DDA OKs $2 Million Over Strong Dissent

Ann Arbor Downtown Development Authority board meeting (May 5, 2010): During the DDA board’s monthly meeting, mayor John Hieftje and city councilmember Sandi Smith found themselves briefly sidelined from the board on which they sit.

They were at the table, however, for the final vote on whether to pay $2 million to the city, which the DDA is not obligated to pay under terms of its existing parking system agreement.

The 7-4 outcome of that vote on the 12-member body, of which 11 were present, was enough to write a $2 million check to the city. Voices of opposition to the fund transfer came not only from inside the board itself, but also from the business community during public commentary. Two former DDA board members were in the audience.

An initial opinion given at the meeting by DDA legal counsel Jerry Lax was that Hieftje and Smith could participate in the deliberations. But when an amendment was proposed, which had a side-effect of removing the basis for Lax’s earlier advice, Smith recused herself. As it became apparent that Hieftje intended to remain at the table, board member Jennifer Hall raised the point of order again, and Lax indicated Smith’s recusal was appropriate and that Hieftje should follow suit. Finally, Hieftje accepted the opinion of the DDA’s legal counsel and took a seat in the audience, but contended that he’d been given different advice from the city attorney’s office. When the amendment failed, Smith and Hieftje were back at the table.

Another board resolution that generated animated discussion, but was ultimately tabled, involved a systematic re-allocation of funds, in $60,000 increments, to a reserve to pay for the restoration of downtown police beat patrols. The re-allocation would have come from monies previously slated to fund the Howell-Ann Arbor commuter rail project (Washtenaw Livingston Rail Line – WALLY).

The committee reports to the board did not involve the kind of blunt talk that emerged during discussions of the two resolutions. But two topics reported out from the board’s transportation committee can be expected to receive wider visibility in the coming months: (i) Where will the two employees of the getDowntown program be housed? and (ii) Can there be an express Ann Arbor-Ypsilanti bus?

In this meeting report, we focus exclusively on the $2 million transfer from the DDA to the city of Ann Arbor.

$2 Million: Background Sketch

The overall context of the $2 million payment is the 2005 renegotiation of the parking agreement between the city of Ann Arbor and the DDA. Since 1992, the DDA has administered the city’s parking system on properties owned or leased by the city of Ann Arbor.

Set to expire in 2012, the agreement was extended in 2005 through 2015 – in light of the financial challenges the city faced that year – to provide additional revenue to the city. In broad strokes, it was a $1 million-per-year deal, with the added wrinkle that the city could request up to $2 million from the DDA in any given year, provided the total over 10 years did not exceed $10 million.

A point that both Roger Hewitt and Leah Gunn emphasized at Wednesday’s board meeting was that in 2002, the city had elected to allow the DDA to collect revenues from its metered on-street parking system. Part of the bargain was that the DDA paid into the city’s street repair funds. From the 2002 agreement:

The DDA shall provide a fund transfer to the City for FY2002/2003 of $520,000 to the Major Streets Fund and $150,000 to the Local Streets Fund for a total of $670,000, which will be transferred in equal monthly installments.

The agreement specifies that the amount increases each year based on the consumer price index (CPI), which has now brought the amount to around $800,000. The annual net revenue to the DDA from meter collections, said Hewitt at Wednesday’s meeting, was around $2 million. Hewitt noted that this was an aspect of the discussion that is forgotten. There was not a lot of opposition, Hewitt noted, when the city decided to give the DDA over $2 million a year in revenue.

Gunn recalled how the discussions in the late 1990s with the city about the metered parking revenues had not been positive. Something that had been lost at the very beginning, she said, was the fact that the city had given the DDA, with no strings attached, the ability to collect money from the parking meters. She noted that she had been a member of the DDA board for quite some time and went through negotiations with the former mayor and some members of the city council who were adamantly opposed to allowing the DDA to collect meter revenues.

After the election of John Hieftje, Gunn said, there had been a change in attitude. The city council and mayor told the DDA that they thought the DDA could do a better job of managing it. And she said that she felt that the DDA had in fact done a better job of managing the metered parking. But that revenue, she stressed, had been given to the DDA with no strings attached. She concluded that the money really did belong to the city of Ann Arbor.

In reflecting on the metered parking revenues, Hieftje said that looking back, that decision to allow the DDA to collect the revenues had been a mistake.

The renegotiation of the parking agreement in 2005 to stipulate payment by the DDA of $1 million a year for 10 years did not change the arrangement involving meter collections.

At several points during deliberations, several board members cited the more recent history of the city-DDA relationship with respect to the 2005 agreement.

Sandi Smith began her contribution to the deliberations by noting that she spoke from the perspective of the person who had introduced the motion back in January of 2009, calling on the DDA to begin negotiations on the parking agreement. She said she knew that the city was going to be needing the $2 million six years ago when the 2005 agreement was struck. It was $10 million over 10 years, with the option to draw $2 million a year, and the city had drawn $2 million a year for five years. She said she knew that was the way it was going to go, and that she knew that the city would then want that next $2 million.

That was the reason Smith had brought the request forward at the city level, because the line item in the second year of the city’s financial plan developed for the fiscal years 2010 and 2011 showed the $2 million in the plan. She said she had wanted to get to the point where they could have a dialogue. The “crystal ball” was not working in 2005, she said – they weren’t able to know exactly how bad the situation would be in Michigan and for the city.

