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U-M amasses more land

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U-M amasses more land

But university has sold enough sites to create $2 million increase in city's tax take Sunday, September 19, 2004

BY DAVE GERSHMAN

News Staff Reporter

The University of Michigan has added about 230 acres to its tax-exempt property holdings since 1990, but the university has also sold some high-profile parcels that helped local governments net an annual increase of almost $2 million in local taxes.

County real estate records show that U-M has purchased more than 40 properties since 1990, taking a total of about 316 acres off the tax rolls.

But in that same time period, U-M also sold seven properties totaling 86 acres, including two large parcels to Pfizer, the pharmaceutical giant.

The taxes paid by Pfizer and the new owners of the other former U-M properties more than offset the loss of taxes on the land purchased by the university.

Ann Arbor city officials have long complained that every property bought by the university - it now owns about 15 percent of the land within the city limits - reduces the local tax collections that support city services. City officials over the years, including current Mayor John Hieftje, have suggested that U-M provide payments to the city in lieu of taxes to help with city services, such as fire protection, that benefit the university.

University officials are sensitive to the charge that U-M regularly gobbles up property around the city, sapping the tax base. They say their purchases have been selective, and they point to the property they've sold as more than balancing the tax equation. They note they've also written numerous big checks to the city for various projects.

A review of county real estate records by The News shows that local tax collections connected to former U-M land holdings have increased significantly in recent years. Despite U-M's steady purchase of property near its campus in Ann Arbor and in several places away from campus in neighboring townships, the university has sold enough other property that local tax coffers netted $1,954,688 more in 2003 than in 1990.

Buying vs. selling

The deals break down this way: Since 1990, U-M has acquired 45 properties that reduced local tax collections by about $1,572,281. Many of those acquisitions were single lots, often containing an apartment house, to make way for improvements on and close to the central campus. But a few were large-profile purchases, such as the Wolverine Towers office building, 3001 S. State St., that U-M purchased in 1992, and a portion of a large technology park in Ann Arbor Township that is being used by the health system.

The tax loss from those purchases, however, was less than the taxes gained after U-M sold seven properties, which were taxed at a collective $3,526,969 last year. Of that amount, the biggest tax generators were two parcels of land, totaling 65 acres, sold to Pfizer in 1991 and 2002 for its research facility in the area of Huron Parkway and Plymouth Road. Last year the company paid $2,645,954 in taxes, excluding personal property taxes, on those 65 acres, city records show. Another large sale was to a developer for University Commons, a condominium community along Huron Parkway that is home to retired U-M faculty.

Expansion concerns

Even though the tax receipts outweigh the tax losses, the creeping expansion of the university is still an issue for city officials. Aside from concerns over taxes, the university has been accused of changing the character of city neighborhoods as it expands into them. And others complain that the university doesn't have to abide by city regulations on historic districts or limits on the scale of new construction.

"Every time the university buys a piece of property," said Hieftje, "it's taking something away from the citizens of Ann Arbor."

Henry Baier, associate vice president for U-M facilities, said the university has acted with restraint. In building new research facilities, for example, Baier said U-M has sought to expand the edges of its existing campus, or knock down old campus buildings and replace them with denser development. Examples are the construction of the biomedical science research building that's going up at the corner of Huron Street and Glen Avenue and the Life Sciences Institute and its companion buildings off Washtenaw Avenue.

"We get inquiries of whether we want to buy property in all kinds of locations in Ann Arbor," he said. "Overwhelmingly, we are declining to purchase those properties because we are not looking for that type of expansion into the community."

In some cases, though, the university seizes the opportunity to buy properties adjacent to its existing facilities without an exact plan for them; its aim is to preserve options for the future. A case in point is the purchase of much of a small neighborhood in the area of Wall Street and Maiden Lane, near the Kellogg Eye Center, for use by the health system, a major engine of U-M's growth.

