Back in the spring of 2011, the Ann Arbor city council and the Downtown Development Authority were arguing bitterly about money.
Now two and a half years later, a solid working relationship between the two entities has evolved – unmarred by political machinations, based instead on a clearly understood shared past, and consensus interpretation of relevant statutes and local laws governing tax increment finance capture.
That has led to a joint working session between the entities scheduled for Sept. 9, 2013. The session will offer an opportunity for members of the organizations to exchange appreciation and praise for the positive turn the relationship has taken over the last 30 months.
Heh. That’s a joke, as is the headline – the only accurate part of the preceding two paragraphs is the fact that a Sept. 9 working session is scheduled.
And it’s fair to say that the working session between the two groups would probably not be taking place unless it were contractually obligated – under an agreement ratified in May of 2011. The DDA operates the city’s parking system under that contract. In addition to the convening of a joint working session every fall, the contract stipulates that 17% of the gross parking revenues are to be paid to the city.
Parking money is just one of the two revenue categories over which the city and the DDA have been bickering. The other is the DDA’s tax increment finance capture (TIF), which is regulated by Chapter 7 of the city code. With an initial approval of changes to Chapter 7 already approved by the council on April 1, 2013, a joint DDA-city council committee was tasked on July 1, 2013 with making a recommendation on Chapter 7 changes to the council.
Representing the council on the joint committee are Stephen Kunselman (Ward 3), Christopher Taylor (Ward 3), Jane Lumm (Ward 2) and Sally Petersen (Ward 2). Representing the DDA are Sandi Smith, Roger Hewitt, Bob Guenzel and Joan Lowenstein.
Despite being tasked by council on July 1 to begin meeting immediately, the committee did not meet until eight weeks later, on Aug. 26 – after the Aug. 6 city council primaries. Here’s the political calculus: If Kunselman had lost the Ward 3 Democratic primary to Julie Grand, the balance of votes on the council might have shifted to clarifying Chapter 7 in the DDA’s favor.
Grand ran a campaign that was generally supportive of the DDA. But Kunselman has led the council’s effort to clarify Chapter 7 in a way that favors the city as well as the other taxing jurisdictions whose taxes are captured by the DDA. However, Kunselman prevailed – as did Ward 4 challenger Jack Eaton, who campaigned in part on the idea of limiting the DDA’s TIF capture through clarification of Chapter 7.
Because the committee waited until after the Aug. 6 primary to meet, the DDA members had a clearer idea on Aug. 26 about who they’d be dealing with in the near future. The outcome of the Aug. 6 primary meant that Kunselman brought a certain amount of confidence to the committee meeting on Aug. 26. At one point he stated: “… I don’t really have a lot of trust out in my neighborhoods about what the DDA does downtown, ok? And that’s how I have been able to galvanize my base, so to speak, to stay here and to keep this effort alive, so that we can get this ordinance changed … Some of that money, yes, should be returned to the taxing authorities.”
Now the only question mark on the committee is the independent Lumm, who faces a challenge from Democrat Kirk Westphal in the November election. Lumm has made it clear she supports a Chapter 7 revision that respects the interests of the other taxing jurisdictions. But Lumm’s re-election is not a foregone conclusion.
That’s why the opening gambit from the DDA’s side at the Aug. 26 meeting was to delay further, even though the council is scheduled to take a final vote on the Chapter 7 revisions at its Sept. 16 meeting. A future council that included Westphal, mayor John Hieftje, Chuck Warpehoski (Ward 5), Margie Teall (Ward 4), Christopher Taylor (Ward 3) and Sabra Briere (Ward 1) might have six votes that potentially could support the current approach to TIF calculations. But among those six, I think even Westphal, Warpehoski and Briere are capable of independent and rational thought on the question of TIF capture.
