Local Economy Can't Rest Entirely On U-M - Pfizer Land Deal Highlights Tax Problem

THE ANN ARBOR NEWS

FOUNDED IN 1835

Laurel R. Champion, Publisher Ed Petykiewicz, Editor  Bob Needham, Opinion Editor

Local economy can't rest entirely on U-M

Pfizer land deal highlights tax problem

Even as the news was breaking of the sale of the Ann Arbor Pfizer site to the University of Michigan, it was apparent that the deal carries both pluses and minuses for the community.

The rapidly emerging conventional wisdom seems to hold that eventually, this move will be a good thing. The negatives, though, are substantial, especially in the next couple of years. And they pose challenges that will require considerable attention.

Under the deal, the university will buy the entire 177-acre campus in northeast Ann Arbor that Pfizer has left as part of the pharmaceutical company’s downsizing. The university will use the space for scientific and medical research, and possibly for other purposes, including expansion.

This wasn’t the ideal outcome. When Pfizer first announced it would leave Ann Arbor, hopes were high that a private buyer, or some combination of buyers, could be found for the site. That buyer didn’t seem to be emerging - not in this economy. But this economy presumably won’t be here forever.

The primary advantage to those scenarios, of course, would have been keeping the property as a taxable asset. Even with the company gone from the site, it was still paying $9 million in property taxes, making it the city’s largest taxpayer. The university does not pay property taxes, and its ever-expanding physical footprint creates real concern.

Both county and city budgets faced shortfalls even with the Pfizer revenue, and this deal will mean even more difficulty in bridging that gap once the university takes title in 2010. Just like that, the city will lose between 4 percent and 5 percent of its tax base. We can expect to hear revived discussion of a city income tax (presumably offset by reducing or eliminating city property taxes) as a potentially more equitable way to fund local government.

Yet that wouldn’t help the Ann Arbor District Library, which will lose nearly a half-million dollars, nor Washtenaw Community College, which will lose close to a million. That money is not coming back any time soon, and leaders will be challenged to reduce expenses to keep up.

The university was clearly focused on its own best interests. And in that light, the deal is a huge win - for the university. U-M got a valuable chunk of land, close to its North Campus, with facilities it can use - apparently, in some cases, with no alteration at all - for a bargain price of $108 million. Before it assumes ownership, it expects to develop a space-use plan, and the Pfizer labs seem suitable to all sorts of life sciences research, potentially even some creative new cross-discipline efforts.

In addition to its general interest in a healthy university, the broader community will of course see other substantial benefits as the site develops. U-M expects the site to lead to 2,000 new jobs, nearly as many as Pfizer had on the site, though of course the real number could turn out to be smaller - or larger. And ancillary and spin-off jobs might be expected to double that number.

Those jobs - that is, the people who fill them - will need housing, which will help that market. And they’ll need food, and clothing, and so on, all of which will bring relief to a business community that has been struggling.

More intangibly, but just as importantly, adding jobs like these will bolster Ann Arbor’s credentials as a budding center for high-tech research. And any spin-off could strengthen the local economy in the years ahead.

Yet the deal underlines an important reality: The area’s long-term health can’t rest entirely on the university. The new jobs on the site will be a boon, but in the future we also need private-sector jobs in growing industries that will diversify the local economy - and pay property taxes. That need will only intensify now, and we’d like to see the university understand that need and make room for it. Organizations like Spark, focused on economic development, must also continue pressing forward with a long-term strategic plan to help expand private-sector job growth.

So while the university’s plan might not have been the ideal outcome, it’s a pretty good one. It’s certainly a relief to finally have a plan for the site; at least everyone knows what to expect. Now begins the hard work of figuring out exactly what that means, and exactly how to cope with it.