Blue bars represent the "optimistic" projections of the increment valuation in the Ann Arbor DDA's TIF plan. The red line represents actual valuation of the increment on which taxes have been captured. For 2013-2014, the valuation is based on estimates in the DDA's 10-year planning document.

That news had been conveyed to DDA staff by the city of Ann Arbor’s finance department just that morning: Some of the taxes captured in the DDA’s tax increment finance (TIF) district since 2003 might be owed to local taxing units, including the city. With an uncertain financial obligation to return TIF monies that had already been captured from taxing units in the district, the DDA board understandably balked at approving the new parking contract on May 2.

The postponement of the DDA’s vote on that contract ultimately led to a delay in the Ann Arbor city council’s adoption of the city’s fiscal year 2012 budget – as the council stretched its May 16 meeting to May 23 and then on to May 31. But by the end of May, the issue of excess TIF capture had been settled to the DDA board’s satisfaction, and the parking contract was ratified – first by the DDA, and then by the city council.

The Ann Arbor city council was also content with the DDA’s proposed solution to the excess TIF capture. That solution included returning a total of roughly $473,000 to the Ann Arbor District Library, the Washtenaw Community College and Washtenaw County. The city of Ann Arbor chose to waive its $712,000 share of the calculated excess.

Those three other taxing units no doubt welcomed the news that their budgets would get an unexpected boost. But the governing bodies of those taxing units should take a closer look at how the excess TIF was calculated. If they do, they will discover that the amount actually due to be returned to them (and divided proportionately as required under the city’s of Ann Arbor’s DDA ordinance) may not be $473,000, but more than twice that: $1.27 million. In ballpark numbers, for the Ann Arbor District Library that translates to the difference between about $75,000 and $200,000. For Washtenaw County, it’s the difference between $242,000 and $648,000. And for Washtenaw Community College, it’s the difference between $157,000 and $419,000.

Brief Background on TIF

A tax increment finance (TIF) district is a mechanism for “capturing” certain property taxes to be used in a specific geographic district – taxes that would otherwise be used by the entity with the authority to levy the taxes. So in the DDA’s TIF district, the DDA doesn’t levy taxes directly. Rather, a portion of the property taxes that would otherwise be collected by taxing units (like the library, community college and the county) is instead used by the Ann Arbor DDA for improvements within a specific geographic district, covering about 66 city blocks downtown.

What is the portion of the property taxes that is captured by the DDA? The captured tax is only that which applies to the difference between (1) the baseline value of the property when the district was first formed, and (2) the value of the property after new construction or improvements to the property. That difference is the “increment” in “tax increment finance.” Subsequent appreciation of property value due to inflation, after it’s been constructed or improved, is not included in the Ann Arbor DDA’s TIF capture.

What the Ordinance Says

Chapter 7 of the city of Ann Arbor’s city code lays out how the tax capture of the Ann Arbor DDA is limited, or capped. The mechanism used to cap the amount of tax that can be captured by the Ann Arbor DDA is the projected value of the increment in the TIF district, as laid out in the TIF plan – a required document under the state enabling legislation for DDAs (Act 197 of 1975). From Chapter 7 [emphasis added]:

If the captured assessed valuation derived from new construction, and increase in value of property newly constructed or existing property improved subsequent thereto, grows at a rate faster than that anticipated in the tax increment plan, at least 50% of such additional amounts shall be divided among the taxing units in relation to their proportion of the current tax levies. If the captured assessed valuation derived from new construction grows at a rate of over twice that anticipated in the plan, all of such excess amounts over twice that anticipated shall be divided among the taxing units. Only after approval of the governmental units may these restrictions be removed. [.pdf of Ann Arbor city ordinance establishing the DDA]

The TIF plan includes a table that lays out the projected valuation of the increment in the district, starting in 2003. The table includes three scenarios for the projected valuation: “realistic,” “optimistic” and “pessimistic.” They’re each based on a constant percentage increase each year. So the three different scenarios are generated from three different estimates of the percentage increase each year. [.pdf of DDA TIF plan appendix]

Before this year, Chapter 7 has not been applied, although it should have been. The mayor, city financial staff, and DDA board members have offered as an explanation that it was an honest mistake: No one had gone back to check old ordinances.

Interpreting the Chapter 7 limit on TIF capture requires answering at least two questions: (1) Which of the three projections (“realistic,” “optimistic” or “pessimistic”) is relevant for the application of the ordinance? and (2) Is the growth in valuation supposed to be measured year-to-year, or cumulatively?

While the language of the DDA ordinance is vague, I think the correct answer to these questions is actually straightforward. However, in both cases, that answer is different from the one used by the DDA in calculating the amount of excess TIF to be returned to the taxing units.

Question One: Realistic vs. Optimistic vs. Pessimistic

The DDA’s answer to the question of which projections to use is this: Use the “optimistic” projections.

One kind of argument for that interpretation of Chapter 7 might be to observe that the numbers in the optimistic column qualify as “anticipated in the tax increment plan” because they are included in the table, thus are clearly “anticipated.” But the “pessimistic” scenario is also included in the plan, thus it also qualifies as “anticipated.” So an argument based on what is “anticipated” will not discern one scenario from another, and thus must be rejected as the basis for answering the question. What’s required is some basis for choosing one scenario instead of the others.

Extract from the Ann Arbor DDA's TIF plan table. It shows the projected valuation of the increment on which the DDA's TIF capture will be based.

An argument for the “realistic” scenario could be based on the usual meaning of the words used as labels for the scenarios. On this argument, the two scenarios that are not labeled “realistic” are unrealistic, thus not suitable for use in the application of Chapter 7. While it is persuasive, I think this argument is not completely definitive, because it trades on the perhaps arbitrary or accidental choice of particular words as labels. One could imagine a TIF plan that is identical to the Ann Arbor DDA’s TIF plan, except that the table of projections uses “middle,” “high,” “low” as labels for the different scenarios. And in that case, I think it’s not as straightforward to reject the high and low projections, merely because they are both “not the middle one.”

However, I think two arguments exist that are definitive. One was made by councilmember Stephen Kunselman (Ward 3) at the city council’s May 31 session. He simply noted that the column of numbers labeled “realistic” is the one displayed in bold typeface in the TIF plan. The fact that it’s bolded allows a reader to discern that it’s meant to be special and different from the other two, independently of the meaning of the words used as labels. This allows for a definitive choice of the “realistic” projections, even if it’s not known to what purpose the projections will be applied.

A second definitive argument is related to the purpose of the calculations, and it’s based on the principle of fairness. The three scenarios are fairly described as middle, high and low. We know that the purpose of the calculations is to divide money between two interested parties based on the choice of either the middle, high or low scenario. Further, we know that the choice of the high scenario will benefit one of the parties, while choosing the low scenario will benefit the other party.

Imagine that we present the choice to an independent arbiter, who does not know the nature of the calculations to be done with the numbers, or which party would benefit from a choice of the high or low numbers. The only fair choice available to the arbiter is to choose the middle set of numbers, because it’s the only set that rejects an arbitrary assignment of benefit to one or the other party.

At the DDA’s May 2 board meeting, board chair Joan Lowenstein indicated the possibility that an independent auditor might need to decide the question of excess TIF calculations. To The Chronicle’s knowledge no independent party has weighed in on the issue.

Question One: Impact on Calculations – Realistic Scenario

Holding everything else constant in the DDA’s calculation of excess TIF capture – except for the choice of the “realistic” scenario instead of the “optimistic” one – yields a total of $1,302,992 that should be returned to taxing units in the DDA TIF district. That compares to $1,185,132 that the DDA calculated – a difference of $117,860.

The impact of choosing the “realistic” projections in the TIF plan – as opposed to the “optimistic” projections – is relatively modest, but I would contend it is still significant in absolute terms.

Question Two: Year-to-Year vs. Cumulative Method

Before we even try to frame the second question, it’s worth considering some hypothetical examples, in order to develop an intuition for the issue. In the Chart B below, the blue bars represent the forecast valuation of the increment in some hypothetical TIF plan for some hypothetical DDA. The pink line represents what actually happened (in this hypothetical scenario).

Chart B. A hypothetical TIF plan forecast (blue bars) with hypothetical valuations of the increment (pink line).

In the Chart B example, the amount of new development in the district exactly matched the forecast in the TIF plan in Year 19 through Year 25. For those years, the amount of growth in TIF capture is exactly what was forecast. So, for those years no excess as defined in Chapter 7 could possibly exist. What about Year 26? The valuation of the increment stayed constant from Year 25 to Year 26, leaving the valuation in Year 26 less than what was forecast. So for Year 26 through 29, no excess as defined in Chapter 7 could possibly exist.

I don’t think Chart B is in any way controversial: The growth in valuation of the increment is not greater than anticipated in the plan.

But consider now Chart A, which is identical to Chart B except for the actual valuation from Year 19 through Year 24, which remains flat, until climbing – all at once – in Year 25:

Chart A. A hypothetical TIF plan forecast (blue bars) with hypothetical valuations of the increment (red line).

We already concluded that there’s no excess in Chart B. But comparing Chart A and Chart B, the valuation in Chart A (red) is less than or equal to the valuation in Chart B (pink) in every year. It’s therefore counterintuitive that Chart A would reflect excess valuation compared to the forecast in the TIF plan – Chart A’s valuation is everywhere less than or equal to a valuation history that patently shows no excess.

Yet on the methodology used by the DDA to calculate excess TIF capture, Chart A shows excess valuation compared to the TIF plan. How can that be?

