Just outside Chelsea, two whole neighborhoods are missing. One should be southwest of town off Pielemeier Dr., the other to the northwest off Sibley. With their comparatively small lots, the new subdivisions were designed to feel much like an extension of Chelsea. But–a crucial detail–they would have paid taxes to its rural neighbor, Sylvan Township.

When the housing bubble burst, similar projects were abandoned all over the country. But more than a decade after they were approved, the phantom neighborhoods continue to haunt Sylvan. That’s because its agreements with their developers committed the township to spend an estimated $12.5 million to build water and sewer lines to the two properties. In exchange, the developers pledged to pay $8 million in assessments as they built out their new neighborhoods.

The utilities deal was a daring ploy to secure the township’s independence. It was also a highly leveraged bet on the housing boom: the project’s first phase alone cost more than ten times Sylvan’s entire annual budget.

The water and sewer systems were installed–but the developers never built a single house, and they challenged their utility assessments in court. Now the township’s 3,416 residents are facing up to $13 million in potential liabilities, which may have to be paid in the form of a whopping 60-mill property tax assessment.

How did a quiet rural township find itself in such deep water? And how can it pull itself out?

Back in 2000, the township board voted 4-0 to approve development agreements with companies controlled by Chelsea developers Warren Hamill and Rene Papo. But the utility project’s real mastermind was Jerry Dresselhouse, Sylvan’s supervisor from 1992 to 2000.

During Dresselhouse’s tenure, Sylvan and Chelsea had tried to agree on a joint development plan, but the talks went nowhere. In a 2003 Community Observer story, Chris Rode, then chair of the Chelsea planning commission, recalled that “the village manager and the council took the position that ‘We’re holding all the cards. We’ve got the water. We’ve got the sewer. At some point they will have to deal with us.'”

Dresselhouse showed that they didn’t. Hired as a $1-a-year “special projects coordinator” after stepping down as supervisor, he spent years wrangling with the developers, residents, surrounding townships, and Washtenaw County to pull everything together. The linchpin was a deal with Leoni Township, a dozen miles away in Jackson County. Leoni agreed to treat Sylvan’s sewage–so long as the township paid for the pipe.

The goal, Dresselhouse told the Community Observer in 2003, was to permit dense development close to Chelsea while protecting the rest of its rural space from litigious developers. “I look at my mission as to keep the board out of trouble,” he said then, “and not have embarrassing moments for them.” And if things did go wrong, he added, “I’m going to be the fall guy.”

Today, embarrassment is the least of Sylvan’s problems. Far from protecting the township’s tiny population and tiny budget, the utility project exposed them to lawsuits from the developers–and left Sylvan on the hook for almost all of the cost of the expensive pipeline.

Today, with the lingering recession, development anywhere in Sylvan seems farther off than ever. The sites of the planned subdivisions remain untouched. But despite the surface calm, township residents are on edge over the potential $13 million tax burden.

Most of that money is owed Washtenaw County, which issued the bonds to pay for the water and sewer construction. But it also includes $2.4 million awarded to the developers last year in a breach-of-contract lawsuit against the township–a decision the township is appealing.

How did a deal meant to appease developers put the township on the wrong end of a lawsuit? That ten-year drama took more turns and had more bumps than the country roads around Sylvan’s cluster of small lakes. But the short version of the story is that the system the township built is not the same one Jerry Dresselhouse originally pitched to the developers. And other nearby townships–including Grass Lake and Lima–that were expected to chip in for the Leoni line never did, because the anticipated development along the corridor never happened.

After years of changing plans, utility construction, and wrangling over unpaid assessments, Sylvan rescinded both development agreements, one in 2003 and the other in 2004.

The township contends it had the right to do so, because the developers defaulted on their utility assessments.

After his development agreement was rescinded, Warren Hamill sold the property to Norfolk Development Corporation, a regional homebuilder. Norfolk also bought part of Papo’s site, and both Norfolk and Papo sued the township for breach of contract. The developers argued that they weren’t required to pay any assessments until the system was “operational”–and the Michigan Department of Environmental Quality didn’t declare it so until 2006, four years after the developers were first billed. The developers also claimed that Sylvan changed the scope of the project and parameters of the special assessment districts without consulting them, and failed to honor a controversial clause that would lower their assessments if additional users tapped into the sewers.

The township’s attorney, Peter Flintoft, argues that “all the service and all the lines were built and were in the ground and provided to the properties on time and were big enough for development.” But last year, circuit court judge Donald Shelton ruled in the developers’ favor.

Court transcripts document Dresselhouse’s pivotal role in the project. At one point, his successor as supervisor, Charles Burgess, was shown a copy of the 2001 sewer agreement between Grass Lake, Sylvan, and Leoni townships and the Leoni Regional Utility Authority. Burgess testified that though he signed the document, he hadn’t negotiated it.

“I never sat in on any meetings about it, and, like I said, I left it totally up to Jerry Dresselhouse,” Burgess testified. “I just read through it and signed it.”

Burgess explained that his knowledge of the deal was extremely limited and that all transactions took place exclusively through Dresselhouse.

