GATAN GERVILLE-RACHE

616.752.2207 FAX 616.222.2207 greache@wnj.com

October 17, 2012

Mr. John Hanifan City Manager City of Chelsea 305 South Main Street, Suite 100 Chelsea, Michigan 48118 Re: Dear Mr. Hanifan: On behalf of Sylvan Township, I write to notify the City of Chelsea that the Township will soon be required to pay Washtenaw County for debt that the Township assumed between 2001 and 2002, a portion of which was later assumed by the City of Chelsea when it incorporated in 2004. This letter is intended to invite further dialogue on this matter, which the Township hopes will lead to a consensus as to the amount of contribution, and how it should be distributed, and perhaps even some creative solutions to this shared burden. To explain, Sylvan Township entered into bond contracts with Washtenaw County in July 2001, under Public Act No. 185 of 1957, for the purpose of financing sewer and water improvements. Copies of those contracts are enclosed for your reference. In return for the County issuing bonds to finance those improvements, the Township pledged its full faith and credit to pay the principal, interest, and other expenses payable on account of the bonds, to the extent that its obligation could not be satisfied through revenues from special assessments. The Township agreed to levy a millage, if necessary, to satisfy that general obligation. In September of 2001, the County sold bonds worth $12.5 million to finance the sewer and water projects. Construction of the project was completed some time in the latter half of 2002. Thus, by the time the City incorporated in 2004, the Township was generally liable for any principal, interest, and other expenses on $12.5 million in bonds not paid through special assessments. Under Section 14 of the Home Rule City Act, [w]henever a new city shall be incorporated, the personal property of the township from which it is taken shall be divided and its liabilities assumed between such city and the portion of the township remaining after such incorporation. The ratio is determined according to the assessed valuation of the property taken from the Township, including property located within the Village of Chelsea. Based on the assessment rolls from 2004, it appears that the City took 40.915% of the Townships assessed value (reducing the taxable value of the Township by 43.5%). And the City correspondingly assumed approximately 41% of the Townships general liability under the bond contracts. The Township has not requested any contribution from the City of Chelsea until now because this is the
WARNER NORCROSS & JUDD LLP ATTORNEYS AT LAW
900 FIFTH THIRD CENTER 111 LYON STREET, N.W. GRAND RAPIDS, MICHIGAN 49503-2487 WWW.WNJ.COM

Mr. John Hanifan October 17, 2012 Page first year that the Township has been unable to satisfy the bond obligations with revenue from special assessments. Because of this shortfall, the Township recently levied an additional 4.4 mills on all properties within the Township, to make good on its pledge of the Townships full faith and credit. By the same token, the City of Chelsea is now obligated to reimburse the Township, or make its contribution directly to the County, in an amount approximating 41 cents of every dollar the Township would otherwise have to pay the County from its millage. The Township Board appreciates that this demand for contribution from the City is not welcomed news, particularly when both municipalities are struggling to recover from the recession and seeking a solution for the water treatment plant financed by the bonds at issue. But the Township cannot, in all fairness, saddle its remaining property owners with a financial burden that was originally intended to be, and is legally required to be, borne by property now within the City of Chelsea. The Board sincerely regrets any consternation this letter may cause, and hopes that the two parties may nonetheless find a mutually agreeable solution for reducing the burden of this debt on the Citys and the Townships residents. In light of the hardship the impending millage will soon visit upon the Townships residents later this Fall, the Township seeks a prompt response from the City, preferably within 21 days of the date of this letter. If the City is represented by counsel in this matter, please forward this letter to the Citys counsel. Otherwise, if you have any questions, please do not hesitate to contact me.

Very truly yours,

Gatan Gerville-Rache
8664017-1