Here’s how it works. In any given year, the DDA’s method compares that year’s valuation to the prior year’s valuation, and calculates the difference as actual growth. [In the .pdf of table showing DDA's calculations in detail, that is column D.]

Then the DDA’s method compares the TIF-plan-forecasted valuation for that year to the prior year’s forecasted valuation, and calculates the difference as forecasted growth. [In the .pdf of table showing DDA's calculations in detail, that's column H.] Comparing actual to forecasted growth in this manner is what determines excess, according to the DDA’s method. [D minus H, in column I] Because the DDA’s method depends only on checking the prior year, we refer to it informally as a year-to-year method of excess calculation.

So in Chart A, for Year 25, the actual growth since Year 24 (the difference in red line values) is significantly greater than the forecasted growth since Year 24 (the difference in blue bar values). It’s because of that difference that the year-to-year method results in the determination that excess growth has occurred in this hypothetical situation. The year-to-year method thus leads to what I’d consider to be an absurd result in this hypothetical example – so on that basis, it can be rejected as incorrect.

In the Chart A hypothetical example, the year-to-year method works in favor of the taxing units and against the DDA. So rejecting the year-to-year method of calculation as counterintuitive actually defends the DDA’s interests – at least for this kind of hypothetical example. That is, rejection of the DDA’s method is not based on some pre-existing bias against the DDA, but rather entirely on the fact that it leads to an absurd result.

If not the year-to-year method, then, what method should be used for determining whether excess TIF growth has occurred? I think it’s straightforward to compare the red/pink lines to the blue bars. If a red/pink line is higher than the blue bars, then there’s excess, defined exactly as the difference between the red line and the blue bars. If the red/pink line is the same height or lower than the blue bars, then there’s no excess.

A possible argument against this approach is that Chapter 7 speaks to the growth rate. Comparing the forecast valuation to the actual valuation (red/pink lines to blue bars) does not seem to compare growth rates. It compares two numbers – a forecast valuation and an actual valuation – which are not themselves rates. That argument is refuted by noting that comparing forecasted valuation to the actual valuation is mathematically equivalent to comparing the rate of growth forecast since the start of the TIF plan to the rate of actual growth since the start of the period.

We refer to this approach informally as the cumulative approach. With the cumulative approach, instead of looking back just to the prior year to determine whether there’s been excess growth in any year, we look back to the beginning of the period of the forecast. Using Chart A as an example, for Year 25 we compute the difference between the actual valuation (red line) in Year 25 compared to Year 19. We then compute the difference between the forecasted valuation (blue bar) in Year 25 compared to Year 19. Those two differences are the same, so the cumulative approach determines there is no excess in Chart A, which matches intuition.

Let’s now move from the hypothetical realm to the actual facts of the valuation of the increment in the Ann Arbor DDA TIF district:

Chart C. Blue bars are the forecast valuation (optimistic scenario) in the Ann Arbor DDA's TIF plan. The red line is the actual valuation. For years 2013 and 2014, the DDA's 10-year plan is used.

The easiest way to see the difference between the year-to-year method and the cumulative method is in year 2012. The actual valuation (red line) in 2012 drops compared to 2011. So on the year-to-year method, there can be no excess for that year – no matter what the forecast is (blue bars). I think that’s an absurd outcome – which arises because the year-to-year method incorrectly re-sets the benchmark for calculating the growth rate to the immediately previous year. In contrast, the increment on which TIF is captured is not re-set this way every year – so why should the definition of excess include this type of re-setting?

The cumulative method, on the other hand, would (reasonably) determine that there is an excess for 2012. Even though the valuation dips from 2011 to 2012, the red line is still clearly higher than the blue bars.

This also highlights the fact that the year-to-year method does not impose an actual cap on the total TIF capture by the DDA for the period of the DDA’s existence. It only imposes a cap on the capture in any given year – which is defined relative to just the preceding year.

If the valuation of the increment spikes in the district, then in the first year of the spike, the year-to-year method calculates an excess valuation due to that spike. But after that spike levels off, the year-to-year method determines there is no excess. And even if an upward growth trend continues, the year-to-year method does not carry forward the excess from previous years in the same way that the cumulative method does. The year-to-year method effectively re-sets the benchmark each year against which growth is measured.

Question Two: Impact on Calculations – Cumulative

Holding everything else constant in the DDA’s calculation of excess TIF capture – except for the choice of a cumulative method instead of the year-to-year method – yields a total of $2,400,659 that should be returned to taxing units in the DDA TIF district. That compares to $1,185,132 that the DDA calculated – a difference of $1,215,527.

The impact of choosing the cumulative method of calculation, as opposed to the year-to-year method, is therefore very substantial.

Combined Effect on Calculations: Present, Future

The impact on the calculation of excess TIF is amplified further, if both alternate methods are combined – the cumulative method and the “realistic” TIF plan projections. The total comes to $3,170,930 of excess TIF captured since 2003. Even if the city of Ann Arbor were to waive its share of the excess, the DDA would still owe the other taxing units a total of $1,266,612 for excess TIF captured since 2003.

Perhaps more importantly, the amount of TIF captured by the DDA under the cumulative method with the “realistic” numbers would be diminished considerably in future years. For the period of the current 10-year plan used by the DDA for its planning, it would mean between $600,000 to $900,000 per year less TIF revenue than the DDA has currently planned.

Links to publicly available Google Spreadsheets with calculations used in this op-ed:

• Excess TIF: Optimistic, Year-to-Year (DDA calculations)
• Excess TIF: Realistic, Year-to-Year (Chronicle calculations)
• Excess TIF: Optimistic, Cumulative (Chronicle calculations)
• Excess TIF: Realistic, Cumulative (Chronicle calculations)

Conclusion

While the language of Chapter 7 is somewhat vague, I think it’s a straightforward matter to arrive at the correct answer to the questions we’ve considered here. Changing the method for calculating excess TIF clearly has dramatic implications for the taxing units in the DDA district, as well as for the DDA itself. But the issue has received little public scrutiny by the city of Ann Arbor.

Indeed, at the May 31 session of the city council’s May 16 meeting, Ward 3 councilmember Stephen Kunselman lamented the fact that accompanying the council’s resolution on the subject, there was no city staff report explaining the calculations for the DDA excess TIF capture since 2003. The response Kunselman heard from the city attorney’s staff at the meeting was simply this: It’s the DDA’s responsibility. But in point of fact, the city of Ann Arbor collects a 1.0% tax administration fee for performing the tax collection for all the local taxing units, processing the taxpayers’ money and distributing it to various taxing units, including the distribution of TIF capture to the DDA.

Further, Chapter 7 is a city of Ann Arbor ordinance. As such, the city attorney is charged by the city charter with the responsibility of prosecuting any violation of Chapter 7. The way the excess TIF has been calculated by the DDA could be construed as a violation of a city ordinance. It’s therefore the city attorney’s responsibility to prosecute the violation or ask the DDA to cure it. Alternatively, the city attorney could write an opinion (and file it with the city clerk, as required by the city charter), making clear why the DDA’s method of calculation is justified.

I don’t think it’s possible to justify it. But I may have overlooked something. Or my calculations might contain errors. Or I might be wrong in other ways.

Certainly the city of Ann Arbor has little to gain and much to lose by pressing the issue, because the financial health of the DDA is important to the city in a way that’s different from the DDA’s importance to other taxing units. Even though the new parking contract with the DDA provides 17% of gross parking revenues to the city of Ann Arbor, the DDA might have a difficult time making those parking revenue transfers, if the excess TIF capture is calculated in the way I’m suggesting it should be figured.

That could mean that a new clause in the parking contract – under which the city has pledged to backstop the DDA’s fund balance – could come into play, against anyone’s expectation. Under the clause, the DDA can defer a total of $2 million in payments to the city over the course of five years, in order to keep its fund balance above $1 million.

For that reason, it’s unlikely the city of Ann Arbor – either its staff or its elected officials – will press for further scrutiny of the calculations.

So now it’s the responsibility of the Ann Arbor District Library board, the Washtenaw County board of commissioners and the Washtenaw Community College board of trustees to insist that their respective financial staff scrutinize the excess TIF calculations and to insist that the calculations are done correctly.

Purely a plug: The Chronicle relies in part on regular voluntary subscriptions to support our coverage of publicly-funded entities like those mentioned in this column. We scrutinize the use of every dime we receive from subscribers – just as closely as we scrutinize calculations on excess TIF. Click this link for details: Subscribe to The Chronicle.

At a special meeting on Friday, May 20, the DDA had calculated that a total of $1,185,132 should be returned to taxing authorities that levy property taxes in the downtown district. The city’s share of that is $711,767. The council’s resolution states that the acceptance of prior contributions to city projects on this occasion should not be interpreted as a precedent about the return of any future excess TIF capture that would be owed to the city under its DDA ordinance.

The assumptions on which the DDA based its calculations for the excess may not necessarily be acceptable to the other taxing units, which are due – from the DDA’s view – to receive a total of $473,365. Those other taxing units are: the Ann Arbor District Library; Washtenaw County; and Washtenaw Community College.

Those assumptions include the idea that the “excess” should be based on the “optimistic” projections in the DDA’s TIF plan – which reduces the excess compared to the “realistic” projections. The DDA also assumes that the excess should be computed year to year, not cumulatively – which also results in a lower excess amount. [.pdf of table showing DDA's calculations in detail]

It was uncertainty about the status of the excess TIF capture, and the city’s contract with the DDA (under which the DDA operates the city’s parking system) that led the council to delay approving its budget at its May 16 meeting.

