City Accepts $2 Million, DDA to “Retreat”

At its May 5 board meeting, the Ann Arbor Downtown Development Authority approved a $2 million payment to the city of Ann Arbor. And about two weeks later, at its May 17 meeting, the city council used the additional revenue in the city’s FY 2011 budget to help reduce the number of planned layoffs in its police and fire departments from 35 to 5.

The $2 million payment was based on a term sheet that a “working group” of councilmembers and DDA board members had put together out of public view over the first four months of the year. The term sheet was adequate to convince a 7-member majority of the 12-member DDA board that the $2 million should be paid by the DDA to the city in advance of a long-term revision to the city-DDA contract, under which the DDA manages the city’s parking system.

The parking contract was most recently renegotiated in 2005 and provided for a maximum payment by the DDA to the city of $10 million over the period from 2005 to 2015. The city drew $10 million in the first five years and had requested in January 2009 that the DDA open discussions to renegotiate the contract.

With the term sheet now out in the open, it’s clear that its content is problematic for councilmembers and DDA board members who were not part of the working group that produced it. Several councilmembers and DDA board members alike have expressed strong opposition to one of the key ideas in the term sheet – that the DDA would assume responsibility for parking violations and other code enforcement.

But based on the term sheet discussion at the May 12 meeting of  DDA’s partnerships committee, the piece of the term sheet of most interest to DDA board members is one that is also the most politically controversial: The DDA would be acknowledged as the engine for developing city-owned land in the DDA district.

The DDA partnerships committee conversation on May 12 came against the backdrop of recent questions raised by the mayor and the city council about what kind of legal authority a DDA has in the context of the city’s system of governance.

And the outcome of the partnerships committee meeting was a decision to hold another full board retreat, this one on May 28 at 2 p.m. at the DDA board room. The general topic of the retreat, which is open to the public, will be the term sheet. The DDA already held its semi-annual retreat about two months ago, on March 16.

Before reporting on some of the deliberations at the DDA’s May 12 partnerships committee meeting regarding the term sheet, this article first takes a look at some of the recent local conversation about the legal powers of the DDA. The deliberations at the partnerships committee are divided into a couple of subheadings, covering the public accessibility of the process up to now and in the future, as well as DDA board member views about what the mission of the authority should be: parking or development.

DDA Powers

Over the last year, the status of the DDA in the context of the city’s governance has received active discussion. There are also a couple of precedents for the exercise of city power over a DDA worth considering – one involving the city of Ann Arbor in 2007, and another just a couple weeks ago in Royal Oak. In that context, it’s also worth reviewing some key elements of the state statute that allows downtown development authorities to be created in the first place.

DDA Powers: Discussion

At the May 5, 2010 meeting when the DDA approved the $2 million payment to the city, DDA board member and former city councilmember Joan Lowenstein spoke in general, not legal, terms about the relationship between the city and the DDA. From The Chronicle’s meeting report:

[Lowenstein] 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.

At that same meeting, mayor John Hieftje portrayed the idea that the DDA was somehow a separate organization as one that could be traced to the mid-1990s. In rejecting that idea, he introduced the specter of the summary dissolution of the DDA by the city council:

So [Hieftje] 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” [...]

The fact that the city council controls the DDA via its confirmation of appointments to the board was a point that Hieftje had also chosen to make at the city council’s May 3, 2010 meeting. On that occasion, Susan Pollay, executive director of the DDA, had appeared before the council to answer questions about DDA bylaws revisions.

Also at the city council’s May 3 meeting, Stephen Kunselman (Ward 3) had mooted the question of the DDA’s relationship with the city by asking Pollay if she was a city employee. From The Chronicle’s account of that meeting:

Kunselman asked Pollay if she was a city of Ann Arbor employee. Pollay allowed that it was an interesting question but said she did not believe so. She indicated that she was an employee of the DDA, but all of the DDA staff follow all of the city rules and the paychecks come through the city finance office. She said they actually did not take a lot of time reflecting on the question. They function as if they were a part of one whole organization.

Pollay indicated, however, that she worked at the pleasure of the DDA board. Her job, then, was to make sure that she met their expectations and goals, as expressed in their resolutions. Mayor John Hieftje added that the board of the DDA in a very real way serves at the pleasure of the city council – given that the city council appoints DDA board members. “So you can feel better about that,” he told Kunselman. Quipped Pollay, “I’m not sure I do!”

And a little over a year ago, during the March 1, 2009 Sunday night caucus, Hieftje had compared the DDA to the city’s planning commission, which serves almost exclusively as an advisory body to the city council:

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.

