DDA Reviews Mid-Year Financials, Parking

Ann Arbor Downtown Development Authority board meeting (Feb. 1, 2012): In the one agenda item that required formal action, the DDA board unanimously voted to award an annual management incentive to Republic Parking, the contractor that manages day-to-day operations of the city’s parking system.

The amount of the award was 90% of the total amount the board could have awarded –$45,000 of $50,000. It’s the same amount the board has awarded in each of the last three years. It’s based on a variety of criteria, including customer satisfaction surveys, independent inspections of the parking facilities, and financial performance.

February’s meeting also included a review of the DDA’s finances at the mid-point of the fiscal year – through Dec. 31, 2011. The DDA’s fiscal year runs from July 1 to June 30. Operations committee chair Roger Hewitt sketched out a picture that portrayed things unfolding pretty much as expected. Although parking revenues are currently about $125,000 under the year-to-date budgeted amount, parking revenues are projected to finish the year at around $672,536 over the budgeted amount. The gross parking revenue now anticipated for FY 2012 is around $16.8 million. But capital costs associated with the new Fifth Avenue parking garage construction are anticipated to put the parking fund expenses over budget.

Part of that parking system revenue will come from rate increases and changes in billing methods, which were approved by the board at its Jan. 4, 2012 meeting. Some of the changes will not be implemented until September 2012 – like hourly rates at parking structures and lots, which will climb from $1.10 per hour to $1.20 per hour.

But other changes were implemented starting Feb. 1, including a change in the billing method at parking structures and hourly lots – from half-hourly to hourly. The board heard criticism of the change during public commentary, from a resident who makes frequent but brief trips downtown as a patron of the downtown location of the Ann Arbor District Library. The billing change amounts to a “surcharge” on his library use of a couple hundred dollars a year, he said.

The board also heard a pitch from the developer of the 618 S. Main project, Dan Ketelaar, who is interested in financing certain elements of the project through the state’s Community Revitalization Program. That’s the successor to the state’s brownfield and historic preservation tax credit program.

The 618 S. Main project, which received a positive planning commission recommendation on Jan. 19, would be a 7-story, 153,133-square-foot apartment building with 190 units for 231 bedrooms. The idea would be for the DDA to forgo a portion of the taxes that it would ordinarily capture on the newly constructed 618 S. Main project. The DDA captures taxes from the increment in value due to new construction within its tax increment authority (TIF) district.

The board also heard a pitch from Jody Lanning, with Lanning Outdoor Advertising, for a way to finance murals on the city’s parking structures and other public buildings. The board also entertained its usual set of updates from boards and commissions.

Parking Finances

The monthly report on parking revenues and activity is a standard element of Ann Arbor DDA board meetings. The report is usually delivered by board member Roger Hewitt, and the Feb. 1, 2012 meeting was no different. But earlier in the meeting, Hewitt had already touched on the state of the DDA’s parking fund as part of the fiscal year mid-point update.

And the topic of parking revenues, as reflected in a critique of recent rate and billing method increases, came up during public commentary, too.

Parking: Overall State of the Fund

The parking fund is one of four funds in the DDA’s system of accounting. The DDA’s fiscal year runs from July 1 to June 30. The six-month update for the parking fund, reported by Hewitt, shows year-to-date revenue as slightly below the amount budgeted. Specifically, through December 2011 the system had taken in $8,392,644, but the year-to-date budgeted amount is $8,518,094. [.pdf of year-to-date FY 2012 financial picture for all funds]

Still, Hewitt said, the DDA expects to finish the year with $16,835,288 in revenue against a budgeted amount of $16,162,752. That’s a surplus of $672,536 or 4.16% more than budgeted. So by year’s end, Hewitt concluded, the DDA anticipates almost $17 million in parking revenue. Parking operating expenses are, for the moment, lower than budgeted, Hewitt said – just $2,668,055 against $4,743,996 for the year-to-date budgeted amount.

But by year’s end, the capital expenses associated with construction on the new Fifth Avenue underground parking garage are expected to put operating expenses for the parking fund $1,450,514 (or 19.37%) over the year’s budgeted operating expenses of $7,487,994. Direct parking expenses – the contract with Republic Parking, including the 17% of gross that’s paid to the city – are currently slightly under budget, Hewitt said: $3,513,189 against a $3,844,733 year-to-date budgeted amount. But he anticipated that those expenses would be right on budget by the end of the year.

Overall, by year’s end the DDA anticipates spending $835,544 more out of its parking fund than it has taken in.

