While some of us pay higher rates than our next door neighbors, city annexation of township ‘islands’ creeps along

Photos and story by Lynn Monson 

Deep in the heart of Ann Arbor, just off Geddes Avenue, there’s a neighborhood where people live in large, upscale homes on heavily wooded lots connected by streets that wind up and down and around the rolling hills above the Huron River.

With street names like Apple Way, Rock Creek Drive and Huntington Place, it’s the sort of beautiful and distinctive neighborhood that helps define Ann Arbor’s reputation as a wonderful place to live.

But the homes tucked into the woods north of Geddes also illustrate a dirty little secret that’s been around for many years: Some people living inside Ann Arbor’s city limits pay significantly lower taxes than their neighbors.

Imagine that your annual tax bill, which is based on the value of your property, is $10,000. The couple next door live in a comparable house with the exact same taxable value as yours, but they pay $7,000 a year.

Why do they get a $3,000 break? (That’s $250 a month – almost a car payment – or $60,000 over 20 years. No wonder they always seem so happy!)

The simple answer is that the homeowners off Geddes who pay the lower tax rate don’t live in Ann Arbor even though they, well, live in Ann Arbor.  The land they live on was originally – and still is – Ann Arbor Township land. Because the township provides fewer services and amenities to its residents, its tax rate is much lower.

Over the past 50 years, the city gradually annexed land at its far edges until, today, it fills the so-called “freeway ring” bounded by highways M-14 to the north, US-23 to the east and I-94 to the south and west. (The city goes beyond the ring in three relatively small areas on the south, west and northwest edges.)

Left behind after this disorderly expansion are 583 “township islands” scattered inside the city. Most are grouped together in a few properties or perhaps a cluster of 20 or 25 in a single neighborhood. Others, inexplicably, are isolated single parcels a mile from any other township property.

People who live on these “islands” enjoy the benefits of living close to and using city facilities and amenities, but they don’t pay for the privilege. They may have their own well and septic field, but they still benefit from the city’s costly water and sewer facilities. They pay nothing to help support streets, storm sewers, parks, social programs and snow removal. They pay the township for police and fire protection, but the practical fact of the matter is that city police and firefighters watch over them.

The financial inequity is about to change, however, and it will come with a shocking price tag for those township residents who have whistled past the graveyard of city taxes all these years. Ann Arbor is slowly but surely putting together a plan that will annex all 583 islands in coming years.

Not only will those property owners have to start paying city taxes, but they will face stiff connection fees, improvement charges and construction costs to connect city sewer and water lines to their property.  Depending on proximity to existing lines, the city estimates one-time entry costs could range up to $83,000.

It’s about time, say some city residents who are fed up with paying thousands more in taxes than the island residents.

One such couple agreed to share their views, though for obvious reasons involving neighborhood harmony they asked that their names not be used.

“Bill” and “Sue” live north of Geddes. One entire side of their street is in the city and the other side is in the township. Property values in their neighborhood range from a few hundred thousand dollars to more than a million, yet at least two of their upscale neighbors have stated flatly that they will move if the city annexes their islands.

Bill said he doesn’t understand why the city has taken so long to rectify the issue, especially since it’s been struggling to balance its budget and the annexation will bring in new money. Ann Arbor already loses a lot of tax revenue, he notes, because the untaxed public university takes up a significant chunk of city land.

“We live here because we like Ann Arbor,” Bill said. “Our neighbors (in the islands) aren’t there because they like Ann Arbor Township; they’re there because they like Ann Arbor.”

“The city is always crying about not having money,” Sue said. “So why not make these people pay their share?”

“It been going on for a long time and it feels like a subsidy,” Bill said. “It seems like a path-of-least-resistance process (by the city). The more years you let it go, that (tax) money just evaporates. You won’t get it back.”

The city hasn’t attempted to estimate the total revenue gain from all the parcels, said Cresson Slotten, manager of the city’s Systems Planning Unit and one of two staffers leading the island annexation project. However, using the city’s average residential taxable value of $108,600, the city would probably bring in slightly more than $1 million a year if all 583 islands were annexed. The city has an $80 million general fund in an overall budget of $330 million.

Michigan laws have historically favored townships over cities in annexation issues; cities were required to obtain township permission for annexation and townships often resisted because a city’s gain is a township’s loss. But in 1994, after years of fighting Ann Arbor’s annexation requests, the township relented with a compromise known as “The Boundary Agreement.”