A timeline overview of the last 16 months:

• Jan. 20, 2009: City council passes a resolution asking the DDA to begin discussions of renegotiating the parking agreement between the city and the DDA in a mutually beneficial way.
• March 4, 2009: DDA board establishes a “mutually beneficial” committee to begin discussions of the parking agreement between the city and the DDA. On the committee: Roger Hewitt, Gary Boren, Jennifer S. Hall, and Rene Greff. The DDA’s resolution establishing their committee calls on the city council to form its own committee.
• May 20, 2009: During the mid-year DDA retreat, mayor John Hieftje states publicly that city councilmembers object to the membership of Jennifer S. Hall and Rene Greff on the DDA’s “mutually beneficial” committee.
• June 3, 2009: DDA board chair Jennifer S. Hall removes herself from DDA’s “mutually beneficial” committee, replacing herself with Russ Collins.
• June 15, 2009: Mayor John Hieftje nominates councilmembers Margie Teall (Ward 4), Leigh Greden (Ward 3) and Carsten Hohnke (Ward 5) to serve on the city council’s “mutually beneficial” committee, and they’re confirmed at the city council’s July 20 meeting.
• July 1, 2009: DDA board chair Jennifer S. Hall appoints Sandi Smith to replace outgoing DDA board member Rene Greff (whose position on the board is filled with Newcombe Clark) on the DDA’s “mutually beneficial” committee. Smith is also a city councilmember, representing Ward 1.
• August 2009: Leigh Greden is defeated in the Democratic primary by Stephen Kunselman.
• August-December 2009: Sandi Smith, the chair of the DDA’s “mutually beneficial” committee, reports at each monthly DDA board meeting that there is nothing new to report.
• Dec. 5, 2009: Dissolution of the DDA is included in an “everything is on the table” list for discussion at the city council’s budget retreat.
• January-April 2010: Roger Hewitt reports at monthly DDA board meetings that only informal discussions are taking place.
• April 16, 2010: The Ann Arbor Chronicle is barred from attendance at a meeting of a “working group” of city council members and DDA board members.
• April 21, 2010: At a DDA partnerships committee meeting, Newcombe Clark gets assurance that a 7-day notice would be given before the full board would be asked to consider a $2 million transfer payment.
• April 28, 2010: At a DDA operations committee meeting, a “term sheet” produced by the “working group” of the city council and DDA is unveiled. It’s intended to become the basis for an eventual new parking agreement. A key feature of the “term sheet” is that the DDA will assume responsibility for enforcement of parking meters.

Additional background in Chronicle coverage: “DDA to Tie $2 Million to Public Process”

$2 Million: Business Community Opposition

During public commentary at the start of the meeting, three representatives of the business community weighed in against the $2 million transfer to the city from the DDA.

Tony Lupo, director of sales and marketing for Salon Vox, spoke on behalf of the Main Street Area Association. Rene Greff, who co-owns the Arbor Brewing Company in downtown Ann Arbor and is a former DDA board member, spoke against the transfer, making many of the same points that she articulated in an email she’d sent to board members.

And Kyle Mazurek, vice president of government affairs for the Ann Arbor Area Chamber of Commerce, read from a prepared statement:

• We believe that it undermines the DDA’s independence and autonomy, and impedes its ability to achieve its stated mission, which is “to undertake public improvements that have the greatest impact in strengthening the downtown area and attracting new private investments.” We also believe that it undermines future DDA Boards.
• We believe that there’s a certain degree of impropriety in the City seeking monies from the DDA to cover various operating expenses and budget shortfalls. Honesty and transparency in budgeting isn’t achieved through the transfer of monies from one organization to another, particularly when those monies have another intended use.
• We believe that the DDA has fulfilled the terms of the 2005 parking agreement, and that therefore this additional $2 million transfer violates that agreement.
• We believe that this transfer will cause the DDA to forego other, real priorities that are in keeping with its stated mission.
• We believe that this transfer sets a dangerous precedent for the DDA as the future filler of City budget holes.
• We believe that reliance on City assurances of future good faith discussions aimed at a mutually beneficial agreement is misplaced. Past practice is informative in this regard – and one need look no further than the 2005 parking agreement. What happened to the beat cops. What happened to the 3-site plan. What’s currently happening with respect to the present parking agreement set to expire in 2015 – the DDA has fulfilled its contractual obligation but now is being asked for more.
• We believe that this transfer undermines the DDA’s financial foundation in that it digs even deeper into fund balances. Last year it was publicly stated that as a rule of thumb the DDA should maintain a minimum fund balance reserve of 15 to 20 percent. At first blush it appears this transfer pushes that percentage well below this target range.
• We believe that this transfer results in no quantifiable return to the DDA district.
• We believe that a consequence of this transfer will be increased parking rates and additional proposals akin to increasing parking meter enforcement hours – the costs of which will be unfairly borne by downtown businesses, their employees and patrons.
• We believe that the last minute nature of today’s resolution was avoidable. A truly mutually beneficial agreement could’ve been reached before now. In January 2009, City Council called for mutually beneficial discussions between the respective entities to commence. In March 2009, the DDA sat its committee. It’s well known that the City must take final action on its proposed budget on the third Monday in May.
• We believe that the DDA is enabling the City to delay tough budgetary decisions aimed at realigning spending priorities, enacting essential reforms and creating a sustainable budget moving forward.
• We believe that this transfer is inconsistent with many of the DDA’s stated parking system principles – such as the public parking system can and should be financially self-sustaining, that parking users should pay for the system, and that parking revenues should be reinvested into the system and not redirected elsewhere.

$2 Million: The Term Sheet

The term sheet produced by the working group was introduced at Wednesday’s board meeting by the chair of the operations committee, Roger Hewitt. [.pdf of term sheet] It had been discussed at the DDA operations committee meeting the previous week.

Hewitt described it as a framework for the discussions to go forward. With respect to the length of the hoped-for agreement, Hewitt said the intent was to make it a relatively long-term agreement. That would allow both entities – the city of Ann Arbor and the DDA – to do long-term planning. The intent, Hewitt said, was to have an executed agreement in place by Oct. 31, 2010. But for the first fiscal year, he said, the DDA would pay the city $2 million. Under the framework, he continued, the DDA would take over responsibility for parking enforcement throughout the city, not just in the DDA district.

The DDA would take over enforcement of the meters, Hewitt said, using its own personnel – contracting with a third-party or through direct employment. The philosophy of enforcement would transition from a revenue-generating model to a customer service model, hoping ultimately to reduce the number of parking tickets and increase the level of compliance.

Hewitt indicated that there would be financial compensation to the city for parking enforcement but that the amount had not yet been determined. It’s expected that it would take 6-12 months to put the parking enforcement component of the agreement in place.