This brief was filed from the city council’s chambers on the second floor of city hall, located at 301 E. Huron. A more detailed report will follow: [link]

(Left to right): DDA board members Roger Hewitt, mayor John Hieftje, and Leah Gunn at the special May 27 DDA board meeting. (Photos by the writer.)

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

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

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

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

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

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

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

Parking Contract: Background

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

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

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

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

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

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

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

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

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

Parking Contract: Underwriting Clause

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

From the contract:

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

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

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

Sandi Smith, Russ Collins during the brief deliberations at the May 27 special meeting of the DDA board.

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

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

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

Parking Contract: Required Consultation

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

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

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

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

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

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

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

Parking Contract: City Council Politics

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

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

City councilmember Stephen Kunselman, and DDA board member Bob Guenzel chat before the DDA's special board meeting on May 27.

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

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

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

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

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

I agree with that.

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

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

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

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

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

Excess TIF Capture: Regional Politics

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

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

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

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

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

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

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

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

Absent: Gary Boren, Newcombe Clark

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

Purely a plug: The Chronicle relies in part on regular voluntary subscriptions to support our coverage of publicly-funded entities like the Ann Arbor Downtown Development Authority and the city of Ann Arbor. Click this link for details: Subscribe to The Chronicle.

At a special meeting held last week on May 20, the DDA board had initially ratified the contract, with a contingency that the city of Ann Arbor would provide an amendment that adequately underwrites DDA fund balances. Then at a Wednesday, May 25 meeting of two “mutually beneficial” committees – one from the city council and one from the DDA board – the committees hashed out that language. The contract would transfer 17% of gross parking revenues to the city.

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

At the May 25 meeting, the committees also agreed on how the DDA board and city council will handle a contractually required consultation between the two groups, in conjunction with parking rate changes. And at its May 27 meeting, the DDA board approved that clause stipulating the consultation by the DDA will now be a required agenda item at annual joint working sessions between the DDA board and the city council. Currently, the DDA proposes rate changes, which are automatically enacted, unless the city council vetoes them. The new contract stipulates that the DDA would have sole authority to set rates.

The city council may now ratify the parking contract on Monday, May 31, which would help settle part of the city’s revenue issues in its fiscal year 2012 budget, and allow the council to finalize its budget on that day. [For additional background, see Chronicle coverage: "Ann Arbor Council Defers Action Again"] Councilmembers Sabra Briere (Ward 1) and Stephen Kunselman (Ward 3) also attended the May 27 meeting.

The underwriting was a necessary condition of the DDA’s ratification of a new contract with the city, under which the DDA would continue to operate the city’s public parking system. At a special meeting last Friday, May 20, the full DDA board had approved a contract that would transfer 17% of gross parking revenues to the city.

The wordsmithing is not yet final, but key elements of the underwriting clause would include: (1) it’s applicable only through 2016; (2) it’s triggered if combined DDA fund balances fall below $1 million; (3) the trigger is evaluated based on the annual audit of DDA books in September or October of the previous fiscal year; (4) if underwriting were triggered, it would take the form of reducing existing payments that the DDA makes to the city; (5) the city’s liability is limited to $1 million annually and $2 million cumulatively; (6) any money the city is deprived of through this underwriting would be restored to the city, at whatever point the DDA’s cumulative fund balance reaches $4 million.

At the May 25 meeting, the committees also agreed on how the DDA board and city council will handle a contractually required consultation between the two groups, in conjunction with parking rate changes. That consultation will now be a required agenda item at annual joint working sessions between the DDA board and the city council. Currently, the DDA proposes rate changes, which are automatically enacted, unless the city council vetoes them. The new contract stipulates that the DDA would have sole authority to set rates.

The DDA board has scheduled a special meeting to ratify the work of the committee, at noon on Friday, May 27, 2011. That would allow the city council to ratify the parking contract on Monday, May 31, which would help settle part of the city’s revenue issues in its fiscal year 2012 budget, and allow the council to finalize its budget on that day. [For additional background, see Chronicle coverage: "Ann Arbor Council Defers Action Again"]

Instead of addressing those issues or any other budget issues, the council voted at the very start of the meeting to recess the meeting and continue it on May 31, 2011.

Per Ann Arbor’s city charter, the city council needs to adopt the city administrator’s proposed budget with any amendments no later than the second meeting in May. Failure to adopt the budget results in adoption of the administrator’s proposed budget by default. The city council is hoping to avoid some of the cuts to police and firefighters that are a part of that budget.

For a preview of the council meeting, see Chronicle coverage: “To Be Continued: Ann Arbor Council”

The vote to recess, taken before any other item was considered or could be introduced, could be seen as a move to prevent Stephen Kunselman (Ward 3) from proposing a resolution to take back responsibility for managing the city’s public parking system from the DDA. The Ann Arbor DDA has a current contract with the city that runs through 2015.

However, Kunselman’s proposed budget amendment would have essentially ignored that contract, and restored oversight of the city’s parking system to the city’s public services unit, by transferring all of the DDA’s parking funds to the city and eliminating two full-time employees at the DDA. [.pdf of Kunselman's resolution as proposed]

This brief was filed from the city council’s chambers on the second floor of city hall, located at 301 E. Huron. A more detailed report will follow.

This is a preview of the council’s continued meeting, which starts at 7 p.m. in council chambers at city hall. Topics that council might address include excess TIF (tax increment finance) capture in the Ann Arbor Downtown Development Authority district, a new parking contract with the DDA, and possible amendments to the FY 2012 budget. Factors that might play a role in council’s deliberations include alternative calculations of the excess TIF capture, and issues of control regarding components of the proposed parking contract – such as giving the DDA sole authority to set parking rates.

Council’s Continuation: Background

The council is using a strategy of recessing, then continuing the same meeting, in order to comply with a city charter requirement that the next year’s fiscal year budget be approved at the council’s second meeting in May, which this year fell on May 16. On that date, council chose not to approve the budget for FY 2012, which starts July 1.

The council’s reluctance to approve the city’s budget can be traced to uncertainty about the status of labor negotiations with the city’s police and firefighter unions, as well as uncertainty about the amount of public parking system revenue the city will receive in a new contract being negotiated with the Ann Arbor Downtown Development Authority. That contract was supposed to have been settled by Oct. 31, 2010.

But a scheduled vote by the two parties did not come until May 2, a day when the council and the DDA board met – separately – intending finally to conclude the contract. The DDA board, which met earlier that day prior to the council’s meeting, did not vote on the contract. That’s because board members were informed that morning by city of Ann Arbor financial staff about issues involving possible excess tax capture in the DDA’s TIF district. And the city council then struck the item from its May 2 agenda.

The issue of possible excess tax capture led the DDA to schedule a special meeting held last Friday, May 20, to resolve the return of any excess taxes, and to ratify its side of the new parking agreement with the city.

Readers who attend the council’s May 23 meeting in person, or watch the proceedings on CTN’s Channel 16 – on television or via CTN’s Channel 16 live Internet stream – might see the resolution of lingering issues regarding excess TIF capture in the DDA district, as well as still outstanding issues on the parking contract.

The council might also choose to engage in a series of amendments to the FY 2012 budget, but it’s possible that councilmembers won’t take a final vote on the budget itself. Instead, the council could recess the meeting a second time, to be continued on May 31. Sometime before May 31, the DDA would hold another special meeting, to vote on the city council’s version of the parking contract.

Excess TIF Capture: Will City Forgive $711,767?

At least two issues still linger with respect to the excess tax capture issue: (1) an assumption that the city of Ann Arbor would not insist that its $711,767 share of the $1,185,132 excess capture be returned; and (2) whether the conclusions on which the DDA based its calculations for the excess will be acceptable to the other taxing units, which are due – from the DDA’s view – to receive a total of $473,365. Those other taxing units are: the Ann Arbor District Library; Washtenaw County; and Washtenaw Community College.

At the continued meeting tonight (May 23), the city council is likely to add to its agenda some kind of resolution establishing that the city of Ann Arbor does not expect a return of the $711,767 in excess TIF that it is due. The rationale expressed at Friday’s DDA special board meeting for not making the $711,767 payment to the city was based on a total of $7.5 million in TIF funds already returned to the city since 2003.

For the city’s part, the financial interest in forgoing the $711,767 one-time payment might be coupled with the negative impact the payment would have on the DDA’s ability to offer a parking contract that provides for a regular annual transfer of 17% of gross parking revenues to the city. Next year, that annual transfer would amount to around $2.7 million, based on roughly $16 million in parking revenues.

At their meeting tonight, some councilmembers might argue that the city is simply owed the excess TIF capture, as well as the 17% in public parking system revenue – and that it’s up to the DDA to figure out how to make good on those obligations. One option that’s been mentioned by the city council’s negotiating team during parking contract talks between the city and the DDA is simply to dissolve the DDA.

A request made by The Chronicle under the Freedom of Information Act, returned by the city last week, indicates that the city’s financial staff appears to maintain a current analysis of what the impact would be of dissolving the DDA – though the FOIA response did not include the analysis itself. Back in December 2009, the city’s chief financial officer, Tom Crawford, told the city council at a budget retreat that dissolving the DDA would result in a net positive to the city’s general fund of $700,000 per year.