The township agreed that the city could annex any township land within the freeway ring (with a few exceptions and a couple of additional areas outside the ring) after a 13-year moratorium. Beginning Jan. 1, 2008, the city could finally annex those Ann Arbor Township islands without township objections. (The city signed similar agreements with Scio and Pittsfield townships in the 1970s, setting out mutually-agreed city boundaries on Ann Arbor’s west and south sides, respectively.)

In anticipation of the new annexation era beginning in 2008, the city in 2005 offered township islanders a deal to encourage voluntary annexation. The city said it would charge lower “historic rates” for hooking up to city water and sewer lines for selected township island residents near the utility lines. If islanders waited for 2008, the fees would be much higher. A few hundred islanders took the city offer, but most were content to remain islanders.

Now, four and half years after the city could force islands to annex, city staff is still formulating the plan. Why the slow pace? It’s a matter of priorities, said Jeff Kahan, a city planner who is leading the project with Slotten. “Public safety issues are going to take priority, you’re going to see park issues take priority, and transportation issues, development issues – these are all hot-button issues that are almost always going to take precedent over something that has never historically gotten a lot of people too excited.”

Last summer, the City Council finally passed a resolution kick-starting the process, in effect giving city staff the green light to proceed.

Even if the legal and political roadblocks have been removed, annexation remains complex. Each island has its own history of why it’s still an island. Some have old legal agreements stipulating various exclusions related to utility hook-ups, fees or annexation itself. One such document, “The Bourquin Agreement,” emerged in 2005 when the city was encouraging residents to voluntarily annex.

The Bourquins – twins Alice and Jessie and their brother James – were from a privileged Detroit family that owned a large section of Ann Arbor land off Geddes east of The Arb. The family originally used it for weekend and vacation getaways before moving there in 1923, according to the sisters’ papers housed at U-M’s Bentley Library.

On April 11, 1931, Jessie Bourquin signed a seemingly straightforward agreement with the city because it wanted to cross part of the Bourquin property with a sewer line. The legal document mostly sets out the details, payment and other conditions of the easement, but it closes with a simple and rather vague sentence that says the city “grants to (Bourquin), her heirs and assigns, the right and privilege for sanitary purposes to connect any adjacent or adjoining property with said sewer, at any time or place.”

Beginning in the 1930s and continuing through the 1970s, the Bourquin siblings subdivided much of their heavily wooded property into several neighborhoods. Some of the property owners in the Bourquin subdivisions used that last paragraph of the 1931 agreement to hook up to city sewer lines at no charge.

In 2005, when the city was offering a cut-rate deal on hooking up in exchange for voluntary annexation, representatives of 20-25 property owners came to City Hall waving The Bourquin Agreement. Slotten says the gist of their argument was that they were already connected at no cost so they didn’t need to be annexed. The city conceded the point, but Slotten believes the properties will be annexed when the city gets around to the water connection portion of the process.

City staff is still determining the best way to proceed. They’ve divided the 500-plus islands into about 36 clusters based on a model designed by Slotten. The model rates which groups of islands would be easiest and hardest to annex. Factors include utility availability, population, parcels with existing utility service agreements, natural features and staff time.

Slotten wouldn’t identify specific property locations, but said the first cluster will include what might be called the low-hanging fruit – utility-owned properties, properties owned by public entities such as the school district or university and at least one group of residential properties already served by city utilities. Letters to those property owners could go out in August or September.

Staff will modify the process based on what works well and what doesn’t. With the permission from Ann Arbor Township already in hand, the city will need the State Boundary Commission to verify and sign off on parcels it runs through the annexation process.

Slotten said one of the biggest problems for the city will be planning and budgeting for construction of water and sewer lines in portions of the city that don’t have them. “It’s going to be expensive. It’s capital investment that we have to pull out of our utility funds and then recover over time,” he said.

How long will it take to complete all 583? “We’ll see how long and painful this process is,” Kahan said. “It could be one cluster a year, it could be three clusters a year … maybe we pursue clusters for five or 10 years and then it just gets way more difficult and way more complex as we get into more challenging areas. Who’s to say how it will turn out?”

In the meantime, lots of islands will remain in the townships. That’s fine with Ann Arbor Township Supervisor Mike Moran. He and his staff estimate the township will lose about 14 percent of its tax base when the 400-plus township islands go into the city. That will be a loss of more than $320,000 a year at the current millage rate. If they all left in 2012, for example, the township would be short $235,666 from the public safety budget of $1.75 million; $45,410 short for its operating revenues of $900,000; and $39,743 short of its usual farmland preservation collection.

