The City of Ypsilanti will continue to face increasing economic challenges and needs to build on its successes from the last year to address those issues. That’s the message Ypsilanti Mayor Paul Schreiber offered residents in his annual State of the City address at Tuesday night’s City Council meeting.

Schreiber highlighted a number of successful projects city officials and residents recently completed or started, and tied each to his theme of “renovation, innovation and collaboration.” He also laid out the challenges facing the city.

Chief among those is what Schreiber referred to as the “revenue crisis.” He said Michigan cities have four main revenue sources — income tax, state shared revenue, property taxes and fees for services — and Ypsilanti cannot significantly increase any of those revenues.

In 2007, voters rejected a proposal for a citywide income tax by a margin of two to one, and the city can’t legally charge more for services than they cost. After the speech, Schreiber, who supported the income tax, said he isn’t willing to put that issue back on the ballot unless all of council supports the idea.

Property taxes decreased by 5 percent, or $500,000, in 2010, and are projected to decrease by another $1.7 million over the next two years. The city already levies the maximum amount it is allowed to under state law.

Governor Rick Snyder’s proposed cuts to state shared revenue would translate to a loss of approximately $900,000 in revenues and increase the city's structural deficit by $1.3 million in 2012.

Under that scenario, soon after the start of fiscal year 2014, the city’s $9 million in reserves would be wiped out, according to city projections. But the projections also show the city’s reserves will be depleted either way if nothing changes by the end of fiscal year 2014.

Snyder is proposing to replace the $300 million reserved for shared revenue with a $200 million “municipal collaboration fund." The fund would reward municipalities that collaborate on services, and Schreiber pointed to several collaborative projects in which the city is engaged.

Most recently, the Ypsilanti Fire Department began working with three neighboring departments in a “mutual aid box alarm system” in a step toward regional fire protection. The city and Ypsilanti Township are also considering the feasibility of a regional police authority. Schreiber said that collaboration could possibly provide additional revenue.

A consultant examining whether a police authority is financially beneficial to both communities will provide the study’s results to officials later this month. Even if an authority made financial sense, its formation and a millage to fund it would have to go in front of voters.

If such a millage were approved, the general fund millage could be lowered. Schreiber said the potential revenues are there, but it wouldn’t be a quick fix.

The city is also now sharing police and fire dispatch services, as well as building inspection services, with Pittsfield Township.

Snyder is also proposing cutting the Michigan Historic Tax Credits and Brownfield tax incentives, which Schreiber said would negatively impact “urban cores” like Ypsilanti. Schreiber said many recent downtown renovation projects highlighted in his speech, such as the $2.2 million renovation of the Mellencamp Building, were made possible, in part, by Brownfield tax incentives or historic tax credits.

“If you look on that list, almost every development that you have has either had a Brownfield or OPRA (Obsolete Property Reduction Act tax abatement, a form of historic tax credits) tied to it,” he said. “ ... If Lansing eliminates those, it’s a policy decision that encourages suburban sprawl.”

The debt service payment on the Water Street property is one of the largest factors affecting the city’s budget, though it its cleanup was only mentioned in the Schreiber's speech. The city made a first debt service payment of $472,000 in May, and must make bi annual payments that will grow to $1.3 million by 2015.

The city purchased the 38-acre water street property years ago with a plan to develop it into a mixed-use residential area, but the site has failed to attract developers.

Schreiber said local developers, like Maurer Management who invested in redeveloping the historic Mellencamp Building on Michigan Avenue, are bringing new business to vacant buildings and expanding the tax base in Ypsilanti. With new development rare, it's unlikely that a large developer will come forward with an attractive pitch for Water Street, Schreiber said. He suggested focusing on local developers renovating existing buildings until the economy and real estate market improve.

He said another option is to put a millage in front of voters to help pay for Water Street, but that that would be a “tough sell,” he said. Another possible revenue source Schreiber discussed after the address is the possibility of applying a storm water utility fee to properties. That would raise money for maintenance and upgrades to the storm water removal system. That would work by determining how much area of a property is non permeable and applying a fee to it that would be used for the city’s Department of Public Works. Because the DPW solid waste millage is supplemented by money from the general fund, those dollars could be moved back to the general fund.

Schreiber said the storm water utility fees treat residents, businesses and Eastern Michigan University equally. Ann Arbor already collects the fee and other council members have informally shown interest in the idea, Schreiber said.

What happens if Snyder's budget proposal is approved, and the worst-case financial scenario comes true?

“It’s either cut, find an increase in revenue or a little of both,” Schreiber said, adding that the city already made public safety reductions last year and future cuts will be difficult.

No matter what, Schreiber said the city must continue to seek collaborative ventures and work to renovate downtown to attract people and business to the city. In a significant recent development, Angstrom, the buyer of the former Visteon Plant submitted site plans for a renovation that were approved, and the city could see 350 new employees by July.

There were also multiple new businesses that opened up downtown and in Depot Town, the summer festivals were again a success and several projects received millions in grant money throughout the last year.

“We must continue the renovation, innovation and collaboration that make Ypsilanti an attractive urban city,” Schreiber said in the address. “The City of Ypsilanti will continue to work with neighboring cities, State Sen. Rebekah Warren, State Rep. David Rutledge and other legislators to make our voices heard at the state level. In this economy, we need everyone’s help.”