It’s an open question whether the city council, at its May 23 session, will scrutinize the assumptions on which the DDA excess TIF calculations are based. At the council’s May 2 meeting, Crawford had indicated that the city’s initial calculations of the excess were based on the DDA TIF plan’s “realistic” revenue projections. [.pdf of table showing DDA's calculations in detail]

But the calculations presented at the DDA’s special meeting on Friday were based on an “optimistic” scenario. According to The Chronicle’s math, that’s a difference that works in favor of the DDA’s budget by a little over $100,000. Another assumption – that the excess should be calculated year-to-year, not cumulatively – could have a substantially greater impact. Based on The Chronicle’s math – which is not yet independently confirmed – it could amount to at least $1 million more than the $1,185,132 that the DDA has calculated should be returned to all taxing authorities.

Parking Contract

Lingering issues on the parking agreement include: (1) attachment by the DDA board of a fund-balance underwriting contingency to its approval of the parking contract – which includes a transfer of 17% of gross parking system revenues to the city; and (2) the city council’s willingness to accept a key non-financial component of the new parking contract – giving the DDA sole authority to set parking rates.

To address the first issue, the city council is likely to consider some kind of resolution that provides an assurance to the DDA that the city will underwrite its fund balances, if those balances drop to unacceptable levels due to a parking contract that transfers 17% of gross parking revenues to the city.

The second issue could result in a tight vote on the parking contract itself. At Friday’s special meeting of the DDA board, a nod was made to a concern of some councilmembers about giving the DDA sole authority to set parking rates. Currently, the DDA proposes parking rate changes, which are enacted if the council does not veto them within 60 days. That nod came in the form of an amendment that now includes the city council as an entity with which the DDA must consult before enacting any rate changes. [The contract also requires the DDA to follow a public engagement process similar to the city council's public hearings, before enacting any rate changes.]

That change might not satisfy those on the council who’ve previously indicated some opposition to granting the DDA increased control: Sabra Briere (Ward 1), Stephen Rapundalo (Ward 2), Stephen Kunselman (Ward 3), Marcia Higgins (Ward 4) and Mike Anglin (Ward 5). All five are up for re-election this year. The contract could thus pass on a 6-5 vote. Of course, any of the remaining councilmembers might also vote against that provision of the contract.

In case the city council amends the contract to retain control of rate changes, the DDA board would be able to consider and possibly adopt that revised contract at a special meeting it will likely convene this week anyway –  in order to ratify the city council’s solution to the fund balance underwriting contingency.

FY 2012 Budget

The council might entertain amendments to the proposed FY 2012 budget, but choose not to give it final approval, waiting instead for the continuation of the meeting on May 31.

If the council does decide to entertain budget amendments, they’re likely to include the following: (1) use of $90,000 in general fund reserves to add to the parks allocation; (2) use of $85,600 in general fund reserves to add to human services funding; (3) use of a nominal amount of general fund reserves to cover the cost of an additional primary election (as proposed, the FY 2012 budget anticipated primaries in only two of the city’s five wards); and (4) elimination of a proposed fee for three-times-weekly trash pickup in the downtown area.

Tracking the Council Meeting

Options for tracking the actions of the Ann Arbor city council include attending the meeting in person at city council chambers, 301 E. Huron, or watching the proceedings on CTN’s Channel 16, (on television or on CTN’s Channel 16 live Internet stream).

Somewhat more timely than The Chronicle’s comprehensive meeting reports are briefs filed in the Civic News Ticker. Readers who are eager to find out the outcome of city council votes can track the news there.

Update: 7:30 p.m. May 23, 2011. None of the issues the council was expected to resolve on Monday’s meeting were addressed. Instead, at the very start of the meeting, the council voted to recess, with the meeting to be continued on May 31.

Left to right: DDA board members Bob Guenzel, John Mouat, Sandi Smith, and Russ Collins at the May 20 DDA special board meeting. Obscured from view between Guenzel and Mouat is John Hieftje. They were distributing the paper handouts with calculations of excess TIF revenues. (Photos by the writer.)

It was also intended to settle the matter of excess capture of TIF (tax increment finance) revenue in the DDA district – an issue raised by the city of Ann Arbor just before the DDA board had originally planned to vote on the new parking contract on May 2.

The board did vote on Friday to affirm a calculation by DDA staff that roughly $473,000 of excess TIF capture since 2004 would be divided among the following taxing authorities, which have a portion of their tax revenues captured in the DDA TIF district: Washtenaw County; Washtenaw Community College; and the Ann Arbor District Library.

Based on a representation at the special meeting by mayor John Hieftje – who has a statutory seat on the DDA board – the city of Ann Arbor is likely to agree to “forgive” the $711,767 in excess TIF capture that would be due to the city. More than that amount has effectively already been returned to the city, in the form of a roughly $0.5 million annual grant to the city to help make bond payments on its new municipal center, and a $1 million expenditure to demolish the old YMCA building, as well as other grants. In total, around $7.5 million has gone to the city, according to the DDA.

At Friday’s special meeting, the DDA board also voted to ratify its side of a new contract under which it would continue to operate the city’s public parking system. Among other features, the new contract would obligate the city of Ann Arbor to report regularly on how it is using public parking system revenues for street repair in the downtown, and how it is enforcing parking regulations downtown.

More controversially, the new contract would allow the DDA to set parking rates. Currently, the DDA forwards proposed rate changes to the city council, which can then veto the DDA’s proposal if it acts within 60 days. If the council does not act to block the rate change, the change is enacted. Although Hieftje said at the DDA board meeting he felt there was adequate support on the council to approve such a contract, there are currently at least five likely no votes on the 11-member council.

Also controversial is the exact percentage of gross revenues the city would receive from the public parking system. Before the issue of the excess TIF capture arose, the DDA board was poised to ratify a parking contract that would transfer 17% of gross parking revenues to the city of Ann Arbor’s general fund. At Friday’s special meeting, the resolution before the board dropped that number to 16%. Hieftje proposed an amendment to raise the figure to 17%. That amendment was attached to a contingency that the city council would provide a plan amendable to the DDA in which the city would “underwrite” the DDA’s fund balances. It was the 17% with a contingency that the DDA board passed.

So the special DDA board meeting did not settle with finality either the issue of the excess TIF capture or the DDA’s side of the parking contract. For the TIF capture issue, the relevant taxing authorities – especially the city of Ann Arbor – will need to affirm the solution that the DDA board approved.

For the parking contract issue, the DDA’s contingency means that the city council’s Monday, May 23 meeting – which is a continuation of its May 16 meeting, when it was supposed to approve the FY 2012 budget – will likely be recessed and continued again on May 31.

One possibility for how events would unfold is this: (1) May 23 – the city council ratifies the city’s side of the parking contract and provides the plan for underwriting DDA fund balances; city council also deliberates and amends FY 2012 budget but does not take a final vote on it; (2) May 24-27 – DDA schedules a special meeting to accept the parking contract contingency; and (3) May 31 – city council resumes the meeting started May 16 and previously continued on May 23, and approves FY 2012 budget. [.pdf of draft parking contract]

Historical Background: May 2, 2011

Board chair Joan Lowenstein led off with a confirmation from Joe Morehouse, the DDA’s deputy director, that the special meeting had been properly noticed to the public under the Open Meetings Act. Morehouse indicated that a paper notice had been posted at city hall, and the meeting had been added to the city’s online Legistar scheduling system, and posted to the DDA’s website calendar.

Lowenstein began by reviewing where things had stood before the May 2, 2011 DDA board meeting. The DDA board had been poised to ratify its side of a new parking contract under which it would continue to operate the city’s public parking system.

By way of background, the DDA has already transferred $2 million more to the city from the public parking revenue than the current contract with the city requires. The decision last year to transfer an additional $2 million of parking revenue to the city was made at a board meeting last April, over strong objections of some board members. [Chronicle coverage: "DDA OKs $2 Million Over Strong Dissent"]

The details of the new parking contract have been negotiated at public meetings between so-called “mutually beneficial” committees of the city council and the DDA board for nearly a year, starting in June 2010. Before that, a “working group” of councilmembers and DDA board members had worked out of public view since early 2010 to establish a term sheet as the basis of the negotiations.

Last summer, as the two committees finally emerged into public view to start the negotiations, their stated goal was a ratified new contract by Oct. 31, 2010. That goal was not met.

Key Features of New Parking Contract

Key new elements of the new parking agreement include a requirement that the city report to the DDA on its street maintenance activity in the downtown area, as well as its parking regulation enforcement activity. A standing committee composed of DDA and city staff would help ensure communication on enforcement issues. The term of the proposed contract would be 11 years, with a one-time renewal through 2033, which is the end of the DDA’s lifetime. [First established in 1982 for 30 years, and set to expire in 2012, the DDA was renewed by a city council resolution in 2003.]

More significantly, however, would be a new authority for the DDA to set parking rates independently of the city council. Currently, the DDA forwards proposed rate changes to the council, and those changes automatically take effect unless the council acts to veto them. The new contract would eliminate the city council veto power.

The financial component of the new parking contract reflects a significant conceptual change – moving from multiple categories of fixed payments to a percentage-of-gross approach. One example of a fixed payment in the current contract is for roughly $840,000 to be transferred from public parking revenue to the city’s street repair fund – an amount that is keyed to an inflationary escalator.

Another example of a fixed payment is the DDA’s payment of up to $2 million in “meter rent” – the current contract stipulates $1 million, with an option for the city of Ann Arbor to request $2 million in any one year, as long as the total amount of meter rent over the 10-year life of the contract (ending in 2015) does not exceed $10 million. Through the 2010 fiscal year, $10 million in meter rent had already been transferred to the city under the contract – which is why the additional $2 million transferred last year, for FY 2011, was controversial.

The exact figure for the percentage-of-gross payment had been a contentious issue, but on May 2 the DDA board was poised to ratify the contract at 17%.

