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Posted on Wed, May 15, 2013 : 5:58 a.m.

Ypsilanti budget forecast: Water Street debt 'driving force' of severe budget imbalances

By Katrease Stafford

generalfundprojection.jpg

According to a six year projection, Ypsilanti's general fund balance is expected to decrease by $6.4 million through 2019.

Courtesy City of Ypsilanti

Ypsilanti will continue to draw from its general fund to pay down its $24.7 million Water Street debt and a consultant warned the city its general fund balance may decline by $6.4 million through 2019, largely because of the debt.

Ypsilanti has heavily drawn from its reserves and general fund balance over the years to remain afloat. One potential effect, according to John Kaczor from Municipal Analytics, could be no wage increases for all city employees through 2019. However, those who would be due step increases would likely be exempt.

Ypsilanti's fund balance is estimated to decline from $8.6 million to $2.2 million by 2019 and Kaczor said the city's Water Street debt is the "driving force" of the city's budget imbalance.

"The city will continue to rely on its fund balance and reserves," Kaczor said Tuesday during the city's second budget session. "The challenge is to minimize that each year. All of this is Water Street debt that’s driving that balance. Without it, things would be significantly better."

A fund balance is an accumulation of revenues minus expenditures, and each fund maintained by the city has a fund balance. Any surplus revenues in excess of expenditures at the end of a fiscal year goes into a fund balance.

The city will transfer $1,341,778 from its general fund in fiscal year 2013-14 to go toward the Water Street debt. To date, the city has paid $4.6 million of the debt.

The payments, and interest rate, are expected to increase as the city continues to pay through 2031. The debt repayment schedule shows two payments are due each year and the first 2013 payment of $848,783.75 was due May 1 of this year. The next payment, $435,070, is due Nov. 1.

Officials have discussed refinancing the debt in the near future.

So far, the city has used more than $5 million from the general fund to go toward Water Street and has spent $30.2 million in total, according to city records.

Thumbnail image for 031913_Ypsilanti_City_Counc.JPG

City Manager Ralph Lange and Mayor Paul Schreiber

However, City Manager Ralph Lange said the six year outlook provided by Kaczor gives the city time to figure out how to pay for its debt, while maintaining city services.

"If it wasn’t for that, we would be in the black and not the red," Lange said. "The goal of this city is to get past 2031. If we get past that, everything changes. The sky is not falling and the place isn’t going to go down the drain tomorrow. We have time to make the changes we need."

Notable six-year projections:

  • Taxable valuation increases 0.87 percent in FY 14-15, then 2 percent each year after
  • All new employee hires receive will receive Tier 2 benefits
  • No wage increases through FY 18-19
  • General fund expenditures expected to reach $15 million by FY 18-19

In total, the city will transfer more than $2.4 million from its general fund to pay for city services and retiree costs in fiscal year 2013-14. Lange noted that if the city didn't have to make those transfers and contributions to other city funds, it would have a nearly $2 million surplus.

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Courtesy City of Ypsilanti

Lange said the city needs to focus on finding a way to run and manage a successful economic development campaign, which he believes would create more tax revenue for the city.

Lange said he and city staff will focus on the redevelopment of Water Street, the Angstrom USA property and selling city-owned property. Lange said he would like to put 100 percent of the proceeds from any sales toward the Water Street debt.

"If we’re successful in that, a lot of our problems will be greatly reduced," Lange said.

The city received a $2.7 million Community Development Block Grant loan from the state of Michigan for the Water Street property that it must start repaying in 2015. Lange said for every five million dollars of real property investment on the property, $100,000 will be taken off of the amount owed to the state.

"If we're successful (in redevelopment) we can peel off a lot of money," he said.

However, council member Pete Murdock thought some of the budget presentation distorted how serious of a financial strain the city is in.