The delaying tactic on Aug. 26 emerges in a fairly obvious way if you read through the meeting transcript. [.pdf of 40-page transcript]. DDA members were more inclined to want to talk about general arguments for the existence of a DDA, professing uncertainty about why they’d even been invited to the table. Kunselman, Lumm and Petersen made it clear they were there to talk about clarifying the TIF calculations, not more general themes. It wasn’t clear whose interests Taylor was upholding, but he aligned himself policy-wise – as well as socio-linguistically – more with other DDA board members than with his city council colleagues.
The Aug. 26 meeting was highlighted by a number of misstatements or incomplete statements of historical fact – some serious enough that I worry about the ability of some of those at the table that day to effectuate good public policy.
Still, I think the meeting offered a glimmer of hope – from a guy whose history with the city of Ann Arbor is approaching an anniversary. On Sept. 15, city administrator Steve Powers will have been on the job exactly two years.
Powers, I think, offers a contrast with the previous city administrator Roger Fraser. On April 16, 2010 Fraser barred me from a meeting of a “working group” of councilmembers and DDA board members. Shielded from public view, the group was sorting out the terms of a new parking agreement. Powers, on the other hand, toward the end of the Aug. 26, 2013 committee meeting, had this to say: “If the committee is done commenting, you should provide for public comment, as it’s a public meeting.”
This column includes a brief outline of some factual points worth remembering – because they were misstated or incompletely stated at the Aug. 26 meeting. But first, a point about words.
Word Usage: Who’s the Attorney?
Even if you haven’t studied it in school, you probably have an awareness of how vocabulary choices can establish credentials, or let other people know that you are one of their kind.
For example, if I say by way of introduction to an urban hipster on a fixed-gear bicycle, “Is that a 44/16 you’re pushing?” that can be translated as follows:
Hey, I would like to make small talk about bicycles, and I know that 44/16 is a gear ratio, so tell me the answer to my question, before I size you up as just a poser who rides a fixie for the hip and groovy look, but doesn’t even know the first thing about gear combinations.
So early on during the Aug. 26 committee meeting, Ward 3 councilmember Christopher Taylor held forth as follows:
Taylor: … I think the ordinance as currently constituted is not clear to the novice 1-L looking at it, and [I] wouldn’t mind an ordinance that was.
What the 1-L?! If you remember the movie “The Paper Chase,” or if you can deduce it from your knowledge of Taylor’s background as an attorney, you might have a shot at understanding the reference – to a “first-year law student.” It seems to be a naming pattern unique to law schools. For example, first-year medical students are not 1-Ms. First-year journalism students are not 1-Js. In any case, Taylor’s reference was not universally and immediately understood by all the other non-lawyers in the room.
I think Taylor is bright enough to know that “1-L” is parlance peculiar to a specific social class. So why use a term that he could reasonably expect would not immediately be accessible to everyone in the room? One reason could be that Taylor was not the only lawyer at the table: Joan Lowenstein and Bob Guenzel – members of the DDA board – are also attorneys. So Taylor’s reference to 1-L could be translated as:
Hello, Joan and Bob, I see you lawyers over there, so let us note that we are the lawyers here – we are us and they are them – and once again, lest anyone forget: We are the lawyers.
Earlier in the meeting, Lowenstein had tried to put Kunselman in his place with respect to his legal understanding of the contractual nature of the parking agreement between the city and the DDA:
Kunselman: … we can get rid of the parking agreement and take it back.
Taylor: Yes, it’s an agreement but …
Kunselman: … yet we can take it back. [laugh]
Taylor: It’s an agreement between two entities …
Lowenstein: … it’s a contract. Anyway, we won’t educate you about contract law, but go ahead.
A pertinent point about that parking contract, not mentioned by any of the three lawyers present, is the opportunity for terminating it, even when there’s been no breach. Everyone present at the committee meeting with knowledge of the contract was eager to state that the contract runs through the end of the DDA’s charter, in 2033. But apparently forgotten, even by the lawyers present, was the clause that allows either the DDA or the city to terminate the contract in year 11, with one year’s notice:
Each of the City and DDA may terminate this Agreement without cause, on June 30,  and on the eleven (11) year anniversary thereafter, provided that written notice of termination is provided no less than three hundred and sixty five (365) days in advance of said termination.
