DDA Finalizes Its Side of Parking Deal

Ann Arbor Downtown Development Authority special board meeting (May 27, 2011): At a special DDA board meeting held at noon on Friday, board members voted to give final approval to a contract under which the DDA would continue to manage the city’s public parking system. The vote was unanimous among the 10 board members who attended. Absent were Gary Boren and Newcombe Clark.

The financial part of the contract calls for the city to receive 17% of gross revenues from the public parking system, and would have an initial term of 11 years, with one renewal option for another 11 years. That would end the contract in 2033, which coincides with the DDA’s currently established endpoint.

The contract includes a new underwriting clause for the DDA’s fund balance. Key features of that clause are: (1) it’s applicable only through 2016; (2) it’s triggered if combined DDA fund balance fall below $1 million; (3) the trigger is evaluated based on the annual audit of DDA books in September or October, for the previous fiscal year; (4) if underwriting were triggered, it would take the form of reducing existing payments that the DDA makes to the city; (5) the city’s liability is limited to $1 million annually and $2 million cumulatively; and (6) any money the city is deprived of through this underwriting would be restored to the city, at whatever point the DDA’s cumulative fund balance reaches $4 million.

After brief deliberations, the DDA board voted unanimously to ratify the contract, which now includes the underwriting clause. [.pdf of ratified draft contract]

With that vote, the DDA board also approved a new contract clause that specifies how the DDA board and city council will handle a contractually required consultation between the two groups, in conjunction with parking rate changes. The consultation by the DDA will now be a required agenda item at annual joint working sessions between the DDA board and the city council. Currently, the DDA proposes rate changes, which are automatically enacted, unless the city council vetoes them. The new contract stipulates that the DDA would have sole authority to set rates.

The city council may now ratify the parking contract on Monday, May 31, which would help settle part of the city’s revenue issues in its fiscal year 2012 budget. It would allow the council to finalize its budget on that same evening. [For additional background, see Chronicle coverage: "Ann Arbor Council Defers Action Again"]

Councilmembers Sabra Briere (Ward 1) and Stephen Kunselman (Ward 3) sat in the audience of the DDA’s May 27 meeting. On May 31, the contract could face stiff opposition from at least those two, and possibly other councilmembers. After the DDA’s May 27 board meeting, Kunselman characterized the underwriting clause to The Chronicle as a “no-layoff clause for the DDA.”

Another lingering DDA issue that could result in discussion not just by the Ann Arbor city council – but also by the Washtenaw Community College board of trustees, the Washtenaw County board of commissioners, and the Ann Arbor District Library board – is the return of excess TIF capture by the DDA.

Parking Contract: Background

The DDA board had initially ratified the parking contract at a special meeting held on May 20. The board’s resolution at that time included a contingency that the city of Ann Arbor would provide an amendment to the contract that adequately underwrites the combined DDA fund balance.

The city council was expected to ratify its side of the parking agreement on May 23, at a continued session of a prior meeting that had begun on May 16. The council’s ratification was expected to include the required contingency clause. But the council instead gathered on May 23 and immediately voted to recessand continue the same May 16 meeting again – until May 31. At a May 25 meeting of two “mutually beneficial” committees – one from the city council and one from the DDA board – the committees hashed out additional contract language.

Board chair Joan Lowenstein led off the May 27 DDA board meeting with confirmation from DDA deputy director Joe Morehouse that the meeting had been properly noticed for the public. Morehouse confirmed that the notice had been posted more than 18 hours in advance of the meeting.

Lowenstein noted that the board’s agenda included just one item. She reviewed the recent history that had led the board to convene special meetings on successive Fridays.

By way of additional background, here’s a timeline overview of the more recent history of the attempt to finalize the parking contract. The complete history dates back around two years.