In that area, U-M bought 11 properties that are now used as parking lots; eight modest homes were demolished and three were moved.

The university also became a landlord when it purchased a small apartment building at 1035 Wall St. About half of the nine rental units are reserved for cancer patients who need to frequently visit the hospitals, and for a live-in caregiver. The rest of the units are rented at market rate. A one-bedroom apartment costs $700 a month. A two-bedroom costs $845 a month. Vacancies are advertised in the student newspaper, but renters don't have to be affiliated with the university to sign a lease.

One of the tenants, Carletta Craig, works at the health system, where she heard about a vacancy from a co-worker. She has lived in the unit for more than a year and is delighted with its location.

"The people here are nice, the area is nice," said Craig, who lives in the apartment with her daughter. "It's peaceful. I've never had a problem."

Medical center needs

The properties in the Wall Street area were attractive to U-M because of their proximity to the medical campus. The Kellogg Eye Center, which one day could be expanded, is across the street.

"We're analyzing the potential of the Wall Street area and we haven't formed firm plans," said Dr. Robert Kelch, U-M's executive vice president for medical affairs. "It would be, geographically speaking, a logical expansion of the medical center."

The health system has sought to make its services more convenient by buying two properties near the freeway, on Briarwood Circle. They are used for outpatient clinics in family medicine, and adult physical medicine and rehabilitation. An office building at 2850 S. Industrial Highway was bought for use as an orthotics and prosthetics center.

After some difficult financial times in recent years, the health system ended its fiscal year in June in the black, but it continually must reinvest in its facilities as health care demands evolve, Kelch said. To stay afloat in the marketplace, the hospital system must expand to compete in the regional health care market, he said.

U-M's contributions

All that growth does come at a cost, local officials say. But James Kosteva, U-M's director of community relations, said U-M knows it has an interest in the city's welfare. Among other things, it lets the city use a building free of charge for a fire station on North Campus, it pays half the costs to resurface streets next to campus, and it pays $323,000 annually to the Ann Arbor school district in recognition that some of its graduate students have children who go to the local schools. U-M says it also helps out with one-time costs, such as paying for two city fire trucks and defraying the cost of a city infrastructure study.

Hieftje said there's no question the university is a "wonderful asset," but it should step up to cover more of the taxpayers' costs in delivering city services. For example, the city's water and sewerage infrastructure needs to be more powerful, and expensive, to serve the university's population. And the state calculates that providing fire protection to the university costs the city's Fire Department $1.7 million a year, while the state currently contributes only $396,000 to defray that cost, the mayor said.

"If the university was a private entity, they would be paying tremendous taxes," the mayor said.

Hieftje has tried to get the university to talk seriously about making in-lieu-of-tax-payments, but the university says there's no need to talk. Kosteva responded that U-M already contributes substantially to the city's infrastructure costs. Asked if U-M would sign an agreement to make the arrangement formal, Kosteva responded: "If you're already married, why do you need a pre-nup?"

Still, some of the concern about the university's expansion has led it to take pains to show that it isn't holding onto land needlessly. Since 1990, it has been more active in selling properties if it finds no reason to keep them, Baier said.

Aside from the big sales to Pfizer, it sold three houses. A house at 1304 Gardner Ave. had been given to the university in the 1980s and was sold in 2002. Two houses on Cedar Bend Drive had been bought by U-M in the 1960s and used as rental properties. They were sold in 1999.

Diane Brown, a U-M spokeswoman, said the university did the same thing anybody else would do when selling a house: It had the homes appraised and took out an advertisement in The News.

As the university continues to grow, it will face more pressure on the tax front.

"Property the university owns comes off the tax rolls," said Mike Moran, the supervisor of Ann Arbor Township, where U-M bought the technology park. "As a tax matter for the township, it's better to have a tax-paying business and corporation locate in the technology park than a nonpaying entity."

Reporter Dave Gershman can be reached at (734) 994-6818 or [email protected]

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