Ann Arbor DDA: We’ve Been Good Stewards

Ann Arbor Downtown Development Authority board meeting (March 6, 2013): In a main agenda item, the DDA board authorized a $300,000 grant to the Ann Arbor Housing Commission – for renovations to the 64-unit Baker Commons public housing facility. It added to the $280,000 grant made late last year for the replacement of the Baker Commons roof.

The grant award had come at the request of AAHC executive director Jennifer L. Hall, who’s proposing a major change to the way the 360 units of public housing are administered. The approach involves privatization and project-based vouchers.

The DDA’s support for public housing also surfaced at the meeting as a talking point for board members in the context of a proposal being considered by the Ann Arbor city council – which would amend the city ordinance regulating how the DDA’s tax increment finance (TIF) capture works. The amendments would clarify existing language in the city ordinance in a way that would favor the other taxing authorities, whose taxes are captured as a part of the DDA’s TIF. The council postponed action on that proposal at its March 4, 2013 meeting. In that context, at the DDA’s March 6 meeting, board member Sandi Smith raised the specter that the DDA would in the future not be able to support affordable housing in the same way it has done in the past.

In addition to clarifying the question of how TIF is calculated, the amendments would prevent elected officials from serving on the board and would impose term limits for board service. Board members took turns at the start of the meeting arguing that the DDA had been a good steward of public dollars and that the amendments to the ordinance are not warranted. Board members indicated that they didn’t think their service as volunteer members of a board was being afforded adequate respect by the city council.

The board comments followed a turn at public commentary at the start of the meeting from Brendan Cavendar of Colliers International, a commercial real estate services firm. His commentary departed from the typical pattern of someone signing up to address the board for up to four minutes. Instead, Cavendar had been invited to appear, and responded to prompts from board members to deliver a range of positive responses, including: future tenancy of the former Borders location; rising rents in the downtown area; and affirmation of the importance of the downtown public parking system.

The city’s public parking system is managed by the Ann Arbor DDA under a contract with the city of Ann Arbor. The monthly parking usage report is featured at every board meeting. But the March 6 meeting featured the parking system in an additional way. The board decided to award the full $50,000 of a discretionary management incentive to the DDA’s subcontractor – Republic Parking – for operation of the public parking system. It’s an annual decision, but it’s the first time in the last five years that the full amount has been awarded. The decision was based on good performance on metrics tracked by the DDA, according to the board.

In a third voting item, the board authorized $610,662 in support of getDowntown’s go!pass program, which provides a subsidy to cover the cost of rides taken on Ann Arbor Transportation Authority buses by employees of participating downtown businesses. To participate, a business must purchase a go!pass for all employees, at an annual cost of $10 per employee. Roughly 6,500 downtown employees are provided with go!passes through the program.

Baker Commons Grant

The DDA board was asked to consider a $300,000 grant to the Ann Arbor Housing Commission for repairs and renovation of the Baker Commons building, located in downtown Ann Arbor at Packard and Main.

The $300,000 will be used for a range of capital improvements to the 64-unit building: driveway and sidewalk replacement and repair; installation of energy-efficient lighting; insulation and air sealing; window replacement; adding a second entrance; door replacement; upgrade of fixtures appliances, flooring and cabinetry; replacement of heating and cooling units; generator replacement, elevator replacement, upgrade of common area furniture, and installation of additional security cameras.

This grant for $300,000 to Baker Commons comes in addition to a recent $260,000 grant from the DDA – authorized by the board at its Oct. 3, 2012 meeting – primarily for the replacement of the Baker Commons roof.

Jennifer Hall, executive director of the housing commission, was unable to attend the board’s March 6 meeting due to illness, according to DDA board chair Leah Gunn. Hall estimates that Baker Commons needs about $3 million in capital investments. She made the request of the DDA in conjunction with a request to the city of Ann Arbor – for $500,000. The DDA’s contribution taps its housing fund, which gets its revenue from the DDA’s tax increment finance capture (TIF) fund.

The city of Ann Arbor is being asked to tap the fund balance in the city’s affordable housing trust fund for half the $500,000. That use of the city’s affordable housing trust fund has been recommended by the city’s housing and human service advisory board (HHSAB). The other half is hoped to come from federal community development block grant (CDBG) funding, allocated through the Washtenaw Urban County.

The redevelopment of Baker Commons comes in the context of a broader effort Hall is undertaking to redevelop all of the Ann Arbor Housing Commission’s 360 units, distributed across the city. Baker Commons is the only AAHC housing complex in the downtown area. The overall redevelopment effort being pursued by Hall would privatize Ann Arbor’s public housing, converting the properties to project-based vouchers, which would make them eligible for low-income housing tax credit financing. For detailed coverage of this effort, see: “Round 3 FY 2014: Housing Commission.”

Baker Commons Grant: Board Deliberations

Board member John Mouat alerted his colleagues to the fact that his firm, Mitchell and Mouat Architects, is working with the housing commission on the rehabilitation of its properties, so he’d need to abstain from the vote.

Board chair Leah Gunn observed that the grant directly affects city-owned infrastructure. [The housing commission properties are owned by the city of Ann Arbor, unlike the property of most housing commissions. It's a factor affecting the AAHC's ability to convert its public housing units to project-based vouchers – because the city council will need to approve a deed transfer.] Mayor John Hieftje took the opportunity of the vote to note that the city of Ann Arbor contributes money to support human services. He continued by saying he didn’t think there was any organization that contributes as much to affordable housing as the DDA does. [Julie Steiner, executive director of the Ann Arbor Housing Alliance, has circulated a letter outlining the DDA's history of support for affordable housing (.pdf of March 7, 2013 letter)] Hieftje also noted that the AAHC has turned things around recently. [The organization has emerged from "troubled status."]