"If I saw this I would say, 'Wow ,we’re in great shape, what are we complaining about,'" Murdock said. "But those general fund transfers and contributions are real expenses. It kind of distorts our situation. The Water Street debt is not going away."

Murdock said the amended budgets for 2013-14 and projections do relatively little to improve the city's financial picture.

"At the end of five years we’re at the same place where we were going to be at your first whack at this," Murdock said to Lange. "We're going to be $1.2 million in the hole and have no more usable fund balance.The debt is still the same…At some point its all going to crash. If we don’t get a handle on some of those things in the next several years, it isn’t going to matter how much we build our the taxable value."

Lange said the city is not alone in figuring out how to manage city services, while repaying debt and handling increasing pension and retiree costs.

"There are a lot of macro forces that are crushing the city and we’re certainly not alone in this," Lange said.

Kaczor said the projections allow the city to have a chance at regaining stability.

"These projections include stability," he said. "This is the first chance you can say we have a chance to stabilize government operations. Without stability there's a lot of uncertainty."

Police and fire budgets

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The Ypsilanti Police and FIre Departments have experienced decreased staffing and tight budgets over the past several years.

Courtesy City of Ypsilanti

The police and fire departments have been understaffed over the past several years, as the city looked for ways to maintain city services.

The police department has 26 sworn officers and Police Chief Amy Walker said there's a crucial need for more officers on the streets. Walker said she is continuing to focus efforts on moving toward a police and fire hybrid model.

"This time last year, I was looking into ways to collaborate with the area townships," Walker said. "We’re on a new adventure and we’re exploring that and that’s moving forward."

Police highlights:

  • The fiscal year 2012-2013 operating budget has 26 sworn officers and 4 civilians for 30 full-time employees.
  • The amended fiscal year 2013-2014 includes an additional three new police officers and two part-time police officers. This would increase the total to 29 sworn police officers and four civilians. The department would have 33 full time employees and two part-time officers.
  • The overtime budget will be reduced from $434,000 to $360,000, for a savings of $75,000.

Similar to the police department, Fire Chief Max Anthouard said an increase in fire department personnel is needed. The department has 15 employees. Anthouard said his goal is to reach 17 personnel, including one fire marshal, three captains and three lieutenants. The city's fire marshal position is empty at the moment, and Anthouard said the job being filled is crucial to the work the department does.

Anthouard also said the department's overtime costs need to be controlled. From January to April 2013, the department has incurred $67,320 in overtime costs.

"The overtime we have at fire department is out of control," Anthouard said. "We have overtime every day and hiring two firefighters would be saving money over time. It would also decrease the amount of overtime senior firefighters are making."

Garbage fund in severe distress

The city's garbage fund is out of reserves and will require hard negotiating for the new contract this year, according to city officials. The fund is currently being subsidized by the motor pool fund. Kaczor noted that the garbage fund will likely be in the red by nearly $819,000 in 2019.

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The garbage fund is depleted and Kaczor said the city must find new revenue sources for it.

Courtesy City of Ypsilanti

Kaczor said the fund will require a significant effort to be self-sustaining and the city's waste hauling contract must be renegotiated. Other cost reductions will be required and the city should consider exploring other funding options as well.

Motor pool contributions to the garbage fund will be fully eliminated by fiscal year 2015-16.

"Beyond that, the city needs to find a solution for this fund," Kaczor said. "It really should not be something you're subsidizing from the motor pool and the general fund cannot subsidize it."

The motor pool may also be severely impacted through 2019, Kaczor said. The fund has about $3.5 million in reserve funding, but they may be depleted entirely by 2019.

"We have to find way to make the garbage fund sustainable," Lange said.

Katrease Stafford covers Ypsilanti for AnnArbor.com.Reach her at katreasestafford@annarbor.com or 734-623-2548 and follow her on twitter.

Comments

allergictobs

Wed, May 15, 2013 : 6:33 p.m.