At Friday’s special board meeting, Lowenstein reminded board members how on the morning of May 2, they’d been informed of the clause in the city’s ordinance on the DDA – contained in Chapter 7 – that limits the amount of TIF capture.

Briefly put, 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.

Lowenstein set up the parking contract discussion by explaining how the DDA had an unexpected obligation to return $473,000 in excess TIF capture to taxing authorities in the district.

Deliberations: Parking Contract Percentage – The Case for 16%

Board deliberations on the financial conditions of the parking contract were intermingled with discussion of the return of excess TIF revenue, because of the impact on DDA fund balances of the one-time $473,000 payment to taxing authorities in the DDA’s TIF district.

Board chair Joan Lowenstein began the deliberations on the contract by saying that the whole point is to continue to partner with the city on management of the parking system. The reason the DDA board was considering re-opening the contract at all is that the city of Ann Arbor needs additional money, she said, and there will be a continuing need.

At the same time, Lowenstein cautioned, the DDA has a responsibility to maintain the city’s parking infrastructure, and a responsibility to maintain a fund balance. If projections for parking revenues are off by 1 or 2 percentage points, she said, that completely changes the DDA’s budget. If there’s a cost overrun for the Fifth Avenue underground parking structure that’s currently under construction, there needs to be a fund balance that could handle those eventualities and handle them quickly.

The return of $473,000 in excess TIF capture to taxing authorities in the district, Lowenstein said, had resulted in the resolution that the board was considering: a percentage-of-gross figure of 16% for the parking agreement, instead of the previously contemplated 17%. Even on a 16% scenario, she continued, there would be low combined fund balances for the DDA: FY 2012 – $3.08 million; FY 2013 – $2.17 million; FY 2014 – $2.33 million; FY 2015 $2.04 million; and a low in FY 2016 – $1.93 million. The $1.93 million was very low, she said, but the DDA was willing to endure that, in order to provide a fair parking revenue to the city.

DDA board member Russ Collins wanted to know what the future impact might be on DDA TIF revenues, as compared to the DDA’s 10-year plan, given that TIF capture would now be calculated correctly. Joe Morehouse, DDA deputy director, explained that in the next year, the TIF valuation is expected to drop. And the DDA’s 10-year plan uses an average projection of a 2% increase in TIF revenue per year, so the impact of the correct calculations in the future would be zero, Morehouse explained.

Board member Bob Guenzel asked for clarification of why the DDA fund balance will be less than previously anticipated. Morehouse explained that it’s due to the one-time payment the DDA will need to make to return excess TIF capture to the taxing authorities in the DDA TIF district.

Deliberations: Parking Contract Percentage – Reverting to 17%

Mayor John Hieftje asked Morehouse to provide the fund balance figures for the 17% scenario.

Year by year, here’s what those numbers looked like [the fund balance is expressed as a percentage of reserves in parens]: FY 2012 – $2.9 million (14.5%); FY 2013 – $1.8 million (8.7%); FY 2014 $1.8 million (8.2%); FY 2015 – $1.34 million (5.7%); FY 2016 – $1.03 million (4.3%); FY 2017 – $1.94 million (8%).

Hieftje said he wanted to ask the DDA to consider that the city is ultimately responsible if the DDA defaults on its obligations. And the city would be willing to “backstop” the DDA for the years when the DDA was concerned about the fund balance being low. It was much more important to put the parking contract in place so that the city would have the yearly income, he said. He felt the DDA could live with those fund balances. He did not think it made sense to plan a long-term agreement on the basis of just avoiding a low fund balance in a specific year.

DDA board member John Mouat noted that the DDA had not been in negotiation mode for a while – the resolution before them was the DDA’s “best take” on the situation, and then it would go to the city council. Lowenstein confirmed that back on May 2, the DDA had effectively concluded negotiations through its mutually beneficial committee. The only change to the situation has been the impact of returning excess TIF.

Guenzel then asked Hieftje if he thought he had enough support on the council for the new parking contract, if the percentage of gross were set at 17%. Hieftje replied that he felt there would be sufficient votes. Guenzel noted that there’s no way to predict for sure. Hieftje allowed that there is discomfort among some councilmembers about the provision in the contract that would allow the DDA to set parking rates. He characterized their concern as not wanting to be seen as using the DDA as a buffer between themselves and voters.

Hieftje went on to say that the city’s CFO and acting interim administrator, Tom Crawford, had said that if the percentage of gross is 16%, then the city would need to make an additional $250,000-300,000 reduction to its general fund budget this year and next. The city was currently doing everything it could to save police and fire positions. He noted that some on the DDA board had asked why that’s the DDA’s problem. [Newcombe Clark, who was absent from Friday's special meeting, has articulated that sentiment, for example.] Hieftje said that it’s all of our problem.

Mayor John Hieftje drafts language of the amendment to the parking contract resolution that ultimately was passed by the board.

Hieftje then offered an amendment to the resolution, changing the amount to 17%. Guenzel seconded the amendment. Leading off discussion of the amendment, Sandi Smith, who sits on the city council as well as the DDA board, said that if it’s important to maintain a fund balance, then there are other strategies the DDA can explore. In the DDA’s 10-year plan, for example, a contribution to the housing fund, which has been paused this year, resumes in 2013. Eliminating that would start to change the picture. Smith also pointed out that the DDA had set aside $500,000 to support the go!pass program, which subsidizes bus passes for downtown employees. If there’s a concern not to drop the fund balance down to 4.3%, then there are ways to change that. Smith said none of the decisions are easy.

Smith went on to say that the city of Ann Arbor is planning to dip into the general fund reserve balance for around $1 million, which is not a position the city wants to be in. But back when the DDA was planning to build the underground parking garage currently under construction, the city’s CFO, Tom Crawford, had cautioned the DDA about maintaining a fund balance of around 15%, and she had taken that to heart. She said she was “tormented” about the issue, but was willing to hear the arguments of others on the board.

Gary Boren clarified that they were currently debating just the amendment to change the number from 16% to 17%. With all due respect, he said – responding to Smith’s suggestion of cutting housing fund transfers or alternative transportation grants – those are elements of the DDA’s core mission. Those go to the heart of what the DDA does, and affects what the DDA will be able to do in the future.

Lowenstein added that in order to accommodate the city of Ann Arbor’s need for additional revenue, the DDA’s budget already includes deferring some maintenance on the parking structures.

Hieftje said that what he’d heard for a while reported back from the city’s negotiating committee was a concern about the DDA’s fund balance, based on Crawford’s comments. He contended that Crawford remembered his remarks about fund balances a little differently from what Smith had portrayed.

Hieftje suggested an additional meeting of the two negotiating committees to give the DDA some comfort with respect to the city’s assurance that it would backstop the DDA’s fund balances. That way, if there were a problem with a construction overrun or a drop-off in parking demand, the DDA would have some assurance that the city would step in and fill the gap. It’s certainly not in the city’s interest to see the DDA fail to meet its financial obligations, Hieftje said. “We can make that good,” he told his DDA board colleagues. He pointed out that it’s the city’s general fund reserve that matters for bond ratings. If the DDA needed the money, Hieftje said, it would be there.

Board member Russ Collins asked if the sentiment that Hieftje had expressed could be added to the amendment adjusting the amount from 16% to 17%. Hieftje then suggested that he’d asked councilmembers to add time on May 31 to their calendars for another meeting. The two negotiating committees could meet, then let the city council make a decision on the parking contract on May 23, when council’s meeting – begun on May 16 – resumed.

Smith asked Hieftje to provide some information about what was happening in the state legislature with respect to health care benefits for public employees. Hieftje allowed that the legislation had the potential to have a good impact on local governments because it would require some public employees to contribute 20% of their health care costs. But he said that would be too far down the road for it to have an immediate impact.

Lowenstein clarified that if it were to be necessary that the DDA required support from the city to meet its obligations, then any expenditure over a certain amount would need city council approval. Hieftje allowed that he couldn’t guarantee that the council would approve such an expenditure, but he thinks there would be strong support for it. It’s not in the interest of the city to see the DDA default on its obligations, Hieftje said.

Guenzel said the issue with percentages is really tough. Having worked in an organization where the goal was an 8-12% reserve, it’s very important. [Before retiring in May 2010, Guenzel had served as Washtenaw County administrator.] He said he might disagree with Crawford that 15-20% should be a goal, but said that 8-12% is necessary. He had a concern that with 16% and 17% as a percentage of gross in the parking contract, there’s a difference in the fund balance levels. He noted that the future could look better than what the DDA was forecasting – these are projections.

Guenzel said he liked the idea of the city stepping up and making a statement. The question is whether it could bind a future council. He stressed that the DDA did not want the city to take over its assets – the DDA is a separate entity. But if they were talking about a partnership, then if the city is willing to consider making some kind of an assurance on the DDA’s fund balances, he’d vote for 17%.

Roger Hewitt expressed concern about the fund balance – it would not be above $2 million again until 2017, he observed. He said he was interested in seeing what the city would be willing to offer in the way of an assurance. But on the 17% scenario, it left the DDA with a pretty slim balance, he said, especially with a $50-million construction project currently being built. The DDA’s deputy director, Joe Morehouse, who handles financial matters for the DDA, had suggested $3.5 million as the cash balance needed for the organization, Hewitt said.

Hewitt said he was willing to attend one more negotiating committee meeting, but without some assurance from the city to guarantee the DDA’s fund balances, he was not comfortable with 17%.

DDA board member Roger Hewitt gazes at the wall of fund balance numbers projected on the screen during deliberations on the parking contract.

