You are viewing this article in the archives. For the latest breaking news and updates in Ann Arbor and the surrounding area, see
Posted on Tue, Apr 13, 2010 : 6:01 a.m.

City debt, water rate increases topics of Ann Arbor City Council budget Q&A

By Ryan J. Stanton

The city of Ann Arbor's growing debt was a subject of discussion Monday night during a special working session of the City Council.

The city's total debt — general obligation and all others — has risen more than 25 percent over three years, from $167.2 million in June 2006 to $209.9 million in June 2009, city records show.


Tom Crawford, the city's chief financial officer, fields questions from the Ann Arbor City Council during a special working session Monday night.

Ryan J. Stanton |

Mayor John Hiefjte asked Tom Crawford, the city's chief financial officer, to address the issue.

Crawford said he's fairly comfortable with the city's current level of outstanding obligations. He noted state law doesn't allow the city to issue general obligation debt in excess of 10 percent of the state equalized value of property in the city.

The city's general obligation debt limit as of June 2009 was $607.7 million, according to the city's budget book. Total city debt subject to that limit was $80.1 million, or 1.3 percent of the total SEV. Three years earlier, that figure totaled $63.4 million.

The city's budget book shows $7.1 million was spent toward general debt service in 2007-08, $8 million in 2008-09 and $9.2 million in 2009-10. Now, $10.34 million is budgeted for 2010-11.

Crawford said Ann Arbor still maintains a AA+ credit rating from Standard & Poor's. He also said Ann Arbor's level of debt is comparable to that of Grand Rapids, Lansing and Kalamazoo.

Council members then moved on to other topics related to the city's budget.

City Administrator Roger Fraser facilitated a question-and-answer session Monday night during a special working session of the City Council. It was the first time council members had a chance to publicly discuss Fraser's proposed budget recommendations for 2010-11. Council members spent about 20 minutes asking questions of Fraser and his staff.

It became apparent during Monday's meeting that Ann Arbor residents can expect to see their water and sewer bills increase at the start of the city's new fiscal year in July. Fraser's proposed budget for 2010-11 includes rate increases of 3.88 percent for water, 3 percent for wastewater and 2 percent for stormwater.

More details of those increases will be presented at next week's regular City Council meeting. 

Sue McCormick, the city's public services area administrator, said the rate increases are needed to maintain adequate revenues and pay for capital improvements within the system. McCormick said some capital improvements already are in progress, and new projects are coming on line that also are driving the increased rates.

"At the wastewater plant, the two major projects that we're working on there are the replacement of the solids handling system at the front end and then the replacement of that half of the plant that was built in the 1930s," she said.

Within the public services area of the 2010-11 budget, tens of millions of dollars are slated for capital projects. That includes $5.22 million for the water supply system, $33.33 million for the sewage disposal system, $4.5 million for the stormwater disposal system and $13.44 million for streets. Another $977,000 is requested by the solid waste enterprise fund and $509,000 by the alternative transportation fund.

McCormick handed out a report Monday night showing Ann Arbor's water and sewer rates were the second lowest when compared to dozens of other communities around the state. The data — which is only a partial listing — was collected by the Michigan Department of Natural Resources and Environment and uses rates from 2009.


Sabra Briere, D-1st Ward, asks about increases in fees for city services at Monday's meeting.

Ryan J. Stanton |

Ann Arbor's $1.40 cost per 1,000 gallons of water and $4.02 cost per 1,000 gallons of wastewater placed the city at second lowest in the state, according to the report.

Assuming a usage rate of 5,000 gallons of water and 5,000 gallons of wastewater, the total monthly cost to an Ann Arbor resident — including other charges — was $18.26. Only Ypsilanti provided a better value at $18.12. Many other communities charged double and triple those amounts.

McCormick noted Ann Arbor is one of the few communities with a fully developed stormwater utility. Factoring in stormwater charges, she said, a city resident might pay about $29.71, which still would be about the sixth lowest in the comparison.

McCormick said municipal water and sewer systems all across the nation are seeing decreased consumption due to population loss, businesses closing, and individual conservation efforts. That is translating into decreased revenue for those utilities, she said.

"All of the utilities are experiencing the same sorts of challenges that we are with the downturn in the economy," she said. "We saw a 6 percent drop in our commodity sales at the end of 2009, and we're tracking 2010, which will be about the same. That drop in usage translates to about an 8 percent loss in revenue."

McCormick said another significant form of revenue for utilities is new connection fees, and those are down drastically. In the water system, she said, that typically would be about $1.5 million in a normal year. In 2009, the system saw about $100,000 in revenue from new connection fees, which means the city lost nearly $1.4 million.

Council Member Sabra Briere, D-1st Ward, noted a number of fees for city services are slated to increase in 2010-11. She asked for a three-year comparison of fees that are changing.