There are also certain services that the city currently performs within the DDA district which the DDA would take over. The cost savings to the city would be reflected in the agreement, Hewitt said. Those services dealt primarily with sidewalk issues – for example, tree plantings. There would effectively be a line drawn at the curb, he explained, where things that happen in the street are the city’s responsibility, and things that happened on the sidewalk would become the responsibility of the DDA.

In addition to parking enforcement, Hewitt continued, the DDA would take over code enforcement for those activities that happen on the sidewalks and in the alleys – it would not include building code enforcement. Switching over to the additional code enforcement, said Hewitt, is expected to take 12-24 months.

Finally, said Hewitt, the DDA would become the “initiation and implementation engine” for all city-owned surface parking lots in the DDA area. This had been primarily a city responsibility in the past, Hewitt said, and it would instead become primarily a DDA responsibility. Any action, he cautioned, would still require approval from the city council.

$2 Million: Outline of Deliberations

The board deliberations on the $2 million transfer lasted over an hour. Despite the intense nature of much of the conversation, there were moments of levity. The key points of the deliberations as they unfolded chronologically:

• Roger Hewitt gives a description of the term sheet produced by the working group.
• Jennifer S. Hall raises a point of order on a conflict of interest by John Hieftje and Sandi Smith, both of whom are paid salaries by the city of Ann Arbor. DDA legal counsel offers the opinion that their participation is allowed under a state statute providing exceptions for contracts between public bodies and that the resolution effectively amends the city-DDA parking agreement.
• Deliberations commence with an amendment proposed by Joan Lowenstein, accepted as friendly, that makes more explicit the relationship of the resolution to a contract amendment.
• Hall holds forth against the resolution, followed by Gary Boren, who says he’ll support tabling but not the resolution, followed by Newcombe Clark, who makes a motion for tabling. The motion for tabling fails with support only from Hall, Boren, and Clark.
• Leah Gunn holds forth in favor of the resolution, and moves to end deliberations and vote. The board opts to continue deliberations.
• Russ Collins agrees with Boren’s description of the facts of how the “working group” had been formed but reaches a different conclusion regarding the transfer, saying he supports it.
• Sandi Smith holds forth in favor of the resolution.
• Keith Orr offers a substitute resolution that makes explicit that the payment to the city is a “no-strings-attached” grant, which he dubs a Temporary Ann Arbor Relief Payment (TARP) to be paid as $1 million now and possibly $1 million later.
• Hall reiterates the point of order on a conflict of interest, now that the intent of Orr’s resolution is grant-like and not contractually based. Smith immediately recuses herself and takes a seat in the back row of the audience. Hieftje persists at the table and argues against Orr’s amendment. Hall reiterates the point of order. DDA legal counsel confirms his opinion that the grant-like nature of Orr’s resolution makes recusal appropriate. Hieftje retreats to the audience.
• Gunn, Hall, and Orr briefly discuss the merits of Orr’s amendment. It fails. Hieftje and Smith return to the table.
• Several board members deliberate further on the resolution as amended by Lowenstein.
• The resolution passes with dissent from Orr, Hall, Clark, and Boren. As John Mouat was absent, the motion still achieved seven votes, which is the majority needed for board action on the 12-member body.

The deliberations themselves highlighted key substantive issues, which can be listed out as questions.

Ethics: Is there a conflict of interest for city councilmembers like Hieftje and Smith deliberating on a resolution involving the transfer of money to the city of Ann Arbor?

Contracts: What, if any, is the contractual force of the resolution passed by the DDA? Specifically, can the city’s participation in the future public process be compelled by the DDA?

Organizational Identity: What is the relationship between the DDA and the city of Ann Arbor?

Key $2 Million Issue: Ethics

The question of mayor John Hieftje and councilmember Sandi Smith’s participation in the vote at Wednesday’s meeting was raised because of the specific nature of that vote, which transferred money to the public body that writes their paychecks. However, it’s possible to pose a more general question: Is there an inherent conflict built into simultaneously holding the position of city councilmember and DDA board member?

Ethics: Compatibility of Office

The question of whether it’s possible to hold simultaneously the office of councilmember and DDA boardmember is addressed in Michigan’s Act 566 of 1978. At first glance, the state statute appears to rule it out. The kind of incompatibility of office that is not allowed is expressed in the definition of “incompatible office”:

(b) “Incompatible offices” means public offices held by a public official which, when the official is performing the duties of any of the public offices held by the official, results in any of the following with respect to those offices held:
(i) The subordination of 1 public office to another.
(ii) The supervision of 1 public office by another.
(iii) A breach of duty of public office.

A city councilmember “supervises” the office of a DDA board member in the sense that city councilmembers must confirm the appointments of DDA board members. However, there’s an explicit exception in the statute for a DDA [emphasis added]:

(3) Section 2 does not prohibit a public officer or public employee of a city, village, township, school district, community college district, or county from being appointed to and serving as a member of the board of a downtown development authority under 1975 PA 197, MCL 125.1651 to 125.1681;

Moreover, the mayor – who is also a city councilmember under Ann Arbor’s system of government – holds a position on the DDA board that is specified in the enabling legislation for a DDA, Public Act 197 of 1975:

(g) “Chief executive officer” means the mayor or city manager of a city, [...]

Sec. 4. [...] an authority shall be under the supervision and control of a board consisting of the chief executive officer of the municipality and not less than 8 or more than 12 members as determined by the governing body of the municipality.

On Wednesday, Hieftje made reference to his position on the DDA board as stipulated in the state statute. That reference came in the context of the discussion with DDA legal counsel Jerry Lax, of Bodman LLP, about whether it would be appropriate for Hieftje and Smith to recuse themselves from the vote on the $2 million transfer.

Ethics: Conflict of Interest (Contracts)

To settle the specific issue of recusal on the $2 million deliberations, Lax appealed on Wednesday to a state statute, Act 317 of 1968 “Contracts of Public Servants with Public Entities.” He began by explaining that the relevant state statute is meant to “occupy the field” as expressed in its language. Specifically, the statute states:

15.328 Other laws superseded; local ordinances. Sec. 8. It is the intention that this act shall constitute the sole law in this state and shall supersede all other acts in respect to conflicts of interest relative to public contracts, involving public servants other than members of the legislature and state officers, including but not limited to section 30 of 1851 PA 156, MCL 46.30. This act does not prohibit a unit of local government from adopting an ordinance or enforcing an existing ordinance relating to conflict of interest in subjects other than public contracts involving public servants.