The one situation in which the planning commission stands on equal footing with the city council is the adoption of master plans for the city. The two bodies must adopt the same master plan.

DDA Powers: Recent Examples

Included in The Chronicle’s report on the city council’s May 17, 2010 meeting, when it approved the FY 2011 budget, was a question that Stephen Kunselman (Ward 3) raised: Did the city council even need a resolution from the DDA to authorize payment of $2 million to the city? Could the city simply move the money from the DDA’s fund to its own fund as part of the budget amendment process?

While there was not a clear answer given to Kunselman’s basic question, The Chronicle’s May 17 meeting report includes a vignette from 2007, when the city council reached into the DDA’s budget with an amendment to the overall city budget:

While the topic of the city’s authority with respect to the DDA budget was not explored further at the council meeting, it’s worth reviewing a piece of history from 2007, when the council passed its FY 2008 budget. That year, one of the budget resolutions approved by the council reached into the DDA’s budget and reduced an allocation for capital expenditures within the DDA’s TIF (tax-increment financing) fund. [The city calls this fund 0003.] From the May 21, 2007 city council minutes:

[FY 2008 budget] Amendment 11
Resolved, that the Downtown Development Authority fund (0003) expenditure budget be decreased by $1,600,000 to reduce the appropriated reserves for future capital construction projects.

On a voice vote, the Mayor [John Hieftje] declared the motion carried with one dissenting vote made by Councilmember [Joan] Lowenstein.

Based on that vote, it appears that the city council has in the past asserted some direct control over the DDA’s budget.

More recently, this month the city of Royal Oak enacted a rule that requires all Royal Oak DDA actions to be subject to approval by the city commission. But that rule may not stand legal scrutiny. From a Crain’s Detroit Business article by Chad Halcom:

Lawyers and Royal Oak officials said a city code amendment approved last month to make all DDA decisions subject to the approval of the City Commission is without precedent and may be open to a legal challenge.

The commission adopted the amendment after the DDA gave a $300,000 tax credit inducement March 24 to Emagine for its $19 million movie theater, bowling alley and entertainment complex proposed at 11 Mile Road and Troy Street. The credit helps the company become eligible for state tax incentives.

DDA Powers: Statutory Authority

The existence of the Ann Arbor Downtown Development Authority is based on state level legislation (the “enabling legislation”) that was originally passed in 1975 to allow the creation of such authorities and the tax increment finance districts that fund them. [For background on tax increment finance districts (TIFs) see Chronicle coverage: "Budget Round 5: Economic Development"]

At the May 5 DDA meeting, reacting to Hieftje’s remarks about how the city could dissolve the DDA with a six-vote majority, DDA board member Gary Boren’s response to the mayor was based in part on the Downtown Development Authority Act 197 of 1975. From The Chronicle’s report of that meeting.

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.

From the act itself:

Sec. 30. (1) An authority that has completed the purposes for which it was organized shall be dissolved by ordinance of the governing body. The property and assets of the authority remaining after the satisfaction of the obligations of the authority belong to the municipality.

At the May 5 meeting, Hieftje indicated that he has resisted the calls from some in the community to dissolve the DDA. One of those calls came in the form of an email sent May 7 by Ted Annis to multiple parties, including city councilmembers:

Is it time for the DDA to become the DAC (Downtown Advisory Committee), which is to say that its status as an Authority would be eliminated and it would be folded into the City? City Council can do this.

It seems that the Mayor and City Council have enough on their plates without having to deal with an unaccountable, contentious quasi government-within-a-government.

Based on Halcom’s reporting in Crain’s Detroit Business, however, it’s not clear that the city council has the powers Annis claims it does:

Prior case law is unclear on whether a city or township can convert its DDA to a recommending body with no decision-making power of its own, said Michael Bogren, governmental law practice group leader at Bloomfield Hills-based Plunkett Cooney P.C.

Among the key powers that the enabling legislation gives a DDA is the ability to own property as a separate body corporate:

[...] An authority shall be a public body corporate which may sue and be sued in any court of this state. An authority possesses all the powers necessary to carry out the purpose of its incorporation. The enumeration of a power in this act shall not be construed as a limitation upon the general powers of an authority. [...]

The board may: [...] (h) Acquire by purchase or otherwise, on terms and conditions and in a manner the authority considers proper or own, convey, or otherwise dispose of, or lease as lessor or lessee, land and other property, real or personal, or rights or interests in property, which the authority determines is reasonably necessary to achieve the purposes of this act, and to grant or acquire licenses, easements, and options with respect to that property.