So the best the Ypsilanti mayor and common council can come up with as the first "ANCHOR" store in the Water St. development is a Family Dollar Store??!!!! LOL!! And they don't like it when they are referred to as YpsiTucky!!

RUKiddingMe

Wed, May 15, 2013 : 3:15 p.m.

The link Katrease provided is an excellent read, full of examples of how the people in charge of money tax money don't need to be smart, careful, or diligent. I'm reposting it so it's not lost in a comment reply. I would suggest that all Ann Arbor residents read it too. It's kind of a How-To for the train station and public art and affordable housing in our city, unless we do something to change it. The people who pay the taxes have to take the reins; the people collecting it and spending it have ZERO motivation to do well unless they are being monitored, assessed, and have tangible implications/consequences. http://www.annarbor.com/news/ypsilanti/water-street-history/

JRW

Wed, May 15, 2013 : 2:14 p.m.

What is the Water Street project?

jns131

Thu, May 16, 2013 : 12:56 a.m.

And the rec center is suppose to be built when? Sometime in the near future?

Katrease Stafford

Wed, May 15, 2013 : 2:28 p.m.

The Water Street project is a city-owned 38-acre site right off of Michigan Avenue in Ypsilanti, that the city began to assemble in 1999 with a vision to turn it into a residential and retail hub for its residents. The project has been stalled over the past 14 years, due to two developers backing out, environmental issues, etc. The city just recently approved a purchase agreement with Family Dollar to construct a store on the property. The Washtenaw County Parks and Recreation department is also proposing to build a nearly 60,000-square-foot recreation center on the site. Check here for a really extensive story on the site's history: http://www.annarbor.com/news/ypsilanti/water-street-history/

Solitude

Wed, May 15, 2013 : 1:45 p.m.

"At the end of five years we're at the same place where we were going to be at your first whack at this," Murdock said to Lange. "We're going to be $1.2 million in the hole and have no more usable fund balance.The debt is still the same..." Is it any wonder city finances have been such a mess, if this is the mentality of the some council people? While they were decimating the city's police and fire protection Murdock and Ed Koryzno and the rest of council were assuring us that the city would be out of money completely by 2015, which is two short years away. Now, with the help of a review by an *outside* and independent municipal budget professional, we see that we are still treading water, at least, into 2019. For Murdock to claim we are in "the same place" makes it seem he has a problem with basic addition and subtraction. Why should he be surprised to find the some slight improvement in the projections, given the draconian cuts in personnel that have been realized in the last couple of years?

SonnyDog09

Wed, May 15, 2013 : 1:07 p.m.

"The department has 15 employees. Anthouard said his goal is to reach 17 personnel, including one fire marshal, three captains and three lieutenants. " So, they have fifteen employees. That includes three captains and three lieutenants (the chief position is currently unfilled). So, six of the fifteen are either captains or lieutenants. Does this seem top heavy to anyone else? Why six officers and only nine other employees? Is this a typical government boss to worker bee ratio?

Nicholas Urfe

Wed, May 15, 2013 : 1:37 p.m.

That does seem top-heavy. But having a captain and lieutenant in each fire station of 5 guys seems very reasonable. It isn't like an office, where people mostly push paper and punch buttons, they're an emergency response team.

Ignatz

Wed, May 15, 2013 : 1:13 p.m.

I suspect that the number is skewed because there are not enough worker bees hired to fight the fires and perform whatever other duties are required of them. Every organization needs leadership for employee direction. It seems to me the do need more employees to direct, however.

TK2013

Wed, May 15, 2013 : 1 p.m.