"I would just like not to spend enormous amounts of my personal time going through last year's book, trying to make comparisons between the fee increases that happened last year and the ones proposed for this year," Briere said. "I want to know those that were increased last year that might be up for increase this year."

Fraser said he would provide that.

Council Member Tony Derezinski, D-2nd Ward, asked Fraser for an explanation of what's happening with state revenue sharing.

The city's budget book shows the city expects constitutional revenue sharing to increase slightly from $7.1 million to $7.2 million next year. But statutory revenue sharing is projected to decrease from $2.05 million to $1 million.

Fraser said he's presuming in the city's long-range forecast that the $1 million from statutory revenue sharing will go away entirely by 2011-12.

Council Member Sandi Smith, D-1st Ward, asked about a $150,000 expense budgeted in the general fund for a loan payment related to city-owned property at First and Washington.

"I don't know why we would have a loan on First and Washington," Smith said, asking Fraser for explanation.

Fraser said that's "a contingency of sorts." He said the city still is counting on $3 million from the sale of the property it owns at First and Washington to the Village Green Co. of Farmington Hills to help finance the ongoing $47 million addition to city hall.

Village Green received approval in late 2008 to build a 156-apartment, 11-story (eight above grade) building that includes a four-level, 244-space parking deck. The project has been on hold since and Village Green has obtained multiple extensions on the $3 million option to buy the property while it awaits financing.

"Tom (Crawford) has recommended that, in the eventuality that project doesn't come through, and in the eventuality that we find ourselves short in the general fund reserve, that we have in the budget the expectation that we may need to borrow some money to cover us until that property sells," Fraser said. "That's what that's for. It's sort of to try to cover our contingencies."

Crawford said Village Green's extension on its option to buy the property expires at the end of June. He said he's been in talks with Village Green and "things are starting to look better," but the developer still is struggling to get financing in place.

Council Member Stephen Kunselman, D-3rd Ward, asked about a $120,000 savings that Fraser has factored into the budget from "de-energizing" certain DTE light poles throughout the city. Kunselman said he had been under the impression that the city didn't have a way of calculating the exact savings.

"My understanding is that we've had conversations with DTE about what it would be worth if we cut these things down," Fraser responded. "And we're working on an agreement with them in that amount of money based on X-number of lights being de-energized."

Ryan J. Stanton covers government for Reach him at or 734-623-2529.



Sat, May 22, 2010 : 9:55 a.m.

The Mayor and city officials are being very selective in comparsions of taxes, water and sewer rates. The bottom line is this: only our government gets away with charging us more and more (both in terms of $ and %) and do less and less for us year after year. It is too easy for them to spend other people's money.

Steve Bean

Fri, Apr 16, 2010 : 11:06 p.m.

FYI, the "CIP" that Sue McCormick refers to is the city's Capital Improvements Plan.

Ryan J. Stanton

Fri, Apr 16, 2010 : 12:20 p.m.

Here's the response I received via e-mail from Sue McCormick regarding the budgeted surpluses: The revenue and expense numbers in the budget reflect our recommendation. That means the revenues include the impact (revenue increase) of the recommended rate increase. The'surplus' in each of the funds is related to several factors as follows: In Water, the rate increase is required in order to maintain an adequate debt service coverage ratio. The target for debt service coverage is 1.25. Debt coverageassures the bond market that we have planned with adequate revenue margin to assure our ability to make our bond payments after we've covered all our expenses.This does result in a surplus, which returns to fund balance, which in turns helps to fund future capital. The majority of our water system capital is funded through the issuance of bonds, and this type of return to fund balance decreases the amount of borrowing which will be required in the future. In the water fund, debt service coverage has been the driver for our rate adjustments in recent years. In Stormwater, this planned returned to fund balance assists in funding capitalsimilar to the water fund. Consistent with our approach in recent history we look very carefully at our revenues and expenditures (including capital) outmultiple years in each of the enterprise funds and try both to minimize rate adjustments as well as mimize rate swings from year to year- and this is what has guided us now for several years in our financial planning. In stormwater our CIP shows significant capital investment in the near future.Thisrate increase levelizes the adjustments anticipated in the next few yearsand this return to fund balance allows near term planned bonding for capital projects to be minimized. In the sewage disposal fund, we have been planning for two major projects at the WWTP which total in excess of $100 million dollars. To avoid substantial rate increases over a short period, and to minimize the amount of borrowing, council has supported gradual rate increases (we've referred previously to these as levelized) with intendedreturns to fund balance. We haveaccumulated a significant reserve that will be spent down over the few years while we prepare for a major bond issueance for these projects. The net result is that our forecastis that we will be able to continue to minimize rate increase to our customers in a similar 3% range annually even with these major plant investments. Solid Waste is a millage fund. In Solid Waste, what is forecast is less than a 1% surplus.Given the changes inmillagerevenues and operational adjustments, this level of surplus is not material.Any revenue in excess of expenses, will return to fund balance support funding future capital.

