Urban Agriculture Zoning Ordinance

As all Detroit farmers and gardeners know, it is currently illegal to keep livestock in Detroit. While a push was made to legalize urban livestock in 2013, when the Detroit zoning ordinance was amended to specifically allow for urban farms and gardens, the topic proved to be a controversial one. The question of urban livestock was put off for another time and now that time has come. The City Planning Commission is holding a public hearing next week to review amendments to Detroit’s zoning ordinance that would specify what kind of livestock may be kept in Detroit, how many animals may be kept, how much space animals must be given, and how far away the animals must be from your neighbors.

 

However, this is another amendment that is being proposed along with the livestock amendments that is very important and that is the amendment to the definition of an “urban garden” and an “urban farm.” This blog post will discuss the current definitions of an “urban farm” and an “urban garden.” It will then discuss the proposed amendments to those definitions and what it means for urban agriculture in Detroit

 

Currently, an urban farm is defined as “[a] zoning lot, as defined in this article, over one acre” while an urban garden is defined as “[a] zoning lot, as defined in this article, up to one acre of land.” The natural question that is very important for understanding these two definitions is the definition of a “zoning lot.” A zoning lot is a single tract of land located within a single block. Zoning lots are typically divided by alleys and streets. Drawings can really help with this definition, so let’s look below.

Screenshot 2016-07-16 18.31.21

 

In the example provided in this drawing, one grower owns a series of scattered lots outlined in black above. In total, all of these lots add up to over 1 acre so the grower might think their operation is an “urban farm” as defined above. However, that would be incorrect. For the purposes of the zoning definition, each of the 4 areas outlined above would be regarded as a distinct “zoning lot” because they are separated from the other lots by either an alley or a street. An urban farm is defined as a zoning lot that is over one acre. In this example provided above, no zoning lot is over one acre. Therefore, this person would have 4 urban gardens rather than 1 urban farm for the purposes of Detroit’s zoning ordinance.

 

At this point, you might be asking why this matters. Let’s assume that the properties above are in a neighborhood that is zoned for residential use. This is a safe assumption since most of Detroit’s urban farms and gardens are in vacant residential areas. In such areas, urban gardens are a “by-right” land use while urban farms are a “conditional” land use. What this means in practice is that if you want to start an urban garden, all you have to do is submit a change of use permit to the Building, Safety Engineering, and Environmental Department at the Coleman A. Young Municipal Center and your urban garden is legal and protected under Detroit’s zoning ordinance. However, if you wanted to start an urban farm you would have to prepare a site plan for the City’s review, would have to pay a $1,000 conditional land use hearing fee, and the City has the right to approve or deny your proposed use for the property. As you can see, the difference between being classified as an urban garden or an urban farm is important for the purposes of the zoning ordinance.

 

Now let’s get to the amendments. As mentioned above, the current definitions of “urban garden” and “urban farm” created a loophole. It’s possible for many people that are farming a series of lots in a neighborhood to have their farm classified as a number of urban gardens rather than one urban farm. However, this was never the intention of the zoning ordinance. The intention of the zoning ordinance was to subject agricultural projects that were over one acre to the site plan review process based on the theory that once a project becomes larger than 1 acre it starts to change the character of a residential neighborhood.

 

The proposed amendments to the zoning ordinance would close the loophole described above. The definition of urban farm would be amended to read as follows: “Over one acre of land, under common ownership, which is: contiguous; or, non-contiguous and on the same block; or, contiguous or non-contiguous and separated by a right-of-way not greater than 60 feet in width…” In plain English, the amended definition of an “urban farm” would close the loophole described above and would classify more agricultural operations in Detroit as an urban farm. Essentially, all of the property owned by one person or organization in a concentrated area would count towards the 1-acre threshold. This is true even if the properties are separated by an alley or a residential street. Let’s go back to the drawing.

Screenshot 2016-07-16 18.31.21

With the previous definitions of “urban farm” and “urban garden”, the operation above would have been classified as 4 urban gardens. With the amended definitions, the operation above would be regarded as one urban farm because they would be considered lots under common ownership that are non-contiguous and separated by a right-of-way of not more than 60 feet.

 

For growers, the essential takeaway is this: if you have a medium-scale growing operation, it is unlikely that you will now be able to take advantage of the urban garden loophole that would have allowed you to classify your medium-scale growing operation as a series of urban gardens rather than one urban farm. Let’s also circle back to why this matters one more time. This matters because most urban farms and urban gardens exist in residential neighborhoods and in those neighborhoods an urban garden is a “by-right” land use. As a “by-right” land use, you have to submit a permit to the Building, Safety Engineering, and Environmental Department to notify the City that you’ve started an urban garden, but the City cannot have any say as to the design of your garden or whether it’s a good fit for the neighborhood. Conversely, an “urban farm” is a “conditional” land use in residential neighborhoods. This means that you have to submit a site plan to the City of Detroit detailing what your proposed use of the property will be and they can have a say as to what the urban farm looks like. Further, if the City doesn’t think your project is a good fit for the neighborhood, they can deny your permit for your urban farm.

 

The zoning ordinance amendments regarding urban livestock are certainly the focal point of the recently proposed changes regarding urban agriculture in Detroit. However, growers should also be aware of the proposed amendments to the definitions of what constitutes an “urban garden” and an “urban farm”. In closing the urban garden loophole, the path to legalization for growers will become a little bit more challenging.

Applying for 501(c)(3) Tax-Exempt Status: The Gift and the Curse of the 1023-EZ

 

Form1023EZ_hp

 

Until recently, if a nonprofit organization wanted to apply for 501(c)(3) status it had to file the 26-page Form 1023. Considering that most nonprofit corporations apply for 501(c)(3) status at some point, this presented a problem. Form 1023 was notoriously difficult and stressful to fill out. The headaches didn’t stop once the nonprofit completed Form 1023, either. Just as Form 1023 is difficult to fill out, it is also difficult for the Internal Revenue Service to review and process. Applicants often had to wait 1 year or longer for their 1023’s to be processed by the Internal Revenue Service and to receive their letter of determination regarding the application.