Partnerships Committee Deliberations

The ability of DDAs to own real estate, as specified in the DDA Act, was a key point made by DDA board member Newcombe Clark during partnerships committee deliberations about the term sheet on Wednesday, May 12. Clark related the question of the DDA buying land to the political realities of the situation – a topic that received a lot of discussion in its own right.

The key element of the term sheet about which there seemed to be consensus among DDA board members who were present at the partnerships committee is a brief one at the end of the document [emphasis added]:

Development of City-owned Property Within the DDA District

The working group envisions that the DDA would serve as a visioning, initiation and implementation engine for development of City-owned property within the DDA district. The nature and extent of this role will be discussed, considered and, if approved, implemented in parallel to any omnibus agreement, but would not be part of that agreement.

Partnerships Deliberations: DDA as Land Owner

It was near the end of the committee discussion when Newcombe Clark addressed the idea of the DDA owning land. He stated that a lot of the wrangling about the parking agreement as a mechanism for transferring the $2 million could have been avoided if the DDA had simply bought land from the city.

The DDA could have said, “Here’s $2 million and we’ll buy two lots,” or one lot – like the Palio’s lot at William and Main, suggested Clark. [The parcel currently serves as a surface parking lot.] Even though the DDA had elected not to do that, and instead decided to renegotiate the parking agreement, Clark said he thought that land purchase was still worth exploring.

Clark contended there were political reasons why that had not happened. The political reality, he said, was that some people are afraid of the idea of the DDA actually developing city-owned lots.

An interaction between Clark and Sandi Smith – who serves on both the DDA board and city council – unfolded about what zoning regulations would apply to parcels that might be sold to the DDA. Clark contended that the city-owned parcels downtown are not zoned according to the recently enacted A2D2 framework. However, he said, in theory you could sell them and say they’re zoned according to the A2D2 framework – and you’d get buildings out of it that conformed to A2D2 zoning. That would make it easier, Clark said, than going through the approval process for a PUD (planned unit development).

Smith questioned Clark’s contention that the city-owned parcels downtown were not zoned according to the A2D2 framework – she thought the A2D2 zoning regulations were overlaid on top of the public land designation. If that’s the case, Clark concluded, that would actually make it easier for the city to sell land. [Wendy Rampson, head of planning for the city, responded to an emailed query from The Chronicle, clarifying that the D1 zoning designation, which is part of A2D2, does not overlay public land designations – but the Palio's lot specifically is zoned D1, not public land.]

If a city-owned parcel is not a PUD that goes through a request for proposals (RFP) process, and the city were to simply sell the land, then maybe the DDA would be the one to buy it, suggested Clark. Or someone else buys a city-owned lot, and rents it until they are ready to develop it – but at least they’d now be paying property taxes.

At the partnerships committee meeting, Clark put the politically-charged issue of the DDA developing city-owned land in the context of the “working group” process that produced the term sheet – it had taken place out of public view. With the idea that “sunlight is the best disinfectant,” he said, if there are things the DDA board is talking about, it’s especially important that it be an open process.

Clark stated that avoiding the political implications of the DDA developing city-owned land was not a good idea. If political implications are a true barrier to moving forward, he contended, then it needed to be discussed openly, like the board discussed everything else – to see if that was a true boundary or if there was perhaps a workaround. Avoidance, Clark concluded, was not helpful.

Clark had been responding, in part, to comments made earlier in the meeting by DDA board member John Mouat, who was absent from the board’s May 5 meeting when it approved the $2 million payment to the city. Earlier in the partnerships meeting, Mouat had lamented what he concluded was an increased “polarization” on the board, based on media accounts he’d read about the meeting. And Mouat further suggested that the board refrain from the sort of politics that he felt those accounts showed.

So in response to Clark’s call not to avoid politically-charged issues and to discuss them openly, Mouat asked, “Did I suggest avoidance?”

Partnerships Deliberations: Politics and Open Discussions

Mouat had not explicitly suggested avoidance of the issue, but did seem to object to the self-described anger that had been conveyed by Jennifer Hall at the DDA’s May 5 board meeting over the fact that the conversations that produced the term sheet had taken place out of public view.

By way of brief background, that renegotiation of the parking agreement was originally conceived to have taken place in a publicly accessible process through conversations between two committees – the two so-called “mutually beneficial” committees – appointed by the city council (on July 20, 2009) and the DDA board (March 4, 2009), respectively, with the explicit charge to take on that task. [More detailed background here: "DDA to Tie $2 Million to Public Process"]

However, the two committees did not renegotiate the parking agreement. Instead, conversations between the city and the DDA took place out of public view through the early part of 2010 in the form of a “working group” – which produced a term sheet as a basis for future negotiations.