The statute prohibits the public servants from soliciting contracts with entities by whom they are employed:

(2) Except as provided in section 3, a public servant shall not directly or indirectly solicit any contract between the public entity of which he or she is an officer or employee and any of the following: (a) Him or herself. (b) Any firm, meaning a co-partnership or other unincorporated association, of which he or she is a partner, member, or employee. [...]

However, Lax pointed out that there was a specific exemption for contracts between two public entities [emphasis added]:

15.324 Public servants; contracts excepted; violation as felony. Sec. 4. (1) The prohibitions of section 2 shall not apply to any of the following: (a) Contracts between public entities.

Under that statute, Lax concluded, there is not a problem with the participation of Hieftje and Smith in the deliberations and vote. He noted that the bylaws of the DDA themselves contained their own prohibitions against conflicts of interest. The DDA bylaws read in relevant part:

Section 9 – Conflict of Interest. A director who has a conflict of interest in any manner before the Board shall disclose that interest prior to the corporation taking any action with respect to the matter. This disclosure shall become part of the record of the Board’s official proceedings. Any member making such disclosure shall then refrain from participating in the Board’s decision-making process relative to such matters.

Lax acknowledged the language of the bylaws of the DDA, which Jennifer Hall had cited in calling the point of order, but said that they needed to be read so that they were consistent with the state statute. He noted that members of the board can opt to recuse themselves if they so choose.

Hall asked, however, what contract was being referenced. Lax indicated that his understanding of the resolution related to an existing contract between the city and the DDA.

Hall pressed the point further by asking what contract the resolution was supposed to tie $2 million to. Lax indicated again that it was the parking agreement contract. “Where specifically does this resolution do that?” Hall asked.

Lax indicated that the preliminary paragraph makes a reference to the contract. From the draft resolution:

Whereas, In 1992 the DDA entered into a master agreement with the City to operate and maintain the public parking system for the benefit of the public, and this agreement is set to expire in 2015;

Whereas, This agreement set forward that the DDA was to provide the City with $10 million over the period of 2005 to 2015 as rent for the parking facilities, and the City elected to receive all these funds by 2010;

Hall countered that the agreement that’s referenced is a $10 million agreement stretching over 10 years, under which the DDA has already paid the city $10 million. So the DDA had fulfilled its end of that agreement, Hall concluded.

Hall noted that she saw nowhere in the agreement anything that indicated that the DDA board was at this time amending that agreement to provide the city with additional funds. She also pointed out that she saw nowhere that the city had requested the DDA to amend the agreement. She allowed that she understood that this is what the “whereas” clauses said. But she said she did not see how the “resolved” clauses achieved the amendment.

Lax indicated that his understanding was the intent of the resolution was to amend that agreement by supplying the additional funds.

Lax indicated that if there were language in the resolution that explicitly stated that it was an amendment to an agreement, it would make things more clear. At that point, Lowenstein weighed in, saying that the amendment that she had intended to propose would do exactly that.

John Splitt, the DDA board chair, declared that the board was ready to move on with the discussion. Lowenstein brought her two amendments forward, which she described as “very small.” One came in a “whereas” clause and the other in a “resolved” clause.

With Lowenstein’s amendments in italics, the resolution read as follows:

[...] Whereas, Representatives of City Council and DDA have held informal discussions in an unprecedented spirit of cooperation and have outlined some preliminary terms as a basis to amend the current agreement;

[...] RESOLVED, The DDA authorizes providing the City with this additional $2 million in fiscal year 2010/11 with the following expectations:

• The DDA and City representatives who have developed the preliminary terms will continue to meet at least once a month to complete work on an agreement that will go to the DDA and City Council for approval, and these meetings will be open to the public, but not subject to the Open Meetings Act.
• The DDA and City representatives will aim to conclude their work by October 31, 2010, but certainly no later than the end of the fiscal year 2010/11.
• The DDA will provide the City with $2 million by providing half on July 1, 2010 and the second half no later than January 1, 2011.

RESOLVED, With this resolution the DDA is amending its 2010/11 budget so that the $2 million shown as a contingency item in its 063 Parking Fund will now be an approved expense.

Deliberations then proceeded with Smith and Hieftje at the table.

Ethics: Conflict of Interest (Orr’s TARP Amendment)

When Keith Orr eventually weighed in on the $2 million subject, he suggested an amendment that again prompted Jennifer Hall to raise the question of a conflict of interest.

Orr said that in both public and private conversations he told people that he felt that these were “extraordinary times.” He said that extraordinary times required extraordinary actions. He also said that extraordinary times requires cooperation and rejected a “me first” mentality. He also reminded council members that he’d said many times that the “mutually beneficial” committee had been incorrectly named. That was unfortunate, he said, because words do matter.

Instead of calling it a mutually beneficial committee, he said it should have been called “the committee for shared sacrifice.” [Orr had expressed that sentiment at the DDA board's March 3, 2010 meeting, when the board approved the DDA's budget for the year.] That sacrifice, he said, should be shared across members of the city council, city hall staff, downtown residents and businesses, and the DDA. All of these people had a need for a healthy city and a thriving downtown.

Orr called for a politics of solutions, not politics of blame – that, he said, they could leave to Congress. He said he was heartened to see that the discussions in the working group had been frank and fruitful and that the general area of agreement had been reached.

However, he cautioned, that the proposal before them that day was not an agreement. In his business, he continued, if he were to present it to his attorney for review, his attorney would advise not to sign it. Not because it’s a bad agreement, he continued, but rather because it was not an agreement at all.

Orr proposed a different way to move forward: The DDA would approve a Temporary Ann Arbor Relief Payment (TARP) of $1 million. [The proposal drew laughs because it has the same acronym for the federal "Troubled Asset Relief Program" – known as a bailout for the banking industry.]

