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The Water Street property in Ypsilanti.

(File photo | The Ann Arbor News)

Low interest rates are presenting an opportunity for the city of Ypsilanti to save around $3.7 million refinancing its Water Street debt.

That, combined with a $2.2 million payment from its savings, represents about a third of the approximately $20 million in principal and interest Ypsilanti owes.

The moves are part of the city's latest plan to address the debt, which requires annual payments of $1.5 million that will continue increasing in the coming years. The city's budget deficit is around $1.2 million, meaning Ypsilanti would have a surplus were it not for Water Street.

While the city always planned to refinance the debt this year, the rates dropped from 6.1 precent to 3.5 percent as it prepared to do so.

"This is extraordinarily good fortune for the interest rate to come down in our favor," City Manager Ralph Lange told Council during a presentation at its regular Tuesday night meeting.

That would leave Ypsilanti with approximately $14 million to pay off. Lange said the city also plans to continue making payments out of its general fund over the next 15 years to cover $2.8 million of that figure. He's also planning to find another $700,000 to pay toward the debt by the end of this budget year, and that will save the city an additional $300,000 in interest. Revenue from the sale of the Family Dollar property will be put toward the debt.

The sum of those measures would leave the city with around 52 percent, or $10.6 million, of the $20 million in debt, which officials are considering asking residents to cover with a 2.3-mill tax.

If approved, a homeowner with a property assessed at $50,000 would pay $115 annually, or $9.53 a month for the next 14 years. The question will likely go on the August ballot.

Lange stressed that the city isn't asking residents to pay down all the debt and is working to reduce the principal and interest.

"That millage is 52 percent, and we're covering 48 percent, so we're doing our fair share of this," Lange said.

Officials have also highlighted that a 2.3-mill road tax is coming off the books in 2017 so residents wouldn't see a net tax increase if they approve the proposed Water Street millage.

Council Member Pete Murdock said the plan is the best chance to "get the (Water Street) gorilla out of the room, and put it in the closet." He said he has been discussing the issue with residents, and regularly encounters a similar sentiment.

"What I get a lot of is 'I'm tired of hearing about your damn Water Street debt.' That's kind of true. It dominates all our discussions," Murdock said. "It has for the last half-dozen years, and it influences our decisions dealing with city services, parks, roads, so we need to get it off the table so it's not a dominating issue."

Mayor Pro Tem Lois Richardson praised staff for their work and echoed Murdock's thoughts.

"Hopefully our constituents will see we're trying and it's crunch time. We need to do something about Water Street," she said.

Ypsilanti bonded to purchase the 38-acre property, which sits just east of downtown, in 2003. City leaders behind the move envisioned it filling with mixed-use developments that would essentially extend downtown east, and the tax revenue generated by those projects would pay down the $30 million in bond debt.

But the real estate market crashed, development never came and Ypsilanti will continue paying up to $1.7 million annually toward the bonds through 2031.

By a wide margin, voters rejected a proposed Water Street debt retirement millage and city income tax increase in 2012. No income tax is now proposed, and the proposed millage rate is about half of what the city asked residents to approve in 2012.

Tom Perkins is a freelance reporter for The Ann Arbor News.