 

To address this problem, the IRS gave those wishing to apply for 501(c)(3) status another option. In July of 2014, the IRS introduced Form 1023-EZ, a streamlined application for 501(c)(3) status. Form 1023-EZ is a far cry from the burdensome 1023. It is a mere 3-pages, can be completed online, does not require the submission of nonprofit bylaws or articles of incorporation, and only requires the application to attest that it meets the legal requirements for 501(c)(3) status by checking a few boxes. The user fee that must be submitted along with the form is $400, the form is usually processed in 2 weeks and the IRS approved 95% of all 1023-EZ applications submitted. Overall, the process of filling out and filing 1023-EZ is much less burdensome than the original 1023.

 

Not every nonprofit corporation is eligible to file the 1023-EZ. Nonprofit corporations should always consult the 1023-EZ worksheet before deciding to file. In general, only nonprofit corporations with $50,000 or less in annual gross receipts for its first 3 years and $250,000 or less in assets. Based on these restrictions, larger nonprofit corporations may be stuck filing Form 1023. However, smaller nonprofit corporations should be able to benefit from the streamlined 1023-EZ application.

 

Given the ease of completing 1023-EZ, there are some traps for the unwary that applicants should be aware of. While the up-front screening conducted by the IRS is greatly reduced the legal requirements for 501(c)(3) organizations remain the same. All 501(c)(3) organizations must still pass the organizational and operational test. The organizational test requires a 501(c)(3) nonprofit to be organized exclusively for charitable, educational, or scientific purposes. To satisfy this test, the nonprofit corporation must include specific language in its Articles of Incorporation. While a nonprofit corporation filling out Form 1023-EZ certifies that this language is in their Articles of Incorporation by checking boxes 5 through 7, many nonprofit corporations submit their 1023-EZ without having the required language in their Articles of Incorporation. As mentioned previously, the IRS does not require any organizational documents to be submitted with the 1023-EZ and therefore the IRS does not examine a nonprofit’s Articles of Incorporation when they submit their 1023-EZ. Therefore, while not having the required language in the Articles of Incorporation will not prevent a nonprofit from obtaining its 501(c)(3) status, it will mean that the nonprofit is in violation of IRS regulations which will cause the nonprofit to lose its tax-exempt status if it is ever audited by the IRS. There is also the issue of the operational test. The operational test requires all 501(c)(3) nonprofits to be operated primarily for a charitable, educational, or scientific purpose. Determining what the IRS considers to be “charitable”, “educational”, or “scientific” can be difficult. The long form 1023 requires the applicant to describe what type of activities the nonprofit is planning to engage in which allows the IRS to make an up-front determination as to whether the nonprofit will be operated primarily for a tax-exempt purpose. This is not the case with the 1023-EZ. Therefore, it’s important to make sure that your nonprofit is primarily operated for a tax-exempt purpose or the nonprofit’s 501(c)(3) status may be jeopardized if the IRS audits the organization. Lastly, there are IRS regulations regarding how a 501(c)(3) organization may engage in political lobbying, how it can generate revenue through a business activity, and how it uses its assets. Questions 4 through 11 of the 1023-EZ are largely meant to make applicants aware of these regulations and it may be helpful to talk with a lawyer about what those specific regulations are.

 

In short, the 1023-EZ application has greatly helped smaller nonprofit organizations as it streamlines the 501(c)(3) application process and makes it significantly less burdensome. However, in some ways it is too easy. Regulations governing 501(c)(3) organizations are extensive and restrict what types of activities and programming a nonprofit can engage in and how it can utilize its funds. It also requires the nonprofit to have specific language in its Articles of Incorporation. None of these requirements are changed when a nonprofit uses Form 1023-EZ. Therefore, it’s important that if your nonprofit decides to utilize Form 1023-EZ to apply for 501(c)(3) status that you are in full compliance with IRS regulations. Otherwise, your nonprofit’s tax-exempt status may be revoked by the IRS down the road.

FAQ: Does a Detroit Farmer or Gardener Need a Building Permit to Construct a Hoop House?

16-Foot-Hoop-House-2

 

A lot of people have asked me whether or not a Detroit farmer or gardener needs to get a building permit from the City of Detroit to build a hoophouse. This post will walk you through the relevant law and explain why you don’t need a building permit to build a hoophouse in the City of Detroit. However, Detroit farmers and gardeners should know that the Building, Safety Engineering and the Environment Department (“BSEED”) has expressed differing opinions to those described in this blog post, which will be discussed below.

 

Section 125.1510(1) of the Stille-Derossett-Hale Single State Construction Code Act states that “[e]xcept as otherwise provided in the code, before construction of a building or structure, the owner, or the owner’s builder, architect, engineer, or agent, shall submit an application in writing to the appropriate enforcing agency for a building permit.” However, there is an exception that all farmers and gardeners should be aware of. Section 125.1510(8) of the Construction Code Act states that a “building permit is not required for a building incidental to the use for agricultural purposes of the land on which the building is located if the building is not used in the business of retail trade.” The exception can be a bit confusing, so let’s unpack the legal language.

 

What is a building that is “incidental to the use for agricultural purposes of the land on which the building is located?” Agricultural purposes, for the meaning of this exception, has been defined to mean “the act or business of cultivating or using land and soil for the production of crops for the use of animals or humans.” The structure must also be “incidental” to the use for agricultural purposes, which is another way of saying that the building must be closely tied to the act of cultivating or using land for the production of crops. Lastly, the structure cannot be used in the business of retail trade which only means that retail transactions cannot be conducted in the structure. In simple terms, the exception applies to structures that exist to help farmers grow crops on a parcel of property.

 

Michigan courts have ruled some structures related to agriculture do not fall within this exception. For example, Michigan courts have said a building that exists for processing fruits and vegetables is not “incidental” to the use of land for agricultural purposes and therefore does not fall within the building permit exception. Michigan courts have said the same thing for a building that exists for a warehouse to store finished agricultural products. While Michigan courts have not directly ruled on whether a hoop house is within the exception described above, a hoop house would seem to fall directly within the exception described above. A hoop house is a structure that is directly related to the act of using land to produce crops for human consumption. The State building law is clear: a farmer or gardener does not need a building permit for a hoop house.

 

At this point its important to point out that the law we’ve been discussing is a state law. It’s important to ask the question of whether a City government can require a permit for a structure that is expressly exempted from obtaining a permit by state law. The answer to that question is no, the City of Detroit cannot require a permit when there is an exemption for obtaining a permit as is the case here. Section 125.1508a(1) of the Stille-Derossett-Hale Single State Construction Code Act states that the law applies throughout the state. In legal terms, this means that any local laws regarding building permits are preempted by state law. In plain English, this means that the City of Detroit cannot require a building permit for a hoop house when the State law says that a building permit is not required for a hoop house. Other cities have realized this and have established processes by which an urban farmer or gardener can proceed with building a hoop house without obtaining a building permit. The City of Lansing requires urban farmers and gardeners to submit a sworn affidavit asserting that the structure does fall within the building permit exception described above.