Orr said that the relief payment would come with no strings, because there really is no agreement in place, but rather it would be a recognition of an extraordinary need. The acronym, Orr said, was meant not just to be amusing, but to emphasize that there is no meaningful agreement in place.

The grant simply recognizes that a healthy downtown requires a healthy city – shared sacrifice. The goal is a real agreement that can be comfortably signed by all parties, he said. There was a real possibility, he said of an additional payment of $1 million by Jan. 1, 2011. He said that he understood that the city budget process could mean that layoffs might be required if the entire $2 million were not promised at this time. He felt that this would provide an additional incentive to reach an actual agreement in a timely fashion – so that budgets can be amended and layoffs avoided.

Sandi Smith suggested a friendly amendment to Orr’s proposal, suggesting that the second $1 million be paid after Jan. 1, 2011 for DDA cash flow reasons. Hall indicated that she appreciated Orr’s attempt to make the resolution express what the board was actually doing, which is just giving money to the city.

But Hall then restated her earlier point of order, which was that if the amendment restated the resolution to make clear it was simply a grant for $1 million, the board was then in the territory of having two board members who had conflict of interest in discussing it. Based on legal counsel’s earlier advice, she said, she felt conflict of interest was again in play, because they were no longer talking about amending the parking agreement contract, but just awarding a grant.

Ethics: Conflict of Interest (Renewed Objection)

When Hall raised the point the second time, Sandi Smith indicated that she would abstain from any further discussion and left the table to take a seat in the back row the audience. Leah Gunn then suggested that the same wording that Lowenstein had earlier added be added to Orr’s amendment. That suggestion was not acted on, with Splitt asking Orr if making it a grant totally changed what they had been trying to propose.

Orr replied that it did change things. He said he loved the direction that things had been going with the discussions and that people had engaged in discussions in good faith. At that point, he said, they simply did not have an agreement. He was trying to find a solution so that the city did not have to lay off as many police officers, and that buys time to allow the DDA and the city to reach an agreement. He said he felt it had to be thought of as a grant.

John Hieftje said he would not be supporting the amendment, saying that he felt the framework had been well worked out by members of the DDA and members of the city council and that it had a lot of promise. He said he did not want to do anything that would upset the careful work that had been done.

Hall then pressed the point of order again, saying that she was sorry to have to do so. She stated that she did not think it was appropriate for someone on the receiving end of a grant to participate in the discussion about whether or not the grant should be given. She noted that there were many other examples in the history of the DDA board where board members had recused themselves. As a specific example, she gave Russ Collins having recused himself from the award of a grant to the Michigan Theater. [Collins is the executive director of the Michigan Theater.]

Hall then asked whether the DDA legal counsel, Jerry Lax, had a different opinion, given Orr’s amendment. Based on what he had said previously, Lax offered, a grant is “a different animal.” So, he characterized Smith’s recusal as “appropriate under the circumstances.”

Hieftje then indicated to Lax that he did not have the “luxury” of having one of the city attorneys there with him, but that the city attorney had that morning offered a different opinion than the one that Lax had given on his ability to participate. Hieftje indicated it was relevant that Orr’s motion was only being discussed as an amendment. He seemed to indicate that he did not know for certain whether his participation in the discussion was appropriate.

What Hieftje said he did know was that the mayor’s position is named in the state statute that enables the existence of the DDA. And going back to the previous statement by Lax, that his participation was allowable as long as the amendment was set in the context of a contractual agreement, the mayor pointed out that the contract was still referenced in the “whereas” clause.

However, the mayor said he would be happy to honor Lax’s opinion on that particular amendment. Hieftje said he thought it was an issue that would require a great deal of conversation with attorneys, because it would affect cities across the state in terms of the precedent that could be set. Lax allowed that it would not be the first time that an issue required more discussion between attorneys than could have occurred between late yesterday afternoon and that day.

Hieftje then asked what Lax’s opinion was on the issue. Lax reiterated his view that Orr’s amendment was talking about a grant as opposed to a contract, and for that reason he thought it would be appropriate that Hieftje recuse himself. With that, Hieftje took a seat in the audience between former DDA board member, Bob Gillette, and Adrian Iraola, of Park Avenue Consulting.

When Orr’s amendment failed, Smith and Hieftje returned to the board table.

Ethics: Conflict of Interest (Questions for Further Analysis)

Lax indicated in his exchange with Hieftje that the conflict of interest issue could well generate more discussion among attorneys. Among the questions that could be discussed are the following:

• Does the state statute cited by Lax actually preempt the bylaws of a body like the DDA board?
• Does the DDA resolution actually achieve an amendment to an existing contract, or is it an illusory promise, something that a court cannot enforce?
• What are the implications of an illusory promise for -
  • (i) the conflict-of-interest issue, where Lax’s interpretation relied crucially on the contractual nature of the resolution?
  • (ii) the city’s ability to rely on the resolution in its budget planning?
  • (iii) the ability of the DDA to “get” anything from the city via its resolution?

Key $2 Million Issue: Contracts

Discussion of the “contractual” nature of the resolution, with respect to the DDA’s ability to “get” something from the city, surfaced in at least three ways:

• What does the DDA-city good faith agreement look like for the city, in the context of the city council, which is a body that is subject to political and electoral concerns?
• What was the history of past “broken promises”?
• How can the DDA enforce attendance at public meetings by city councilmembers and city staff as specified in the resolution?
• What is the benefit to the DDA that is offered by the resolution?

Contracts: On What Is Confidence in the “Agreement” Based?

In introducing his TARP amendment, which ultimately failed, Orr had pointed out that there was no actual agreement that they were voting on – that was why he had been in favor of calling it what it was – a relief payment to the city.

Others raised the same point about the lack of an actual agreement. During the discussion of the conflict of interest issue, Newcombe Clark raised the issue with the DDA’s legal counsel, Jerry Lax, of whether an amendment to the existing parking agreement could be achieved “proactively” in the absence of an agreement – the money was being given prior to any agreement, he said. Lax contended that there were several different stages involved, and an agreement can contemplate further amendments.