Myth of Transparency
The transcript of the Aug. 26 meeting reflects a sharp exchange between Kunselman and Taylor on the question of whether the negotiations leading up to ratification of the May 2011 parking agreement were open and transparent. Taylor was adamant that the agreement on the parking contract had been reached in an open way and had not been passed in the “dark of the night.” Kunselman contended that the public conversation took place only after the decisions had been made out of public view.
For some grounding in actual fact, it’s worth noting that after a council-DDA “mutually-beneficial” committee was re-established on May 17, 2010, the conversations between the two bodies on the parking agreement moved at least in part into the public realm. I attended most of those meetings.
Before that, however, the conversation between the city council and the DDA was shielded from public view. Here’s a timeline overview. The April 16, 2010 date is worth noting.
- Jan. 20, 2009: City council passes a resolution asking the DDA to begin discussions of renegotiating the parking agreement between the city and the DDA in a mutually beneficial way.
- March 4, 2009: DDA board establishes a “mutually beneficial” committee to begin discussions of the parking agreement between the city and the DDA. On the committee: Roger Hewitt, Gary Boren, Jennifer S. Hall, and Rene Greff. The DDA’s resolution establishing their committee calls on the city council to form its own committee.
- May 20, 2009: During the mid-year DDA retreat, mayor John Hieftje states publicly that city councilmembers object to the membership of Jennifer S. Hall and Rene Greff on the DDA’s “mutually beneficial” committee.
- June 3, 2009: DDA board chair Jennifer S. Hall removes herself from DDA’s “mutually beneficial” committee, replacing herself with Russ Collins.
- June 15, 2009: Mayor John Hieftje nominates councilmembers Margie Teall (Ward 4), Leigh Greden (Ward 3) and Carsten Hohnke (Ward 5) to serve on the city council’s “mutually beneficial” committee, and they’re confirmed at the city council’s July 20 meeting.
- July 1, 2009: DDA board chair Jennifer S. Hall appoints Sandi Smith to replace outgoing DDA board member Rene Greff (whose position on the board is filled with Newcombe Clark) on the DDA’s “mutually beneficial” committee. Smith is also a city councilmember, representing Ward 1.
- August 2009: Leigh Greden is defeated in the Democratic primary by Stephen Kunselman.
- August-December 2009: Sandi Smith, the chair of the DDA’s “mutually beneficial” committee, reports at each monthly DDA board meeting that there is nothing new to report.
- Dec. 5, 2009: Dissolution of the DDA is included in an “everything is on the table” list for discussion at the city council’s budget retreat.
- January-April 2010: Roger Hewitt reports at monthly DDA board meetings that only informal discussions are taking place.
- April 16, 2010: The Ann Arbor Chronicle is barred from attending a meeting of a “working group” of city councilmembers and DDA board members.
- April 21, 2010: At a DDA partnerships committee meeting, Newcombe Clark gets assurance that a 7-day notice would be given before the full board would be asked to consider a $2 million transfer payment to the city.
- April 28, 2010: At a DDA operations committee meeting, a “term sheet” produced by the “working group” of the city council and DDA is unveiled. It’s intended to become the basis for an eventual new parking agreement. A key feature of the “term sheet” is that the DDA will assume responsibility for enforcement of parking meters. That responsibility was not ultimately included in the final agreement.
Myth of the Debt Clause Interpretation
The transcript of the Aug. 26, 2013 meeting reflects a claim that the DDA as an institution took on bonding debt, based on a particular interpretation of the Chapter 7 “debt override” clause. That interpretation is that as long as the DDA has debt obligations, it does not owe a return of any excess to the other taxing jurisdictions.
Hewitt: So I just want to be clear that you want to remove that ["debt-override"] clause completely?
Kunselman: Yes, which has already been done in the first reading.
Hewitt: But understanding that we have engaged in a huge amount of indebtedness based on that.
