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Posted on Fri, Feb 1, 2013 : 5:58 a.m.

Ypsilanti financial audit: $50M in bond debt, $7M unrestricted net assets deficit

By Katrease Stafford

An audit shows the city of Ypsilanti has a deficit of more than $7 million in its unrestricted net assets and more than $50 million in debt, but City Manager Ralph Lange said the financial outlook isn't entirely bleak.


The financial audit shows the city has a $7 million deficit in its unrestricted net assets.

Steve Pepple |

"I feel a little bit like we're better off," Lange said. "It's obviously not good, but it's about where we expected it to be. What's important is what the numbers and projections look like with this (five-year) plan starting into 2013 and 2014."

The audit was prepared by Rehmann Robson for the fiscal year ending June 30, 2012.

Rehmann Robson representative Mark Kettner said that the unrestricted net assets deficit could increase to $11 million and possibly further to $14 million.

Unrestricted net assets are funds that have no restrictions regarding their use or function. They can be used for any purpose.

"It will have some unfavorable effects," Kettner said. "... That's the big thing coming down the road and it's going to cost you more money."

City Manager Ralph Lange said he is looking into what the deficit was for. The city isn't yet sure of the cause or the exact impact.

"I would have to analyze that number," Lange said. "...Assets can be lots of stuff."

At the end of the fiscal year, the report states the city had a total bond debt of $53,001,984.

About $23 million of the debt is comprised of debt backed by the government and the remainder of the debt mainly represents bonds secured for Water Street.

The city owes $30 million on its Water Street debt and will continue to make payments through 2031.

Highlights of the audit:

  • The city transferred $1,271,960 from the general fund to the 2006 Water Street debt service fund.
  • The city has $2,647,222 left for future Water Street bond payments.
  • The city's total assets exceed its liabilities by $20 million.
  • The city's total net assets decreased approximately 2.6 percent, or $556,742, from the previous year.
  • The general fund, which is the chief operating fund for the city, had a total fund balance of $8,659,147.
  • More than $4 million of it is committed for vested employee benefits, Water Street bond payments and other uses.
  • Overall, the fund balance of the general fund decreased by $735,206 for the year, but it was $493,032 less of a decrease than budgeted.
  • Total general fund revenue was down about 3.2 percent, or $438,942, compared with the prior fiscal year.

SEMCOG representative Dave Boerger previously said the Water Street debt is probably "the biggest area" of challenges facing the city.

Lange said the city budgeted for the general fund balance to decrease by about $1.2 million, but was happy to see it didn't amount to that.

"That was a very big thing for me," Lange said.

According to the report, most of the city's revenue is provided by property taxes, which decreased by about 1.3 percent, or $103,305, in comparison with the prior fiscal year.

The city's total value of taxable property for 2012 was approximately $301 million, a decrease of about $28 million, or roughly 8.4 percent of the prior year.

The city's state value has decreased 39.5 percent compared with 10 years ago, City Manager Ralph Lange highlighted in the audit's introduction.


City Manger Ralph Lange

"Investment continues in the downtown with the renovation of second floor apartments and facades as well as the opening of several first floor retail businesses," Lange wrote to council.

"However, the city’s tax base is eroding as the aggregate taxable value of properties in the city and the state of Michigan decline."

Ypsilanti's credit rating from Moody’s, a credit rating agency, said the city has a "satisfactory financial position."

"With declining liquidity, and declining tax base, while currently manageable, (it) is expected to require general fund support beginning in 2013,” Moody's wrote.

Overall, the city remains in "good financial condition" and long-term financial planning is essential to ensuring the city's fiscal heath, according to Lange.

In addition to the significant impact of declining taxable values on revenues, Lange wrote in the audit introduction that the city will continues to face escalating financial challenges coupled with the increasing costs of employee benefits.

"The city also faces mounting pension and other post-employment benefits costs for current and retired employees," Lange wrote. "The revenue decline, coupled with the rising expenses, pose a significant threat to the city’s fiscal structure and a long-term threat to the stability of the city's finances."

Cost containment strategies and reductions are being implemented to reduce future stress on the city's finances. The city was faced with declining revenues beginning in 2001 and began various cost reduction strategies such as deferring capital projects and equipment purchases.

Lange unveiled his five-year turnaround plan that will allow the city to remain solvent through 2018.

The city is continuing to look at many options to reduce costs, while increasing revenues, Lange wrote. Some additional items being considered are stormwater fees, combining fire and police into a public safety department, further consolidation of city hall offices, a special assessment for street lighting, and possible collaboration opportunities with neighboring jurisdictions.

Katrease Stafford covers Ypsilanti for her at or 734-623-2548 and follow her on twitter.


Katrease Stafford

Mon, Feb 4, 2013 : 8:22 p.m.

