Water Street FAQ

Learn more about the Water Street Millage property tax increase on the August 2nd Election in the City of Ypsilanti

What exactly is the tax proposal on the August 2 ballot?

A property tax increase of 2.3 mills, to retire the debt from a development project called "Water Street."

What is Water Street?

"Water Street" was a city-sponsored development project that bought and cleared business properties 20 years ago, to create what is now the empty field just east of City Hall. This cost nearly $30,000,000 (around $750,000 per acre), under terms that guarantee repayment to bondholder investors at the expense of city taxpayers. It is still considered "an investment in the future" by diehard supporters (a dying breed). In the words of one sitting Council member, "we wouldn't be discussing additional taxes if Water Street did not happen."

Wasn’t Water Street supposed to pay for itself?

That was the original promise. Former Mayor Cheryl Farmer, one of the architects of Water Street, repeatedly said that no city taxpayer money would ever be spent on Water Street. To date, the City has spent nearly $9 million of property-tax revenues on Water Street debt alone, and owes $14.5 million more. More precisely, the City doesn't owe the money – we do. That is because our city leaders pledged the full faith and credit of Ypsilanti taxpayers to bail them out if this project failed. It did.

Briefly, what are the arguments against higher taxes?

  • Higher taxes drive down property values and erode the tax base.
  • Property taxes are regressive, driving up living costs for low- and moderate-income families who rent and pay non-homestead property tax rates.
  • Higher taxes discourage investment in the city.
  • The millage increase is unnecessary: property-tax revenues are climbing, and City Council continues to spend millions on non-essential projects.
  • This proposal is not about ensuring sound city finances; it is about freeing up money for hobbyhorse projects and tax breaks for developers.

How do taxes in Ypsilanti compare with other cities?

Ypsilanti has the highest property taxes in the county, and the 7th highest in the state, placing it in the top 1.5%.

Currently, it is 67.63 mills for homeowners and over 85.63 mills for non-homestead and business properties, including rentals. That is $6,763 for personal homes and $8,563 in annual taxes per $100,000 of taxable value.

By comparison, Ann Arbor is at 47.83 mills for residential homes and 61.45 mills for businesses, nearly 30% lower than Ypsilanti’s. Consequently, Ann Arbor properties appreciate more and better retain equity.

Taxes have increased by 22% since 2007. That is $800 more per year, for a typical house with a taxable value of $75,000 (new purchase price of $150,000). This increase occurred DESPITE THE DEFEAT of similar tax increases sought by the City in 2007 and 2012.* This is an unsustainable trend that must be stopped.

 * Due to new regional taxes and automatic (no-vote) increases to cover public-employee health and pension costs.

How would the proposed taxes affect homeowners?

In addition to the immediate loss of disposable income, higher taxes diminish home equity and the ability to sell, refinance, or take out home-equity loans. Housing values drop as sellers reduce asking prices, to compensate for higher taxes than those paid when selecting a comparable house elsewhere. At current bank rates, a 1-mill increase in taxes would cause an immediate 0.96% loss in home value (equity). That means a home with a market value of $150,000 will lose about $8,000 in value if all 5.6 mills of city, school, and county taxes proposed for 2016 pass (one already has). That’s $8,000 no longer available for retirement, college, or home improvement.

How would the proposed taxes affect renters?

Property taxes are regressive, affecting renters more than homeowners. That is because rental properties pay non-homestead taxes – about 27% higher – that are then passed on to renters.

In simple terms, rent can never be less than property taxes. As tax increases, so does rent. Landlords can also compensate by offering shabbier products; or just get out of the business entirely, which reduces affordable housing.

Higher rents create a strong incentive to seek less-expensive housing elsewhere, such as in Ypsilanti Township, 5 minutes away. The loss of this mobile population would have numerous negative effects on the community, especially on small businesses.

How would the proposed taxes affect landlords?