Even as an appeal is under way, the township has filed a suit of its own against the attorneys who represented it earlier in the water and sewer drama: Foster, Swift, Collins, and Smith. The township claims that the attorneys should have been aware that rescinding the contracts would place it in legal peril and should have advised township officials of the risk. (The firm wouldn’t comment.)

A hearing on the appeal was scheduled March 8 with the Michigan Court of Appeals. Current Sylvan Township supervisor Bob Lange, elected in 2008 after serving as zoning inspector, says he can’t comment while the appeal is pending.

Should the ruling stand, it will not only award the developers $2.4 million–it also will void their original $8 million special assessment and compel the township to repay Washtenaw County the $1.2 million the county paid to cover the developers’ delinquencies.

The county issued $12.5 million in bonds in 2001 to help finance the project. But around the time when the developers missed their first payment, county officials say, they learned of the unusual clause in the agreement with the developers which lowered their special assessments if others hooked up to the sewer lines.

Then-county administrator Bob Guenzel wrote a memo in 2003 complaining that the county had been misled. Guenzel wrote: “Had the existence of this agreement been disclosed to the County, the County certainly would not have approved the issuance of the bonds without insisting that these clauses reducing assessments were removed.”

In addition to the $3.6 million in liability to the developers and the county, the township also still owes the county $9.775 million in bond payments. Flintoft has suggested that if the current decision is upheld, residents could see a one-time levy of up to an estimated 60 mills to cover the $13 million total cost of the boondoggle.

Currently, property owners pay less than one mill a year. For a home assessed at $150,000, a 60-mill levy would mean a one-year jump in township taxes from $142 to $9,000.

Yet some residents don’t seem all that concerned.

During the height of the water and sewage debate, David Brooks led a group opposed to the deal called Sylvan Township Friends. Now that the time seems right for the Friends to be saying, “I told you so,” they aren’t saying anything at all. The group has dissolved.

“We’re all out of politics,” says Brooks. “I gave up on the township people because of apathy. We tried to educate them through a newsletter. We just couldn’t drum up enough public interest.”

Brooks doesn’t think that many Sylvan Township residents are even aware of the ongoing controversy and potential liability. The story’s been covered more in Ann Arbor than in the Chelsea Standard.

What bothers Brooks more than the amount of a possible levy is the fact that his property is more than five miles from the nearest sewer connection–yet if the township assesses a millage to pay off the debt, he will have to shoulder the same burden as those who are benefiting from the system.

Louis Galante of Livonia owns a lakefront vacation home in Sylvan Township. But though his property does benefit from the new sewer line, he argues that the inequities in the system are even greater for those who are connected.

When the system was being planned, Galante says, his projected quarterly sewer bill “was going to be $40-$50. Now it’s almost triple that.” He’s paying more than $500 a year, compared to the approximately $100 he used to spend to manage his septic tank. And he doesn’t think it’s fair that every resident on the lake pays the same amount, regardless of usage.

“My eighty-year-old neighbor is living by himself doing his laundry in town,” Galante says. “Why should he be paying the same as somebody else? That doesn’t make sense.”

What also doesn’t make sense to Galante is how the project got started. He and many of his neighbors were actively opposed to the sewer line. Those who lobbied for it maintained that eliminating septic fields would improve the water quality of the lake. But to Galante’s knowledge, the water quality was never tested. What’s more, not everyone around the lakes was required or even allowed to connect.

“There were all these things that didn’t make sense,” says Galante. “My neighbors and I said, ‘No, it isn’t good for everybody.'”

A decade later, it can be asked: was the project good for anybody?

As Sylvan’s township board tries to figure out how to pay its enormous debts, there is one possible option besides the legal appeal and the lawsuit against its former attorneys: a bailout by the city of Chelsea. Might Chelsea be willing to help its neighbor out by purchasing some of the utilities that Sylvan built and taking on the associated debt?

Asked whether or not this sort of a deal might be viable, Chelsea city manager John Hanifan says, “It’s always good to explore our options.” After an initial meeting between the county and township on this idea, however, no additional meetings are set.

The sticking point is that Chelsea wouldn’t just be acting out of goodwill. Any utility takeover would include the city taking part of Sylvan Township as well. Just how much is uncertain, though Hanifan says that it would mean annexing around 10 to 15 percent of the township just for a start.

This is exactly what Sylvan officials had hoped to avoid in the first place by offering developers water and sewer service, rather than having Chelsea provide it to them as part of a deal to annex their properties.

“The city recognizes this is a lot,” Hanifan says, “but our residents can’t bear the burden of Sylvan Township’s financial difficulty. The city is in no position to simply bail the township out without significant transfer of land” to provide the property tax revenue it would need to pay the township’s debts.

A decade ago, creating its own water and sewer system looked like a pipeline to Sylvan’s future. Instead, it’s left the township drowning in debt. And whatever happens next, the price of rescue will be steep: Sylvan’s current leaders face the choice of a tax increase of almost unimaginable proportions, or surrendering residents and tax base to its urban neighbor. That’s the tragic legacy of a risky deal gone wrong.

So where is Jerry Dresselhouse in all this? These days, the fall guy is lying low. “I don’t have anything to do with it anymore,” the project’s mastermind said when contacted recently by the Community Observer. “Not for two years or more.”