• May 2, 2011 – noon: DDA board is poised to ratify a new parking contract that would transfer 17% of gross revenues from the public parking system to the city of Ann Arbor; however, the board tables the item amid concerns about possible excess TIF (tax increment finance) capture. [link]
• May 2, 2011 – 7 p.m.: City council strikes the parking contract approval from its agenda. [link]
• May 16, 2011: City council begins meeting at which it intends to approve FY 2012 budget; but the council recesses before acting on the budget, to continue the same meeting on May 23. [link]
• May 20, 2011: DDA board convenes a special meeting; the board approves the contract, but in light of a $470,000 obligation due to excess TIF capture, they include a contingency on fund balance underwriting by the city. [link]
• May 23, 2011: City council convenes the continuation of its May 16 meeting, but immediately recesses, likely in order to prevent any discussion of a proposal from Stephen Kunselman (Ward 3) to return responsibility for the public parking system from the DDA to the city of Ann Arbor’s public services area. [link]
• May 25, 2011: “Mutually beneficial” committees from the city council and the DDA board meet and finalize language on fund balance underwriting and required consultation with the city council on rate changes. [link]
• May 27, 2011: DDA board convenes a special meeting and ratifies the contract.
• May 31, 2011: City council has scheduled a second continuation of its May 16 meeting.

At the DDA’s May 27 meeting, Lowenstein reminded the board that they had approved the parking contract with the city – but it was contingent on accepting a provision to underwrite the DDA’s fund balance to prevent the balance from getting too low. Lowenstein reviewed how the two mutually beneficial committees had then met and drafted a revision to the contract that would achieve that underwriting. Ratification of the underwriting clause was the purpose of the meeting, Lowenstein said.

Leah Gunn moved an additional amendment to the contract specifying how the periodic consultation on parking rates would work between the city and the DDA.

Bob Guenzel asked Roger Hewitt to go over both changes to the contract.

Parking Contract: Underwriting Clause

Hewitt noted that the first amendment addresses “backstopping.” The “fund balance” means the combined fund balance, not including the DDA’s housing fund. Hewitt said the amendment stipulates that if that combined fund balance falls below $1 million as confirmed by the annual audit, then the DDA may defer payments to the city up to $1 million in a given year, to a combined total of $2 million. Hewitt noted that the clause applies just for the first five years of the agreement.

From the contract:

4. Financial Obligations of the DDA
…
b. Through Fiscal Year 2015-16, should the DDA’s combined fund balance (excluding the Housing Fund) (“DDA Fund Balance”) fall below ONE MILLION DOLLARS ($1,000,000), as shown by the DDA’s annual audited reports, then DDA may reduce amounts payable to the City under Section 4(a) by amounts equal to the difference between the DDA Fund Balance and ONE MILLION DOLLARS ($1,000,000) (“Withheld Payments”), provided, however, that Withheld Payments shall not exceed (i) ONE MILLION DOLLARS ($1,000,000) in any given fiscal year; or (ii) TWO MILLION DOLLARS ($2,000,000) in the aggregate. The DDA agrees that prior to June 30, 2016, its discretionary grants and projects will not exceed the cost proposed in the DDA 10 Year Plan presented to the DDA Board at its meeting of May 20, unless otherwise approved by City Council.

If at any time during the Term of this Agreement, the DDA Fund Balance exceeds FOUR MILLION DOLLARS ($4,000,000), as shown by the DDA’s annual audited reports, then the DDA shall pay to the City an amount equal to the aggregate Withheld Payments, provided, however, that DDA may delay any portion of such payments that would reduce the DDA Fund Balance below FOUR MILLION DOLLARS ($4,000,000) until such time as the making of such payment would not reduce the DDA Fund Balance below FOUR MILLION DOLLARS ($4,000,000).

Hewitt noted that the DDA would make up deferred payments to the city when the fund balance gets above $4 million.

Keith Orr drew out the fact that the ability to defer payments applies only to the first five years of the contract, but repayment continues for the duration of the contract.

Guenzel asked Hewitt to elaborate on the part of the clause that limits DDA actions. Hewitt explained that the DDA has some amount of discretionary spending in its 10-year financial plan. That discretionary spending is currently scaled back. That’s essentially what was done at the DDA’s retreat, Hewitt said. What remains in the 10-year plan by way of discretionary spending includes support for the getDowntown go!pass program and consultants on redevelopment of downtown city-owned surface parking lots.

Russ Collins chimed in that the energy saving grants are also included in the discretionary spending. Collins noted that the clause limiting DDA action is meant to ensure that no “rogue streetscape improvements” are undertaken. Sandi Smith noted that currently there’s $400,000 per year designated for discretionary spending. Hewitt observed that the $400,000 is not for specific projects. Guenzel pointed out that additional projects could be undertaken with city council permission.

