Voters Consider Cost to City from Park District Projects

Image above: Plan rendering provided by DTN, looking west across Abbot Road from above City Hall toward Valley Court Park. The largest building is a planned 7-story parking ramp with a 10-story building wrapped around it. (This does not show the entire Park District area plan.)

What would a “yes” vote on the parking lot sales ballot question mean to East Lansing residents in terms of changes to our city’s debt and our city’s real estate tax revenue? That’s a question on the minds of many East Lansing residents as they go to the polls.

While financing plans are not yet finalized, considerable information is available from documents of the City and DTN (the developer) and from explanations given by City staff at recent public meetings about the Park District. This article summarizes that information.

Some voters assume that sale of City property means straightforward income for the City, and that large-scale redevelopment means substantially more tax revenue, but it isn’t that simple. That’s because of the way the financial deal with DTN is being structured. For as many as three decades, DTN would get back a lot of tax money that would otherwise go into our City’s general fund. The City also expects to take on new debt as part of the project, because it has to commit to build significant parking and other infrastructure. The City will also see income from the project in the form of new parking revenues.

So what’s the bottom line? At the present time, analyzing figures provided by City staff, it appears that the DTN project plan is likely to relieve the City of some property-related debt but also add significant new debt. Overall, the financial impact is likely to be a net increase in total debt for several decades, before we see any increase in tax revenue for our general fund from the development.

City staff and some Council members who support the project believe this project is what is needed to improve the west end East Lansing’s downtown – to make it more dense, more walkable, and more attractive to commercial and office users. And they believe that tax incentives are a good way to finance such downtown development. Some opponents are concerned about the impact on the City’s debt, which is already considerable, and the City’s continued offering of large tax incentives without sufficient scrutiny.

Now let’s look at the details. First, if the development deal goes through, what public properties will be sold, and how will they be paid for?

Based on information from the City Planning staff, the City hopes to sell two types of property to DTN. One involves the parking lots on the ballot. The two lots on Abbot Road (#4 and #15) have a total appraised value of $920,000 – the approximate amount DTN could pay to the city to buy them.

The other type of property the City hopes to sell to DTN is property located along Evergreen Avenue. This includes five buildings (four houses and a mixed-use building) technically owned by the East Lansing Downtown Development Authority (DDA). The DDA currently owes about $5.6 million from its purchase of these properties several years ago, as part of the failed City Center II plan. These properties make up part of the 1.6-acre footprint of the proposed building for a parking ramp and other commercial and residential uses. The DDA will aim to sell these properties to DTN to pay the outstanding DDA debt. (These properties do not require ballot approval to sell because the state statute creating DDAs gives them authority to buy and sell property without citizen approval.)

But would DTN really end up relieving us of the costs of these properties?

Tim Dempsey, Director of City Planning, Building, and Development, has said that the developer’s cost of purchasing publicly owned land is an “eligible expense” that can be included in a Tax Increment Financing (TIF) plan. In other words, DTN could pay the City about $920,000 for the parking lots but would then be reimbursed for this amount from its future tax revenues that otherwise would go into the City’s general fund. The flow of funds in this way was discussed by Dempsey at the event on the Park District hosted by Prime Time Seniors’ Program on October 20.

A “Preliminary Financial Overview” submitted by DTN in June 2014 suggests that this could happen with the purchase of the DDA properties, as well; the document shows expected land costs of $8.45 million and expected “tax capture” of $8.5 million. (These estimates certainly could change.) This suggests that DTN expects to be reimbursed out of future taxes for all the money they pay to buy City and DDA properties. This would happen under a Tax Increment Financing (TIF) plan, wherein reimbursements or “tax capture” comes from the portion of taxes that are owed on the increased value of properties due to redevelopment.

Not only might the City relinquish a large percentage of tax revenue from this new project under a TIF plan, which City staff says will probably last 25-30 years, City staff expect the City to take on significant new debt for this Park District development project. That’s because the City plans to fund some or all of a proposed seven-level parking ramp included in DTN’s proposal. The 709-space ramp is expected to cost the City somewhere between $12.8 and $15.4 million (based on the City’s estimate of $18,000 per space or DTN’s estimate of $2.2 million per level, respectively).

Dempsey and City Finance Director Mary Haskell explained at the City’s October 15 open house about the Park District that the debt service on bonds issued by the City for the parking ramp would be included in the TIF plan, so some of each year’s tax reimbursement would go to DTN and some would go to the City to finance the parking ramp. Again, this means that new tax revenue that would otherwise benefit the general fund will be channeled right back into this particular project, leaving the rest of the City with no increase in tax revenue from the new project—but for decades saddling the rest of the City’s taxpayers with the costs of providing City services to the large development (including police, fire, sewer services, and so forth).

The City also expects that about $4.5 million will be needed to pay for infrastructure improvements and the realignment and extension of Albert Avenue—changes required by both the DTN project and a separate proposal for development of privately-owned property in the Park District that is not affected by the ballot question. These costs will also need to be financed, probably through a separate TIF plan with the other area’s developer.

This article focuses on the economics of this particular project. If you’d like to see information about the design of the project we’re talking about, click here and focus on the material about DTN’s proposal. The City’s FAQ on the Park District is available by clicking here. You can also visit DTN’s website for the developer’s presentation. If you’d like to read more about the City’s overall $186,000,000 debt, click here. For the City’s handout on financing of the project area, click here. If you’d like to read about why the blighted corner at Abbot and Grand River is not part of DTN’s project proposal, and see a video showing you exactly which properties we’re talking about, click here.