ESCANABA — Despite significant progress towards one of three developments planned for downtown Escanaba, two projects planned for the site of the former Delta County Jail have stalled over purchase and development costs, city officials reported this week.

According to City Assessor Jim McNeil, a condominium development planned by Swanee, Inc. on the site of the former Delta County Chamber of Commerce is, as far as he is aware, “almost a done deal.” However, a planned hotel development on the site of the old jail by the Terrace Bay Hotel development group and the expansion of seawall and ship repair operations by North Shore Marine Terminal & Logistics are still up in the air.

There are two primary issues facing the developments: a disagreement over the appraisal price of the property being sought by North Shore Marine — a portion of which is expected to later be sold to Terrace Bay — and a disagreement over who should be responsible for the upfront costs of moving a storm sewer on the property Terrace Bay intends to purchase from the city.

Aaron Kadish, project manager for North Shore Marine, raised concerns that the property being sought by North Shore Marine was appraised by the city at 13 times the value of the neighboring property Terrace Bay is seeking. He also argued that the city’s assessment of the property was vastly higher than assessments the shipyard had completed on the property in 2014.

“We just ask that the city allows us to get a third appraisal,” said Kadish, adding North Shore Marine had no issues paying for an appraisal if the city agreed it would acknowledge it.

According to McNeil, the appraisal of the property paid for by the city valued the one-acre parcel at $165,000. North Shore Marine has offered to $12,000 for the property, which is roughly equivalent to the assessed value of the parcel being sought by Terrace Bay.

“That Terrace Bay parcel has the issue of a very irregular size — I don’t really know that you could put a building on that parcel alone — and there’s a storm sewer running right through the middle of it, and it’s not on the waterfront either. So there’s a reason that it’s so different than the waterfront parcel,” he said.

McNeil also said he wouldn’t consider the 2014 appraisal a “good appraisal,” primarily due to significant adjustments made to the values of comparative properties used. While speaking to the council Thursday, he noted five separate adjustments, most of which skewed the property values by 30 percent or more. The largest adjustment devalued a comparative property by 68 percent.

“When you have adjustments, they’re derived from the market and when you have that large of adjustments and that many adjustments the appraisal becomes very difficult to defend because the comparable sales, when you have to adjust them that much, aren’t that comparable to start with,” he said.

While McNeil noted he was unaware if the city had initially purchased the property for fair market value, he reported the city had purchased the property for $65,000 in 1998. Property values typically increase greater than the rate of inflation, however, inflation alone would bring the value to $115,000 based on the purchase price.

In order to place the Hilton-branded hotel Terrace Bay intends to place on the old jail site, it will need to acquire three separate properties: the portion of the shoreline parcel now hinging on negotiations between North Shore Marine and the city, the irregularly shaped parcel valued at $12,000, and the jail itself.

According to Jared Drown, one of the developers with Terrace Bay, the purchase of the jail is a done deal. The property was owned by the county and the Delta County board voted unanimously Tuesday to accept a purchase agreement for the property.

Drown said the county had also agreed to move utilities on the jail site. He argued that the city should take similar action with regards to the storm sewer.

“I feel that it’s reasonable to ask that the city considers participating in the brownfield plan in the movement of the stormwater,” he said.

The former jail site being designated as a brownfield under Public Act 381 opens Terrace Bay up to a variety of grants and other funding sources, but the greatest benefit is the ability of the developer to access tax incremental financing (TIF) reimbursements for certain developmental expenses. Essentially, the difference between the property’s taxable value at the date it was designated a brownfield site and the value of the improved property is captured for a set period of time and paid back to the developer to cover specific expenses. Those expenses must meet state requirements and the city must agree to reimburse for those costs in what is known as a 381 Plan before work can begin.

Moving the storm sewer would be legally covered under Public Act 381, but that doesn’t mean the city council would agree to foot the bill.

“The relocation is brownfield eligible, and that’s a great thing, but it still requires money upfront to be spent,” said McNeil.

It is unknown exactly how much the work to move the storm sewer would cost, as there are multiple unknown variables involved, including engineering questions as well as state and federal requirements. Upfront costs would be paid out of the city’s road funds, which total $247,000 in the local street fund and $2.9 million in the major street fund. Both funds are under the auspice of the city’s general fund.

“This expense for the city would come out of street funds and we’d be looking at cutting back paving. We have tens of millions of dollars of work planned for water and wastewater work and these street funds are going to play a major role in trying to keep up with that work. So we really do need to preserve every dollar possible in those funds,” said McNeil.

Theoretically, the city could bond for the project and attempt to time the bond payments against the TIF collection, but doing so would expose the city to significant risk and use up the city’s bonding capacity, which could be needed for utility infrastructure projects.

Regardless of where the money comes from upfront, the general fund will not directly benefit from the development. Because the property is located within the Downtown Development Authority District, all property taxes collected on the property after the 381 Plan ends will go directly to funding the DDA.

“The idea of the general fund participating in this, which already has struggles, would be assuming risk for something that it won’t really receive a benefit (from) in the future,” said McNeil.

In addition, the city has historically denied running utilities on private property for development and McNeil warned against setting an expensive precedent. He also noted there was nothing wrong with the current storm sewer that would require its replacement if the development were not to occur or a development with a different footprint was placed on the property.

Council members varied widely in their thoughts on how the city should proceed. Council Member Ron Beauchamp expressed he didn’t know why the storm sewer was an issue at this point in the process and argued the city was holding multimillion-dollar development hostage over a $100,000. Council Member Tyler DuBord advocated for allowing a third appraisal from North Shore Marine to be considered. Council Member Karen Moore expressed she thought the storm sewer relocation could be removed from the current purchase agreement but that the city should stick to its appraisal in the interest of fairness.

No real decisions were made on the issues. However, Moore did make a motion to nix the storm sewer portion of the agreement, deal with the storm sewer sometime in the future, and to require the city’s assessment as the sale price. That motion was seconded by Council Member Todd Flath, but failed with only Flath and Moore supporting it.