First of all, a "thank you" is owed to Pete Murdock for having the intelligence and guts to tell it like it is. Reporters try hard, but they get taken in by the charts, graphs and the myriad of numbers that are thrown at them by staff as an intentional means to confuse and muddle the primary message. Like him or not, Murdock cuts through the nonsense to get to the bottom line. And, he is absolutely correct that our new city manager has accomplished nothing in terms of presenting a financial plan that is any different than what we've seen for the past several years. Lange has failed to produce a financial plan that is remotely sustainable – near-term or long-term. I also find it absolutely outrageous that Lange has found the need to pay a high priced OUTSIDE CONSULTANT to prepare and present the city's budget to the city council, public and media. The city is in dire financial straits yet Lange has the arrogance to pay a costly consultant to perform the work that he and his staff should be doing? Is he kidding? If Lange and his staff don't possess the knowledge and skills to prepare and present a budget, incompetent heads should roll! It's my understanding that this Kaczor gentleman is not the only costly consultant working for the manager. Lange not only uses our limited tax dollars to hire consultants to do the work that he and his staff members are highly compensated to perform, he recently hired a costly assistant for himself complete with a full benefit package. It is amazing, albeit sickening, to listen to the city manager's handpicked consultant speak about the city's financial woes while, at the same time, the city manager himself has no difficulty finding public funding to hire consultants and assistants to perform the job he was hired to do. Maybe it's time to revisit Lange's compensation package.

Solitude

Wed, May 15, 2013 : 6:39 p.m.

TK2013, I didn't say you were bitter. The guy's been on the job less than 12 months. At least he has taken the time to uncover what the actual revenue and liability numbers are. It's a good place to start. He's the only one who's displayed even the slightest interest in restaffing the city's police and fire services, the only one, apparently, with the sense to equate below-adequate staffing with excessive overtime expenditures, and the only person who has made any attempt to get the stalled Water Street marketing/development efforts off the ground. Give the guy some time. Thanks to the city's current and previous councils and completely ineffective mayors, he walked into a pretty big mess that no one had even bothered to try to accurately assess.

TK2013

Wed, May 15, 2013 : 3:36 p.m.

Solitude: I don't think I'm "bitter." I just remember reading what Lange promised when he interviewed for the job. I knew he wouldn't (or couldn't) deliver, but I don't think that means he shouldn't be held accountable.

Steve McKeen

Wed, May 15, 2013 : 2:25 p.m.

You sound like someone who is bitter they aren't mayor.

Solitude

Wed, May 15, 2013 : 1:52 p.m.

The former city manager and Murdock and others like him would have rolled up the carpets by now and had the city absorbed by surrounding entities. They did a total of NOTHING to increase revenue, other than pay hundreds of thousands to a shared lobbyist who was supposed to lobby state government for more money. Your hostility toward Lange is unjustified and misdirected.

Nicholas Urfe

Wed, May 15, 2013 : 1:35 p.m.

Often having a third party deliver bad news has more impact. So I'm not sure that is a bad use of money.

Katrease Stafford

Wed, May 15, 2013 : 12:30 p.m.

Just for clarification purposes: The motor pool is the fund that consists of the city's municipal fleets/vehicles.

Tom Joad

Wed, May 15, 2013 : 12:07 p.m.

Not surprising that Ypsilanti's budget demands includes illegal collusion into sanctioning marijuana dispensaries and grow operations that have no basis in state law to operate.

beardown

Wed, May 15, 2013 : 12:03 p.m.

These numbers continue change whenever the city manager decides he needs to get an idea across. A couple of weeks ago, there was a higher projected surplus. Prior to that, there was an earlier dip into the red. Why should we trust any of these numbers anymore? And does he spend his entire day just making powerpoints and excel charts?

Larry Baird

Wed, May 15, 2013 : 11:30 a.m.

Water Street? What is the lesson to be learned for our elected officials? Tonight the Washtenaw County Board of Commissioners is scheduled to vote for adding an unprecedented $340 million in NEW debt for all county residents in the form of pension bonds. The idea behind this historic loan is to invest the $340 million in the stock and bond markets in the "hopes" that the rate of return will be greater than the cost of the debt - a gamble somewhat like the Wall Street loan. The new loan is the board's proposed solution to shoring up the county pension and healthcare funds which are currently underfunded partly because previous stock and bond market returns failed to live up to expectations. PLEASE contact your county commissioners and tell them to NOT gamble with taxpayer money. One Water Street fiasco is enough.

empedocles

Wed, May 15, 2013 : 8:41 p.m.