At the partnerships committee meeting on May 12, Hall attempted to win the committee’s endorsement of a resolution to be brought before the entire board. The resolution would have given the DDA’s mutually beneficial committee the status of a “standing” committee of the board, in order to provide some assurance that DDA board members and city councilmembers would make their meetings open to the public. The city council, at its May 17 meeting, stripped out language about transparency from its own resolution regarding future conversations with the DDA, with some councilmembers contending that such language was redundant.

The draft resolution circulated by Hall at the partnerships committee meeting received no traction from the committee, which was attended by 10 of 12 DDA board members: Jennifer S. Hall, Gary Boren, Roger Hewitt, John Mouat, Keith Orr, Russ Collins, John Splitt, Sandi Smith, Newcombe Clark and Joan Lowenstein. [The only DDA board members not present were Leah Gunn and John Hieftje.] The group was joined by city council representatives to the DDA’s partnerships committee, Tony Derezinski (Ward 2) and Margie Teall (Ward 4).

Only Clark and Hall raised their hands in response to executive director Susan Pollay’s request for a show of support.

Partnerships Deliberations: What Exactly Does the DDA Want?

Both resolutions passed by the DDA board and the city council specify that there will be monthly meetings and that there will be monthly reports to each body. But independently of the mechanism of the conversations, the central question that the DDA now faces is how to proceed with the substance of the term sheet.

Towards the beginning of the term sheet discussion at the May 12 partnerships committee meeting, Susan Pollay, executive director of the DDA, floated the basic question of what the DDA should be.

Pollay suggested that it was important not just to talk about what was on the list, but also about what was missing from the list. She said she’d had a 14-year tenure at the DDA, and she had come in at a time of crisis – the parking decks were falling apart and the DDA had taken them over from the city, which was how the DDA had gotten into “the parking business.”

The DDA had fixed the decks, continued Pollay, and they had hit a point where they then had asked, Now what do we do? At that point they had gone back to the organization’s fundamental roots, she said. And that was something they should do again, she said. “We are here as a development authority,” she said. “We are not a BIZ (Business Improvement Zone), we are not a merchant association, we are a development authority.”

Pollay reported that she had spent some time in Detroit the previous Friday visiting the Detroit DDA, which is actually doing development. She reported that the Detroit DDA is buying buildings and rehabbing them, or it’s demolishing them and selling them – it’s a development authority.

Pollay said the Detroit DDA was not encumbered by all the things that the Ann Arbor DDA had encumbered itself with. They do development. They are there to encourage development. And what was breathtaking about it, she said, was how unencumbered they are: “They know what they are there to do, and they’re doing it.”

Pollay cautioned that the Ann Arbor Downtown Development Authority, through expediency, found itself compromising its way into all sorts of areas. And maybe a place to begin, she said, was to go back and think about why the development authority was there in the first place. “Fundamentally, at the end of the day,” declared Pollay, “our measure of success should be as a development authority.”

Pollay said as she looked around, she did not see anyone redeveloping public land in the city. She said that she saw people doing services and code enforcement, but she saw no one doing redevelopment. She concluded by saying she was throwing that out as an idea for the committee to react to, and to start a dialogue.

Margie Teall said she totally agreed with Pollay. She said that she and Russ Collins had talked to city administrator Roger Fraser about that. Teall felt Collins had some great ideas in this area and that they should move forward. But there were other pieces on the term sheet, she said, that were there because they felt like they could move forward more quickly with those. But development of city property was definitely something she wanted to see the DDA go ahead with.

There was resistance on the part of most DDA board members to the items on the terms sheet that stated the DDA will absorb responsibility for aspects of code enforcement and provide various services downtown. A notable exception was Roger Hewitt, who had been part of the working group that had produced the term sheet.

Keith Orr acknowledged it was important that enforcement be part of the same system. But perhaps long-term, he said, being a parking authority is not part of the DDA’s mission, and maybe that operation gets spun off into a separate parking authority. But he felt it was important to assemble the management and enforcement all in one place.

The least developed part of the term sheet, Orr said, was the part about the development of city-owned land. If there were truly a functional development piece in it, he said, that in itself is worth working on. That was, he felt, the true purpose of the DDA. He said the reason the DDA was building a large underground parking lot was so that the downtown area would not need a lot of surface parking lots – that would be key to creating a vibrant streetscape downtown. He said his first thought on the non-parking code enforcement was, “Oh, well I guess that makes sense because the people who are going around doing the parking enforcement can do other code enforcement, too.”