Keith Orr noted that the DDA grant would help the AAHC comply with requirements of the federal project-based voucher program, to which Hall wants to transition. [Orr was alluding to the fact that the transition to project-based vouchers requires that all the AAHC be brought up to minimum standards – which can be accomplished partly through an infusion of low-income tax credit financing, or by any other means. Hall has indicated that she'll be pursuing several options, including grants. The request to the DDA was one example of that.]

Outcome: The board voted unanimously to approve the $300,000 grant for renovation of Baker Commons.

DDA Ordinance Changes

The DDA’s support of affordable housing factored into DDA board remarks on proposed ordinance changes affecting the DDA. The remarks came before the vote on the Baker Commons grant.

At its March 4, 2013 meeting, two days before the DDA board meeting, the Ann Arbor city council considered several revisions to a city ordinance governing the Ann Arbor Downtown Development Authority (DDA). The city ordinance on the DDA is in Chapter 7. DDA board members did not embrace the proposed changes at their March 6 meeting. This report first presents some background, followed by DDA board member comments.

DDA Ordinance Changes: Background

Among the revisions to Chapter 7 that are being considered by the council are: a new prohibition against elected officials serving on the DDA board; term limits on DDA board members; a new requirement that the DDA submit its annual report to the city in early January; and a requirement that all taxes captured by the DDA be spent on projects that directly benefit property in the DDA tax increment finance (TIF) district.

But most significant of the revisions would be those that clarify how the DDA’s TIF capture is calculated. The “increment” in a tax increment finance district refers to the difference between the initial value of a property and the value of a property after development. The Ann Arbor DDA captures the taxes – just on that initial increment – of some other taxing authorities in the district. Those are the city of Ann Arbor, Washtenaw County, Washtenaw Community College and the Ann Arbor District Library. For FY 2013, the DDA will capture roughly $3.9 million in taxes.

The proposed ordinance revision would clarify existing ordinance language, which includes a paragraph that appears to limit the amount of TIF that can be captured. The limit is defined relative to the projections for the valuation of the increment in the TIF plan, which is a foundational document for the DDA.

If the actual rate of growth outpaces that anticipated in the TIF plan, then at least half the excess amount is supposed to be redistributed to the other taxing authorities in the DDA district.

What the proposed ordinance revisions clarify is which estimates in the TIF plan are the standard of comparison – the “realistic” projections, not the “optimistic” or “pessimistic” estimates. However, the ordinance revisions as currently formulated do not clarify whether a “cumulative” method of performing the calculations should be used or if a year-to-year method should be used. It’s anticipated that an amendment to the ordinance revisions will be made that clarifies in favor of the “cumulative” method, which would have a negative financial impact on the DDA.

Use of the cumulative method has an impact on whether the redistribution of excess TIF is made on a one-time or recurring basis. Under the cumulative method, other taxing authorities in the Ann Arbor DDA TIF district would see a total on the order of $1 million in additional tax revenue, compared to the way the DDA currently calculates the TIF capture. The city of Ann Arbor’s annual share would be more than half of that amount, around $600,000.

Method: Year-to-Year                   
Refunds                                                         
       City       County      WCC       AADL      Total Ref    DDA TIF
FY14   $429,409   $149,392    $94,257   $40,163   $713,221     $3,964,457
FY15    $11,958     $4,160     $2,625    $1,118    $19,862     $4,774,758

===============================

Method: Cumulative                     
Refunds                                                      
       City       County     WCC        AADL      Total Ref    DDA TIF
FY14   $613,919   $213,583   $134,757   $57,421   $1,019,680   $3,657,998
FY15   $635,108   $211,673   $139,195   $58,539   $1,044,515   $3,773,043

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The clarification of the ordinance crucially strikes two paragraphs related to bond and debt payments. One of the two paragraphs was key to the DDA’s current legal position – which is that no redistribution of TIF is required under the ordinance, given the DDA’s financial position. The DDA interprets the stricken paragraphs to mean that no redistribution to other taxing authorities needs to be made, until the total amount of the DDA’s debt payments falls below the amount of its TIF capture. In the FY 2014 budget, adopted by the DDA board at its Feb. 6, 2013 meeting, about $6.5 million is slated for bond payments and interest.

That clearly exceeds the amount of anticipated TIF capture in the FY 2014 budget – about $3.9 million. The DDA is able to make those debt payments because about half of that $6.5 million is covered by revenues from the public parking system. The DDA administers the public parking system under contract with the city of Ann Arbor.

This issue first arose back in the spring of 2011. The context was the year-long hard negotiations between the DDA and the city over terms of a new contract under which the DDA would manage the city’s parking system. The Chapter 7 issue emerged just as the DDA board was set to vote on the parking system contract at its May 2, 2011 meeting.

When the issue was identified by the city’s financial staff, the DDA board postponed voting on the new contract. The period of the postponement was used to analyze whether the DDA’s Chapter 7 obligations could be met – at the same time the DDA was ratifying a new parking system contract, which required the DDA to pay the city of Ann Arbor 17.5% of gross parking revenues.

Initially, the DDA agreed that money was owed to other taxing authorities, not just for that year, but for previous years as well. And the DDA paid a combined roughly $473,000 to the Ann Arbor District Library, Washtenaw Community College and Washtenaw County in 2011. The city of Ann Arbor chose to waive its $712,000 share of the calculated excess.

Subsequently, the DDA reversed its legal position, and contended that no money should have been returned at all. That decision came at a July 27, 2011 DDA board meeting.

The following spring, during the May 21, 2012 budget deliberations, city councilmember Stephen Kunselman (Ward 3) proposed an amendment to the city’s FY 2013 budget that stipulated specific interpretations of Chapter 7, with a recurring positive impact to the city of Ann Arbor’s general fund of about $200,000 a year. Kunselman wanted to use that general fund money to pay for additional firefighters. That year, the budget amendment got support from just two other councilmembers: Jane Lumm (Ward 2) and Mike Anglin (Ward 5).

Kunselman also is putting forward the currently proposed changes to the ordinance. For a Chronicle op-ed on this topic, see: “Column: Let’s Get DDA TIF Capture Right.”

