City Still Shirking Responsibility for Financial Woes

I looked at the PR for public input on city financial woes, and it appears they still want to blame others, without acknowledging any financial mistakes by city government. These mistakes, some outrageous, have come at a cost of tens of millions of dollars. Even if what is done cannot be undone, unless city officials are willing to admit these mistakes and take measures to prevent recurrence, they have and will recur.

1) More than $50 million in unfunded debt service for the DPW building, City Center II Evergreen properties, parking structures that were running more than $1 million a year revenue shortfall, Avondale Square, etc. I have provided ample documentation in the past. Issuing bonds for a state-of-the-art DPW building without seeking a voter-approved debt millage, months after promising no bonds if voters approved sale of the old DPW building, was pure hubris. The Evergreen properties were bought for 3 times market value when the economy was in free fall and the developer’s track record increasingly exposed. There are no excuses. The Division St. and City Center parking structures are more complicated. They were built with an "if you build it they will come" expectation that never materialized. But there were also unnecessary deep discounts on permits to help developers (not to be confused with helping small businesses owners). Avondale should have been aborted when HUD refused to offer a grant, and instead there is a loan that could become a worse drain if CDBG funds are significantly cut or eliminated.

2) DDAs were never supposed to last more than 20 years. Instead EL DDA has become a permanent welfare state, still only contributing taxes for public safety at 1992 level, with no end in sight. A decade ago, annual tax diversion to brownfield projects (BRA) was in the tens of thousands. Now it is about $1 million, not including the pending Lot 1 diversion. East Lansing gave away twice the taxes to Costco (which didn’t ask for a tax break until late in the game) than Meridian.

The way brownfield redevelopment is supposed to work (it is a version of supply side economics) is a small amount of tax giveaway is supposed to stimulate massive taxable redevelopment. East Lansing has chosen an approach that anywhere city hall would like to see redeveloped should not have to pay taxes. They do not know how to drive hard bargains, since city officials want new buildings on their watch and are foxes guarding the henhouse. There is no interest in the basic principle that the level of tax incentives should be commensurate with the level of public purpose.

Despite years of public outcry, city hall still does not take seriously that development projects, especially residential and liquor based, require public services that other people have to pay for. There might be some lip service to reversing the redevelopment is free ideology, but there have been no institutional changes and no fundamental admissions they have been pursuing a failed ideology. Just look at the feeble attempts to claim new revenue for the Lot 1 project.

All East Lansing brownfield projects have been “redevelopment government wants to do” not “redevelopment government has to do,” as with true blight or former industrial sites. The City Center II blight was caused by the endless pursuit of City Center II, and the unwillingness to let go and condemn the buildings, years before that was finally done.

To be effective, tax incentives should be a last resort and kept to a minimum. East Lansing has chosen to use tax incentives as a first resort and persistently gives away taxes for up to 30 years. The result has been to prevent taxable redevelopment, because what developer would pass up an opportunity to avoid paying taxes. City hall has taken a social engineering, public works, approach to redevelopment (which has failed miserably at producing uses other than what developers would do with no incentives: high cost student apartments and bars), instead of seeing tax breaks as a form of investment.

3) Lot 1 can be valued at $18 million, based on $9 million value of the private Center City properties. Even if that figure might be a little high on the open market, commercial real estate brokers have consistently said it could have been sold for $10 million - $20 million, if city hall had followed the city charter and asked voters to approve a sale, with a minimum price and conditions (notably no tax breaks). Instead it is being leased, an end-around the charter, at $200,000 per year, and they originally were going to ask $75,000. (Years ago, we discovered through FOIA, an attempt to transfer Lot 1 to the DDA to get around the charter.) Even in the unlikely event that they really bring about 100 seniors to live downtown while adding more than 400 high cost student beds, who outside city hall thinks this is a good use of what was probably the city’s most marketable asset? (Many communities are looking at selling properties to help pay for legacy costs, although this is very controversial.)

4) The pursuit of public-private development has generated enormous soft costs: staffing, hiring consultants, etc. City government talks about cutting public services homeowners care about, but significant cuts to planning and development, public relations, etc. are not prominently on the chopping block. DDA and BRA hold many meetings, most of which are attended by several staff. A No New Projects or Programs for DDA and BRA would reduce them, and staffing needs, to the equivalent of the Building Authority (meets once a year to pay old bills). And there is really no excuse for hiring a consultant because a developer wants to keep secrets to which he is not entitled.

Eliot Singer