Parking Contract: Required Consultation

Roger Hewitt explained that the second contract revision was related to an amendment already made to the contract at the DDA’s May 20 special meeting – it added “city council” to the set of entities with which the DDA would consult before enacting any parking rate changes.

2. Operational Powers and Responsibilities Within DDA Parking Area
…
k. Subject to Article 8, applicable law, and City permitting regulations, and after consultation with the City Administrator, City Council, and downtown stakeholders, which may from time to time be identified by either the City or the DDA, the DDA shall determine the rates and hours of parking in the Municipal Parking System and file such rates and hours with the City Clerk and otherwise publish such rates in the same manner as City ordinances, which rates and hours shall take effect thirty (30) days after said filing.

So the amendment that the DDA considered on May 27 basically stipulated that a consultation with the city would come in the form of an agenda item for a standing joint work session established in the contract:

9. Periodic Consultation
…
b. Joint Working Session. As part of the annual established calendar for City Council Working Sessions, City Council shall designate one working session in the fall of each calendar year as a joint working session with the DDA. The agenda for the working session shall be prepared by the City Administrator in accordance with Council Rules and in consultation with the Executive Director of the DDA, provided that such agenda shall include
(i) the DDA’s evaluation of any meter parking rate increases effected during the foregoing year, including, without limitation, the public input associated therewith; and
(ii) a discussion regarding any then-contemplated future meter parking rate increases, which discussion shall satisfy the DDA’s City Council consultation obligation under Section 2(k). It is recommended that a portion of such agenda be dedicated to a discussion of operations under this Agreement and the utility of creating a joint study committee to address areas of mutual interest.

Keith Orr observed that the working session is basically a vehicle for satisfying the provision that requires consultation. Hewitt confirmed that was the case – it’s in the contract so that the city council and public is well-informed about what the DDA intends to do with parking rates and what the rationale is for any changes. Russ Collins said that this communication is in addition to the kind of discussions the DDA would have in public view anyway.

Sandi Smith, who serves on the DDA board as well as on the city council, observed that a consensus had finally been achieved. She thanked Hewitt and the other members of the DDA’s “mutually beneficial” committee – Collins and Gary Boren – for their work. Joan Lowenstein added that Christopher Taylor, on the city council’s “mutually beneficial” committee, has been very helpful.

Outcome: The board voted unanimously to approve the parking contract. [.pdf of ratified draft contract]

Parking Contract: City Council Politics

The new parking contract ratified by the DDA board on May 27 may well see strong opposition on the city council at its May 31 meeting, when the council is expected to take final action on its FY 2012 budget as well as the parking contract. While the city council has formally expressed a view on the financial terms of the contract – at its April 19, 2011 meeting – it has not weighed in formally on other aspects of the contract.

The clause that underwrites the DDA fund balance, which the DDA board approved at its May 27 special meeting, is one part of the contract to which some councilmembers might object. Immediately after the May 27 meeting, Stephen Kunselman (Ward 3) – who sat in the audience along with Sabra Briere (Ward 1) – characterized the underwriting clause as a “no-layoff clause for the DDA.”

Elimination of two staff positions at the DDA is part of a proposal by Kunselman to restore responsibility for the public parking system to the public services area of the city of Ann Arbor. [The DDA has four staff members: Susan Pollay, executive director; Joe Morehouse, deputy director; Julie Uden, management assistant; and Amber Miller, planning and research assistant.] Kunselman’s proposal did not receive any discussion at the council’s May 23 session. But that was only because the council voted to recess the meeting immediately after it started. [.pdf of Kunselman's intended resolution]

As it’s currently framed and worded, Kunselman’s proposal is unlikely to achieve support from a majority on the council. But this basic concept might have some traction on the council, and to some extent even on the DDA board: Assign responsibility for the public parking system to some other entity than the DDA – perhaps a body within the city’s organization similar to the park advisory commission.

A “parking advisory commission” would review and recommend city staff-proposed parking rate changes in a fashion that is parallel to the way that the park advisory commission recommends swimming pool admission fees. That is, the “parking advisory commission” would recommend rates to the city council, which would then give them final approval.