Parking: Monthly Report

Included in the board’s information packet were three reports: (1) the most recent monthly report, for December 2011; (2) the report for the most recent quarter, for October-December 2011; and (3) the report for the last six months, for July-December 2011. [.pdf of parking reports July-December 2011] All three reports, said Hewitt, tell the same story. Revenues are up 9-10% compared with the same periods a year ago – which is greater than the rate increase that has taken effect since then, Hewitt said.

Patrons are also using the system in greater numbers, he said. Compared with the same six-month period a year ago, the report shows 43,696 (or 4.06%) more hourly patrons. For a year, that projects to 90,000 additional trips downtown, he said. Hewitt called them “strong numbers in an economy that’s not booming.” He said the numbers show a very strong demand for parking.

Parking: Hourly Billing – Approval

When Hewitt updated his colleagues on the parking numbers, he used a rough metric to evaluate the 9-10% increase in revenues over the period of July-December 2011, compared with the same period in 2010: If the percentage-wise revenue increase is greater than the increase expected solely from parking rate increases over the same period, it demonstrates that more total parking hours are being sold.

Until Feb. 1, 2012, that rule of thumb has not needed to factor in any changes to the time increment in the billing method. The billing method – which up until Feb. 1 was based on half-hour increments – has remained constant since 2003. But along with a a recent round of parking rate increases, approved by the DDA board at its Jan. 4, 2012 meeting, a billing method change was approved as well. Hourly parking – in structures and on surface lots – is now charged in hourly increments, not half hourly increments. Before considering the financial impact of that change, it’s worth reviewing the process used to decide rate increases.

A new contract, under which the DDA manages the city’s public parking system, was ratified in May 2011 with the city of Ann Arbor. The terms of the new contract give the DDA the authority to set rates. The previous contract allowed the city council to veto rate increases.

In order to implement parking rate increases, the DDA is required under terms of the contract to schedule a public hearing, with the details of planned rate increases spelled out in writing. The hearing is then to be held at the following month’s board meeting, with a vote coming no sooner than the board’s next monthly meeting. The DDA announced a public hearing before its Nov. 2, 2011 meeting and continued the hearing at its Dec. 7, 2011 meeting. The vote approving the rate increases was held at the board’s Jan. 4, 2012 meeting.

The rate increases described in the board’s Nov. 2 meeting information packet do not include the billing change from half-hour increments to hour increments. But the change in billing will have a substantial impact on the cost of parking and the parking system revenues.

Parking: Hourly Billing – Financial Impact

Some of the rate changes approved by the DDA board on Jan. 4, 2012 will not be implemented until September 2012 – like hourly rates at parking structures and lots, which will climb from $1.10 per hour to $1.20 per hour.

But other changes were implemented starting Feb. 1, including a change in the billing method at parking structures and hourly lots – from half-hourly to hourly.

To compare the hour-increment billing method to the half-hour billing method, assume that parking times are evenly distributed among those people who parked between N and (N + 0.5) hours and those who parked between (N + 0.5) and (N + 1) hours, where N is some whole number.

On the hour-increment billing method – for the current hourly rate of $1.10 – the first group would pay for N + 1 hours, or roughly $0.55 more than under the half-hour-increment method, under which they’d pay just for N + 0.5 hours. The second group would pay for N + 1 hours under either billing method. So by changing from half-hourly to hourly increments, half of the roughly 2 million annual hourly patrons would pay $0.55 more – generating roughly $550,000 more revenue annually.

In the monthly parking report for February 2012, which should be available by the time of the April board meeting (there’s a two month lag time), it’s reasonable to expect at least around $550,000/12 or $45,000 in additional revenue for that month, compared to February 2011.

The March 4, 2009 DDA board minutes reflect similar numbers based on the hourly rate at the time, $0.80: [emphasis added]:

Whereas, The DDA Operations Committee also determined that it has tools available to it to increase parking revenues if needed including the following (in recommended order):
-increase the daily cost of meter bags $5/day from $15/day to $20/day (anticipated to increase revenues by $181,000/year). The DDA could also limit the amount of meter bag fee waivers it provides nonprofits and government agencies, which is currently in excess of $150,000)
-Return to charging for parking by one-hour increments rather than 30-minute increments (anticipated to increase revenues by $400,000/year). The change to 30-minute increments was made in 2003.
…

Back in 2009, the DDA board was simply weighing various alternatives for generating revenue – at the request of the Ann Arbor city council to explain how the DDA could afford construction of the new underground parking garage. The board did not act at the time to change the billing method.

Beyond a clarificational question asked by board member Nader Nassif at the Jan. 4 meeting, the board did not deliberate on the billing method change, and it received little, if any, public scrutiny – because the change was not included in the written set of rate increases associated with the public hearing. However, the change in billing method did not go unnoticed.