Moran said the township was able to plan several years ahead for the loss. Because they weren’t sure when the city would act on the islands, they had to plan for a worst-case loss of revenue when strategizing for millage requests and budget planning in recent years.

The township will also lose people, and that could affect state and federal grants that often are tied to a municipality’s population. About 5,000 people lived in the township in 2000; about 4.300 do today.

Bob White, who lives on Newport Road north of M-14, hopes he won’t become one of those former Ann Arbor Township residents.

When he bought his Ann Arbor Township property in 1985, it had a rural feel, with big lots and undeveloped land around him. Over the years developers successfully petitioned the city for annexation of large parcels all around him. City zoning allowed them to divide the land into smaller lots – translation: more profit – and obtain utility service, making it one of the few city areas outside the freeway ring. Now, White and about 40 of his neighbors along Newport are on the city’s list of township islands as the city seeks to unify the area.

White, a real estate broker and attorney, is disappointed that Ann Arbor Township officials gave up the fight and signed the 1994 boundary agreement.

“I don’t think the city or township has a right to change what everyone understood to be in place – and that was that they would never annex anything outside the freeway ring. … That wasn’t supposed to happen. So that’s where my philosophical difference comes in. I don’t mind being in the city if I chose to be in the city. I don’t like people telling me that you now have to pay more taxes because we now want you in the city.”

Annexation would mean $1,300 more a year in taxes for White and city tap-in and improvement charges that could initially hit $50,000 or more. White has a well and septic field so he has no need for those city services. A water line runs down Newport in front of his house, but not city sewer.

“I am certainly not interested in paying higher taxes and water bills to only have water when I prefer well water anyhow. I mean, they’re not giving anything.”

Given the 1994 agreement that seems to pave the way for the annexation, is he resigned to staying in his home and becoming a city resident?  “I’m resigned to staying,” he said. “I’m not resigned to the annexation happening.”

He predicts a group of township property owners will investigate the possibilities, including asking the State Boundary Commission to reject the application or perhaps taking legal action.

John and Sharon Stetz are former islanders who voluntarily became city residents in 2008 after accepting the city’s incentive of lower sewer hook-up rates in 2005. It was a decision that cost them $18,000 – about $4,700 in city fees and the rest to pay for a connection line to the city sewer.

Located on East Huron River Drive across from the Huron Hills Golf Course, their home is one of 27 in Geddes Farms, where the oldest property dates to the 1920s. Once entirely an Ann Arbor Township enclave, about half the property owners have voluntarily annexed into the city. The rest are waiting for the city to force the issue.

The Stetzes bought their house in 1991, three years before Ann Arbor Township signed the Boundary Agreement, after shopping for property in both the city and township. “That was one of the appealing elements,” John Stetz said. “When you look at affordability, when you look at the mortgage plus the property taxes … the same house price in the city would have been more monthly. …  So we could actually afford a little more expensive home in the township at the time. … The down side was that we were on well and septic, but otherwise had access to all the city perks – libraries, buses, schools.”

In 2005, while the Stetzes were living abroad temporarily, friends told them the city was offering the early sign-up deal and they decided to opt in, figuring they might as well save money since annexation was inevitable. Stetz said neighborhood residents considered legal action to fight the annexation, but ultimately decided it would be an expensive and futile effort. He said there was criticism of the city because neither water nor sewer is immediately available for all of the homes there. Some residents also faulted the township for giving in on annexation after they had enjoyed their township status for generations, passing their homes on to their children in some cases.

Sharon Stetz recalls the financial impact of joining the city.

“I remember saying, I can’t believe we’re writing a check for $18,000 … and it is for a pipe that goes to our house,” she said. “There was nothing we could show for it. It would be nice if it was an improvement and we could come home and the house would look better, but it was a (underground) line from the road to our house.”

In early 2008, the Stetzes became city residents, paying city taxes and not really getting many new benefits, they said, except the sewer service. One highlight, they said, was realizing that they could vote for Ann Arbor City Council candidates.

“No matter how much we pay in taxes, what Ann Arbor has to offer with the university, with the libraries, with the parks … you just can’t beat it,” Sharon Stetz said. “Even though it hurts to pay that big check two times a year, in the end, the quality of life in Ann Arbor – you can’t beat it.”