Steve Bean

Tue, Apr 13, 2010 : 11:35 p.m.

Some of the funds in question support capital-intensive systems. Surpluses are built up over time in those funds in order to make the lump sum investments in new technology or simply to replace equipment and other system components that are at the end of their useful life. One alternative would be to borrow money for the investments and pay interest on the bonds. Another alternative would be to not upgrade such systems.


Tue, Apr 13, 2010 : 1:06 p.m.

Surpluses aren't even surpluses around here. It appears we need a quadruple surplus just to break even so Pass that income tax.


Tue, Apr 13, 2010 : 12:24 p.m.

Thanks to Ryan for helping to bring transparency to this issue and many other questions on the City Hall "beat" that beg for answers.

just a homeowner

Tue, Apr 13, 2010 : 12:06 p.m.

Ryan, what is the balance projected for end of year 2009? Are we going to end this year with a surplus, and then raise rates going into 2010? Is there an account somewhere with surpluses from previous years? Were there surpluses from previous years? If so, what happened to the money?

Ryan J. Stanton

Tue, Apr 13, 2010 : 12:03 p.m.

As a follow-up to my previous comment about the issue with DTE, Mayor Hieftje tells me he was referring to a conversation that has been ongoing with DTE over replacing the streetlights in the neighborhoods with LEDs now that the downtown is done. He points out that the U-M business school reported that the downtown lights will pay for themselves in just under four years. The savings come from using far less electricity and the lights lasting 10-12 years versus two with the old fixtures, so maintenance and bulb purchases are greatly reduced. Hiefjte said city officials think the same dynamic will work out with the "cobra head" lights outside of the downtown. The city has federal money to get started, but one problem is that DTE owns most of those and they have not been willing to partner with the city to work out the details and make the change, Hieftje said.

Ryan J. Stanton

Tue, Apr 13, 2010 : 11:55 a.m.

@just a homeowner You're right. It appears there are surpluses budgeted into all of these funds. Here are the total revenues and (expenditures) for 2010-11 outlined for the various funds: Stormwater Sewer System $5.6 million ($5.2 million) Water Supply System $22.27 million ($19.75 million) Sewage Disposal System $22.2 million ($19.3 million) Solid Waste Fund $15.5 million ($15.4 million) That suggests an anticipated $2.5 million surplus in water, about $400,000 in stormwater, $2.9 million in the sewage disposal system, and $100,000 in the solid waste fund. Those numbers are in the front of the city's 2010-11 budget book. I'm seeking further clarification on the numbers and why rate increases are going into effect when there are surpluses. I'll report back when I know more.

just a homeowner

Tue, Apr 13, 2010 : 10:38 a.m.

I think the water department has a surplus. True? Why are rates going up? Ryan, can you explain the water department, rates, its debt and surplus? Thanks.


Tue, Apr 13, 2010 : 8:26 a.m.

Ryan: It has never made any sense to me that we're relying on the same company who sells us energy to power the street lighting, to select, install, and maintain those very same lights. Obviously there's no incentive for them to make any conservation efforts. Thanks for staying on top of this.

Vivienne Armentrout

Tue, Apr 13, 2010 : 8:22 a.m.

Regarding the water rate increases: these funds have also been used as a piggybank for various enterprises like the Fuller Road Station and the deductions for the Percent for Art program. Because rate-payers have no choice but to pay their bills, this is a convenient way to fund other programs unrelated to water services. Sounds like a tax to me, which is illegal according to the Bolt decision.

Ryan J. Stanton

Tue, Apr 13, 2010 : 7:55 a.m.

Mayor Hieftje stated at one point during last night's meeting regarding DTE, "Well, there's still issues about working with them on the LED replacement project." To which Roger Fraser responded, "Come on, John. Let's leave this on a positive note." I don't know what the issue is there, but I'm looking into it.


Tue, Apr 13, 2010 : 6:54 a.m.

I'm glad the city is finally looking at the street lighting that's been installed here. It's obvious to see that the poor design of what's there now sends more than 20% of the light (and money that it costs to operate those lamps) up into the air, where it's wasted. Turn some of 'em off if you'd like, but also install better designed fixtures that won't waste light and our money, and we'll really see some savings. And be able to see the stars above once again to boot.

dading dont delete me bro

Tue, Apr 13, 2010 : 5:48 a.m.

just keep raising rates, taxe$, etc...soon we'll all be on government a$$tance, then who's gonna pay?!? hunh? everywhere you turn, the working and contributing class is asked (not asked, expected) to pay more and more and more and more and more and...