 

So why is there confusion in Detroit as to whether an urban farmer or gardener needs a building permit? Much of the confusion has come from what BSEED’s confusing response to the basic question of whether an urban farmer or gardener needs a permit. Some individuals within BSEED have stated that a hoop house requires a building permit. This is almost certainly false because of the building permit exception for agricultural-related structures discussed above. Other individuals within BSEED have also said that a building permit is not required so long as the urban farmer or gardener submits a change of use permit that signals that the urban farmer or gardener is changing the use of the property from a vacant lot to an urban farm or garden. However, this is also false. A change of use permit is required by Detroit’s zoning ordinance and Detroit’s zoning ordinance also contains limits as to the dimensions of a hoop house, one of which is that a hoop house cannot exceed 15 feet in height. However, the State building law is distinct and separate from Detroit’s zoning ordinance. The hoop house building permit exception has nothing to do with Detroit’s zoning ordinance and while an urban farmer or gardener may be found to be in violation of the Detroit zoning ordinance for failing to obtain a change of use permit or for constructing a hoop house that is taller than 15 feet, they cannot be found to be in violation of the State building law for failing to get a building permit for their hoop house based on the exception discussed above.

 

To make a long discussion short, an urban farmer or gardener is not, under any circumstances, required to obtain a building permit for a hoop house. However, building a hoop house on your urban farm or garden may raise some flags with the City government. While you cannot get in trouble for failing to obtain a building permit, you may get in trouble for violating Detroit’s zoning ordinance, which requires an urban farm and garden to submit a change of use permit to BSEED and requires all hoop houses to be 15 feet or under.

Tax-Exempt Nonprofits and Economic Development

One of the first big decisions that most nonprofit corporations make is in regards to filing for tax-exemption with the IRS. This decision is a big one. Section 501(a) of the Internal Revenue Code states that an organization that is described under section 501(c) is exempt from corporate income taxation. While most nonprofits immediately jump towards filing for tax-exemption under section 501(c)(3), there are 29 different categories of tax exemption under section 501(c) and each one comes with unique characteristics. Most importantly, filing for tax-exemption under the Internal Revenue Code will subject the nonprofit to operational restrictions that will regulate what your nonprofit can and cannot do. Therefore, whenever an organization is filing for tax-exemption, they need to be aware of the pros and cons to be sure that they are making the right decision for their nonprofit.

This is especially true for organizations that are planning on engaging in economic development activity. For the purposes of this blog post, economic development activity is defined as providing some type of assistance to a for-profit business. Economic development activities can take several different forms. It generally entails providing financial assistance, either through a low-interest loan, a facility or space for the operation of the for-profit business, equipment for a new for-profit business, or technical services. There are also several reasons why a tax-exempt nonprofit (TENP) may want to engage in economic development activity. The mission of many TENPs consists at least in part of revitalizing a community that has become blighted due to private and public disinvestment and encouraging private enterprises to return to the community. Providing start-up assistance to a for-profit business that plans to locate in the TENP’s target community can help the nonprofit further its mission while avoiding the responsibility and cost of actively maintaining and managing that operation. It can also be a source of potential revenue as the nonprofit may be able to obtain rental income from any for-profit business that uses space that has been redeveloped by the nonprofit.

However, whenever tax-exempt funds are being used to benefit a private individual, you can be assured that there are IRS regulations that you should be aware of. Let’s go through the three different categories of tax-exemption—501(c)(3), 501(c)(4), and 501(c)(6)—and weigh the pros and cons of each so that your nonprofit corporation can best judge which, if any, category of tax exemption makes the most sense for you.

501(c)(3)

 As mentioned previously, most new nonprofit corporations immediately jump for the 501(c)(3) tax exemption. The reason for this is fairly simple: being a 501(c)(3) TENP provides serious fundraising benefits that no other category of tax-exemption provides. First, in regards to tax deductions for donors, only donations to 501(c)(3) organizations are tax deductible for the donor. This means that donors, in general, will more readily donate to a 501(c)(3) TENP rather than a nonprofit corporation that is exempt under any of the other categories of tax-exemption. Second, in regards to grants from private foundations, it is generally easier and preferable for foundations to issue grants to 501(c)(3) TENP. The two fundraising advantages described above are the primary reason why new nonprofit corporations desire to be 501(c)(3) organizations.

However, while being a 501(c)(3) organization comes with serious fundraising advantages, it also comes with serious operational restrictions.

All 501(c)(3) organizations must be operated exclusively for a one of the tax-exempt purposes described in section 501(c)(3). The two most common types of tax-exempt purposes under 501(c)(3) are charity and education. When a TENP operates to provide goods or services for private interests, who is receiving the services is an important question to answer. If the people receiving the goods or services are members of a charitable class—which generally means low-income individuals and their families—then the provision of those goods and services is clearly within the definition of charity. A common example are food bank operations. However, when a TENP operates to provide goods and services to private individuals that cannot be classified as low-income, then a closer analysis is required to determine whether the operation is charitable.

The IRS has said that a 501(c)(3) TENP can accomplish charitable ends through the use of individuals who are not themselves members of a charitable class. The theory behind recognizing such activities as charitable is that while the services provided are directly benefiting a private interest that is not a member of charitable class, the benefit to the general public outweighs the private benefit given to the private individual. In short, the benefit to the public outweighs the private benefit.

The natural question then becomes how does the IRS assess whether the public benefit outweighs the private benefit? Put another way, what must a 501(c)(3) do to make sure that its economic development activity is regarded as “charitable” by the IRS? To answer this question, the IRS utilizes a 3 factor test.

1.) Assistance must be targeted to aid an economically depressed or blighted area, and;

2.) Assistance must be targeted to benefit a disadvantaged group, such as minorities, the unemployed, or the underemployed, and;

3.) Assistance must be targeted to aid business that have actually experienced difficulty in obtaining conventional financing either because of the deteriorated nature of the area in which they were or would be located, or because of their minority composition, or to aid businesses that, or;

4.) Assistance must be targeted to aid a business that would locate or remain in an economically depressed or blighted area and provide jobs and training to the unemployed or underemployed from such area only if the economic development corporation’s assistance is available.

