Housing development slowdown leaves suburbs to pay for new infrastructure

When Howell Township borrowed money for water and sewer lines several years ago, the economy was booming, houses couldn't be built fast enough and the township had every reason to expect its investment would be paid back with additional property taxes and utility fees. Then the economy collapsed, and the rest is well-documented history: The developers never built the houses and there was no additional revenue. Similar stories are playing out in many other southeastern Michigan communities that went through the building boom and bust. Many communities put in roads, sewers or water lines during the housing boom as a way to attract development. Today, those infrastructure loans still have to be paid and, in some cases, cash-strapped communities are passing those costs back to taxpayers. Howell Township is asking voters in November for a 3.5-mill property tax to repay the water and sewer loans. It's the township's second attempt at the millage; voters turned it down by a margin of more than 4-to-1 in August. It would cost an additional $350 a year for a home worth $200,000. William Ketchum lives on Henderson Road, where sewer lines were installed several years ago. "The entire area just went nuts for a while," Ketchum said of the building boom. "It seemed unrealistic that it would continue, but everybody kept jumping in. You had to believe there was an end in sight, but no one knew where that was." Ketchum said he's more fortunate than some of his neighbors, because he's far enough off the road that the township is not forcing him to pay for sewers he doesn't use. "There's a whole lot of people who aren't happy," Ketchum said. "It isn't just the millage; it's also the fact that they're going to be forced to hook up." Neighbor Lucille Morrison pays $50 every three months for a sewer system that's not even hooked up to her home, which has its own septic system. "It doesn't matter whether you use it or not, you pay," Morrison said. "I don't like it. I'm on a fixed income." Paying the price Homeowners in Washtenaw County's Sylvan Township are faced with a 4.4-mill property tax to help pay off a $13-million loan for water and sewers for two developments: a 350-unit condominium community, of which only about 50 were built, and 350 houses, none of which were built. The millage, which passed by seven votes in the August primary election, adds $440 to the yearly property tax bill for a homeowner with a $200,000 house. Years ago, the developers used a lawsuit to force the township to put in the water and sewer infrastructure, said Supervisor Robert Lange. The township tried to hook up to another community's sewers, but the developers wanted a dedicated system, he said. Then the developments went bust, and the township was stuck with the bill. "There's no way we could pay for these bonds" without the millage, Lange said. What does he think of the situation? "I don't think you can print it," Lange said. Not only do many communities owe for bonds they took out to finance water lines, sewers or roads, they also may owe their county money if a developer didn't pay property taxes. Many cities and townships dipped into their county's delinquent tax revolving loan fund to keep the cash flow going as developments were going bust, Oakland County Treasurer Andy Meisner explained. Their plan was to repay the loans once the county collected the taxes or the properties went through tax foreclosure and were sold at a county auction. The problem was, in many instances, the properties didn't sell at auction, and the taxes went unpaid. The properties then reverted back to the city or township, which now has to repay the county loan fund. Such is the case in Sylvan Township, which is faced with repaying both the infrastructure bonds and the county's revolving tax fund. Relief in sight? Some communities have been cutting expenses and services to keep paying for their unused infrastructure debt. "They put in infrastructure; it was backed by bonds, and that money went south," Tyrone Township Clerk Keith Kremer said of his Livingston County community's $18-million sewer system. The township had 10 housing starts this year, a hopeful sign because that's more than in previous years. But at that rate, it will take a long time to build out all its sewer capacity. Officials have cut expenses -- and employees -- so the township, south of Fenton, could keep paying its loans. The township will probably end up loaning its sewer fund $4 million-$6 million from its general fund, Kremer said. Other communities are hoping the housing market turns around in time. Hartland Township borrowed $27 million for sewers that were never fully used. About $2 million worth of those properties are now owned by the township because the taxes weren't paid. "We know we have enough cash right now to make the bond payments for the next five years," said township Manager James Wickman. It can also sell some of the property it has acquired through tax foreclosures to raise money. "We're seeing (housing) sale prices increasing, and they have been for a little while now," Wickman said. "There are positive moves in the market. Nothing dramatic, nothing to make you think the heyday is back, but it's a step in the right direction." Lyon Township officials said they are on their way to a rebounding real estate market in the southwestern Oakland County community, with 200 housing permits last year, the most since 1998, said Supervisor Lannie Young. The rebound comes just in time. The township borrowed $21 million for sewers during the housing boom, most of which went unused in the housing crisis, Young said, adding that taxpayers are unlikely to approve a tax increase to make the loan payments. "It's not the general public's problem," Young said. "But by now, we're pretty well tapped." Young has also been contacting other developers about buying undeveloped property. "It's been a juggling act for two or three years," Young said. "I think one more year, and we're out of a mess that looked pretty bleak a couple of years ago." Macomb Township was another community where many houses were built during the building boom. After the bust, there were three subdivisions where infrastructure was built and never used. But in that case, the township required developers to pay for the infrastructure, said Supervisor Mark Grabow. Consequently, the taxpayers weren't left to pay the bill, Grabow said. Lessons learned After being burned by the housing collapse, communities may become less willing to front the money for water, sewers and roads for proposed developments. "That may be one of the takeaways, one of the teachable moments," Meisner said. "This is an unintended consequence that is a very real, very long-lasting and very expensive consequence." Now, Meisner has advice for local governments: "Let's be real careful when we approve these. It can become a long-term liability for the local government." More Details: Why development forecast changed In 2008, the Southeast Michigan Council of Governments predicted the exurbs — the outer-ring suburbs of metro Detroit — would be filling up with houses and development by 2035. The subsequent stock market and housing crashes, however, changed that picture so dramatically that when SEMCOG released its latest forecast in March, out to 2040, the agency predicted that exurban growth would not materialize after all. Instead, SEMCOG predicted that housing foreclosures, coupled with a forecast of fewer jobs and, consequently, fewer people in southeast Michigan, would erase the demand for more houses in the outer suburbs of Wayne, Oakland, Macomb, Livingston, Washtenaw, St. Clair and Monroe counties. SEMCOG releases a new forecast about every five years. The agency said its previous forecasts have been accurate within 1%-1.5%.