The last bonds for which the DDA accepted the debt service obligations were approved by the city council in February 2009. Later in the meeting, Hewitt returned to the implicit point – that historically, the debt clause had always been given the interpretation the DDA is currently giving it. That interpretation is that if the DDA had debt, then no excess TIF revenue needed to be returned to the other taxing jurisdictions:
Hewitt: Just to move things forward, I think, one of the big issues is that debt clause. The DDA and previous councils have operated under the assumption that the debt clause meant that there would be no refund because there was debt. That’s certainly how the DDA has viewed that. And the discussions with previous councils, that’s clearly how previous councils have viewed that. Now if you want to change, if you want to clarify that so that it does not apply, then I would like to hear from council that that is what you would like to do, because that would be a first step towards clarifying the ordinance.
And Taylor lent his support to the idea that the debt clause had consciously been given a specific interpretation over the years [emphasis added]:
Taylor: … Yes there is a debt override, and yes, there is a confusing way of creating a refund mechanism. The DDA has made pledges with respect to debt such that the refund mechanism has not frequently been triggered.
As a matter of historical fact, however, to the extent that the DDA or the city council has ever expressed a position on the “debt clause,” that implicit position has been that the clause does not excuse the DDA from returning excess TIF capture to the other taxing jurisdictions. In more detail, the DDA’s narrative in the spring of 2011 – when the Chapter 7 issue arose – was that the DDA had been unaware of the implications of Chapter 7 on its TIF revenue. However, once alerted to Chapter 7 by the city treasurer at that time, the DDA took 18 days to study the question before concluding that the return of excess TIF was owed to other taxing authorities – dating back to previous years, not just 2011.
Only when challenged on the methodology of its calculations, which made a difference on the order of $1 million per year, did the DDA reverse its position – by citing the “debt clause” of Chapter 7. The clause is most naturally read as a requirement that debt obligations be satisfied before non-debt obligations – like administrative staff salaries. The DDA’s preferred interpretation – that the clause lifts a stated restriction on TIF revenue already expressed in the ordinance – just isn’t plausible.
The fact that the DDA did not cite the debt clause in the spring of 2011 – when it made repayments of excess TIF covering that year and prior years – indicates that the DDA did not then, or in years before that, think the debt clause had an available interpretation under which the excess TIF return obligation could be excused.
The timeline, which undercuts the implications of statements made by Hewitt and Taylor at the Aug. 26 committee meeting, is as follows:
- 2011-April-28: City of Ann Arbor chief financial officer Tom Crawford steps in as interim city administrator in the wake of Roger Fraser’s departure.
- 2011-April-29: City financial staff notice the implications for TIF capture that are written into the city’s 1982 ordinance, which established the DDA. The timing of the discovery was reported by mayor John Hieftje at the DDA board’s May 2 meeting. In summary strokes, the ordinance provides that if the rate of growth in taxable value is more than what was anticipated in the TIF plan, then the DDA would capture only half of the increment on that additional value.
- 2011-May-02 (noon): The Ann Arbor DDA board was expected to ratify its side of the contract with the city of Ann Arbor under which it would continue management of the city’s parking system. Instead, it was announced that the board would be tabling the vote on the parking contract pending a closer review of the excess TIF capture issue.
- 2011-May-02 (7 p.m.): Ann Arbor city council strikes the city-DDA parking contract approval from its agenda.
- 2011-May-16: Ann Arbor city council begins its second meeting in May, at which it must approve the FY 2012 budget. The council does not vote on the budget, but recesses the meeting until May 23.
- 2011-May-20: At a special meeting, the Ann Arbor DDA board approves a parking contract with the city of Ann Arbor that provides 17% of gross parking revenue to the city of Ann Arbor. The approved contract includes a provision that the city of Ann Arbor will backstop the DDA’s financial position if the DDA’s fund balance falls below $1 million.
- 2011-May-20: At the same meeting, the Ann Arbor DDA board votes to affirm the excess TIF calculations raised at the May 2 meeting. The DDA calculates that a total of $1,185,132 should be returned to taxing authorities that levy property taxes in the downtown district. The city of Ann Arbor’s share of that is $711,767, with the remaining money owed to the Ann Arbor District Library, Washtenaw County and Washtenaw Community College. The method of calculation is “year-to-year” not cumulative, and is based on the “optimistic” projections in the DDA’s TIF plan.