Higher property taxes increase the cost of operations. Landlords pass on this cost by increasing rent, or defer improvements to compensate by cutting costs. Costs that cannot be recovered reduce the return on investment. A lower return decreases the value of property, just as the stock of an unprofitable company loses value. The result: less equity, less buyer interest, and ultimately less tax revenues for the city.

How would the proposed taxes affect younger families and newer residents?

Relatively recent homebuyers would shoulder the brunt of the proposed taxes. Their taxable values are relatively higher than long-time homeowners, who benefit from Proposition-A caps on annual hikes in taxable value. Higher taxes exacerbate the troubles of "underwater" homeowners, by making it even less viable to refinance or sell. Young families are important to sustain a vibrant community, and our tax policy should reflect that.

How would the proposed taxes affect the retired and senior citizens?

The new millage would have less impact on long-time residents with taxable home values capped by Proposition A. On the other hand, many seniors rely on their homes and investment properties as a retirement nest egg. Seniors would see the value of their asset dwindle, as new buyers avoid buying in Ypsilanti, which already has among the highest taxes in the state. Also, seniors would still suffer the other negative effects of higher taxes described elsewhere in this FAQ, including the flight of the younger demographic that is vital to a healthy community.

How would the proposed taxes affect businesses and employees in Ypsilanti?

Higher taxes would increase costs, thereby reducing profitability, and giving businesses less incentive to operate within the city limits. Businesses and property owners who can leave the city, will. Most large employers have already left, prompted by the ever-higher costs of staying in Ypsilanti. Let’s bring them back with good tax policy.

Isn’t property-tax revenue needed to ensure proper rental inspections?

The housing inspection program is fully self-funded through inspection fees charged to rental property owners. General tax revenue is not used for inspection programs established to protect renters.

Is SCIT trying to avoid paying the Water Street Debt?

Of course not. No one disputes that the Water Street debt must be paid. SCIT just wants it paid within budgetary limits. The debt payments are under 3% of the total City budget, so this seems reasonable. People who “don't want to pay the bill” are mythical creatures invented by the pro-tax YES side. If you find one, call the circus and make a fortune!

How does the current City Council stack up in terms of financial responsibility?

Some say that the Water Street fiasco was caused by the bad decisions of past, not current, members of City Council. That is true, but the current City Council shares many of the same fiscal habits.

In just the past year, City Council bought a $1,200,000 pedestrian bridge, spent $600,000 for a trail (then closed it to the public), committed $2,000,000 for a train platform, and gave a developer up to $750,000 in tax breaks.

Not long ago, City Council also decided to pay city employees at above-market rates. This includes seasonal teenagers at the public pool, raising labor costs there by over $6,000 per year. While small relative to the overall budget, it illustrates the mindset at City Hall.

Worse, with just over a week before the ballot date, City Council doubled down by selecting a design for its $2 million dollar train project – not knowing where the money will come from. Will this be the next Water Street?

These are the people asking for more of our money today.

Will the City of Ypsilanti go bankrupt if the Water Street Millage fails?

No. Even the City’s own worst-case numbers show Ypsilanti solvent until 2022, without passing the millage. And that is coming from the side with an interest in making the situation look dire.

Property-tax revenue is growing at a faster rate each year, and there are still savings to be had. This bodes well for the revenue-expenditure balance in the future.

Even if the doomsayers were correct, insolvency does not come overnight, nor does bankruptcy or an emergency financial manager. If it came to that, there is always an opportunity to negotiate and/or pass additional taxes within months. Better to ride out the current positive trends, than risk equity destruction and stall revenue growth.

Will they really cut police and fire services?

The idea of cutting police and fire services is a cheap trick to scare people into handing over their wallets.

Similar threats were made in 2007, when the idea of a city income tax was first raised and soundly defeated. No public-safety disaster came to pass. Tax proponents tried scare tactics again in 2012, and again voters emphatically rejected a debt-millage and income-tax proposal. In recent years, the City has actually expanded both the police (8% more officers since 2013 - Source: City Report 07/21/16) and fire departments with new hires, and Ypsilanti now is safer than ever.