DDA Ordinance Changes: Board Reaction

Members of the board took turns near the beginning of the meeting, after public commentary and reports from other boards and commissions, and responded to the proposed changes. In largest part, they reacted to the changes as a political attack.

Keith Orr led off the comments by indicating he’d paraphrase a city councilmember [Stephen Kunselman], saying he wasn’t going to “vilify the city council.” Instead, Orr said, he wanted to express his concern about the “shot across the bow” that he’d witnessed at the March 4 city council meeting. That shot might be politically motivated, he ventured, in the same sense of the “ideologue-driven politics” that has ground the federal government to a stop. Or the council’s consideration might be related to a lack of understanding of the nature of the DDA.

Orr allowed that the relationship between the city council and the DDA board is occasionally strained, but he attributed this to the different nature of the entities and the culture of the organizations. On the whole, the relationship between the DDA board and the city council has been mutually beneficial, he said. [The choice of the phrase "mutually beneficial" was almost certainly not accidental, as it was the label given to the committees appointed by the respective bodies in 2010-2011 to negotiate the new contract under which the DDA manages the public parking system.] More importantly, the relationship was beneficial to the downtown and to the residents of Ann Arbor, Orr said.

“First I want to say how proud I am to be a part of the Ann Arbor Downtown Development Authority, serving as a volunteer on this board,” Orr stated. He noted that he’s been a downtown businessman for over 20 years and a resident of the city since 1976. [Orr is co-owner of the \aut\ BAR and Common Language Bookstore.] His pride is based on the fact that the DDA is doing something that very few other government entities are doing – focusing on infrastructure. We hear about crumbling infrastructure across the nation, Orr noted, but very few entities are doing anything about it. The reason for that, he contended, is that an elected body is mainly concerned with reelection. If the elected body owns an asset, then the elected body will take everything possible out of the asset and spend as little money as possible on the upkeep of that asset.

That’s the reason the DDA is the de facto parking authority, he contended. The city council had historically abdicated its responsibility to maintain the parking system that they owned and operated many years ago. The city still owns the parking system, he allowed, but now it is maintained and operated in a manner that would be the envy of most cities. He then quoted “his friend Howard Dean.” [Orr worked on Dean's Democratic presidential campaign and met him more than once.] Orr, quoting Dean: “The problem with our government is that we keep trying to come up with two-year solutions to problems which have five- and ten-year solutions. In the case of prisons they are 20-year solutions. In the case of the environment they are hundred-year solutions.”

The DDA’s spending of public money has benefited the city, Orr said. He noted that the DDA pays around $500,000 of the city’s bond on the new Justice Center building. And he contended that the DDA would do so for the rest of his lifetime. [The DDA authorized an $8 million grant in May 2008, to be paid in installments of roughly $500,000 per year – or 16 years of payments. Orr is possibly underestimating his longevity.] And that was to benefit the city of Ann Arbor, he said.

The city council needed to replace courtrooms and police headquarters, and the DDA helped the city do that, Orr said. Ann Arbor sidewalk curbs were not ADA-compliant, he continued, and compliance with that federal law costs millions of dollars. When the DDA undertook those curb ramp improvements in the downtown area, it saved the city’s general fund from having to pay for it, he contended. The DDA’s actions had improved the parking infrastructure, public and alternative transportation infrastructure, energy efficiency of downtown buildings, residential infrastructure – and so much more, Orr stated.

Orr then responded to criticism of the DDA’s handling of the Connecting William Street planning project – which entailed looking at the future use of five city-owned parcels in the downtown area. Orr noted that the city council had asked the Ann Arbor DDA to examine and propose a plan for the development of several parcels of land on or near William Street – called the Connecting William Street planning project. The DDA’s job was not to create its own ideas, he said, but rather to consult experts and engage the public. The DDA had proceeded in a variety ways – including symposiums on urban planning and development, and a “vigorous” series of community meetings. “If you accuse the resulting ideas of being stale, you are accusing the citizens of Ann Arbor of having stale ideas, not the DDA,” he said. The DDA had truly engaged the public by going out to the public, he said, not expecting them to come to the DDA.

Orr said he was proud to serve on a body that was collaborating with itself and with the residents and businesses in Ann Arbor. He felt that many members of the city council appreciate the odd but viable relationship between the DDA and the city council, concluding with: “I hope that calmer heads prevail.”

Bob Guenzel followed Orr by saying that he did not think he could be as eloquent as Orr, and characterized himself as a fairly new member of the DDA board. [Guenzel was appointed on Aug. 16, 2010.] Guenzel wanted to say how impressed he was by the success of the DDA. He didn’t take any credit for that, as a relatively new member, because what he’d observed is a very strong commitment to fiscal stability. “It’s now proposed that we change the rules about that, about how we can capture the TIF and the like,” Guenzel said, indicating he’d heard no reason for doing that. The DDA has a 10-year fiscal plan, he said, and he contended that the DDA manages the dollars very well. Guenzel maintained that he can see evidence of the good management through the success and the commitment to the downtown, the commitment to housing, the commitment to infrastructure, and through a very viable parking system – which helps support the city and is also very customer friendly.

Guenzel characterized the DDA’s relationship with the city as a “real partnership.” The DDA has had a very successful run, he continued, and he didn’t see a reason to change how the TIF capture is calculated. “Frankly, we are on the hook for some bond payments. Whether they are ours or the city’s, we’ve committed to those. And in my mind that should always be paid first.” He stated that he disagreed with the need for the changes, saying that he didn’t understand the reason.

Guenzel continued by saying that he was especially concerned about the proposed changes to the board composition. The idea that the DDA board could not have elected officials from other jurisdictions, he felt, would unfairly limit participation in board service. To have term limits, he felt, is a mistake. What the DDA gets in its board is a nice mix of new people – and also people who have a longer-term commitment, who were there at the beginning of some of the DDA’s projects. Whenever you put limits on who can serve and how long they can serve, that’s a mistake, Guenzel said. He felt that it’s up to the governing body to determine how long any of the DDA board members should serve – whether it’s one term or two or three, or even more. If you look around the room, he continued, some of the biggest contributions have come from board members who have served for several years.