Looking at the factors above, most Detroit-based organizations will be able to make a very solid argument that their assistance is targeted to aid an economically depressed or blighted area given the City’s current state. However, the other three factors require a closer look.

In regards to the second factor, which requires that the assistance be targeted to benefit a disadvantaged group, the IRS has said that having the TENP require the for-profit business receiving assistance to train and hire for unemployed and underemployed residents of the community as being sufficient. While the benefit to a disadvantaged group may likely take other forms, the IRS probably wants to see some direct, tangible benefit directly tied to the assistance being provided to a private interest.

In regards to the third and fourth factor, it is important to note that only one must be satisfied. The third factor requires that assistance be targeted to aid a business that has experienced actual difficulty in obtaining financing either because of the area in which they are operating or seeking to operate or because of their minority composition. The word “actual” in this instance requires that the business show that they have tried to seek conventional financing from banking institutions and other sources, and have failed to obtain such financing. For some organizations, this can seem like a burdensome and unnecessary step.

Luckily, the fourth factor provides another way. If the assistance is targeted towards a business that will locate or remain in an economically depressed area and provide jobs and training for unemployed or underemployed people from that area, then such assistance should be regarded as charitable.

Let’s look at a real life example. In Revenue Ruling 76-419, the IRS considered whether a nonprofit organization that purchased blighted land in an economically depressed community, converted that land into a suitable space for a business, and induced a business to locate in the space through favorable lease terms that required employment training opportunities for unemployed and underemployed residents of the community was exempt under 501(c)(3). The IRS found that the activities of the nonprofit organization were charitable in that they combatted community deterioration by establishing new businesses, eliminated conditions of blight, and lessened neighborhood tensions that were caused by a lack of jobs in the area.

501(c)(4)

 The 501(c)(4) category of tax-exemption is often the fall back category for nonprofit corporations that don’t quite fit within 501(c)(3) regulations or simply don’t want to be subject to the rather extensive and confusing regulations that come along with being a 501(c)(3) organization. A 501(c)(4) organization is defined as an organization not organized for profit but operated exclusively for the promotion of social welfare. IRS regulations have further defined social welfare to mean the promotion in some way of the common good and general welfare of the community. Therefore, the issues discussed above in regards to 501(c)(3) organizations providing a private benefit apply to 501(c)(3) organizations as well and the IRS will once again attempt to weigh the private benefit against the benefit to the public. Let’s look at some specific examples.

In certain cases, providing direct benefits to private individuals may be regarded as primarily benefiting the public because the benefits are being provided to a typically disadvantaged population. In Revenue Ruling 57-297, the IRS held that a nonprofit corporation that provided job training and rehabilitation services to elderly people was promoting the social welfare of the community based on the type of people it was serving.

In other cases, providing benefits to people or businesses that are not typically characterized as disadvantaged may also be found to promote social welfare. In Revenue Ruling 67-294, the IRS considered whether an organization that provided loans to business entities to encourage them to purchase and develop land and facilities in an economically depressed area for the purpose of alleviating unemployment was promoting social welfare. The IRS found that by encouraging a business to settle in an economically depressed area, the organization was operating to bring about civic betterment and social improvement and was therefore exempt under 501(c)(4). Similar to the analysis for 501(c)(3) organization’s above, tying the assistance to a for-profit business directly to a requirement that the business hire and train underemployed or unemployed individuals was an important part of the analysis.

501(c)(6)

 501(c)(6) provides a corporate income tax exemption for business leagues which are not organized for profit and no part of the net earnings of which inure to the benefit of any private shareholder or individual.

So what is a business league? IRS regulations define it as “an association of persons having a common business, whose purpose is to promote the common business interest and not to engage in a regular business of a kind ordinarily carried on for profit. Its activities are directed to the improvement of business conditions of one or more lines of business rather than the performance of particular services for individual persons.

To determine whether an organization qualifies as a tax-exempt business league, the IRS utilizes a 7 factor test:

1.) Must be an association of persons having a common business interest and its purpose must be to promote this common business interest;

2.) Must be a membership-based organization as designated in its articles of incorporation and have a meaningful extent of membership support

3.) It must not be organized for profit

4.) No part of its net earnings may inure to the benefit of any private shareholder or individual;

5.) Its activities must be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons

6.) Primary activity must not consist of performing particular services for individual persons

7.) Its purpose must not be to engage in regular business of a kind ordinarily carried on for profit, even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining

While many nonprofit organizations seeking to engage in economic development activity will be able to satisfy factors 1-4, satisfying 5-7 will likely prove impossible. In short, a 501(c)(6) organization cannot promote private interests. Instead, it must focus on improvement of business conditions as a whole which may entail attempting to influence legislation or promoting an industry as a whole to the public. However, the 501(c)(6) tax exemption will most likely be unhelpful for a nonprofit corporation hoping to engage in economic development activity.

In conclusion, 501(c)(3) and 501(c)(4) are likely to be applicable categories of tax-exemption for nonprofit corporations that are looking to become involved in economic development activities. If your nonprofit corporation is thinking about engaging in economic development activities, it is important to remember that the IRS will weigh the private benefits against the public benefits. To ensure that the public benefits outweigh the private benefits, some direct public benefit, such as a jobs training program and employment opportunities, should be directly tied to providing the private assistance.

 

 

 

 

Detroit Should Aim Higher In Its Blight Fight

 

5d9aaefca
Renderings for a mixed-use development in Boston’s Mission Hill neighborhood

Over the past several decades, mayors and emergency managers have come and gone in Detroit without solving what is perhaps the City’s most fundamental problem: it continues to lose residents. The problems from this decline in population are obvious and have been well documented. A declining population means a declining tax base leaving the City with less money to provide basic services. Further, when residents leave their property, whether voluntarily or involuntarily, it often remains vacated for several years and becomes what many describe as “blighted.” Research has connected blighted properties to all kinds of problems from increased crime rates to decreased property values for neighbors.

The enormity of the problem that blighted properties present to Detroit and it’s residents is neither something new nor is it an unknown. It was recently estimated that there are approximately 78,000 vacant structures in Detroit as well as 60,000 parcels of vacant land. Given the prevalence of the problem, the promise to fight blight has become perhaps the most common campaign promise for each mayoral candidate. Kwame Kilpatrick promised to demolish 5,000 structures in his first year in office. Dave Bing promised to demolish 10,000 structures in his first term. Now it’s Mike Duggan’s turn.