Of course, Ypsilanti’s City Council could cut public-safety positions to free up money for pet projects. If they do, you have the power to send them packing. Remind them. There are better ways to control costs than public-safety cuts, as described elsewhere in this FAQ.

What about other dire consequences raised by the pro-tax side?

It’s no fun to govern without sexy “legacy” projects, and City Hall wants to scare you into paying for them.

In just the past year, the City has bought a $1,200,000 pedestrian bridge, spent $600,000 for a trail (then closed it to the public), committed $2,000,000 for a train platform, and gave a developer up to $750,000 in tax breaks. A few years ago, it also decided to pay city employees at above-market rates (including seasonal teenage workers at the public pool.)

While the fiscal situation is challenging, the debt can be managed without higher taxes, especially as property values (i.e. tax revenues) continue to climb. According to the City, downtown Ypsilanti's property value jumped from $13.2 million to $21.5 million between 2010 and 2015 – a 62% increase! Revenue trends are strong.

In short, Ypsilanti has a priority problem, not a revenue problem. Address the priorities, and the dire consequences go away.

So what are the risks of a “NO” vote?

There is almost no risk in voting “NO,” even if you believe the exaggerated concerns of the pro-tax side. Taxes could always be raised, within months, if the dire predictions of the YES side somehow came true. In the meantime, it’s better to act on actual evidence, and not decide based on conjecture.

Further, there is no scenario where rejecting the Water Street Debt Millage will bring bankruptcy or an emergency financial manager – Ypsilanti is not insolvent without this tax. Water Street debt payments are less than 3% of the total budget, a manageable amount. To the contrary, there are serious risks in voting “YES,” which could not be walked back so easily. Voting “YES” will:
  • Reinforce unwise spending habits at City Hall.
  • Limit financial flexibility of Ypsilanti to address unseen emergencies, by maxing out the millage cap.
  • Discourage people and businesses from locating in the City of Ypsilanti.
  • Undermine affordable housing by driving up costs and discouraging investment.
  • Reduce home equity, thereby diminishing retirement savings and financing options for homeowners.
  • Increase rents, exacerbating the burden of regressive non-homestead property taxes.
  • Threaten the tax base and future sustainability, by derailing the rise in property values and tax revenue.
Remember, Ypsilanti taxes rank #7 in the state - in the top 1.5% - and have increased 22% since 2007. Any higher, and the City risks a downward spiral of business and population flight.

Please join us and vote “NO,” to keep the City of Ypsilanti vibrant, livable, and strong!  

What are some of the alternatives to higher taxes?

Additional tax only enables poor practices to continue. Rejecting the Water Street Debt Millage will force Ypsilanti City Council to focus resources on basic city services and infrastructure, not feel-good or “legacy” projects.

The best way forward for Ypsilanti is to manage the budget and take advantage of favorable economic conditions. This is reasonable, given that the proposed debt millage represents only about 2% of the overall budget.*

Property values are growing. In the downtown alone, value increased by $8.2 million in the past 5 years (62%), and shows no sign of slowing. This trend is seen citywide. Good real estate turnover brings in new property owners at higher taxable values, meaning more revenue for Ypsilanti. The Water Street millage would derail this momentum. We are enjoying a virtuous cycle, and would be wise to ride it out.

There are other revenue sources as well, such as grants. City Hall says these have dried up, but new opportunities arise every day. Redirecting staff-hours and political resources from ill-advised development projects would allow us to exploit them. Ypsilanti could also sell its unused real-estate assets – even at bargain basement prices – to put them on the tax rolls and bump revenue (eliminating maintenance cost at the same time). And, Ypsilanti has enjoyed great success in improving quality of life in cost-free ways, through community-spirited volunteerism, such as maintenance of local parks and recreational facilities. People resources are key.

If revenue growth is not enough, city officials can do what responsible adults do when managing personal finances: do not spend money you do not have, and cut costs where necessary and appropriate.