- 2011-May-23: 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.
- 2011-May-25: “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 in the proposed parking agreement.
- 2011-May-31: Ann Arbor city council votes to waive the $711,767 in excess TIF capture that the DDA calculated it owed to the city of Ann Arbor.
- 2011-May-31: At the same meeting, the Ann Arbor city council ratifies the city-DDA parking contract, which provides 17% of gross parking revenue to the city of Ann Arbor. The approved contract includes a provision that the city will backstop the DDA’s financial position if the DDA’s combined fund balance falls below $1 million.
- 2011-July-27: At a special meeting, the DDA convenes in closed session and emerges to approve a resolution that reverses its previous position on excess TIF capture. Now the DDA contends that the local ordinance doesn’t actually place a limit on its TIF capture.
- 2011-August-15: Ann Arbor District Library board holds a closed session as part of its regular meeting to review the written legal opinion of its legal counsel with respect to the excess TIF capture. AADL board director Josie Parker indicates that the AADL will ask its legal counsel, Hooper Hathaway, to prepare a response to the DDA’s new position on the interpretation of the ordinance.
- 2011-November-02: Ann Arbor DDA holds a closed session to review the written opinion of its legal counsel on the issue of excess TIF capture.
- 2011-December-07: Ann Arbor DDA holds a closed session to review the written opinion of its legal counsel on the issue of excess TIF capture.
- 2012-Mar-19: Ann Arbor District Library director Josie Parker tells The Chronicle that AADL is not pressing the matter of the excess TIF, but is open to a conversation with the DDA.
- 2012-Mar-19: Stephen Kunselman (Ward 3) announces he’ll be bringing forward a resolution to address the issue of excess TIF capture. Kunselman has not consulted with AADL on the issue.
- 2012-Mar-21: During a budget update at the Washtenaw County board of commissioners meeting, the $348,000 received by Washtenaw County from the DDA in TIF reimbursement is presented as one of several factors contributing to the better-than-expected financial condition for the county.
Myth of the Opt Out: Other Taxing Jurisdictions
The DDA captures some of the taxes of other jurisdictions – the city of Ann Arbor, Washtenaw County, Washtenaw Community College and the Ann Arbor District Library. The current state enabling legislation for DDAs includes an opt-out provision for other taxing jurisdictions. So there’s a widespread misunderstanding that back in the early 1980s when the Ann Arbor DDA was established, other jurisdictions had an opportunity to opt out.
However, as The Chronicle has previously reported, that provision in the state statute was added after the Ann Arbor DDA was established. And when the Ann Arbor DDA was renewed in 2003, none of the opt-out conditions were triggered. So there has never been an opportunity for other taxing jurisdictions to opt out.
The Aug. 26 committee meeting revealed a lack of command of these historical facts by Taylor, when he ventured that the other taxing jurisdictions had “signed up for it” – that is, not chosen to opt out of the Ann Arbor DDA’s tax capture. [emphasis added]:
Kunselman: I don’t feel good just because I can take someone else’s money, and keep it.
Taylor: I guess: They signed up for it.
Kunselman: Well, the library didn’t. They would like some of their money back.
Taylor: And they haven’t come to us to say that they ..
Kunselman: … they wrote us a letter. They wrote [mayor John] Hieftje a letter.
Taylor: In 2000-what?
Kunselman: What, two years ago? [It was January 2012 when the letter was written.]
I’ve been told by one public official that it’s not their job to give a correct recitation of history – because that’s The Chronicle’s job. If you’d like to watch the city council and the DDA board make a small bit of history tonight, you can watch live proceedings on Channel 16, streamed online by Community Television Network.
The council-DDA work session will immediately follow a special meeting the council is convening at 7 p.m. to hold a closed session under the Michigan Open Meetings Act – to discuss labor negotiation strategy.
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