Picking up on Hewitt’s point about ongoing construction projects, Smith pointed out that soon the amount would reach $60 million, because of the construction on the parking deck that’s part of the City Apartments project to be built by Village Green at the First and Washington lot. The DDA is committed to supporting that parking deck with $9 million in bonds, when the project is completed.

Collins said he’s likely to follow Guenzel’s analysis. To be blunt, he said, when you’re talking about several million dollars, the difference between $1 million and $2 million in reserves isn’t much. He said the committees had worked hard to come up with something that is “equally annoying” to both the city and the DDA, and he felt they’d arrived at that point. [Collins is a member of the DDA's negotiating committee, along with Smith, Hewitt and Boren.] He said he shared an interest in seeing the city chime in with something that would provide some underpinning.

Collins then expressed some general frustration about how the DDA is perceived in the broader community. He said he served on the DDA board to try to do good things for the city, and the downtown in particular. But the word on the street is that the DDA is “up to something.” He said as the DDA tries to accomplish something good for the city, that’s not the word on the street – it’s not in the media that way, and it’s not accepted that way in the hearts and minds of the city council.

Collins said he hoped the new parking contract would help change that perception. He noted that people who sit on the board to try to do something positive are volunteers. He said he would support the 17% contract with that positive tone, even though some people might call him foolish for doing so.

Russ Collins lamented the fact that the DDA board is trying to do good things for the city, but that it's not perceived that way by some people in the community.

Mouat said his concern is that despite two years of conversation, the city and the DDA are still negotiating. He said he tended to agree with Hewitt, that they are not done yet. His tendency would be to put out the 16% offer and then look for the city to provide something to give the DDA more confidence. He was more comfortable with the resolution at 16%.

Smith said that without having a specific “trigger” identified, she could not vote for a contract with 17%. She wanted to either vote down the amendment, or table the resolution. The more she looked at the numbers, the 4.3% fund balance is pretty slim, she said.

Lowenstein said she felt it’s cumbersome and difficult to think about having an additional committee meeting, having the committees make a recommendation, coming back to the DDA for a special meeting, and then having the matter go back to the city council. She also observed that the DDA had been negotiating against itself for a long time. In principle, she’d be in favor of 17% as Hieftje had represented it. One scenario would be to approve the contract at 16%. And if the council is serious about making some kind of pledge in exchange for 17%, then the DDA would only need one more special meeting in order to approve that. That would limit the number of times they have to get a whole bunch of people together, Lowenstein suggested.

Deliberations: Parking Contract Percentage – City Guarantee

Hieftje then offered an additional phrase to his amendment changing the percentage of gross to 17%. The alteration of the amendment made the DDA approval “contingent” on city council approval of a plan acceptable to the DDA to backstop the DDA fund balance in certain years. Collins suggested the word “underwrite” instead of “backstop,” and with that, the altered amendment was under discussion.

DDA board member John Splitt said that with the additional language about the city’s guarantee, he would support 17% as the percentage of gross figure.

Smith said that one concern she had with this scenario is that a future city council would be making decisions about whether the DDA needed to do maintenance on parking structures. She did not want it to be the case that a future city council might choose not to do some preventative maintenance on parking structures, in order to keep the fund balance high.

Hieftje reiterated the sentiment that it’s certainly not in the city’s interest to see the DDA struggle to pay bills or do maintenance. Mouat said it felt to him like board members were hovering around the same concept – they could ponder and ponder, but the devil is in the details. He wondered at what point it would not be the DDA board that would be overseeing DDA funds, but rather the city council. The DDA really needs the city council to be more clear, he said. It’s hard to pass a resolution without knowing exactly how it’s going to work.

Hewitt said he shared the same sentiment as Mouat – he did not want the city council to be performing the function of the DDA board. He said he could support the resolution as amended, but would look very critically as the language eventually proposed by the city council.

Splitt asked Hewitt if the two negotiating committees could work out such language. Collins noted that the DDA’s legal counsel, Jerry Lax is available again – he’s “walking around now.” [Lax underwent a knee replacement.] Hieftje said he could appreciate the discomfort of board members. But he said if the contract with the amendment is not approved by the city council, “the same thing will happen at 16%.” In any event, he suggested that the DDA keep a meeting slot open. He’d told councilmembers to reserve a time on May 31 to which the council could continue its budget meeting – the one already begun on May 16.

Smith asked to review some of the hybrid solutions she’d proposed in the past – scenarios where the percentage-of-gross parking revenues to be transferred would change after a certain number of years. Although Morehouse adjusted the parameters to show DDA board members onscreen what those solutions would look like, there seemed to be little traction on the board for pursuing any of them.

Collins said the DDA needs to remember that some folks at the city were initially looking for 20%. So it’s important to recognize the difficulty of negotiation from the city’s point of view. What they want to do is get this resolved and move on, Collins said. He said the DDA would have the opportunity to manage itself toward better fund balances. Politics is the “art of the possible,” he said. The 17% is hard from the city’s point of view.

Collins allowed that it’s a tremendously small fund balance for a large value of capital assets. As executive director of the Michigan Theater, he said, their aspirations are to have $1-2 million in reserve for a $2.5 million annual budget and a capital asset worth around $10 million. Collins said that $100,000 one way or another isn’t important, but the city’s backing is important.

Guenzel said that under either scenario it’s not enough, so the city’s promise is important. There is a mutual benefit in the new contract, he contended, because it clears up ambiguities. The board needs to get the thing done, he said. He was willing to live with the amendment and pass it that way. He reported that a friend of his had asked him why the DDA is not just turning over all the money to the city. Downtown Ann Arbor is dependent on a thriving city government, he said.

Mouat noted that the DDA was going at the issue yet again at a board meeting – “It’s a hell of a way to do this,” he said. It felt like they were doing the same thing they’d done before. He asked Hewitt and Hieftje if would it make any sense to see if there’s any other key folks on the city council who might participate in drafting the specific language of the city’s underwriting assurance.

Collins stressed that he felt the DDA was already at a decision point. Responding to Mouat’s frustration that the DDA was engaged in the same exercise, he said that progress had been made in the last six months. The board is at the decision point now. It feels the same, but it isn’t, he concluded.

Hieftje asked for confirmation that the projections for future DDA fund balances included TIF revenue from the 601 S. Forest and Zaragon II projects. Morehouse confirmed that the projections did include those amounts. Hieftje said he could not tell the DDA board for sure that council would approve the contract, but he could assure them that he would take it to council. Ultimately, he said, it is a partnership. Responding to comments about the community’s perception of the DDA, there are some pretty staunch defenders of the DDA on the city council, Hieftje assured them.

Splitt said he did not want to delay. He felt that a deal could be made at 17% but not at 16%.

Outcome on amendment: The DDA board voted 8-1 to approve the amendment to change the percentage to 17%, which included a contingency that the city would provide some kind of underwriting language that is satisfactory to the DDA. Dissenting was Gary Boren.

Deliberations: Parking Contract – DDA Rate Setting

Smith proposed an amendment to the contract that addressed the ability of the city to establish parking areas for its employees. The amended language, which was unanimously approved, made it clear that those facilities might also be used for public parking.

But the main concern in the non-financial aspect of the parking contract was for the provision that allowed the DDA to exercise final authority on parking rate changes.

Hieftje noted that some councilmembers have discomfort with the idea that the DDA would have sole authority to set parking rates. He thought there were a majority who would support the contract with that provision, but he felt that a larger majority could be achieved. If there were an annual review one year later after a rate change, where the council could decide if it wanted to take action, that would provide a lot of comfort for some councilmembers, he said.

Smith felt that would undermine a fair amount of what she found mutually beneficial about the contract. Hewitt noted that the DDA is undertaking some fairly dramatic financial commitments, and without the ability to set rates, the DDA couldn’t be confident it can meet those commitments. It’s one of the only things in the contract that the DDA doesn’t already have, he said. With the implementation of a program of transportation demand management, there’ll be a number of different rates, varying with geographic area, time of day, and day of week. He did not want to try to get into a discussion with the city council about some specific rate in a particular location.

Mouat wondered if there were a risk of politicizing rates in different areas, depending on the council ward. Hewitt explained that the idea of transportation demand management is based on where the demand is, not based on what the DDA would like to charge. It’s about what you’re trying to achieve, he said: Do you want someone to park there for two hours or eight hours?

Collins said he thought the DDA could invite the city council to review and comment, just as the DDA invited review and comment from the public. That kind of language could be added. Boren noted that kind of language was already included. The board then agreed to add “city council” explicitly to the list of entities to be consulted before undertaking rate changes [inserted text in italics]:

2. Operational Powers and Responsibilities Within DDA Parking Area.

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

Hieftje said he thought the amendment moved in a good direction. Lowenstein pointed out that the council also has representation on the DDA board. [Hieftje and Smith serve on both the city council and DDA board.]

Outcome on amendment: The board voted unanimously to add the city council as one of the entities with which the DDA needed to consult before enacting parking rate changes.

Deliberations: Parking Contract – Parking Rates as Tax

Boren began the deliberations on the main motion to approve the contract by saying, “We don’t have to put our ear to the rail to figure out the direction the train is moving in.” He said there are two issues. One of those is a misperception of what the DDA is all about. A big problem is that the DDA is like Rodney Dangerfield – it gets no respect.

Board chair Joan Lowenstein confers with Gary Boren before the start of the May 20 meeting. Boren was the lone voice of dissent on the parking contract vote.