Parking: Hourly Billing – Public Commentary

During the public commentary period at the start of the Feb. 1 meeting, Matthew Barritt told the board he is concerned with two things: (1) short-term parking for library patrons; and (2) the change from half-hourly billing to hourly billing for structures and lots. As a result of the construction on the new underground parking structure on Fifth Avenue, he said, two dedicated spaces on the lot next to the library – for 10-minute short-term use by library patrons – were eliminated. There used to be a 10-minute grace period, he said.

Barritt described how he and his family visit the library about twice a week – dropping off and picking up books, after reserving them online. They previously were able to come and go under the 10-minute grace period. Now, he’s had to pay 60 cents per visit to the library to check out and pick up books.

Barritt asked for a restoration of the 10-minute grace period. It’s his understanding that there is a grace period, but it’s not publicized and does not seem to be operationally functional. Because there’s no longer dedicated spaces with a 10-minute grace period, he said, it works works out to a “surcharge” of over $100 on his library use.

And with the change from half-hourly billing to hourly billing, Barritt said, the effective parking rate is different from the advertised rate. It’s always rounded up, he pointed out, and that results in an underrepresented rate. As an example, he said, for 10 minutes – at an hourly rate of $1.30 (rounded up) – that works out to nearly $8 an hour.

Barritt stated that the practice is inappropriate and he ventured that the DDA couldn’t have pitched such a rate to the city council for approval. He recognized the need for revenue, but stated that the effective rates should be the same as the advertised rates.

Barritt concluded by saying he’d like to see a fully-functional 10-minute grace period in the current lot as well as in the new underground parking structure.

Parking: Hourly Billing – Board Discussion

Later in the meeting, as Roger Hewitt was updating his board colleagues on parking revenues, Joan Lowenstein asked about the issue that Barritt had raised. Hewitt responded by saying that with the transition to hourly billing (instead of half-hour increments), a 10-minute grace period would remain in place. Board member Russ Collins wondered if that would apply even to lots with automatic walk-up pay stations (without attendants).

DDA deputy director Joe Morehouse clarified that the grace period is implemented for all hourly facilities, but he acknowledged that the dedicated spots for library patrons are not provided in the Fifth and William lot [also known as the Old Y lot]. That’s the lot that essentially became the closest surface-lot alternative for library patrons after construction began on the site for the underground parking structure. Morehouse clarified that there is, in fact, a 10-minute grace period – in fact, it can be stretched to 15 minutes to allow for time to exit the lot.

Leah Gunn, who chaired the board meeting in Bob Guenzel’s absence, noted that on East William Street (just north of Fifth Avenue) there are 5-minute on-street spaces for quick drop-offs at the library – that’s where the book and the audio visual return slots are located.

In the new underground parking structure, Hewitt added, a walk-up payment system will be a primary option. Those will be in place on the surface and on the first two levels underground. Patrons will pull a ticket on the way in and put the ticket into the automatic pay station on the way out – which will allow payment with a credit card or cash. A staffed booth will also be available if that’s what a patron prefers. There will be no pay stations on underground levels three and four initially, because they’re expected to be filled with monthly permit holders.

Parking Management Incentive

Although the DDA manages the city’s public parking system under contract with the city of Ann Arbor, it uses a contractor, Republic Parking, to handle day-to-day operational issues. At its Feb. 1 meeting, the board considered a management incentive under the terms of its contract with Republic Parking. The board has discretion to award $50,000 of the $200,000 total. The other $150,000 of the $200,000 is not discretionary, and is paid to Republic in monthly installments.

The management incentive is paid based on customer satisfaction surveys and independent inspections of the parking facilities, as well as other metrics. The free responses section of the survey included a range of sentiments, from enthusiastic praise of specific Republic Parking employees (“Staff is always very friendly” and “Teri and Cathy are the greatest!!”), complaints about employee job performance (“I don’t pay $12-$13 a day to be inconvenienced because your employees can’t get their job done timely!”), praise for the facilities (“Very clean and nice art work on ground floor at curved wall on the southeast comer”) and criticism of the facilities (“Please clean more. And take care of the awful smell on floor 4″). Sprinkled through the responses are complaints about parking rates. [.pdf of parking customer responses]

The rating scale responses of the survey broke down as follows: 5-Excellent (36.5%), 4 (26.3%), 3 (14.0%), 2 (9.5%), 1-Poor (6.7%), Non-Responsive (6.9%). Last year the same survey yielded the following results: 5-Excellent (22.5%), 4 (32.3%), 3 (17.9%), 2 (4.6%), 1-Poor (2.2%), Non-Responsive (20.1%). So the number of survey respondents giving a rating of 5 or 4 increased from 54.8% to 62.8%. The rating of 1 or 2 also increased, from 6.8% to 16.2%. Around 600 people responded to the survey.