The DDA can continue to improve how it does its work, Guenzel allowed, but he didn’t agree with changing the rules – to his mind, without any reason stated. Guenzel hoped the city council would reject the proposed changes. He encouraged the city council instead to come to the DDA board and identify problems they saw. He allowed that the board had received the courtesy of the city communicating the proposed changes. Guenzel concluded by coming back to how impressed he had been by the effort of the volunteer DDA board. He said he felt that Ann Arbor has the best downtown in Michigan – and he felt that the DDA deserves a lot of credit for that.

Board member Russ Collins, executive director of the Michigan Theater, picked up on the theme of volunteerism that both Orr and Guenzel had mentioned. He then went on to characterize the volunteer board’s work as not very exciting. When you’re dealing with prudent financial management, he said, and when you’re dealing with infrastructure issues, it seems to be “necessarily boring.” Construction is always difficult, Collins said. But to oversee a project like the DDA had with the new Library Lane underground parking structure – and to have that very good result, all things considered – is quite amazing, he concluded. Collins attributed the good results the DDA has achieved to solid management, the annual operating of the system, and the quality of the maintenance. A core piece of what any city board needs to do is prudent management of resources, he said, and the volunteers on the DDA board had taken that idea very seriously.

Collins then shifted gears a bit: “Is everything perfect? I don’t think so. I get mad at parking meters. I get mad at ice and snow being where you might not want it to be. I get frustrated with some of the aspirational nature of what we might like to do with the DDA, but we can’t do.” But measured by whether good use of taxpayer dollars is made by volunteers who are committed to the city of Ann Arbor, who work and live in the downtown, and who care – that’s what you have on the DDA board, Collins concluded. To have the DDA become “a political punching bag” for the sake of political aspirations, Collins said, didn’t seem to be a good use of the volunteers who serve on the DDA board. The members of the DDA board serve because of their bottom-line concern for a place that they love and a place they want to commit time, Collins said.

Sandi Smith, a former city councilmember, began her remarks by saying said she had a couple of concerns. Over the last decade, the DDA has been able to invest about $3 million in affordable housing in and near the downtown. That’s something the DDA had pulled back on a little bit when it embarked on construction of the underground parking structure. [Smith was alluding to the fact that the DDA historically transferred money from the TIF fund to its housing fund.] Smith indicated that the transfer into the housing fund is something that’s very easily eliminated from the budget – but this year, the transfer is back in the DDA’s budget [in the amount of $100,000]. Smith raised the specter that the fund transfer from TIF to housing could again be eliminated “if there’s a significant hit,” to the DDA’s TIF revenue.

Downtown Ann Arbor has a lack of diversity in housing options, Smith said. More opportunities are needed for people who work downtown – for example, at Barracuda Networks – and who want to live downtown, she said. It’s important to her that there is a broad range of opportunity for people to live downtown.

Smith also expressed concerned by contending that the “attack” is not grounded in a way that reflects an understanding of how tax increment finance actual works. The investments the DDA makes in infrastructure “brings the whole downtown up,” she said. It brings more money to the general funds of the taxing authorities. So the increase in the value of downtown properties helps everybody, she said. [Smith was in part alluding to the following feature of the Ann Arbor DDA's TIF capture: Capture is made only on the initial increment – not on the market appreciation of a property subsequent to an improvement, and not on the appreciation on an unimproved property. Not all DDA TIF districts in the state of Michigan work that way.] The proposed changes would undermine a system that seems to be working pretty well right now, she said. She called the changes “cutting the neck off the golden goose.”

Nader Nassif echoed what Guenzel had said. In his short time serving on the board, Nassif said he’d seen there is a real commitment by the board to do what is right. [Nassif was appointed on Sept. 6, 2011.] And there’s a real commitment to keep going forward with what is best for the city. He pointed out that he’s not an Ann Arbor native – noting that he was not born here, but had moved here. He’s lived here now for four or five years and he made himself move downtown. He said he would not live anywhere else in the state of Michigan. He allowed that the board received its share of criticism, but the board took that criticism and continued to move forward. He noted also that it was a volunteer position, and he also didn’t see a need for a change.

Leah Gunn, who serves as chair of the board, wrapped up the board’s reaction to the proposed changes, saying that she agreed with her colleagues – that “we really ought not to mess with” something that works really well. She said that the DDA had been very good stewards of the city’s infrastructure. When she first joined the board – saying she was the one who had been here the longest and there’s been criticism about that – the city’s parking structures were in a state of poor repair. [Gunn was first appointed on Aug. 19, 1991.] When the DDA took over management of the parking system, the DDA had proceeded with a plan of repair and replacement of the city-owned parking structures – paid for by the parking system because the DDA was managing it in a far more efficient manner, she said. The DDA had torn down and built two new parking structures and done major repair on all the others, she said. The parking system is now customer friendly, she added, and safe. Because the city’s parking structures were in such poor condition, all of the money that had been spent during the first phase, she said, had not caused any new parking spaces to be added to the system. But finally, with the construction of the Library Lane underground garage, 711 spaces had been added. Her feeling is that the DDA has been careful and prudent, and that the DDA has been beneficial to the city.

DDA Ordinance Changes: Public Comment

Odile Hugonot Haber addressed the board at the conclusion of the meeting during public commentary, rebuking the board members for their remarks about the DDA’s successes. She criticized them for celebrating and making superfluous comments, rather than looking seriously at the reasons people criticize them. She told them she was grateful for the DDA’s support of affordable housing. But she disagreed with their vision for the city, which she characterized as growing buildings instead of beauty.