But the more he thought about it, Orr said, the more he thought how he did not even want that piece. Two reasons he gave for not wanting it were: (i) non-parking code enforcement could not be dealt with in the same customer-service way that the DDA wanted to implement parking code enforcement; and (ii) the DDA had no control over the code – it would make them the “bad guys.” He feared that the DDA might wind up having to enforce ordinances that they not only did not believe in, but also felt counter to what they were doing.

Board member Roger Hewitt – owner of the Red Hawk restaurant as well as Revive and Replenish in the ground floor of the Zaragon Place building – offered a counterpoint. The part about services and code enforcement was something that he invested in for 25 years. He suggested that if you talk to a business owner in the campus area, you would understand the implications. He noted that the city had put in various services – they used to sweep the sidewalks, they used to water plants and trim the trees.  There are lots of things that the city used to do, when they were “flush,” he said.

By “code enforcement,” Hewitt said that he was talking about sidewalk cafes, alleys, trash and those sorts of things that are now handled on a complaint basis – but are frequently not even handled when complaints are made. Particularly in the South University area, he said, there is virtually no code enforcement done. He had personal experience with that, he said. Nobody is responsible for what happens on the sidewalks or in the alleys, Hewitt contended.

There is no person at the city, there is no person at the DDA, who is assigned to be concerned about code enforcement, Hewitt said. There is a gap, he said, between what the police do and what the parking enforcement people do and what needs to get done to make the streets in the alleys and the sidewalks look good and attractive. If it looks good and is attractive to people, they’ll will feel safe.

Aggressive panhandling has been an issue, Hewitt said, ever since he’d been downtown. And it’s mostly an issue in the campus area, he said, because the students are an easier touch than the patrons of Main Street. Now that the panhandling had started to move to Main Street, everyone is starting to talk about it, but in the South University area nearer to campus, Hewitt said, they had been dealing with it for decades.

So the parts about services and code enforcement were in the term sheet, Hewitt said, because nobody else seems to care about it. If the DDA does not care about it, he warned, nobody else is going to. That had been his experience of 25 years, he said, and that’s why those parts are in the term sheet. He said he recognized that it was a change in direction for the DDA and, as such, there would have to be a consensus or a significant majority that would support it. And he allowed that the support on the board might not be there. But he said he wanted to raise the question: If they did not do it, then who would? Or does it simply fall between the cracks as it always has?

Partnerships Deliberations: Beat Cops

At the May 5 DDA board meeting, the board remanded a resolution to the partnerships committee on reserving of funds for a possible contract with the city to provide downtown beat cops. The resolution had been brought to the board by Newcombe Clark via its operations committee.

At the May 12 partnerships committee meeting, Clark said he was content not to press the resolution forward unless there was an attempt to grab the funds for some other purpose. The funds in Clark’s resolution on beat cops would be reallocated in monthly $60,000 increments from the WALLY north-south commuter train project, between Washtenaw and Livingston counties. There is a total of $335,000 reserved in the DDA budget for WALLY.

Outside the DDA: Objections to Term Sheet

Opposition to the focus on parking plus other code enforcement, plus provision of city services by the DDA, is not limited to the DDA board itself. At the city council’s May 16 caucus – as well as at the May 17 meeting – mayor John Hieftje, who also sits on the DDA board, expressed his feeling that the city’s community standards officers could enforce the parking code with the same customer service attitude that the DDA wanted to see.

That point of view was also expressed by the city’s chief of police, Barnett Jones, at the city council’s May 10 meeting on the budget:

Jones said that the DDA wanted to manage the entire parking system, including enforcement, and that they wanted to handle enforcement in their specific way. He said he felt that his department could have handled it in the way that the DDA wanted to handle it. That, however, he characterized as a “business decision.” In response to Kunselman’s question about whether it could legally be done, he stated that it could be.

At the May 16 caucus, Stephen Kunsleman (Ward 3) also stated his opposition to the DDA taking over enforcement, raising the specter of a “shadow government.” At the council’s May 17 meeting, he stated that he would not be voting to abdicate his responsibility to the community’s health, safety and welfare by contracting it out to a third party.

Objections to the idea of the DDA enforcing parking and other codes were also heard at the council’s May 17 meeting from a representative of the AFSCME union – community standards officers are members of AFSCME. They see the city’s transfer of responsibility and jobs related to parking enforcement as a violation of their union contract.

DDA Retreat Redux

One outcome of the partnerships committee meeting was the scheduling of an additional retreat of the full board. It’s to be held Friday, May 28 at 2 p.m. at the DDA offices, 150 S. Fifth Ave., Suite 301. The general topic of the retreat will be the term sheet. The DDA already held its semi-annual retreat about two months ago on March 16. Minutes from that spring 2010 retreat are available from the DDA’s website.