Amen brother. $350,000,000 borrowed, not one penny for the general public, and if it goes south, call it half a billion when all the damage is counted.

JRW

Wed, May 15, 2013 : 2:15 p.m.

Hoping for any specific rate of return in the stock market is gambling. End of story.

Stephen Lange Ranzini

Wed, May 15, 2013 : 10:52 a.m.

@Katrease Stafford: I am not sure why you keep stating *incorrectly* that the city has a debt of $24.7 million related to Water Street? "Ypsilanti will continue to draw from its general fund to pay down its $24.7 million Water Street debt..." Your own stats in this article you linked to indicate that the bond was for $15,740,000. In addition there are forgivable loans of $3.25 million, the city received grants of over $6 million and over $5 million was used in the past from the general fund: See: www.annarbor.com/news/ypsilanti/water-street-history/

Steve Pierce

Thu, May 16, 2013 : 3:02 a.m.

Stephen, This isn't quite true. Stupidly, the bonds the city got require repayment with interest. Even if the city was to pay it off early, they would have to pay the same amount as if they drew the payments out for 20 years. Yep, the city set it up with a ^+% interest rate and early payment penalyth Doh! What Katrease is missing in her numbers is the general fund money already spent for things like the payoff of the previous developer so they wouldn't sue, CDBG repayments, consultants, lawyers, fence rental, brokers and much much more. All told the City has spent about $10 million of taxpayer money out of the general fund and owes $25 million more. This from a project the former Mayor promised there would be NO general fund money spent on Water Street. Double Doh! - Steve

Stephen Lange Ranzini

Wed, May 15, 2013 : 2:30 p.m.

@Katrease Stafford: When you say you owe a debt you should refer only to the principal amount of the debt you owe. You are referring to *payments* that are owed. Two different things! Your terminology is NOT correct! It would be correct to say that Ypsilanti will make future *payments* totaling $24.7 million. It is not correct to say that Ypsilanti has a *debt* of $24.7 million. Here is the definition of "debt" from Investopedia: "Bonds, loans, and commercial paper are examples of debt. For example, a company may look to borrow $1 million so that it can buy a certain piece of equipment. In this case, the debt of $1 million will have to be paid back (with interest owing) to the creditor at a later date." See : http://financial-dictionary.thefreedictionary.com/debt

Katrease Stafford

Wed, May 15, 2013 : 12:20 p.m.

Hi Stephen, If you look at the debt repayment chart in the article you reference above, you'll see that the city does owe $24,764,695 in principal and interest on the debt. All of the updated numbers I've used came directly from the city's finance director, Marilou Uy. That number will not change until the city refinances the debt, for which it has not done yet.

RUKiddingMe

Wed, May 15, 2013 : 10:38 a.m.

I very much hope Ann Arbor citizens are paying attention to this issue and remember it. City Government should stop looking for creative ways to spend money and focus on core city services and the successful operation of the city. People's tax money should not go to real estate development, prospecting, public art, etc. Keep roads in good shape, police and fire staffed and performing, garbage pickup, etc. Let the private sector deal with risking money. This is a huge burden to bear for Ypsilanti residents. I don't recall anyone being fired or criticized over this, however.

JRW

Wed, May 15, 2013 : 2:17 p.m.

Totally agree. The roads in both Ypsi and AA are atrocious. No other description fits the reality that is the 40,000+ potholes in the two cities. No excuse for this.

beardown

Wed, May 15, 2013 : 12:40 p.m.

In fact, the mayor who pushed this through is on the charter council for the city. And, oddly enough, she was elected to this position somehow.