Colliers International Update

Brendan Cavendar from Colliers International appeared before the board during the time allotted for public commentary at the start of the meeting. He indicated that he’d been asked to appear at the board meeting in order to answer any questions board members might have about what’s going on with real estate in downtown Ann Arbor right now. He offered to comment from his perspective, as someone who’s involved in a lot of leases and sales.

Mayor John Hieftje, who also sits on the DDA board, asked Cavendar to describe what’s going on at the former Borders location on East Liberty and Maynard. Cavendar noted that Colliers had announced one of the tenants, which represents about 30-40% of the overall building: PRIME Research. The company is relocating from Ashley Street, he said. PRIME Research is hiring “a ton of people,” Cavendar reported, so they’re transitioning from about 5,000 square feet to 70,000 square feet. What’s significant about that move, he continued, is that it mimics some of the other changes in that area – comparing it to other tech company moves.

Last year, Barracuda Networks had moved into the same area, he noted. And Menlo Innovations had also moved into the area. The area of Liberty, Maynard and Washington has really become a “tech hub,” Cavendar said. He noted that tech companies are very high-density tenants – not four employees per 1,000 square feet, but rather six or seven employees per 1,000 square feet. Their employees are also very well-paid, he continued. They all go out to eat, they all drink, they all shop – and the restaurants are filling up, he said. So there’s been a real transition and movement toward downtown Ann Arbor by tech companies, he concluded.

Hieftje interjected that this was something the city had started several years ago when Google had chosen to establish a location in Ann Arbor. Hieftje indicated he felt that the “tech campus” had worked out pretty well. “Absolutely,” Cavendar agreed. Cavendar felt that in the next 2-3 years, the block of Liberty, Maynard and Washington would have around 1,400 young tech employees. As Cavendar was set to name the factor that really helped get those companies to move down there, and the only reason Barracuda Networks was able to move to downtown Ann Arbor, Russ Collins playfully interjected: “The Michigan Theater!” [Collins is executive director of the theater, located on East Liberty.]

Collins’ remark drew laughs, but Cavendar reported that the key ingredient was, in fact, parking. He said that Barracuda been a day away from signing a lease at a different location in south Ann Arbor. It’s great to think that everybody can ride a bike or take the bus, he allowed, but not everyone can. Hieftje ventured that the new Library Lane underground structure was the key. “Absolutely,” Cavendar agreed. Parking was also an incentive for PRIME Research to move to the downtown area, Cavendar said. PRIME Research will eventually have 150-250 employees, he said, and Barracuda Networks is looking to grow to about 450 people or more. That helps the whole area, he said.

Leah Gunn asked Cavendar to comment on limitations. Is there an amount of square footage that doesn’t exist, but that is a need? Cavendar said Colliers is looking at that question. Right now, they estimate that in the downtown area – the DDA district and nearby – there’s about 150,000 square feet of office space. There are only a few large floor plates greater than 10,000 square feet. But right now, he said, not that many companies are looking for those large floor plates. That’s what Colliers has been seeing, in any case, Cavendar reported.

In the last three years, Colliers has seen the leasing rates start to drift upward – to $24, $25, and $26 per square foot. Gunn ventured that’s more than the rates were fairly recently. And Cavendar allowed that the rates had been down to around $18, $19, and $20 a square foot. Eventually the leasing rates could get to the point where it might be feasible to build new construction of office space. But he felt that leasing rates would need to get to $29 or $30 a square foot before new construction would be justified. Roger Hewitt asked roughly what percent of available space is vacant. Cavendar estimated it at around 9%.

Cavendar then returned to the topic of the former Borders location. On the first floor, he reported, there are more offers than there is space available. He characterized it as a jigsaw puzzle – trying to find the best mix of local and national, retail and restaurants. Restaurants, he said, are doing better than they ever have. Some downtown restaurants are reporting that they’re doing between $3.5 million and $6 million in sales. Even with the high rents, that works, Cavendar said. The restaurants are doing well, and they’re making money, and that means that they’re signing longer leases, he continued. They’re not signing three-, four-, or five-year leases, but rather 10- or 15-year leases. He felt that would reduce the turnover of tenants and would be fueled by the office tenancy.

Hieftje asked when Cavendar thought the old Borders location would be occupied, venturing that it could be next summer. Cavendar felt that depending on how long the build-out took, by the end of this year all the new tenants would be open for business.

John Mouat asked Cavendar to estimate how much of the growth in tech companies was local, compared to being driven by other factors. Cavendar attributed much of the growth to the availability of recent graduates of the University of Michigan. Employers don’t have to fight for employees like they would on the West Coast, he said, and Ann Arbor has a great community. Companies want to be close to the university because they use students as interns, and the day those interns graduate, they are hired full-time, Cavendar reported. Mouat clarified that he actually wanted to know how much the population of people downtown is growing due to people who are already in the area, compared to people coming from outside. Cavendar felt that it’s a mix, but the majority of new employees are from Ann Arbor. It’s the students who are currently in school or workers who are employed by other companies in the area who are taking the downtown jobs.

Hieftje asked Cavendar to address the topic of the possibility of a grocery store downtown. Cavendar said he’d talked to one larger unnamed company that gave as a rule of thumb that a downtown grocery would need about 10,000 full-time residents downtown. And currently Ann Arbor has around 4,000-5,000 downtown residents – about half of what’s required even to consider locating downtown. Also, parking would need to be provided onsite, Cavendar stressed. Parking in a public parking structure and paying for that in addition to groceries would just not be an option, Cavendar said – stressing that this wasn’t his personal opinion, but rather feedback straight from the unnamed company.

Hieftje asked Cavendar to characterize generally how the downtown is doing. Cavendar responded with “improving strongly.” He noted that there’s been big transition in the Liberty/State area, but there is virtually no office space left in that area, he said.

Summing up, Cavendar felt that they’d continue to see vacant spaces fill up and see their rates improve. The rates had already improved over the last 2-3 years, he said, and retail is as healthy as ever. He noted that Colliers tracks other cities in Michigan, and there is no other city that’s doing as well as Ann Arbor. He joked that he was not just saying that because he was born here and was educated here. The rental rates in Ann Arbor are some of the strongest in the entire state of Michigan, he said. We should be grateful for that, he concluded.