Mayor Duggan’s goal is to remove all blight by 2020.  A recent report stated that in the first 7 months of Duggan’s administration, the City has torn down 5,812 structures. It was also estimated that these recent demolitions have helped to raise the property values of surrounding homes within 500 feet of a demolished, vacant structure by 4.2%. However, the high number of demolitions over the past year have largely been made possible by an influx of federal money. The U.S. Department of Treasury gave Detroit $100 million to demolish blighted and vacant residential structures. That pool of money is expected to run out in December. Mayor Duggan estimated that the City needs $400 to $500 million to meets its ambitious goal and has acknowledged that only the federal government can provide that kind of funding.

While Mayor Duggan has plans to go back to Washington D.C. to lobby for more funding, Detroit must look to solutions beyond demolitions in its fight against blight. First, there’s the problem of the presidential election next November. Given the expressed disdain of almost every Republican candidate for federal government spending, it’s very likely that if a Republican wins the White House the financial support that has been flowing to Detroit from a diverse array of federal agencies would dry up. Second, there’s the issue of coming up with a plan for abandoned parcels once the structure is demolished. The City still lacks a comprehensive plan for repurposing the enormous amount of vacant land.

While the demolition of vacant structures is an important part of the fight against blight, it’s only half the battle. Even assuming that the City is demolishing structures in accordance with best practices, once an abandoned structure is torn down it’s still a vacant lot. While a vacant lot is often not as detrimental as a vacant structure, vacant lots are still hotspots for illegal dumping and crime. They also often have a negative impact on neighboring property values, particularly if they are left unmaintained.

For several years, many Detroiters have been calling for the City to embrace agriculture as a solution for repurposing vacant land. Doing so would provide many benefits to the City and its residents. First, many gardens and farms would provide health benefits to the surrounding community. As detailed in the previous post, diet-related health conditions are the leading cause of hospitalizations and deaths in Detroit. Providing land for farms and gardens can help to reduce those diet-related health conditions. Studies have shown that individuals that participate in a garden or farm typically consume more fruits and vegetables and less sweet foods and soft-drinks than the average American. The act of farming or gardening is also a great form of exercise that has been shown to reduce the risk of obesity, coronary heart disease, and diabetes. Lastly, urban gardens are farms often serve as social centers for communities and provides a place for neighbors to interact in a visible, open space and to feel safe while doing so.

However, beyond the health and social benefits, research has also shown that urban farms and gardens provide significant financial benefits in the form of raised property values. A study by Ioan Voicu and Vicki Been found that urban gardens and farms raised the property values of all properties within 1,000 feet. Significantly, the study found that the greatest increases in property values were found in low-income neighborhoods; it found that urban gardens and farms raised neighborhood property values by as much as 6.2% in one year and by as much as 9.4% in 5 years. It seems intuitive and the numbers appear to confirm the intuition: turning an abandoned property with a structure into an urban garden or farm is more valuable than turning an abandoned property with a structure into an abandoned property without a structure.

Given the multi-faceted benefits that urban gardens and farms can provide to Detroit and its residents, the City should be encouraging and incentivizing residents that want to transform vacant lots into productive agricultural spaces. At a minimum, this should include providing nonprofit and for-profit urban farm and garden enterprises with cheap access to land as well as financial support to help defray startup costs.

However, the topic of land has always been a contentious one in Detroit and that is no different for those involved in urban agriculture. Many urban farmers and gardeners have grown to the point where they are thinking about investing a lot of time and money into a specific space and before doing so want to make sure their investment is protected. As such, many urban farmers and gardeners are no longer asking for a lease but instead are asking for the chance to purchase their property. In many instances, this request has been met with reluctance by the City. The City’s primary concern is that selling property to an urban farmer or gardener will limit the value the City will receive from that property in the future. While an urban farm or garden may make sense given the lack of demand for most vacant lots, it may not make sense decades from now when demand for real property will presumably have increased based on Detroit’s revitalization. Therefore, in many neighborhoods, the City continues to hold onto land waiting for its renaissance moment.

 

An 8,000 square foot greenhouse perched on the roof of an affordable housing development in the South Bronx

In sacrificing the certainty of current benefits for the hope of greater future benefits, the City is hampering its own revitalization. The hope of greater future benefits is also a gamble the City has been losing for decades and it’s time to change course. It is long overdue, but many in Detroit are finally perceiving Detroit’s large geographic space as an opportunity to reimagine the urban setting as opposed to an obstacle to its renewal. One such way many developers and cities are reimagining the urban landscape is by integrating urban farms and gardens into new development projects. In the South Bronx, an 8,000 square foot greenhouse was incorporated into an affordable housing development. In Boston, a mixed-use development will incorporate a garden and a solar farm. These projects are part of a growing trend amongst developers who view urban agriculture as an amenity for tenants similar to a gym. For developers, it provides an opportunity to make their project stand out from others. For the City, it provides the opportunity to expand the scope of a development outside of the four walls to the community as a whole.

Given its space, Detroit is in a prime position to capitalize on the benefits urban agriculture projects provide as stand-alone developments and on the trend of incorporating urban agriculture projects into housing and commercial developments. To do so, the City needs to start thinking beyond demolitions towards how those newly vacant properties will be repurposed to fit into Detroit’s future.

Quantifying the Health Impacts of an Unjust Food System

If you ask many people what they think of when they think of Detroit, and a common answer would likely be violent crime. Seemingly every evening the local news reports the number of people dead in the latest deadly crime to occur in Detroit and encourages local residents to call the police with any information. The next day, there is usually a press conference held by the Detroit police department promising justice and asking local residents to step up. Lastly, there may be an editorial in the News expressing the general point that if only Detroiters would stand up and say enough is enough in regards to violent crime the City’s problems would be solved and its renaissance would finally come to be. While the stories surrounding violent crime are often jarring which likely explains why they are given so much attention by both our media and our government, the truth is that Detroit’s most prevalent killer is not violent criminals by the food system.