That’s essentially how parking rates are currently handled – the DDA proposes rates to the city council, which then can veto those rates, if it acts within 60 days. Under the new contract, however, the DDA would have the sole authority to set parking rates, albeit after a required consultation with the city council. In her most recent newsletter to her constituents, Sabra Briere (Ward 1) wrote that she felt the contract language gets things backwards:

The parking agreement also removes from Council the ability to reject any change in the parking fees, and requires that the City report to the DDA on how money is spent to maintain the streets in the DDA. Some of us on Council feel that this is backwards, and that the Council should be the responsible body, not the DDA.

I agree with that.

Mayor John Hieftje, who voted for the contract on May 27 as a DDA board member, said at the May 20 special meeting of the DDA board that he thinks the votes are there on the city council to support the contract. It was Hieftje who offered the amendment requiring the DDA to consult with the city council, saying he felt a stronger majority might be achieved with that amendment.

But based on their comments made at council meetings or Sunday caucus gatherings over the last several months, five councilmembers are at least somewhat likely to vote against a contract giving the DDA sole authority to set rates: Briere and Kunselman, along with Stephen Rapundalo (Ward 2), Marcia Higgins (Ward 4), and Mike Anglin (Ward 5). All five are running for re-election this year. Currently, all but Briere will be challenged either in their Democratic primaries, or in November’s general election.

Though not impossible, it would be difficult for Hieftje to reverse his position at the council table on the vote he made at the DDA board table. That same goes for Sandi Smith (Ward 1), who also voted for the contract on May 27 as a DDA board member. And given their intimate involvement in the negotiations with the DDA as members of the council’s “mutually beneficial” committee, it would be difficult for Christopher Taylor (Ward 3), Margie Teall (Ward 4), or Carsten Hohnke (Ward 5) to vote against the contract at the council table.

Of those, the most likely to waver could be Hohnke, who has previously demonstrated a willingness to abandon his committee’s position at the council table. Specifically, on April 19 he voted with the council majority – and contrary to the committee’s advice – on a directive to the committee to pursue a contract that transfered 18% of gross parking system revenues to the city of Ann Arbor.

That leaves Tony Derezinski (Ward 2), whose vote appears to be crucial to achieving the six votes necessary for passage of the contract. Derezinski serves on the partnerships committee of the DDA, and on that basis, might be assumed to lend his support to the contract.

Excess TIF Capture: Regional Politics

An issue as yet undiscussed by any public body except the DDA is excess tax that has been captured in the DDA’s TIF (tax increment finance) district dating back to 2003. The issue was brought to light by the city of Ann Arbor just before the DDA was set to vote on the parking contract on May 2.

Although the DDA has now calculated that the Ann Arbor District Library, Washtenaw Community College and Washtenaw County should be returned a combined $473,000, if the excess is computed differently, that could have an additional million-dollar impact on the DDA’s financial picture. [Chronicle coverage: "DDA Parking Excess Taxes Still Not Done"]

Two crucial decisions underpin the DDA’s calculations: (1) They’re based on the “optimistic” TIF growth projections in the TIF plan, not the “realistic” projections; and (2) They’re based on a year-to-year calculation of excess, not a cumulative calculation.

By not using the “realistic” projections, the calculations inherently favor the DDA. The year-to-year approach to the calculations does not inherently favor the DDA – that depends on the pattern of growth in the district. In the case of the attested pattern of TIF growth in the DDA’s district since 2003, however, the year-to-year calculation favors the DDA.

For its part, the city of Ann Arbor is expected to “forgive” the $711,767 in excess TIF capture from the city – in light of TIF money previously received for city of Ann Arbor projects. But that’s also not completely certain.

And if the other taxing units – the library board, the county board of commissioners, or the Washtenaw Community College board of trustees – scrutinize the calculations, those bodies might conclude that they want to insist on a different method of calculation.

If the DDA winds up needing to return significantly more than $473,000 to those taxing units, it increases the likelihood that the DDA would need to use the “underwriting” clause in the new parking contract.

Present: Bob Guenzel, Roger Hewitt, John Hieftje, John Splitt, Sandi Smith, Leah Gunn, Russ Collins, Keith Orr, Joan Lowenstein, John Mouat

Absent: Gary Boren, Newcombe Clark

Next board meeting: Noon on Wednesday, June 1, 2011 at the DDA offices, 150 S. Fifth Ave., Suite 301. [confirm date]

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