Republic Parking Management Incentive

The history of the parking system factored into board remarks on proposed ordinance changes, and was mentioned by Brendan Cavendar of Colliers International, as a reason that Barracuda Networks was able to locate downtown. The parking system’s monthly usage report is also a regular feature the board’s monthly meetings.

But at the March 6, 2013 meeting, the board had an voting item on its agenda directly affecting the parking system. The board was asked to award the full $50,000 amount of a discretionary management incentive to Republic Parking – the DDA’s contractor for day-to-day operations. Republic Parking’s contract with the Ann Arbor DDA covers actual costs, but also includes a $200,000 management fee. Of the $200,000 management fee, $50,000 is awarded to Republic on a discretionary basis.

For the first time in the last five years, the DDA board was considering a recommendation to award the full $50,000 of the incentive. Last year, at its Feb. 1, 2012 meeting, the board determined to award $45,000 of the discretionary amount. That matched the same figure awarded in 2011, 2010 and 2009.

The direct costs for Republic Parking budgeted for FY 2013 – the current fiscal year ending June 30 – are $6,298,423 out of about $18.1 million in budgeted gross revenue for the parking system.

Part of the difference this year leading to the recommendation to award the full $50,000 was improvement in bi-monthly customer surveys over the year – as 72% of customers rated the parking system as at least 4 on a 5-point scale. That compared with 63% of parking patrons who rated the parking system at least a 4 last year.

The DDA’s independent inspector for the parking system completed 48 written reports in the course of the year that evaluated cleanliness of structures and lots. Those ratings averaged 91.71% – an increase over last year’s score of 90.48%. Also counting in Republic’s favor was the fact that the Dec. 31, 2012 accounts receivable balance for parking permit accounts was $7,898.26, which is 1.5% of the amount that is billed on an average monthly basis. The DDA’s target for that figure is 5%.

Dead tickets averaged 1.01% for the year, a decrease from last year’s 2.54%. That came in under the DDA’s target of 1.75%.

At the DDA’s operations committee meeting on March 1, 2013, Republic’s operations manager Art Low asked that other management staff be called out for praise by name – including Stephen Smith, Michael Bandy, Edward Wheeler and Judy Comstock.

A staff memo accompanying the resolution to award the $50,000 incentive cited other factors, besides improvement in the metrics used to evaluate the amount of the management incentive. The memo highlighted Republic’s performance in connection with the opening of the new 711-space Library Lane underground parking garage and the installation of automated payment equipment.

The Ann Arbor DDA manages the city’s public parking system under contract with the city of Ann Arbor. The contract calls for 17% of gross parking revenues to be paid to the city of Ann Arbor.

Republic Parking Management Incentive: Board Deliberations

Roger Hewitt reviewed the terms of the DDA’s contract with Republic Parking and how the management fee is structured – with a $50,000 component that’s discretionary.

He said that for the first time since he’s served on the board, the full amount of the incentive was being recommended by the staff and the operations committee. That recommendation had Hewitt’s enthusiastic support. He characterized the metrics used to evaluate Republic as including objective as well subjective criteria. Hewitt reviewed the criteria in the staff memo. In describing Republic’s efforts in opening the new parking structure and installing automated ticketing equipment in other structures, he said that Republic had taken on more responsibilities in the last year than in any year he’s been on the board. He wholeheartedly endorsed the recommendation of the full amount of the discretionary part of the management fee.

Russ Collins quipped that because Hewitt is generally a curmudgeon, Collins saw Hewitt’s remarks as a huge compliment.

Board chair Leah Gunn related that in her personal experience parking in the system, Republic Parking employees are “right there on the ball.” She gave great praise to Republic Parking and their employees on the front lines.

Outcome: The board voted unanimously to approve the award of the $50,000 discretionary component of Republic Parking’s management fee.

Monthly Parking Report

Roger Hewitt delivered the monthly parking usage report, covering the month of January. He noted that the reports start to include some narrative providing a little rationale for the month-to-month fluctuations to help understand what’s different.

University of Michigan classes didn’t start until Jan. 9 this year, compared to last year’s Jan. 4 start.  That effectively reduced the number of business days this year by three, a negative influence, according to commentary in the report. New Year’s Day fell on Tuesday this year instead of Sunday last year. That also had a negative impact.

Hewitt indicated that the report was intended to include not just additional narrative information, but also additional numerical data. [In this context, a preliminary report based on percentage of hours sold had been generated as far back as the summer of 2011.]

Hewitt characterized the report as indicating that there’s still clearly solid demand for parking in the system.

Chart by chart, here’s how the system looked [Chronicle charts based on DDA data]:

go!pass Funding for Downtown Employees

The board considered a resolution to approve a $610,662 grant to support the getDowntown program and the go!pass, which it provides to employees of participating downtown companies.

go!pass Funding for Downtown Employees: Background

Holders of a go!pass do not themselves pay a fare to board the bus. Rides are subsidized by the DDA and to a much lesser extent by employers.

The total grant to the getDowntown program breaks out as follows:

YEAR                    2014
getDowntown          $40,488    
go!pass             $479,000   
NightRide 
go!pass discount     $18,233     
Route 4 
East of US-23        $56,363   
Route 5 
East of US-23        $16,578   
============================
Total               $610,662

-

Compared to a request made at the previous month’s board meeting, on Feb. 6, 2013, a revised request made at the operations committee meeting on March 1, 2013 increased the line item for the getDowntown program by $5,000 – for marketing, outreach and operations. That increase was from $35,488 to $40,488. At that operations committee meeting, members resisted the $18,000 that had been requested to support the AATA’s Express Ride service from Chelsea and Canton, and did not include it in the recommendation to the board.