According to the Michigan Department of Health and Human Services, 3,163 of Detroit’s residents died from heart disease or diabetes in 2013. Those 3,163 deaths accounted for 43% of the City’s total number of deaths that year. In contrast, 291 of Detroit’s residents were killed in a homicide. Heart disease is also the leading cause of hospitalization in Detroit as approximately 13,000 Detroiters are hospitalized every year for a heart-related condition. Not surprisingly, the rate of hospitalization for heart-related conditions in Detroit is approximately 25% higher than the state average. All of this is to say that if you’re a Detroiter, it’s more likely that you will be hospitalized and/or die from an unhealthy diet than a gun. Considering that medical bills are the leading cause of bankruptcy, diet-related hospitalizations will likely drain family resources until they are non-existent. Diet-related deaths will often rob communities and families of stabilizing forces leaving those that remain to fill the void on both a social and financial level.

However, the negative impacts of an unhealthy diet don’t stop at the individual level. All of those hospitalizations place a heavy burden on federal, state, and local government institutions. The loss of life due to diet-related conditions also comes with a heavy financial loss. According to the Michigan Department of Health and Human Services, the City of Detroit lost a collective 19,797 years of life amongst its residents due to premature death caused by heart disease. Even one endorses the $50,0000 valuation for a year of quality life that is commonly utilized by health insurance companies (and which has been criticized as being far too low), Detroit is collectively losing approximately $990 million each year in connection with premature deaths caused by heart disease. If the valuation of a year of quality life is increased to $129,000 based on a recent study by Stanford economists, the collective financial loss soars to over $300 trillion.

This is not to say that violent crime is an unimportant problem in Detroit; violent crime obviously has a ripple effect on the friends and family of those involved and on the surrounding community that is very difficult to quantify. It is simply meant to put things into perspective. Detroit is consistently ranked as one of the countries most unhealthy cities by national surveys. In the Gallup-Healthways Well Being Index, Detroit was 79th out of 100 in the 2014 comunity obesity ranking. In the American Fitness Index, Detroit ranked 43rd out of 50. No matter how you cut it, Detroit is an unhealthy city that it is having an enormous impact on its residents, its communities, and the city as a whole. The 2015-2016 budget for the City of Detroit allocates $315 million to the police department and only $33 million to the Department of Health and Wellness Promotion. Given the fact that diet-related illnesses are the leading cause of death in Detroit, it is at least worth thinking about how the City can better allocate its funds to save the lives of more of its residents.

At this point, it’s important to mention that a silver bullet for preventing things like heart disease and diabetes does not exist. While we know that both are health conditions that are closely tied to a poor diet and inactive lifestyle, promoting a healthy diet and an inactive lifestyle is a complex undertaking that involves several variables. In regards to diet, there are issues regarding locational access, financial access, cultural compatibility, and diet and cooking education. We do know is that eating a diet high in fruits and vegetables is a good start towards reducing a person’s risk of heart disease or diabetes. We also know that numerous studies have found there to be a consistent positive association between proximity to supermarkets and health food stores that regularly stock fresh fruits and vegetables and diet patterns and weight status. However, diet is only part of the problem. Studies have also shown that low-income communities typically lack physical activity facilities such as parks and increasingly studies are starting to examine how the built environment contributes to heart disease and diabetes amongst low-income communities. There is also the issue of food culture and habit. Between 1977 and 1995, the number of meals or snakes eaten at fast food restaurants has increased by 200%. The increase in fast food consumption has been has also been especially prevalent amongst children as many fast food retailers have purposefully sited restaurants within walking distance of schools. All of this is to say that modern day children, particularly low-income children, are more likely to grow up with fast food being a focal point of their diet which will likely impact their food choices as adults.

The complexity of the problem should be of no surprise given the complexity of the food system. There is also the issue that, at the end of the day, what a person decides to eat is a very personal choice. However, potential solutions at many different levels of government are being implemented.  At the federal level, President Obama signed the Healthy, Hunger-Free Kids Act in 2010 which sought to make school meals healthier. However, several cities are taking the lead on this issue. Initiatives vary widely, but have included increasing food and diet related curriculum in schools, limiting fast food restaurant sitings around schools through zoning restrictions, encouraging local food production, and promoting educational programs that teach people how to eat healthy.

These initiatives have not come out of nowhere and typically have been a result of cities expanding their health departments to confront the public health crisis that is caused by diet-related illnesses. For example, Baltimore, Louisville, and New York City all have hired a food policy director to support the work of governmental and non-governmental organizations seeking to create a more just and healthy food system  and to coordinate city resources as necessary. Given the enormous costs Detroit and its residents have to bear in regards to diet-related health issues, Detroit stands to greatly benefit from investing resources in programs and individuals who are seeking to ensure that healthy fruits and vegetables are accessible to all Detroiters in regards to both price and location. A great first step would be hiring a food policy director.

 

 

 

The For-Profit vs. Nonprofit Dilemma: Selecting an Entity for Your Agricultural Enterprise

It may seem like a very simple question: should my urban farm be a nonprofit corporation of a for-profit business? While urban agriculture has been traditionally rooted in nonprofit corporations, many people are beginning to look to for-profit entity options to house their urban agriculture operations. Many people think that if they plan to focus on growing and selling food in a low-income neighborhood, they should be a nonprofit corporation. Others think that if they want to make money growing and selling produce, they should be a for-profit business. The reality is that choosing between a for-profit and a nonprofit entity is a decision that should involve the careful weighing of numerous costs and benefits. This post will address important considerations that you should take into account when deciding whether to start a nonprofit or for-profit entity to house your urban agriculture enterprise. However, it’s important to note that this is only the basic information and which one is best for you will depend on your urban farm or garden.

First, let’s clarify what we’re talking about when we talk about an “entity.” An entity, at least as it will be used throughout this post, is essentially a legal construct that allows people to distinguish their work from their personal life, at least in a legal sense. In the context of urban farms and gardens, distinguishing the farm or garden from you as an individual is important for one big reason: it allows you to limit your personal liability for things that may go wrong. For example, say you want to start farm or garden on a group of properties down the street from your house. Since you want it to be a long-term project, you buy the group of properties from the landowner. If you haven’t formed an entity, you would have to buy the properties yourself and hold the title to the property in your name. Consequently, if anyone got hurt on the property the first thing they would do if they were interested in a lawsuit was look up who owned the property and in doing so would find your name. An entity allows you to limit your personal liability in relation to your farm or garden. If someone gets hurt on the property, they generally can sue the entity, whether nonprofit or for-profit, but not you as an individual. However, this is a common characteristic of all entities, whether nonprofit or for-profit. So what are the differences?