During the substantive deliberations on the issue, Gary Boren said that before the working group was formed, it was well known that he was opposed to the DDA “handing over” – but then Boren paused, saying he did not want to use charged language. He eschewed “handing over” in favor of “transferring” money as a blank check without any quid pro quo. He maintained that it was critical to the DDA’s existence that it gets a condition-based quid pro quo for any money that is given to the city.

At the meetings before the working group was formed, he said he remembered that the question had been put to him about whether he could support it. He said that knowing the devil was in the details, and if he had a crystal ball that told him all those details will be worked out and lived up to it, that he could support it. The working group then proceeded.

But to be frank, he said, he was concerned that those details had not been fleshed out. He said that he did not necessarily have a problem giving the city $2 million in exchange for a crystal ball that would tell him there would be a well fleshed-out, detailed contract.

He said he would support a motion to table the resolution, so that some of the procedural aspects could be straightened out, as well as getting some more meat in the details. “I really need to see more about what the devil looks like.” He also needed something better, he said, in terms of a commitment on the part of the city.

Boren said he could support something like the proposal that was before the board, but said that he just did not think they had a reliable partner in the city – not because of an integrity issue, but because of an inherent political and electoral issue. After November, Boren thought, they would have to start all over again because they would have a new city council. There was no way that the DDA board could bind Christopher Taylor and Margie Teall and Carsten Hohnke to vote a certain way without a contract. So if the resolution were not tabled, and they had to vote that day on it, Boren said, he would have to reluctantly vote no.

Newcombe Clark said he agreed with Boren that it was “putting the cart before the horse.” He also agreed that the board did not have the details. Clark said it was ironic that he favored much of what was being presented. However, Clark said, the DDA board was being asked to spend money without the details. The situation of who was on the city council could change after the August primary, Clark said. [Clark is considering a run for city council's Ward 5 seat, either as a Democrat or as an independent.]

Russ  Collins responded to the concerns of Clark and Boren about the composition of the city council by saying that they had asked city administrator Roger Fraser and DDA executive director Susan Pollay to attend the working group meetings because they wanted to make sure there was continuity outside of the political arena. Their inclusion was also motivated by a desire to make sure they were talking about things that were actually possible for implementation.

Collins acknowledged that he also had been a member of the working group that had produced the term sheet that Hewitt introduced. He said he wanted to “totally echo” everything that Gary Boren had said. Boren had represented fairly the nature of the discussions and the history of the discussions as well as their tenor, Collins said.

He described himself as perhaps more of an optimist than Boren – at which chair John Splitt interjected “and less of a lawyer,” which drew laughs at the table and served to ease some, though likely not all, of the tension in the room. [Boren is an attorney.] Collins characterized the working group as people of good will and good faith who were trying to do something good for the city and for the DDA.

Late in deliberations, Hall returned to the point that there is no assurance in the resolution, as much as she wanted to believe that the mayor and councilmember Teall would be able to tie the $2 million to preventing police layoffs. That did not preclude some other councilmember from having some other resolution that they wanted to bring forward in a couple of weeks to tie the $2 million to something else. That is an issue for the council to deal with at the council table, she suggested. The DDA board was not buying anything, Hall concluded, except for a $2 million transfer to the city.

In her remarks, Joan Lowenstein said she wanted to address what the DDA gets in return for the $2 million. She noted she’d heard it called “sneaky and illegal.” She noted that it would actually be sneaky and illegal for any councilmember to promise a vote for a certain amount of money. So if anybody thought that people had promised certain votes in return for $2 million, that’s incorrect, because that would be illegal for a city councilmember to do.

Contracts: Past Broken Promises

When the parking agreement was negotiated in 2005, there was a conscious expectation on the part of the DDA that if the $10 million parking agreement was approved, the city council would approve the 3-Site Plan.

The 3-Site Plan was an effort in 2005 to develop city surface parking lots, including lots at First & William, First & Washington and the Kline’s lot on the east side of Ashley Street, between William and Liberty. The concept underpinning the 3-Site Plan was that parking could be decoupled from development – build a parking structure at First & William and free up the other two sites for development without the constraint of building on-site parking.

In an April 28, 2010 email sent to all members of the current DDA board, plus current city councilmembers, former DDA board member Rene Greff wrote that in 2005 the DDA’s negotiating team saw a link between the parking deal and the 3-Site Plan:

But the council members on our committee cautioned that we couldn’t link the increased rent with the 3 site plan in writing because that would make it look like the DDA was bribing council for passage of the three site plan. And besides, we were all working in good faith and knew that the city was going to approve the 3 site plan.

At Wednesday’s board meeting, Sandi Smith supported the account of expectations not met back in 2005. The reason she was pleased with the working group’s current term sheet, she said, was that it was something in writing to go forward, which had not happened at the last negotiations in 2005. Because of the $10 million agreement, there had been promises made in 2005, Smith said, that were not in writing.

And that had caused some very hard feelings between the two organizations for some time, Smith said. There had been promises about the downtown beat cops remaining downtown, she said. She said there’d been promises made about certain things happening with respect to development of certain lots downtown – an allusion to the 3-Site Plan. Those promises had been made, Smith said, with a similar group of city council folks and DDA folks – but the only thing that got recorded was in the current parking agreement.

The other things, Smith said, “went by the wayside.” Smith said that she saw the term sheet as an opportunity to have talking points when the negotiations begin. She did not believe that up to this time any negotiation had occurred. The one thing that she had wanted to achieve, she said, was a dialogue on the idea that enforcement of parking rules should belong with the DDA. It had taken a year and a half, Smith said, for city staff to recognize and be willing to have that dialogue. That was something she had never given up on, Smith said – for enforcement of parking by the DDA to be expressed in writing and be on the table.

Gary Boren also corroborated Greff’s account. He said that given the history of the 3-Site Plan, it led him to be suspicious. The agents of the city, he said, had been genuine, and had been negotiating in good faith over the last few months. He did not believe there was any deception or intent on their part to get money from the DDA just by saying whatever they needed to say to get it. But due to the electoral and political concerns of councilmembers, plus the history of the 3-Site Plan, he had concerns about the DDA’s ability to make the city council live up to the agreement.

