City officials don’t plan for the worst case scenario

The Water Street project warrants multiple discussions, and in a previous column I called it a failure. Here’s why.

It is incumbent upon local elected officials to improve the fortunes of the cities and towns they run.
Good intentions were behind the Water Street project. City officials in Ypsilanti will tell you the project was initiated in order to increase tax revenue.

The problem is city officials didn’t abide by what could clumsily be called the “What If It Goes Wrong” principle. In other words, there didn’t appear to be any consideration of the worst case scenario on the part of city officials who were in office at the time. It was all but assumed the project would be successful. It wasn’t.

To reiterate, the Water Street project comprised of real estate purchases made by the city on Water Street from 1999 to 2006. The purpose of the purchases was to accrue land for redevelopment with commercial and residential land use.

Now, I do not blame city officials for not foreseeing a collapse in the real estate market, which an audit report shows the “total devaluation of land held for sale was $1,995,335” in 2013. There were bankers on Wall Street, with far more sophisticated instruments and resources at their disposal, who were bowled over by the quick collapse of Lehman Brothers and Bear Stearns in 2008.

Again, what city officials who had their hand in the project should be blamed for is ignoring the “What If It Goes Wrong” principle. Because as we can see, things went wrong.

The failure of the Water Street project only adds to the argument that, while cities should not be absent from shaping their fortunes, development should be left to the free-market. Or at least in the future, such redevelopment projects should not be financed with debt – which is how the city paid for the Water Street project.

When redevelopment projects are financed with debt and if those redevelopment projects fail – which they often do – the localities who issued bonds are not only stuck with a failed project, but they’re stuck with the debt associated with it.

It is also noteworthy that certain parcels that were part of the project were contaminated, and therefore unattractive to buyers. So it wasn’t as if the prospect of failure was inconceivable. And it isn’t as if the Ypsilanti is a hotspot for land development. There wasn’t any rush for property in the city’s boundaries at the time of the purchases, and there isn’t any rush now.

Recently, certain city officials have heralded deals with a Family Dollar and affordable housing complex which will be built on the property. But these developments do not represent victory. And it is disingenuous for anyone to say this is what the city envisioned when it first gathered up the properties for redevelopment.

The vision was not for a Family Dollar or an affordable housing complex. The vision was for development which would increase the city’s fortunes – a grocery store perhaps. Never has a story of urban renewal been told that started with a Family Dollar.

Mayor Paul Schreiber of Ypsilanti, whose tenure started after the properties were purchased has tried to make lemonade out of lemons. The city has few options.

There aren’t many prospective buyers for the land, at least not the kind of franchises which will attract middle-income residents or a messianic investor who will open his bank account to redevelop the land.

To complain about the Family Dollar and the affordable housing complex only, is to miss the forest in the trees. Regardless of the outcome, the city probably should not have carried out this venture in the first place. Had the city saved money, and then purchased the properties – and it still failed – then that would have been bad, but it wouldn’t be as disastrous as it is now.

Because of the decision of previous mayors, and members of the city council, mayors like Paul Schreiber and his likely successor Amanda Edmonds will have to dedicate the entirety of their terms to paying down debt.

The city paid $4.6 million towards the debt from Water Street in 2013, and has $24 million left to pay.


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