When we’re talking about nonprofit corporations, we’re talking about corporations that are organized and operated for public benefit rather than private gain. Nonprofit corporations are governed by the Michigan Nonprofit Corporation Act. Since they exist for public benefit, nonprofit corporations aren’t owned by any individual. Instead, nonprofit corporations are owned by no one and are managed by a group of at least 3 individuals commonly referred to as the Board of Directors as well as appointed officers, such as a President, Secretary, and Treasurer. In regards to its operations, nonprofit corporations are restricted by law as to what it can do with its assets. Most importantly, a nonprofit corporation cannot use its assets to enrich any director, officer, or member.

However, nonprofit corporations typically have to worry about more than the legal limitations placed upon them by Michigan law. Most nonprofit corporations also seek to become tax-exempt organizations pursuant to section 501(c)(3) of the Internal Revenue Code. While being a 501(c)(3) organization comes with key benefits, it also comes with key costs.

First the benefits. Tax-exempt organizations, as the name suggests, are exempt for federal, state, and local corporate income taxes. They also may be exempt from local property taxes so long as the nonprofit owns and uses the property for its tax-exempt purpose. Being a 501(c)(3) organization also comes with fundraising benefits. Most private foundations focus on providing grant  funding to 501(c)(3) organizations and any gifts made the the nonprofit corporation are also tax deductible for donors.

But now, the costs. 501(c)(3) organizations must be organized exclusively for a charitable or educational purpose and must be operated primarily for a charitable or educational purpose. This restriction is the most important and the most frustrating.  Just what is “charitable” and what is “educational?” Some activities are easy. Growing vegetables and giving it away to low-income people is clearly charitable. Teaching people how to garden is also clearly educational. Job training programs have also been clearly established as charitable activities. But what if a tax-exempt organization is selling food? Tying the sale of food to charity can often be difficult. Also, how much non-charitable and non-educational activity can a 501(c)(3) organization engage in? This line is never clear and it be difficult to even quantify an organization’s charitable activities and its non-charitable activities.  But wait, we’re not done with the restrictions! In addition, 501(c)(3) organizations must be operated for public rather than private benefit, cannot participate or intervene in any political campaign on behalf of any candidate or public office, and a substantial part of its activities cannot include carrying on propaganda or otherwise attempting to influence legislation.

If it’s not clear by now, operating within the IRS regulations for 501(c)(3) organizations can be a headache as the organization has to constantly make the uncertain determination as to how the IRS will view the activity. If it operates afoul of IRS rules, it may incur tax liability or risk the organization’s tax-exempt status.

Rather than deal with the headaches described above, many urban farmers decide to form a for-profit business instead of a nonprofit corporation. The most prevalent entity choice for for-profit farmers is the limited liability company (LLC) given its flexible nature, easy management, and liability shield. All Michigan LLCs are governed by the Michigan Limited Liability Company Act. Unlike nonprofit corporations, LLCs are owned by private individuals and are generally operated for the private benefit of the owners. However, unlike the nonprofit corporation LLCs face very few restrictions as to the purposes for which they can be operated. If one person wants to start an LLC that has a strong charitable mission, they are free to do so. If another person wants to start an LLC with no charitable mission they are also free to do so. LLCs are also free of governance requirements. While a nonprofit corporation must be governed by a group of people known as Board of Directors, LLCs can be governed by any number of people. Further, LLCs enjoy a maximum amount of flexibility in deciding the rules that will govern the company as the owners can craft an operating agreement, which lays out the management structure for the company.

An LLC is free to operate for any legal purpose, can be owned by any number of individuals, and is free to craft management rules. So what are the negatives? The most notable is tax liability. An LLC is a pass-through entity for tax purposes. This means that the LLC itself will pay no corporate income taxes. Instead, all LLC income will be passed through to the individual owners. Individual owners will then generally have to pay a fairly hefty tax bill of 36% on all LLC income.

Back to the original question. You may be concerned about your farm or garden exposing you to personal liability and you’ve heard you can limit your personal liability by forming an LLC or a nonprofit corporation. You’ve read a lot about both entity options above. Which should you choose?

At the end of the day, only you can adequately answer the above question. First, you should think long and hard about what you want the core of your urban farm to be. Many urban farms have some charitable mission incorporated into their values, but will charity be your primary focus? Many urban farmers want to make a bit of money from selling produce, but do you want this to be a supplemental source of income or your primary livelihood? Once you’ve thought long and hard about your core purpose, it will be easier to go through the pros and cons and make an appropriate decision.

Nonprofit Corproation 

Pros

  • Exempt from federal, state, and local corporate income taxes
  • May be exempt from local property taxes
  • Exempt from sales taxes
  • Easier to obtain grants from private foundations
  • Gifts to the nonprofit corporation are tax deductible

Cons

  • Must be organized exclusively for a charitable or educational purpose
  • Must be operated primarily for a charitable or educational purpose
  • Must be operated for public rather than private benefit
  • Cannot build personal wealth based on success as nonprofit assets cannot be used to enrich a director, officer, or member
  • Must limit the nonprofit’s involvement in politics
  • Higher degree of administrative complexity as it must be managed by a group of people

Limited Liability Company

Pros

  • High amount of operational flexibility
  • Low amount of administrative complexity as it can be managed by one person

Cons

  • 36% tax rate for each individual owner on all of the LLC’s taxable income

At this point, you’ve thought long and hard about what the purpose of your urban farm will be. You’ve considered the pros and cons of the nonprofit corporation and the limited liability company. It’s decision time. However, there’s one last pause point. Forming a nonprofit corporation or an LLC is a decision that is hard to go back on meaning it can be difficult to transition a nonprofit organization to a for-profit organization and vice versa. So go over everything twice and think about it a bit more before you make your decision.

Growing Capacity: How Urban Farms Can Meet The Demand For Locally Grown and Produced Foods

Chances are that if you have bought a product produced in Michigan in recent years, you’ve seen the product labelled as “Made in Michigan” as businesses have tried to point out their local connections to consumers in the hope that their local connection will distinguish their business from others. There is evidence that suggests that businesses may be onto something, as consumers have expressed a preference for local products. A 1,000 person survey conducted by American Express found that 93% of consumers believe it’s important to support local businesses and 73% consciously shop at local businesses to support their success. While an increased demand for local products has seemingly increased across all sectors of the economy, it has been particularly strong in the food economy. A survey of 1,100 grocery shoppers found that 70% of shoppers want to buy locally grown food, even if that means paying more.