Almost in passing, mayor John Hieftje mentioned that there were “some people” who had a much different understanding of what went on with respect to the discussions around the previous agreement in 2005. If there were any promises made, he said, some people had a much different understanding of the nature of those promises than what had been represented at Wednesday’s board meeting.

Contracts: Commitment to Public Process

Jennifer Hall and Newcombe Clark questioned how the monthly public meetings that are specified in the board’s resolution could be enforced.

Hall cited the fact that expectations of the public process had not been met over the last year and a half. In perhaps the most spirited defense of open government The Chronicle has witnessed at a public meeting since its founding in September 2008, Hall laid out how the two committees of the DDA and the city had failed to meet expectations of public process.

Hall said there was an implicit understanding that there would be open discourse between the city and the DDA with respect to a $2 million mutually beneficial agreement, or a continuation of the parking agreement. At the very least, she said, there was an understanding on the board that the board itself would have an open discussion of the reasons for giving the city an additional $2 million.

Her understanding of the expected openness, Hall said, was based on several actions and statements. In January 2009, there was a resolution that the city council brought forward, asking for the DDA to begin discussions for a mutually beneficial financial agreement. Then in March of 2009, the DDA had established via a resolution a committee to conduct discussions with the city. The resolution had been supported by the entire board that had been present at the meeting.

Hall pointed out that at the same meeting when former board member Rene Greff had contended that the city had not communicated a clear message about the intent behind the $2 million, Hieftje had responded by saying that the process surrounding the $2 million had been completely open and that he had been on the record consistently as well.

In May of 2009, Hall continued, Hieftje had attributed the city’s failure to appoint a committee of its own to bad feelings about membership on the DDA’s committee – Greff and herself. On June 15, 2009 – after Hall had removed herself from the committee and Greff had resigned, knowing that she was not going to be reappointed to the DDA board – the city council appointed three members to a its mutually beneficial committee: Carsten Hohnke, Margie Teall, and Leigh Greden.

The appointment of those three members was confirmed on July 7, 2009. At every meeting from March 2009 until the present, the DDA has had a standing committee report on its agenda for a mutually beneficial committee. Since the time that the city council had seated their own committee, Hall continued, the DDA board had heard reports from Sandi Smith to the effect of “the committee has not met and there is nothing to report.” On one occasion she had reported that the committee had asked staff questions and were awaiting a report.

“Then, boom,” Hall said, “last Wednesday there’s a very detailed discussion about what it is worth giving $2 million for!” She was alluding to the operations committee meeting when the term sheet was introduced as a product of a “working group.” There had been a year and a half of continued commitment that the two committees would talk about this and that it would be an open process, Hall said.

There was an established framework and expectation by the DDA board, Hall said, that there was a committee with members chosen to represent the DDA in the $2 million discussions. There was an expectation that the committee would, at the very least, report that they had met and update the board on those discussions. Hall went on to point out that the city council has an expectation of its own committees that they are subject to the Open Meetings Act. Hall also emphasized that the DDA board had an expectation of its own committees that their meetings will be open and that at the very least board members would inform each other about what the nature of the discussions are.

“I don’t support this type of conduct. I find it sneaky and underhanded and corrupt, and possibly illegal, in violation of the public trust in our government.” Hall concluded that obviously not everyone was in agreement with her on this point because things would’ve happened in a different way if they had been. She offered her comments, though, so that board members would understand why she was so angry.

The lack of openness, Hall said, resulted in mistrust of the results that came out of the discussions.  “When we lose our trust, we get angry, and we call names, and we develop conspiracy theories, and it’s ugly – and as my grandmother would say, it’s not very ladylike – but that’s where we find ourselves today.”

Later in the meeting, Clark led off a line of inquiry by saying he meant to get to the idea of “us and us” – a notion that Joan Lowenstein had introduced in encouraging the board not to think of the DDA and the city as “us and them.” He asked, “Who is us?” Specifically, he asked, does the city currently have a mutually beneficial committee?

Hieftje replied that the committee had not been dissolved. Clark asked for confirmation that it did in fact currently exist. “As far as I know,” replied Hieftje. Smith said that the committee was “down one member.” [Leigh Greden, a city councilmember who was appointed to the council's committee, was defeated by Stephen Kunselman in the August 2009 primary.]

Clark pressed the question, “So, it is a standing committee?” Hieftje said it was different from committees that are set and that had existed for a long time – the mutually beneficial committee was created to work on a specific thing. He said he did not remember whether it “goes away.” Sandi Smith said she did not know the answer to that.

Citing language in the agreement –”The DDA and the city representatives who have developed the preliminary terms” – Clark asked whether that means that the DDA’s standing committee and the current members of the city committee are no longer going to be in charge of this going forward and only the people listed on the term sheet are to continue? Will the discussions happen under the pre-authorized behaviors and practices of how the DDA treats its committees?

Roger Hewitt indicated that based on the conversation at the operations committee, it would be treated like any other committee on the DDA. Hewitt indicated his view was that it would be the mutually beneficial committee’s work going forward.

Hall asked why it had not been done this way in the past. The assumption was, said Hall, that the DDA had a committee and that the city had a committee and that those committees would meet to work out a deal, and that they would be treated like any other committee and everyone would get invited to the meetings. She asked why it had not happened that way over the last year and a half.

Hewitt replied it was because the board had designated a committee to deal with it. Hall asked again why the meetings had not been made available and accessible to other board members. Hewitt indicated that he was not aware of any board member being barred from any meeting or who had made a request to be at any meeting. Hall responded by asking how they were supposed to know that they could attend a meeting, if they were never told that the meetings were taking place. “I hate to sound all snarky,” she said, but you can’t ask to be a part of a meeting that you don’t know is happening.

Hewitt countered by asking Hall if she’d inquired about when the meetings were going to be. Hall indicated that she had asked, after she had found out that a meeting was going to take place. And of the several people she had asked, Russ Collins had been the only one who was forthcoming with information – which she said she appreciated.