The go!pass program requires a participating downtown employer to purchase a go!pass for all employees in the company – at a cost of $10 a year per employee. That translated to a peak of 7,226 go!passes in circulation for FY 2011. That number dropped to 6,591 in FY 2012 – or $65,910 to offset the cost of rides taken with the go!pass. The current requested funding was based on projections of the estimated number of rides taken. Last year around 601,000 rides were taken using the go!pass by around 4,130 employees. The combination of go!pass funding is meant to work out to $0.90 per ride.

Administratively, the getDowntown program is part of the Ann Arbor Transportation Authority.

Through the AATA’s fiscal year 2012, which concluded at the end of September 2012, here’s how go!pass ridership has trended:

Full adult fare for AATA regular bus service is $1.50. According to the most recent AATA treasurer’s report, current operating costs for the AATA regular bus service work out to about $3.18 per rider. On average, a rider pays 22.1% of that cost and the local transit tax covers 34.6%. The remainder is covered with state and federal operating assistance.

go!pass Funding for Downtown Employees: Board Deliberations

John Mouat introduced the resolution. He noted that getDowntown executive director Nancy Shore was in the audience and was available to answer questions. Mouat reviewed how the proposal had been discussed at the last couple of operations committee meetings. The AATA’s CEO, Michael Ford, had attended the operations committee meeting and the previous board meeting to discuss the proposal.

Mouat walked through the breakout of the funding request, including the portions for NightRide and Routes #4/#5.  The operations committee supported enhancing the connection to Ypsilanti, Mouat said, but had “qualms” about a request to support express commuter service from Canton and Chelsea to Ann Arbor. The committee’s discussion at its March 1 meeting had included discomfort with the fact that the funding would benefit only 15 riders. Mouat also cited some caution as the DDA’s financial picture possibly changes – an allusion to consideration that the city council is giving to clarifying TIF capture calculations. The subsidy of the express commuter service from Canton and Chelsea was a category where the committee felt the DDA could withhold the requested $18,000.

Russ Collins noted that there are some people whose business is located outside downtown, but perhaps still near downtown, who conduct business downtown – like journalists or lawyers. He wondered about the possibility of making such businesses also eligible for the go!pass program. Shore explained that the getDowntown program has a policy under which workers who are temporarily contracting for a company that’s located downtown can purchase go!passes. She also pointed to institutions like the Workantile, whose members are eligible for go!passes. The key is that there must be some entity downtown that anchors the go!passes.

Collins wondered if exceptions were ever made. Shore responded by saying that the go!pass program is as much the DDA’s program as it is the AATA’s, and that the possibility of exceptions could be considered. Sandi Smith mentioned that one of the proposed changes to the DDA ordinance involved the use of funds outside the DDA’s TIF district. Nader Nassif gave his perspective as an attorney, who didn’t imagine there were a lot of attorneys with offices just outside downtown who’d likely be interested in being eligible.

Mayor John Hieftje said he was always very happy to support the go!pass funding, saying it was one of the best things being done by any organization. It helps those who can’t afford transportation, and reduces congestion and pollution. Board members also offered praise for Shore’s performance.

Outcome: The board unanimously approved the $610,662 funding request for go!passes.

At the conclusion of the meeting, during the time available for public commentary, Shore was effusive in her appreciation for the allocation of the grant. Brendan Cavendar of Colliers International also took a brief turn at the public commentary podium at the end of the meeting to add to his remarks made at the start of the meeting. He cited the go!pass as crucial to the decision of PRIME Research to locate downtown.

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 commentary.

Comm/Comm: Connector Study

Roger Hewitt gave the board an update on the connector study.

By way of background, the corridor being studied runs from US-23 and Plymouth southward along Plymouth to State Street and farther south to I-94. The Ann Arbor city council approved its share of the local funding match for the $1.5 million study at its Oct. 15, 2012 meeting, which followed a commitment of DDA support. The current study is an alternatives analysis phase, which will result in identifying a preferred mode (e.g., bus rapid transit, light rail, etc.) and the location of stations and stops. A feasibility study for the corridor costing $640,000 has already been completed. That initial study concluded that some type of improved high-capacity transit system would be feasible – which could take the form of bus rapid transit, light rail transit, or elevated automated guideway transit.

Here’s the breakdown of the $300,000 in local funding sources for the $1.5 million study: $150,000 from the University of Michigan; $90,000 from the Ann Arbor Transportation Authority; $30,000 from the Ann Arbor DDA; and $30,000 from the city of Ann Arbor. The $300,000 satisfies a 20% matching requirement for a $1.2 million federal grant the AATA has received to complete the $1.5 million project.

At the DDA board’s March 6 meeting, Hewitt indicated that possible routes for the connector are now being considered. He characterized it as a high-capacity transit line that would run in a rough boomerang from northeast Ann Arbor through UM’s north campus medical center, and central campus, the continue downtown and south to the Briarwood Mall area. Hewitt noted that the alternatives analysis phase is necessary to qualify for federal matching funds for eventual construction of such a project.

Coming up with potential alternative routes is a challenging task, Hewitt said, because there are no obvious ways to get through some of the tighter areas of the city. But as soon as some possible alternatives are actually put together, he continued, the study group will conduct some public outreach to get feedback that would lead to the end result of the study: the locally-preferred alternative. Those outreach efforts would probably be taking place at the end of April or the beginning of May, he said.

The initial study data collected by URS Corporation – the consultant hired to do the alternatives analysis study – showed, as expected, that the medical center and the central campus area had a high “density of trips.” But Main Street in downtown area has as great a density of trips as the campus area, Hewitt reported. It’s encouraging to see that the activity level is not centered only at the University Michigan, he said.

One of the questions that had been raised, Hewitt allowed, is whether Ann Arbor is large enough for this kind of high-capacity corridor. The consultant was asked to look at comparable cities that have high-capacity transit in some form. The list of cities included: Cleveland, Eugene, Little Rock, New Orleans, Norfolk, Portland, Salt Lake City, Tacoma and Jacksonville. Lansing, Grand Rapids and Fort Collins were also included – because they have systems in the planning stages right now.