However, many businesses are doing much more than simply slapping a label on an already existing product; some are building their entire business model around the concept that people will pay more for locally produced goods. A prime example is Shinola. Prior to opening, the company commissioned a focus group and asked consumers if they preferred to purchase a $5 pen made in China, a $10 pen made in the U.S.A., or a $15 pen made in Detroit. They discovered that enough people would pay the increased price for a Detroit-made product to support a viable business. Of course companies like Shinola are not without their critics as people have pointed out that Shinola is not locally owned which can make its Detroit-centric branding look like a disingenuous way to simply mark up the price on an otherwise mediocre product for the benefit of the out-of-town owners of the company. Regardless of the criticisms, looking to the grocery shopper survey above and the results of the Shinola focus group, it appears that there is a strong market for fruits and vegetables grown in Detroit.

Consumers are drawn to locally produced products and local businesses for several reasons. Specifically in regards to food, many consumers seek to buy local products to strengthen their local economy, promote a stronger sense of community, and reduce the impact on the environment caused by the globalized food system. Based on the evidence that consumers are demanding locally produced products and may be willing to pay a premium for them, many have started to ask the question of just how much food are urban farms currently supplying to the local population and what is the capacity for expansion?

The answer to the first question of how well current urban farms are meeting local demand is: not very well. According to the Economic Analysis of Detroit’s Food System conducted by the Detroit Food and Fitness Collaborative, Detroit farmers are meeting only 4% of the current agricultural demand in Wayne County. This is not uncommon. A similar study in Cleveland found that urban farms in Cleveland were only supplying about 1.7% of the total amount of fresh produce consumed by Cleveland residents. The answer to the second question of what the capacity to expand agricultural production in the city to create a more localized food system is another story.

Kathryn Colasanti, Charlotte Litjens, and Michael Hamm sought out to answer the question above in 2010. They started by looking at the total number of publicly owned, structureless parcels in Detroit, excluding parkland. They found that in Detroit there were 44,085 such parcels of property, which totaled 4,848 acres throughout the City. Next, they looked to how much food could potentially be grown on the thousands of vacant areas. This was done by looking to how the total poundage of fruits and vegetables currently consumed by Detroiters and factoring in the seasonal limitations that farmers traditionally face. Lastly, the study factored in crop loss and differing yield rates based on skill and farming methods.

Overall, the production capacity of Detroit’s vacant land depends on two distinct factors: the degree to which a farm is able to utilize an unheated hoophouse to extend its growing season and what the farm is able to yield based on skill and production method. The first important factor is season extension. If a farm can utilize an unheated hoophouse, it can reduce natural seasonal limitations and extend its growing season. This, in turn, will increase a farmer’s ability  to meet local demand because the farm will be able to grow more with less land. The second important factor is farming method and skill. Assuming a farmer is using a biointensive method of farming, what their yield is will depend on their skill. A more skilled farmer will be able to get more out of their land than a novice farmer.

The studies findings can be summarized as follows: Detroit has the capacity to meet the majority of the current fresh fruit and vegetable consumption of its residents, but just how much land is needed depends on the two factors described above.

If no season extension techniques are used, then Colasanti estimates that Detroit’s urban agriculture network could produce 65% of the vegetables and 39% of the fruits currently consumed by Detroiters on anywhere from 511 to 1,839 acres. If season extension techniques are used, Colasanti estimated that Detroit’s urban agriculture network could produce 76% of the vegetables and 42% of the fruits currently consumed by Detroiters on anywhere from 568 to 2,086 acres of property. While Colasanti estimated that there was 4,848 acres of vacant, publicly owned land in Detroit, that number is likely higher today. Therefore, it’s likely that Detroit farms could supply Detroiters with a sizable portion of the fruits and vegetables they currently consume by repurposing less than 50% of the publicly owned property in Detroit for agriculture use. Even using the undoubtedly outdated figure that estimates the amount of Detroit’s publicly owned vacant property at 4,848 acres, it is possible to provide Detroiters with the majority of vegetables they currently consume by repurposing a mere 11% of the existing 4,848 acres currently in the public inventory.

While the study shows that Detroit has the capacity to meet a large portion of the current vegetable and fruit consumption of its residents, it is important to emphasize that translating that capacity into reality is an entirely different question and there are three main obstacles that need to be addressed.

First, the property surveyed by Colasanti will not all be available for agriculture for a variety of reasons including, but not limited to, soil contamination, location, and soil condition. While soil condition and contamination can at times be remedied, location cannot. Some of the property surveyed by Colasanti is undoubtedly isolated vacant parcels that exist between two occupied structures. While someone may be able to start a garden on that site, it may be difficult to maintain a for-profit farm on such a small space. Further, if expansion was ever pursued, those involved would have to look for non-contiguous lots which would bifurcate the farm or garden and create an operational obstacle.

Second, the City must be a willing partner and must be willing to sell property for agricultural developments, which is currently not the case. Currently, the City has no policy regarding land disposition for agricultural projects. This often means that requests to purchase property for an agricultural development are either ignored or refused. As a result, farmers and gardeners currently don’t have a strong working relationship in regards to land purchasing with the largest landowner in the City.

Lastly, each individual urban agriculture enterprise must be financially viable on their own. While the scale or urban agriculture ventures vary widely, most are less than 2 acres. small-scale farming is often difficult financially. A survey of small-scale vegetable farmers in 2005 estimated that farm owners with a farm of less than 3 acres had a net cash income that translated to $4.96 per hour. This can be achieved in numerous ways, including organizing farm cooperatives or increasing the average growing capacity of each individual farm in Detroit. However, as it currently stands, very few farm owners in Detroit are making what could be considered a living wage.

In summary, surveys and studies show that the demand for locally produced agricultural goods is strong and studies also show that Detroit is uniquely positioned to meet that demand by repurposing a rather small percentage of publicly owned vacant land for agricultural production. However, to translate the capacity for expansion into reality, the City of Detroit must become a willing partner and work with Detroit’s farmers to clearly define how much property it plans to dedicate to commercial agricultural operations, where that property will be, and how it will be sold to farming enterprises. In turn, farmers must develop a sustainable business model to ensure that the farming business makes enough to support themselves and their families.