The DDA’s independent parking inspector made 48 written reports to evaluate the cleanliness of the facilities systemwide last year. Average for the year was 90.48%, which is a three-point drop from last year’s score of 93.7%.

The Dec. 31, 2010 accounts receivable balance for parking permit accounts stood at $106,965. That’s 25% of the average monthly billing and five times the target of 5%. But it reflects a decrease from 28.5% last year. The dead ticket average was 2.56% for the year – an increase from last year’s 1.56%, and above the target of 1.75%. The operating surplus on June 30, 2011 was $23,133 more than budgeted.

At the board meeting, Roger Hewitt explained the structure of the Republic Parking contract with the DDA and described the various criteria. DDA staff had weighed all the criteria, made an overall assessment and was recommending $45,000 compared with the maximum $50,000.

In each of the previous three years (2009, 2010, and 2011), the DDA board voted to award the same $45,000 incentive. In those years, mayor John Hieftje had voted against the incentive. This year the vote was unanimous.

Outcome: The board voted unanimously without substantial discussion to award $45,000 out of the $50,000 management incentive.

Communications, Committee Reports

The board’s meeting included the usual range of reports from its standing committees and the downtown citizens advisory council, as well as public comment.

Comm/Comm: Underground Garage Construction Update

John Splitt gave an update on the underground parking garage construction. He noted that despite the mild winter, temperatures have not been high enough to allow for the application of waterproof coatings. Work on mechanical systems like elevators, however, continues. Roger Hewitt noted that for an underground parking structure it actually has a bright and open feel to it. The ceilings are two feet higher than in the Maynard structure. The architect, Carl Luckenbach, did a great job with the stairwells, he said – the sun shines down four stories underground.

Hewitt also gave an update on the precise number of underground spaces the structure is expected to provide: 706. [The initial design estimates for a larger structure that would have extended to William Street put the number at around 770. When that dogleg was truncated, it reduced the estimate to 670. More recently, the more conservative figure of 640-650 has been given.]

Comm/Comm: getDowntown Survey

Nancy Shore, director of the getDowntown program, gave the DDA board an update on a survey that had been completed, asking downtown employers and employees about their commuting habits. The survey showed a slight reduction in the number of people who commute by driving alone. [.ppt file of getDowntown commuter survey]

Comm/Comm: Vacancies, SEMCOG, William Street

Joan Lowenstein reported on the most recent meeting from the partnerships committee. Committee members had received an update from representatives of Swisher Commercial about downtown vacancy rates. Ann Arbor is somewhat immunized from the economic downtown, she said. Vacancies decreased by 2.5% in 2011 and there’d been a 40% increase in lease dollar volume – landlords are willing to show some optimism by entering into longer-term leases. Lowenstein said some companies looking to expand can’t find the larger floorplates they need.

Lowenstein also reported that the committee had received an update on forecasts from SEMCOG (the Southeast Michigan Council of Governments) through 2040. SEMCOG estimates the region will make a slow recovery over the next 30 years. [For a more detailed breakdown, see Chronicle coverage of the presentation made to the planning commission: "City Planners Preview SEMCOG Forecast"]

Lowenstein reported that the “Discovering Midtown” project – a process for exploring alternate uses of downtown city-owned surface parking lots, has had its name changed. The effort will now be known as “Connecting William Street,” to avoid confusion with a character district in the city’s zoning ordinance that is called Midtown.

The process is being led by the DDA based on direction given by the Ann Arbor city council at the council’s April 4, 2011 meeting. Lowenstein reported that a leadership and outreach committee is working on social media strategies. A hundred different stakeholders and groups have been identified. In mid- to late February a community-wide survey will be released. Parts of that survey are currently being finalized.

Lowenstein also noted that ground had been ceremonially broken on Jan. 26 for Village Green’s City Apartments project at First and Washington. That’s a joint venture between Village Green and the DDA, which will include two floors worth of public parking on the first two stories of the building, some of which will be reserved for residents of the building.

At the Feb. 1 meeting, the board briefly discussed the possibility of canceling the February partnerships committee meeting. Noting a possibly very light agenda, board members were inclined to cancel the committee meeting, which would ordinarily have taken place the week after the board meeting – in this case, on Feb. 8. The board agreed to do that. Executive director Susan Pollay’s suggestion that the 618 S. Main project would be a suitable topic for the partnerships committee agenda that month was not met with any outward signs of enthusiasm from board members.