Some approaches to optimizing resource expenditures might include:
  • Put non-essential projects on hold, including “matching fund” projects that cannot be afforded.
  • Reconsider the Development Authorities, which transfer general-fund money to special-interest projects.
  • Adjust public-employee benefits, by adopting the cost-efficient models used by most companies.
  • Coordinate the duty schedules of public-safety personnel for maximum efficiency.
  • Consider professional-supported part-time or volunteer firemen, as used in other cities of similar size.
  • Allow police-supported private security at major events, to reduce labor costs.
  • Seek regional cooperation in providing public-safety, for savings from economies of scale.
  • Eliminate functions not essential to city operation, such as directing economic development.
The alternative to higher taxes is to allow revenues to rise naturally, and manage the resources we have. This will create a virtuous cycle of property-value and revenue growth, while protecting people of limited means.

* City of Ypsilanti Water Street Fact Sheet (May 11, 2016): Water street millage would collect $667,000 per year.   Ann Arbor News (June 22, 2016): Ypsilanti City budget for 2017 is $32.3 million.

What about developing Water Street to raise revenue?

There are a number of obstacles. In the past, Water Street supporters emphasized the weak economy and poor real-estate market as the reasons development failed. Now both the economy and real estate are strong, but there are still no good prospects. Obstacles include unrealistic restrictions on would-be investors, prematurely enthusiastic investment in untested projects, and site contamination.

For example, a fast-food restaurant and grocery store were rejected as Water Street projects, for "not fitting the vision." Two other developers were run off by City Council when they said was unrealistic to demand only particular types of housing, and prohibit businesses along Michigan Avenue. City Council has spent hundreds of thousands of dollars on endless planning, and rigidly specifies not only the businesses it will accept, but even the number of parking spaces or color of stucco on the walls. Given this "we know best" attitude, the only buyer Ypsilanti has found after 11 years of trying is a Family Dollar store, which City Council approved over the objections of many city residents.

Even if City Council relaxed its aesthetic requirements, what developer in the world would select land at 85 mills, when it can build in Ann Arbor at 61 mills?

Finding no private buyers, the City argued that even a government building that produces no property-tax revenue might enhance the vacant lot and increase consumer traffic downtown. Plans for a county recreation center were announced, and work began on a new $1,200,000 bridge and a $600,000 walking path as part of a Border-to-Border Trail connecting Ypsilanti and Ann Arbor. After the City paid another $50,000 for environmental testing, the recreation-center plans were shelved, and the walking path was closed, due to unsafe levels of contamination on parts of Water Street.

Such “shoot-ready-aim” tactics make it difficult to credit the “we know best” attitude, and suggest that today’s City Council has not learned from the mistakes of the City Council who began the Water Street project two decades ago.

Why is the election being held in August and not during the general election in November?

City Council says the sudden ballot measure is needed to quickly clarify available revenues for budgeting.

Another theory is that the summer timing will allow dedicated proponents of higher taxes to pass the measure before the general population gets wind of it. Placement on the August ballot also avoids reminding voters of other new taxes likely to appear on the November ballot (specifically, a new road millage just approved by Washtenaw County Commissioners).

In any case, Ypsilanti City Council is hoping for low voter turnout in August, in a desperate bid to raise taxes for Water Street… for the 4th time! With a 2-to-1 margin, voters soundly rejected the last Water Street millage and two attempts for a City Income Tax. The voice of the people is clear, but City Council isn’t listening.

Are there forums where we can get more information?

There are occasional question-and-answer sessions with representatives from City Council, often advertised on Facebook or in neighborhood emails. While these can be informative, be sure to consider the source. These forums are typically not opportunities to share your ideas or make suggestions. They are designed to convince you that you have no other choice, and to scare you into voting for higher taxes by threatening to cut public safety services.

Please note that forum organizers often support new taxes and have a vested interest in collecting more. For example, a Development Director will want money for development (and his or her job), not just basic services. Council members often sit on the organizing committees for supporters of higher Ypsilanti taxes. As a result, these forums offer little opportunity for others in the community, including SCIT, to discuss the negative impact of higher taxes, or to offer counterproposals.