With the possible exception of Lansing, he said, all of the cities are population-wise larger, or even quite a bit larger than Ann Arbor. But if you look a little deeper, he said, at the population per square mile – the population density – Ann Arbor ranks fourth on the list. And if you look at employment density – how many people are employed per square mile – Ann Arbor is first on the list. There are 3,800 people per square mile employed in the city of Ann Arbor, Hewitt reported. The next-closest city on the list is Cleveland at about 3,300. Then it drops down to about 2,500 and lower.

So although Ann Arbor is small geographically, it’s pretty dense in population, and very dense in jobs. That’s the answer to why you need a transportation connector like this, Hewitt concluded. He ventured that moving people around and finding places for people to park is going to become increasingly difficult.

Comm/Comm: Connecting William Street

In reporting out from the downtown citizens advisory council (CAC), Ray Detter said the CAC continues to support the DDA’s leadership of the careful planning of the downtown – in the form of the Connecting William Street (CWS) planning project. That’s a planning effort the DDA undertook as the result of an April 2011 city council directive to consider alternative uses for five city-owned parcels in the downtown William Street corridor.

The CWS project was also mentioned at the board meeting during Joan Lowenstein’s report from the board’s partnerships committee. She described how the city’s planning commission, on its own initiative, had accepted the CWS project as a supporting resource document to the city’s master plan. [That action came the previous evening, on March 5, 2013.]

Sandi Smith asked how the CWS plan might factor in a city council action taken the day before the planning commission’s meeting, on March 4, 2013. At that meeting, the council had voted to direct the city administrator to issue an RFP (request for proposals) for brokerage services to sell the former Y lot at Fifth and William. The lot is currently used as a surface parking lot in the city’s public parking system, and is one of the five lots in the CWS plan.

Mayor John Hieftje, who had co-sponsored the council’s resolution with Stephen Kunselman (Ward 3), told Smith there’d been some discussion about the resolution, stressing that no final decision had been made. Hieftje allowed that the CWS recommendation from the DDA had been to consider packaging the old Y lot together with the top of the Library Lane underground parking garage. But he felt that the Y lot was a special case, because of the interest-only payments the city was making on a 10-year-old $3.5 million loan. Responding to a query from Smith, Hieftje indicated it would still be possible to incorporate public opinion into the future of the old Y lot.

In his remarks reporting from the CAC, Detter provided implicit commentary on the council’s Y lot resolution by saying the CAC didn’t think that downtown city-owned property should be for sale to the highest bidder.

The fact that the city is, for now at least, not packaging the Y lot with the top of the Library Lane underground parking garage means there’s possibly even more additional time to explore temporary interim uses for the top of Library Lane. During public commentary at the conclusion of the meeting, Alan Haber spoke in support of an artificial ice-skating rink at that location. He indicated that his group would be making a presentation on that topic at the next meeting of the DDA’s partnerships committee, on March 13 at 9 a.m.

Comm/Comm: Beat Cops

Roger Hewitt briefly addressed the possibility that the DDA might fund community policing in the form of contracting with the Ann Arbor police department for downtown police beat patrols. The board has money for the patrols in the FY 2014 budget, which it adopted at its Feb. 6, 2013 meeting. A lot more information is needed before pursuing that possibility, Hewitt indicated. And if the financial picture changes – an allusion to the possibility that the city council clarifies the DDA’s TIF capture in a way that negatively impacts the DDA – the downtown police patrols won’t go anywhere.

Comm/Comm: Aging Population

Joan Lowenstein reported from a day-long seminar that the AARP had sponsored on the University of Michigan campus – about aging communities and how municipalities can respond to aging communities. She noted that councilmember Sabra Briere, who represents Ward 1, was also in attendance at the seminar. [Briere also attended the March 6 DDA board meeting.] Ann Arbor leans more heavily than the national average toward the baby boomer age, Lowenstein noted, and leans less heavily toward those who are under 40 years old. It might be surprising – but it’s because Ann Arbor is not retaining young people, she said. At the seminar there were lots of national experts on urban planning, and walkability and services for older people. They said that if you focus on walkability, transit, and livability improvements, then that benefits the aging population and helps to retain the younger population. Lowenstein concluded that the DDA had been focusing on the right kind of infrastructure improvements.

Comm/Comm: Public Art

The city of Ann Arbor’s public art administrator, Aaron Seagraves, briefed the board on the Detroit Institute of Arts’ Inside|Out project, which involves installing framed reproductions from the DIA’s collection at outdoor locations on building facades or in parks. Two private Ann Arbor businesses – Zingerman’s Deli and the downtown Borders store – were part of the program in 2010, and since then the DIA has been talking periodically with AAPAC and city staff about expanded participation.

The works will be hung from late March through June at several downtown locations: the Justice Center (Fifth & Huron); downtown fire station (Fifth & Ann); Lena restaurant (Main & Liberty); Kerrytown Market & Shops (Fourth & Kingsley); Sculpture Plaza (Fourth & Catherine); Zingerman’s Deli (Detroit & Kingsley); and the Liberty Street alley near Main Street.

Comm/Comm: AirRide

During public commentary time, three Skyline High School students – who are part of the school’s communications, media, and public policy magnet program – addressed the board on the topic of the AATA’s AirRide service. By contracting with Michigan Flyer, the AATA provides hourly service between downtown Ann Arbor and Detroit Metro airport. The students’ remarks came in support of the service – and they ticked through the various environmental benefits, economic advantages, as well as the amenities offered on the buses, like free wifi. [The DDA's role in the AirRide is that it provides subsidized parking in the Fourth and William parking structure for those who use the AirRide service.]

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

Absent: Newcombe Clark.

Next board meeting: Noon on Wednesday, April 3, 2013, at the DDA offices, 150 S. Fifth Ave., Suite 301. [Check Chronicle listings to confirm date]

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