The way it was explained to me by city officials, including former council members, is that the city owes $30M total on Water Street. As Steve Pierce stated, the city owes the principal of the loan, 15.74M, plus the full interest. The city must pay the entire amount, including the interest, which is why over the past several months we have reported the figure as $30M, instead of just $15.74M. When we report on debt or something along these lines, we tend to include the full amount, not just the principal.

Brian Robb

Mon, Feb 4, 2013 : 8:38 p.m.

You should report it like the audit. Presumably if the word of former Council members was good enough, we wouldn't be required to perform an annual audit to determine our debt load. We'd just ask them. In all seriousness, you can't decide to report the debt on Water Street as principal and interest and not report the debt on the YCUA bonds as principal and interest. The article didn't say the City owes $38.6M on its water and sewer bonds. Pick and standard. The $30M figure makes the absurd assumption that the City will pay the debt requirements to maturity. If you believe the City is going to pay a return of five or six percent on the bonds through 2031 rather than refinance at our first opportunity, then I have 38 acres I'd like to sell you.

Steve McKeen

Mon, Feb 4, 2013 : 2:10 p.m.

i'm confused. the audit says ypsilanti owes fifteen million, but steve pierce says it's thirty. who is correct? is steve saying the audit is wrong?

Steve Pierce

Sat, Feb 2, 2013 : 10:20 p.m.

Brian Robb is correct except he forgets to mention one critical point. With your home mortgage. when you tell someone you owe $100,000, that is how much you owe if you were to pay off the loan today. The Water Street debt is not like your home loan. According to former City Manager Ed Koryzno and City Outside Bond Legal Counsel Denny Neiman, whether the City pays off the debt today or in 20+ years, the city owes the entire amount plus the full interest as if it was fully capitalized over the entire life of the loan. This is what they call an early payment penalty and the city is on the hook for the full capitalized payment, not what the City borrowed. Thus if someone won the lottery and wanted pay off the debt entirely as a gift to the city, the check would need to be for full amount, not the $15.7 million Mr. Robb keeps referring to. Add in the other $6 to 8 million in taxpayer funded grants, other loans, payoff to the former developer, payments already made by the city, plus city staff time, and paid consultants and contractors and that is why Water Street is so far a $30 million boondoggle and it continues to go up. The costs of Water Street will continue to rise with new payments for the Broker and more consultants and experts, staff time and expenses, legal expenses, infrastructure work, property maintenance, and probably more clean-up before development can ever proceed.


Fri, Feb 1, 2013 : 11:41 p.m.

TO WHOM does the city own "the waterstreet "money.? What happend to the $ 600 000 for the healths of the YPsi citizen? How much is in the kittie?

Brian Robb

Fri, Feb 1, 2013 : 5:58 p.m.

Link to audit:


Fri, Feb 1, 2013 : 5:34 p.m.

No link to the audit?

Dog Guy

Fri, Feb 1, 2013 : 3:33 p.m.

Some people now are enjoying the $15 million which was poured down the Water Street rat hole, but probably not in Ypsilanti.

Brian Robb

Fri, Feb 1, 2013 : 2:33 p.m.

The debt on Water Street isn't $30M. The $30M figure includes the capitalized interest. When talking about about debt you don't refer to capitalized interest. For example, if I buy a house and get a mortgage for $100K, I tell people I owe $100K on my house. I don't use the capitalized interest figure of $258K. When the City refinanced the bond in 2005, the new bond debt was $15.74M. In 2011, the City paid down $285K of principal. In 2012, the City paid down another $335K in principal. In 2013, we'll pay another $390K. Considering the two payments toward principal, the city now has $15.12M worth of Water Street debt. The City has $53M in bond debt. That is broken down in two categories. General Obligation bonds and Revenue Bonds. The Revenue Bonds account for $23M of the total bond debt. That is made up of the bonds for the replacement of water mains and sewer lines. (Page 72 of the audit) The General Obligation Bonds account for the remaining $30M in bond debt. This debt is made up of the Water Street debt, the remaining debt on the road improvement bonds, and a bond for capital improvements. (Page 71 of the audit). The $15.12M in Water Street debt is clearly spelled out there.


Fri, Feb 1, 2013 : 5:21 p.m.

tdw, that's why we call him Brain. A little typo humor, there.


Fri, Feb 1, 2013 : 4:23 p.m.

Brain....I don't have a clue of what you said.But I'm impressed anyway


Fri, Feb 1, 2013 : 1:35 p.m.

Katrease, can you provide some context? What's the trend over time here, and how does it compare to other cities? Looking at the city's past financial reports, it looks like the bond debt number is decreasing over time, down substantially from a high of about $70m in 2006. Even with declining taxable values, it looks like the city's ratio of bond debt to taxable value is lower now than it was then (19.28%).


Fri, Feb 1, 2013 : 12:01 p.m.

"Lange wrote in the audit introduction that the city will continues to face escalating financial challenges coupled with the increasing costs of employee benefits." The elephant in nearly every city and state budget's room. Contracts negotiated behind closed doors, by non-permanent politicians, and without voter approval, coming to roost.