A second issue, Boren said, is that the city was taking a public service like parking and turning it in to a for-profit venture. That approach is at least marginally going to cause business and residential tenants to try Briarwood Mall instead, he cautioned. Some shoppers will decide to buy shoes at Arborland instead of downtown. When you charge people more to park than it takes to provide the service, he said, it’s effectively a tax. And that pushes people out of downtown. Boren said he sees that as directly in opposition to the DDA’s mission. In the future, he said, the DDA needs to make clearer to the city council the benefits of supporting the downtown. The parking agreement puts downtown money in the neighborhoods, so he’d be opposing it, Boren concluded.

Mouat said he’d struggled for a while with the issue. It’s a tough situation, he said. DDA board members aren’t elected officials, but their job is to represent downtown, and they’re looking out for the community as a whole. If the community is not healthy, then downtown isn’t healthy. He said he was hopeful that when the DDA and the city get past the contract, they can have some fruitful conversations. He said he’d support the contract, but with a little bit of a bad taste in his mouth. He agreed with a lot of what Boren had said.

Collins said he’d support the contract. He recalled the history of the DDA’s stewardship of the parking system. The DDA had taken a negative amenity, and turned it into a much more positive amenity. The DDA had made a decision that the parking infrastructure is a key way it wants to enhance the downtown – that’s the DDA’s legacy, he said. However, he said no positive karma comes from operating a parking system. That’s because you’re charging a fee for something that some people think should be free.

The DDA had tried its best to turn parking into a positive, Collins continued – it’s a burden the DDA carries for the city. In the future, as the DDA considers how it wants to affect the downtown positively, other projects may get lost in the dialogue about parking.

Boren said there were ways the parking contract could have been structured that could have gotten his support: pegging the parking revenues to downtown services. Instead, he said, last year the DDA had given the city $2 million for the right to negotiate, and it was not pegged to the benefit of the downtown. If the DDA must consume itself for the benefit of the city, he said, then it’s not a symbiotic relationship, but rather a a parasitic relationship. The DDA needs to be true to its mission, he said.

As a benefit to the contract, Lowenstein pointed to the reporting that would be required on how the street maintenance money is being spent. Previously, the DDA had been transferring close to $1 million to the city for street maintenance in the downtown, with absolutely no accountability about how it was being spent. In the new contract, there’s a reporting system for what’s being done. There’s also a standing committee on enforcement of parking regulations.

Hewitt said he also agreed with Boren – the contract is far from perfect, from the DDA’s standpoint. There are a few advantages in the new contract, but also some significant disadvantages. He was “not real happy with it.” Looking at the parking system, he said, the DDA was the victim of its own success. For him, Hewitt said, the issue reduces to whether it’s better to run the parking system under this agreement or give system back to the city. His personal conclusion is that it’s better to have the agreement.

Outcome: The board voted 8-1 to approve the new parking contract, with the contingency on a city council assurance on fund balances. Gary Boren voted against the contract.

Return of Excess TIF: Background

The DDA’s tax increment finance district (TIF) by definition captures a portion of taxes in a specific geographic region in downtown Ann Arbor – taxes that would otherwise go to taxing authorities like the city of Ann Arbor (including the Ann Arbor Transportation Authority), Washtenaw County, Washtenaw Community College, and the Ann Arbor District Library.

Only a portion of the taxes are subject to capture – namely, the difference (i.e., the increment) between the baseline property value when the DDA was formed, and the value of improvements made to the property. Increased value of property due to inflation/appreciation after an improvement is made is not subject to capture under the Ann Arbor DDA’s TIF plan. In principle, if no improvements are made to a property within a TIF district that result in an increase in value, no taxes are captured. An example of that is Manchester’s DDA, which was formed fairly recently, in 2005, and there has been no tax capture since then.

The combination of the Ann Arbor DDA’s TIF plan and the Ann Arbor DDA ordinance effectively limit the amount of taxes that can be captured.

The complete Ann Arbor DDA TIF plan is available on the DDA’s website. The TIF plan includes estimates of the year-to-year increase in new taxable value in the district.

Here’s how the DDA’s TIF capture is limited by the TIF plan: If the growth rate of the TIF capture exceeds the amount estimated in the plan, then the excess is supposed to be returned to the various taxing authorities. From the city’s DDA ordinance:

If the captured assessed valuation derived from new construction, and increase in value of property newly constructed or existing property improved subsequent thereto, grows at a rate faster than that anticipated in the tax increment plan, at least 50% of such additional amounts shall be divided among the taxing units in relation to their proportion of the current tax levies. If the captured assessed valuation derived from new construction grows at a rate of over twice that anticipated in the plan, all of such excess amounts over twice that anticipated shall be divided among the taxing units. Only after approval of the governmental units may these restrictions be removed. [.pdf of Ann Arbor city ordinance establishing DDA]

It’s worth noting that the excess TIF capture to be returned to taxing authorities under the Ann Arbor ordinance appears to apply independently of the state statutory requirement that any “surplus” TIF that’s not expended according to the TIF plan be returned to the taxing authorities from which it was captured:

125.1665 Transmitting and expending tax increments revenues; reversion of surplus funds; abolition of tax increment financing plan; conditions; annual report on status of tax increment financing account; contents; publication. Sec. 15. … (2) The authority shall expend the tax increment revenues received for the development program only pursuant to the tax increment financing plan. Surplus funds shall revert proportionately to the respective taxing bodies. …

In previous reporting, The Chronicle identified several questions that would need to be answered in order to calculate the excess TIF capture. Here we add the answers on which DDA calculations of excess were based, from the board discussion on Friday [.pdf of table showing calculations in detail]:

1. What’s the relevant time period? The ordinance identifies the “rate” of growth, which entails comparing valuations over some period of time. Interpretation A would be that each year when the tax rolls are closed (after the Board of Review has handled all appeals), that year’s valuation is compared with the previous year’s, and the percentage difference is calculated. That percentage is compared with the percentage growth forecast by the TIF plan between those two years. Interpretation B would compare a given year’s valuation against the valuation in the first year of the plan (not the previous year) and compute the percentage difference between them. That percentage difference would then be compared against the percentage growth forecast by the TIF plan from the beginning of the plan to the current year. DDA answer: Interpretation A. Note that the span of time in question is since 2003, when the DDA was renewed. Before that, according to board chair Joan Lowenstein, the TIF plan estimates were “wildly optimistic” and the conditions of the ordinance were not met.
2. Which set of TIF plan estimates are applicable – the one labeled pessimistic, optimistic or realistic? The ordinance language refers to “anticipated” growth, without specifying whether that means the “realistic,” “optimistic,” or “pessimistic” estimates. Arguments for either the “optimistic” estimate or the “pessimistic” estimate would be susceptible to the criticism it is not “realistic.” Initial ballpark calculations done by the city have been based on the “realistic” estimates. DDA answer: Use the optimistic forecast.
3. Who is the responsible party for adherence to the ordinance?The taxes captured by the DDA’s TIF district are administered not by the DDA staff, but rather by the city assessor’s office, just as they are for all taxing entities. The city receives an administrative fee for this work equal to 1% of the tax bill – it’s labeled ADMIN FEE on the bill. [When the city council passed last year's budget, Stephen Kunselman (Ward 3) proposed a budget amendment to reduce the administrative fee, but it received little traction and did not pass.] So it’s the city that transfers the DDA’s TIF taxes to the DDA. For other taxing entities, like the Ann Arbor District Library, it’s not completely clear what their avenue of complaint is, if they are owed money that was erroneously captured – through the city of Ann Arbor or through the DDA? DDA answer: Here the calculations do not appear to be affected, but at Friday’s meeting, board chair Lowenstein was not eager to assign blame to any particular person or entity, saying that no one had paid appropriate attention and that it was an “honest mistake.”
4. Does the ordinance language refer to real property only, or also to personal property? The valuations included in this article lump together valuations of real property and personal property. Real property refers to building and land. Personal property refers to pieces of equipment. A specific example of personal property [but from outside the DDA TIF district] would be the planned acquisition by Sakti3 of battery cycling equipment and thermal chambers as part of the firm’s expanded operations. Based on the DDA TIF plan, through 2003 personal property in the DDA district accounted for roughly 25% of TIF capture. DDA answer: The language refers both to personal and to real property.
5. Do payments already made by the DDA to the city of Ann Arbor out of the TIF for the new municipal center count towards any sum that might need to be returned? In May 2008, the DDA board pledged up to $540,000 annually from its TIF capture to help finance the city’s new municipal center. [.pdf of May 7, 2008 DDA board meeting minutes] If it’s determined that too much money has been transferred to the DDA for its TIF capture, then the DDA might point to the money pledged as part of the municipal center finance plan as covering any amount owed to the city of Ann Arbor. DDA answer: Yes, the money previously granted to the city of Ann Arbor out of the TIF fund for various projects – which totals around $7.5 million, according the DDA – should count as already returned under the ordinance.

Return of Excess TIF: Deliberations

During deliberations on the parking contract, DDA board member Gary Boren noted that in the calculation of the excess TIF capture to be returned to taxing authorities in the district, the city of Ann Arbor was anticipated to be willing to “offset” the amount that would have otherwise been returned to the city as a taxing authority in the district – around $712,000. That offset was due to the amount of TIF revenue that had been granted back to the city since 2003.

Boren wanted clarification about by how much the $712,000 had been “overshot.” Board member Roger Hewitt reviewed the figure from the PowerPoint slide Lowenstein had presented in her introduction: $7.5 million. The $7.5 million in TIF that the city of Ann Arbor has received from the DDA since 2003 came in the form of funding for: the Calthorpe project; interest payments on the old YMCA lot; LED streetlights; a sanitary sewer study; municipal center LEED certification; and a municipal center bond payment of $500,000 per year.