Comm/Comm: 618 S. Main

During public commentary, Dan Ketelaar spoke about his 618 S. Main project. It would be a 7-story, 153,133-square-foot apartment building with 190 units for 231 bedrooms, located on the former site of Fox Tent & Awning between Main and Ashley, north of Mosley. Ketelaar described the location as in the southernmost part of the DDA district. He also described it as a “gateway project.” He noted that it is located in an area zoned D2 (downtown interface) and is being developed for young professionals. A week and a half ago, he told the board, the Ann Arbor city planning commission had given the project its recommendation, at its Jan. 19, 2012 meeting.

The building would include two layers of parking – more than what’s required, Ketelaar said. The courtyard would include a rain garden, and the project would meet the silver standard for LEED certification. Ketelaar told the board he’s suggesting redoing the streetscape along Main between his project and William Street. He reported that Ward 5 councilmember Mike Anglin had requested that traffic calming measures be implemented along that stretch, including adding on-street parking. Ketelaar said he’s interested in helping to “create the future of Ann Arbor” and not just deal with the past.

Early in his turn at the podium, Ketelaar described the parcel as a brownfield site, a topic that the attorney for the project, John Byl, elaborated on. Byl is with the firm Warner Norcross & Judd. He described contamination on the site due to petroleum from an underground tank. The project would clean up that contamination under the state’s Community Revitalization Program, which is the successor to the brownfield program. The required local contribution to that program, he suggested, would come from the DDA. The project would mean a $25 million investment resulting in a taxable value of $9.5 million. He calculated that it would generate $250,000 in additional tax increment finance capture per year.

By way of brief background, the mechanism of a tax increment finance (TIF) district allows an entity like the Ann Arbor DDA to “capture” a portion of the property taxes in a specific geographic area that would otherwise be collected by taxing authorities in the district, like the city or library. The tax capture is only on the increment in valuation – the difference between the value of property when the district was established, and the value resulting from improvements made to the property. In the DDA district, only the taxes on the initial increment are captured – any additional inflationary value beyond that goes to the taxing authorities in the district. Those authorities are the Ann Arbor District Library, Washtenaw Community College, Washtenaw County, and the city of Ann Arbor.

A spiral-bound booklet on 618 S. Main, distributed to board members at the Feb. 1 meeting, outlined the costs for various LEED features – like rain gardens and solar panels, plus streetscape improvements – totaling $2.3 million. The developer would pay all those costs upfront, but six months after a certificate of occupancy is issued, Ketelaar would be reimbursed for up to $1 million, Byl suggested. That would be around mid-2014 or so. The balance of roughly another $1 million would be reimbursed over time from the tax increment that the DDA captured. If the DDA reimbursed at a rate of 75% of the $250,000 a year it would receive in additional tax capture, it would take about six years to reimburse those expenses, concluded Byl.

Comm/Comm: Murals

During public commentary at the start of the meeting, Jody Lanning – owner of Lanning Outdoor Advertising – pitched the board an idea for an advertising partnership involving the placement of murals on public parking structures. She told the board she’s been in the outdoor advertising industry for 18 years.

She’s worked in the Atlanta and Kentucky markets, she said, and she moved to Michigan three years ago. She said she’s noticed how public art is used in other cities, and she enumerated several benefits of public art. She presented slides depicting some parking garages and the city hall building with concepts for murals.

The business model would consist of renting wall space on parking garages – it would be funded through sponsorships. She estimated that a wall could generate $5,000 in income. Her proposal would be that she’d received a 50% share – out of which 10% would be put aside for scholarships. She suggested forming a board of perhaps four people who would make decisions on the art.

Comm/Comm: Rezoning from D2 to D1

A highlight from Ray Detter‘s report from the previous evening’s meeting of the Downtown Area Citizens Advisory Council included the highlight that nearby residents of 1320 S. University had attended the meeting. They’re opposed to a proposal to rezone that parcel from D2 to D1, which will be considered by the planning commission on Feb. 7, 2012. Detter said the CAC will oppose the rezoning. [The city planning staff recommended denial of the request.]

Present: Nader Nassif, Roger Hewitt, John Hieftje, John Splitt, Sandi Smith, Leah Gunn, Russ Collins, Joan Lowenstein, John Mouat.

Absent: Newcombe Clark, Bob Guenzel, Keith Orr.

Next board meeting: Noon on Wednesday, March 7, 2012, at the DDA offices, 150 S. Fifth Ave., Suite 301. [confirm date]