Water Street property falls short of initial expectations

The Water Street redevelopment project was intended to expand downtown Ypsilanti east of the river; however, the 38-acre property is not developing.

Since its inception in 1999, the plan was to expand the urban core with mixed-use development that would connect the eastern neighborhoods to downtown. It would include a bike trail connecting the parks along the Huron River and create an expanded tax base and new jobs.

“I would say the city’s financial structure is tied to the redevelopment of Water Street and other underperforming properties,” City Manager Ralph Lange said.

The property was purchased before the housing bubble burst. Because of the timing, the interest the city is paying on the property is more than it can afford. And given the price of the land, few companies appear willing to set up shop in the area.

Teresa Gillotti, Ypsilanti’s Director of Community and Economic Development, said the plan was for the city to own the land and use the new tax value from the area to pay for the project.

“The city decided to take on this large effort with community input at a time when the market was building,” Gillotti said. “That was the original vision: To have the city own it, redevelop it into a new neighborhood with an extension to downtown, actually to help support the downtown that was really struggling at the time and taking on the debt to do so,”

The community input part is what City Councilwoman and professor of finance at Eastern Michigan University Susan Moeller takes issue with. Having lived in Ypsilanti since 2004, she decided to run for city council because she saw no interaction between City Hall and Ypsilanti residents.

“I’ve always thought that since they borrowed $32 million that the citizens should have been asked,” Moeller said. “Now they [the citizens of Ypsilanti] have to pay it back … the debt is $32 million, we have to pay $1.4 million in interest and principal every year. And we can’t refinance it until 2019. Our budget would be balanced except for that.”

Both Lange and Giollotti disagreed, saying that the city’s legacy costs, namely pensions, are just as much if not more of a drain on the city’s budget. Part of the reason that Water Street was an initiative in the first place was because Ypsilanti relies chiefly on property taxes to fund itself, but 40 percent of the cities land is occupied by non-profits, which are tax-exempt, like Eastern Michigan University.

“We’ve really experienced a lot of changes with the market,” Gillotti said. “We’ve had the housing crash, challenges with the budget fiscally. It’s a balancing act. I don’t think you can put one thing in front of the other, but we need good investment. We need the right investment for the city. Both of those are long-term investments that we’re doing.”

With the housing bubble burst in 2007, the city’s taxable value has dropped significantly. “One hundred and twenty million dollars in taxable value,” said Lange.

According to a 2013 comprehensive report of the city finances, the city’s net position fell 20 percent from 2012. The net position is the amount invested in the property minus the cost of acquiring it. Last year, the city lost $1,995,335 on Water Street’s sinking property value alone.

“If you looked at our deficit and for next year it’s roughly $1.3-1.4 million and that roughly equates to the Water Street debt,” Lange said. “From that standpoint it looks like it would stand even…Our general operation budget would probably be a much easier issue to deal with. But she’s [Gillotti] right about the legacy costs that we are facing.”

By 2019, the city’s reserves, which is what it is has used to fund itself thus far, will be down to $1 million.

Despite public outcry, in March the city council voted 4-3 to build a $12.5 million affordable housing complex on the site. The proposed “Water Street Flats” would be the eleventh such site within city limits.

The Water Street Flats are located at the back of the property near the Huron River. To get to it the investors have agreed to build 40 percent of the infrastructure, including roads, sidewalks and water and sewage systems for the structure.

Two other companies have expressed interest in the land, including 0.85 acres for a Family Dollar and eight acres for the East Side Recreation Center.

In 2011, the city received two grants, one from the Michigan Natural Resources Trust Fund to build a pedestrian bridge from Riverside Park to the Water Street area and a second to build a pool from the Friends of the Rutherford Pool.

“What Mr. Lange and I are excited about is this is an upturn,” Gillotti said. “We had no deals on the table…Family Dollar…the Rutherford Pool…the purchase agreement with Water Street Flats. We hadn’t seen any of that since 2006 so we are seeing an upswing in interest in investment in the site which we haven’t seen since the recession.”

Moeller voted against the Water Street Flats and Family Dollar.

“I think now, whoever wants to buy a parcel, they’ll sell it to them,” Moeller said. “There’s no plan. They’re just desperate to sell it and that’s why I’m voting against it. And they’re not getting very much [money for the land]. Family Dollar, they got $50,000 for the land and they’re getting $200,000 for the apartment complex. That’s a long way to go to cover $32 million.”

Lange countered Moeller’s and other opponents’ of the projects opinions.

“I would say that when they see Water Street flats it will actually be a lot more attractive than people currently envision,” Lange said, “I don’t know what’s so critical about what the business is. Would I want all of Michigan Avenue covered in Family Dollars? No, but between those two projects, we will have generated $350,000 in saleable revenue.”

The investment in Water Street is slow. The debt is high. The recession derailed it. Even Lange admits the city will never make its money back, but the project is not dead. The project will not be the success it was envisioned to be, but the only way to march is forward.

“For us to survive, there has to be substantial economic development anchored by Water Street,” Lange said. “To the degree that we can get investment into the community and into Water Street, then our financial picture will get much better.”

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