Ypsilanti's Water Street debt coverage: City needs $2 million invested per acre
The City of Ypsilanti needs to see development worth nearly $2 million per acre on Water Street to pay its debt for the undeveloped 38 acres it owns just east of downtown.
That figure climbs to $2.7 million per acre if council approves proposed plans for a county rec center on one-third of the site.
The City is considering giving 12 acres of the Water Street property to the Washtenaw County Parks and Recreation Commission so the county can build the proposed rec center there. Its planners and supporters say the at least $10 million center would attract the kind of mixed-use development the city envisioned sprouting up when it purchased the land.
Additionally, they say, developers who previously wanted to build student housing on Water Street have recently expressed a renewed interest in the property.
However, city officials also are weighing costs and development scenarios as they look at a $5.9 million budget shortfall by 2017. The city has scheduled the last of three budget meetings for tonight to decide on several options for closing the gap.
The property’s debt payments will eventually grow to $1.37 million annually and the city already made its first $476,000 payment in May on the $31 million bond, according to an analysis of the numbers.
Ypsilanti would need to see an average of $36,000 in annual tax revenue from each acre of the 38-acre site just to cover its highest annual payments. With a TIFA millage set to just under 39 mills, the city needs to see around $925,000 in taxable value, or development valued at $1.85 million per acre to cover the debt payments.
If the city were generating $36,000 in taxes from each parcel, then it would lose $432,000 in tax revenue annually by giving 12 acres of land to the county for the proposed rec center. That totals over $8 million during the life of the bond.
Giving the land for development would leave the city with just 26 taxable acres on Water Street and increase the average annual tax revenue needed to make its highest annual payments to $52,000 per acre.
That would mean the city would need to see an average of $1.35 million in taxable value, or $2.7 million in real investment, on each of the remaining 26 acres to cover the debt payments.
None of those figures take any land sale price into account.
In comparison, local developers Erik and Karen Maurer recently invested $2.2 million to renovate downtown’s Mellencamp Building. The Peninsular Place student housing development, which is on 3.79 acres north of Eastern Michigan University's campus on Railroad Street, has a taxable value of approximately $755,000 per acre, and the city collects around $30,000 per acre annually from it.
Council Member Pete Murdock said during council’s recent discussion on the rec center proposal that he was concerned about losing more than $400,000 in revenue the city could otherwise generate from the property.
He said it was especially bad timing because council is considering putting a Water Street debt retirement millage on the ballot in February as it contends with a looming $5.9 million budget shortfall by 2017 due in part to Water Street’s failure.
Council Member Brian Robb said the city would be “subsidizing” the rec center to the tune of $432,000 annually until the debt is retired.
“I’ve heard positive feedback and that people want to make this happen; however, we have to decide how we’re going to pay for it,” Robb said. “We’re either going to subsidize this recreation facility with a (Water Street debt retirement) millage or subsidize it with the salaries of fire and police.
“I’m not sure residents totally understand that trade off. It’s not something where we can just say ‘Well, we’re doing nothing with this property so come and build.”
Mayor Paul Schreiber said he supports having the rec center on Water Street, though he would also like to see a denser development. He said he has heard a lot of support for the idea as well as some financial concerns. But he said he believes the project would be good for Ypsilanti 20 or 30 years in the future, which council must consider.
“It would be a long-term investment,” he said. “It may not give a quick, short-term payback, but it may be a worthwhile investment. But, again, we need to make the plan a little more dense than proposed.”