Review of Cost of Unwarranted Debt Service

After I have a chance to do some updating with new information, I plan on posting, one by one, about all the TIF Projects and Bonds, a task I put on hold while other issues, such as the city manager search and the school bond, took precedent. I have already shared the whole thing with various people.

Since others have been citing my totals about how much is being drained from the budget to pay for unwarranted debt service for public works and development projects, let me briefly review how I have arrived at this total:

1) $650,000 debt service per year for the new DPW. The new DPW was supposed to cost little after sale of the old DPW, and we were told there would be no bonds. Once it was clear bonds were needed, city officials should have sought a debt millage (UTGO bonds) for a major public project and risked rejection by voters. The debt service is being laundered through the Garage Fund, funded by charging departments (police, fire, garbage, etc.) whose budgets are paid for by general fund revenues and solid waste millage.
2) $800,000 shortfall on debt service per year on Building Authority bonds for University Place, Colorful Garage, and City Center I parking garages. Self financing for these bonds is supposed to come from TIF on University Place, leases on city owned space, and net parking revenues. The largest portion of the shortfall is from the City Center parking garage, which is a good example of overbuilding capacity at great expense in anticipation of future expansion, instead of waiting for need.
3) $100,000 shortfall on TIF per year for DDA bonds for City Center I. This is a bit of a guess, but clearly City Center I did not live up to original plans when the bonds were issued and property values on the condos and commercial portions that were completed have at best stagnated, while TIF plans build in anticipated growth in property values.
4) $300,000 shortfall per year on debt service on HUD loan and Avondale Square bonds. City officials chose to allocate Community Block Grant funds for the HUD loan ($138,000 per year) to build a housing project that competes for homebuyers in a glutted housing market. Next year debt service on the Avondale Square bonds will jump to $193,000. TIF has actually been negative, because the properties were paying more taxes prior to being bought by the city than the few new homes are now. When the city sells a lot, about one a year, it receives $40,000.
5) Stonehouse Village (Albert Place) bond debt service is about $245,000 per year, with 2011-2012 TIF anticipated at about $100,000. There will probably be a slight increase in TIF next year, since a few more condos sold, although declining property values will eat into that. There was also a slight increase in parking revenues compared to previous lot. However debt service on the 2011 bond for parking repairs, necessitated because the parking system cannot cover costs, is $157,000. So, about $150,000 shortfall, accepting some parking system repairs as necessary, is a good approximation.
6) The real cost of the so-called Technology Innovation Center is about $225,000 per year. An incubator for technology start-ups with mentoring from existing business owners and community members in Hannah could have been done for little or nothing, instead of an expensive downtown renovation requiring bonds and a lease with Christman that is probably way above market rates. Accepting a slight subsidy for a legitimate incubator, this comes to about $200,000 in wasteful spending.
7) It appears, from The State News report that the city has made the bad decision of temporary refinancing of the BANs for the Evergreen properties. This will mean less debt service for the next three years, probably about $100,000 per year deficit after renting properties. However, in three years, when they have to refinance again, it will probably be at an interest rate at least 1% higher than current historically low rates with undeserved AAA bond rating. I anticipate debt service over the long haul will be at least $420,000 per year, if 30-year bonds.

How much unnecessary brownfields are costing is guesswork. The question is whether developers would have built anyway with no or fewer tax breaks if the city wanted to drive a hard bargain instead of helping developers maximize their returns. A wild guess, after the next slew of brownfields is completed is a waste of $500,000 per year.

The city is talking about cutting public safety – as far as I can tell the development agenda remains sacrosanct when it comes to budget cutting. Remember, downtown, which needs extra policing because of the bar scene, is only paying for public safety at the same amount as in 1991, because all local taxes above that go to the DDA. The DDA millage, intended for downtown maintenance is insufficient to cover costs, and it appears the DDA has no funds left for discretionary spending that could be reallocated to public services. The DDA TIF district to the west on Grand River dates to 1999 and last year it was extended along Grand River to Hagadorn. For now this latter expansion is moot, since it will be a while before property values increase to provide tax increment, but of course, with Cedar Village, this is an area notoriously in need of policing.

East Lansing chose to have ambitious city officials who engaged in real estate speculation and built public works unfunded through the debt millage. They also decided to turn downtown into something other than a hangout for student whether there was a market or not. We will be paying the price in high taxes for deteriorating services for years to come.
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