Clark came back to the point of whether there had in fact been a meeting of the mutually beneficial committee. Russ Collins said it was a meeting of the “working group.” Clark asked if the mutually beneficial committee was allowed to call working groups into existence and to invite whoever they wanted and to exclude others.

Russ Collins noted that Clark had explored the exact line of questioning at the operations committee meeting. Embedded in the language of the resolution, said Collins, was a very clear statement that because they would be actually negotiating terms, everything would be open to the public and available to DDA board members.

Hall allowed that she and Clark had been very annoying about the question of what was and was not a committee. But she noted that they were asking the entire board to trust that giving over the $2 million will be a starting point to going forward and working out an agreement. Her point was this: How could they trust that that would happen, when they had already had a certain amount of trust in the process up to this point, which had turned into something that they could not trust.

She returned to the fact that there was an understanding that there would be a relative openness. This did not mean, she said, that if she asked if there was a meeting, she would be told that there is a meeting so that she could be there. Openness means that you announce there is a meeting, and that at every board meeting when the committee is to report, there would be a report and that there would be an announcement of when the next committee meeting would be, she said. This did not happen, she stated. “You are asking for our trust, and I cannot give you my trust.” Hall allowed that she sounded even to herself like a broken record.

Collins noted that the resolved clause included language about meetings once a month going forward. And these meetings would be open to the public, he said. Hall told Collins said she understood that, but asked how she could believe that a different agreement would be not be worked out by a working group. Collins told Hall that Clark had brought forward that same concern aggressively and appropriately at the operations committee meeting and that the language in the “resolved” clause of the resolution about the monthly meetings happening publicly was the result of Clark’s concern.

Collins said he did not know what else could be done except to go back in time. Hall said she could not trust the process going forward even though it was clearly written in the resolution. Things had been clearly written in the past, she said.

Clark asked Sandi Smith if she or anyone else on the city council was planning to bring forward a resolution that would be worded similarly to a DDA’s resolution. Clark noted that they did not have the ability with their resolved clause to compel the city council representatives or the staff to attend any of the meetings. Previously, they’d had two corresponding resolutions establishing the mutually beneficial committees, and they were similarly worded, Clark noted.

Smith told Clark that she had not really thought about the mechanics of that. Without a council resolution, Clark said, there was nothing that compelled the city councilmembers or the city staff to attend the meetings described in the DDA’s resolution. Smith said she wanted to take some time to contemplate what he was asking.

Key $2 Million Issue: Organizational Identity

The comments of Roger Hewitt and Leah Gunn at Wednesday’s board meeting about the city’s 2002 decision to allow the DDA to collect parking meter revenues could be seen as an answer to the question: Whose $2 million is it, anyway? Their answer was clear – the city’s. But those comments also touched on a larger issue that board members discussed: What is the DDA’s relationship to the city and how does the city relate to the DDA’s mission?

Joan Lowenstein gave an emphatic defense of the idea that the DDA was a part of the overall organization of the city of Ann Arbor. She noted that the mission of the DDA is rather broad. For example, she said, part of the Ann Arbor DDA’s mission is affordable housing – it’s one of the four budget funds. But affordable housing is not listed in the DDA statute, she noted. Yet the Ann Arbor DDA had decided that that was going to be a part of their mission.

Lowenstein concluded that there were all kinds of things that the DDA could include in their mission of strengthening the downtown and attracting investment in the city. Bolstering the budget of the city in this kind of situation, which everyone agrees is dire, is within that mission, she concluded.

Lowenstein said she found it distressing to hear the kind of “us and them” discussion. It’s not us and the city but rather it’s all the city.

Mayor John Hieftje said the idea that the DDA was somehow a separate organization, that it was somehow autonomous, went back to sometime in the mid-1990s. So he wanted to make the point that the city council had the ability to create DDAs with a simple six-vote majority and also had the ability to end DDAs with a simple six-vote  majority. It seemed to him that the DDA was indeed an “arm of the city” and should be stepping up and doing what they can to aid the city at a time of the worst financial crisis that they’ve have seen in their lifetimes.

Around a year ago at the March 1, 2009 Sunday night caucus, Hieftje had compared the DDA to the city’s planning commission:

As far as being “a part of the city of Ann Arbor,” Hieftje said the DDA was “no different from planning commission except that they had their own funding stream” – the tax increment financing (TIF) district.

Regarding the legal aspect of city council’s ability to dissolve DDAs, Boren said he’d heard it mentioned in passing or as a veiled threat, but he did not feel like that would be a slam dunk, legally. He allowed that he was not a municipal lawyer. [Boren is, however, an attorney.] Boren said he’d spoken to the DDA’s legal counsel about it, and he was not convinced that a DDA could be easily dissolved. He pointed to the 30-year plan that had been recently adopted, which had been accompanied by an extensive public process.

The state’s enabling act says that when the DDA has completed its mission, the city council shall disband it, Boren stated. It does not say that the city council can for any reason or for no reason disband the DDA. He said he hoped that to the extent that any of the discussion about whether the city could disband the DDA was supposed to be a veiled threat, he could defuse that threat.

Hieftje said he did not mean it to be a veiled threat at all, but was using it to illustrate the idea that the DDA was in fact a part of the city. He said there were people in the community who would like to end the DDA tomorrow and that he was constantly standing up against that. He said the DDA served a very useful function and he would not be in favor of disbanding it. But he just wanted to illustrate the fact that the DDA did serve at the pleasure of the city council.

It was a point that Hieftje had also chosen to make at the city council’s May 3, 2010 meeting as well – three days before – when Susan Pollay, executive director of the DDA, had appeared before the council to answer questions about DDA bylaws revisions.

Boren concluded the deliberations by making clear that in his remarks he had not meant to accuse the mayor of making a veiled threat.

Present: Gary Boren, Newcombe Clark, Jennifer S. Hall, Roger Hewitt, John Hieftje, John Splitt, Sandi Smith, Leah Gunn, Russ Collins, Keith Orr, Joan Lowenstein.

Absent: John Mouat.

Next board meeting: Noon on Wednesday, June 2, 2010 at the DDA offices, 150 S. Fifth Ave., Suite 301. [confirm date]