So Boren suggested that if an excess in TIF capture were ever to happen again, the DDA would have leverage to justify not returning excess to the city of Ann Arbor – because it had already been returned.

When the board arrived at the second item on the special meeting agenda – the TIF excess capture – it was Bob Guezel who led off the discussion.

He asked DDA deputy director Joe Morehouse if he’d verified the numbers. Morehouse indicated that he had, and they’d been forwarded to the taxing units to which the excess would be returned. The DDA had not received a response from them, however. Guenzel ventured that if they disagree, they’ll let the DDA know. Lowenstein said she’d talked to Josie Parker, director of the Ann Arbor District Library, and they’d agreed to sit down and go over it. Lowenstein said the resolution states that this is the DDA’s calculation. The DDA is willing to go over the figures, she said.

John Hieftje asked that the language in one of the “whereas” clauses be modified – he did not want anyone to be alarmed, but he said that it could not yet be said that the city has agreed to waive the return of the excess that would be due to the city. He suggested that instead it should say something like “is likely to forgive.”

Boren clarified that this is an obligation the DDA has to return the excess – the board is approving the calculation, not the obligation. Russ Collins wondered if it would be more appropriate to check the calculations with the different taxing units, before passing the resolution.

Morehouse suggested that what the resolution was doing is affirming the method the DDA is using to interpret the city’s DDA ordinance.

Boren noted that it was only in the DDA’s interest that board members be aware of the issue of the excess TIF capture issue before they had voted on the parking contract, so he thanked the mayor for bringing it to the DDA’s attention, because it was the right thing to do. Hieftje contended that it was “a head-scratching moment” when the city’s financial staff realized that the clause of the DDA ordinance existed.

Lowenstein ventured that the situation shows you should go back and read your ordinances, and maintained that there was nothing underhanded or nefarious about it.

Outcome: The board voted unanimously to approve the calculations on return of excess TIF.

Present: Gary Boren, Bob Guenzel, Roger Hewitt, John Hieftje, John Splitt, Sandi Smith, Russ Collins, Joan Lowenstein, John Mouat

Absent: Newcombe Clark, Keith Orr, Leah Gunn

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

Special meeting: TBD at the DDA offices, 150 S. Fifth Ave., Suite 301. [confirm date]

The decision was prompted by questions raised on Friday, April 29 by the city of Ann Arbor about the implementation of the city’s ordinance governing TIF capture for the DDA district. The ordinance includes a clause stipulating that if the growth rate in the TIF capture exceeds what is anticipated in the formal TIF plan, at least half of the excess must be divided proportionately among the taxing authorities that had some of their taxes captured in the TIF district.

The total amount of excess TIF capture that has accumulated since 2004 in the Ann Arbor DDA district is $1,185,132. The difference between that total and the combined $473,365 to be paid to Washtenaw County, WCC and AADL is $711,767. That difference is the proportionate share that would be due to the city of Ann Arbor (including the Ann Arbor Transportation Authority), which also has some of its taxes captured in the DDA TIF district. In fact, around 60% of the taxes captured in the TIF district are due to city of Ann Arbor millages.

However, Friday’s resolution included a “whereas” clause indicating that the city of Ann Arbor is likely to recognize that the $711,767 in excess TIF capture has effectively already been returned to the city, in the form of (1) a roughly $0.5 million annual grant to the city to help make bond payments on its new municipal center, and (2) a $1 million expenditure to demolish the old YMCA building, as well as other grants.

The determination of the excess was based on: (1) the “optimistic” projections in the TIF plan; (2) the combined real and personal property valuations in the district; and (3) excess growth calculated by comparing the actual growth rate between successive years against the forecast growth rate in the TIF plan between those years.

The payments to the other three taxing entities are planned to be made before June 30, making them a part of the 2011 fiscal year, which ends June 30. That will require the board to amend the FY 2011 budget.

The financial impact of the payments on the DDA led the board on Friday to review the financial component to the new contract currently being negotiated with the city under which the DDA operates Ann Arbor’s public parking system.

Before the excess TIF issue came to light, the DDA board had been prepared on May 2 to agree to a contract that would have transferred 17% of gross parking revenues to the city each year. Gross parking revenues are projected to be around $16 million in the next year.

At Friday’s meeting, the DDA board ratified its side of an agreement that would transfer 17% of gross parking revenues to the city, but added a contingency that would require the city of Ann Arbor to formalize a plan proposed by mayor John Hieftje to backstop fund balances for the DDA.

The contingency means that the city council’s May 16 budget meeting, which is continuing on May 23, will likely continue past that Monday to resume again on Tuesday, May 31. Hieftje, who also sits on the DDA board, said he felt there would be sufficient support on the council on May 23 to ratify the parking contract and formalize the backstopping plan.

The DDA will need to schedule another special meeting the week of May 23 after the council meets to resolve the contingency. The council would then be able to finalize its budget on May 31.

This brief was filed from the DDA’s offices at 150 S. Fifth Ave., where the special meeting took place. A more detailed report will follow: [link]

Mayor John Hieftje (left) and DDA board member Roger Hewitt (right) head to their seats to start the DDA's board meeting. (Photos by the writer.)

Instead, the board received this news from the chair of its bricks and money committee: The city has raised the possibility that the DDA might need to return money to various taxing entities – including the city of Ann Arbor – from the taxes captured through the DDA’s tax increment finance district. The city communicated its concern to the DDA on Monday morning, the day of the noon meeting.

The issue concerns the DDA’s TIF plan, which was renewed in 2003, and language in the city’s ordinance establishing the DDA under the state’s enabling legislation. The TIF plan contains projections for the growth in taxable value of property (both real and personal) in the district. The city’s ordinance stipulates that if the actual “captured assessed valuation” grows at a rate faster than the expectation expressed in the TIF plan, then at least 50% of the additional amount must be returned proportionately to the taxing authorities from which the taxes were captured.

The vagueness of the ordinance language leaves several open questions that will require further review by the city attorney’s office and the DDA’s own legal counsel, as well as the financial staff from both organizations.

Those questions include: (1) What’s the relevant time period? (2) Which set of TIF plan estimates are applicable – the one labeled pessimistic, optimistic or realistic? (3) Who is the responsible party for adherence to the ordinance? (4) Does the ordinance language refer to real property only or also to personal property? (5) Do payments already made by the DDA to the city of Ann Arbor out of the TIF for the new municipal center count towards any sum that might need to be returned?

After hearing the news, the board decided to table the resolution on its agenda that would have ratified the DDA’s side of a new parking contract under which it would continue to manage the city’s parking system. [Previous Chronicle coverage: "Column: Ann Arbor Parking – Share THIS!"]

Board members recognized that it would likely be necessary to convene a special meeting of the board, given the city’s need to approve its budget on May 16. Later the same day, on the evening of May 2, the city council struck from its agenda the item that would have ratified the city’s side of the new parking contract. The city council has not yet weighed in on the text of the contract, but did express its view on the financial terms at its April 19 meeting.

As DDA board members absorbed the news about the TIF question, they heard their usual set of reports from their committees and wrapped up the meeting is less than an hour – they had no further business to transact. Board member Russ Collins, who was prepared to call in to the meeting from Detroit, where he’d been summoned for federal jury duty, did not need to do that. 

TIF Question

To understand the news from the DDA’s meeting, it’s useful to start with some basic background.

TIF Question: Background

Ann Arbor’s Downtown Development Authority is established under the state’s enabling statute, which governs how such entities may be formed by local governments. [.pdf of state enabling legislation: Act 197 of 1975]. A DDA uses a tax increment finance (TIF) district as a way of focusing investment of tax revenues on a specific geographic area – the TIF district.

The DDA itself does not levy taxes within the district. Instead, a DDA “captures” property taxes that are already levied by other taxing entities. In the case of Ann Arbor’s DDA, the other taxing entities whose revenues are captured inside the district include: the city of Ann Arbor, Washtenaw County, the Ann Arbor Transportation Authority (AATA), Washtenaw Community College (WCC), and the Ann Arbor District Library.

For DDAs formed after 1994, other taxing authorities have had a chance to opt out of allowing their taxes to be captured. From the state statute:

125.1653 Sec. 3 (3) Not more than 60 days after a public hearing held after February 15, 1994, the governing body of a taxing jurisdiction levying ad valorem property taxes that would otherwise be subject to capture may exempt its taxes from capture by adopting a resolution to that effect and filing a copy with the clerk of the municipality proposing to create the authority.

Ann Arbor’s DDA was formed in 1982 for a 30-year period, but was renewed in 2003 to extend through 2033.

A standard part of any TIF capture, including that of Ann Arbor’s DDA, is that the tax capture is limited to those taxes on the difference between existing value of a property and a newly constructed property. This difference is the increment in “tax increment finance.”

Ann Arbor’s TIF capture is somewhat different from simple TIF in two ways, both of which have the effect of limiting the amount of taxes captured.

First, once the increment is determined for the initial year of a newly constructed property, that increment stays constant for purposes of future capture. In other words, after a property is built and continues to appreciate in value over time, the taxes on additional value due to that appreciation are not captured by the Ann Arbor DDA. This is a point that DDA board member Leah Gunn reliably makes whenever the DDA’s TIF capture is discussed, and Monday’s meeting was no different.

The second way that Ann Arbor DDA TIF capture is different from simple TIF relates to projections that are included in the TIF plan for the DDA. A TIF plan is an element described in the state statute:

125.1664 Tax increment financing plan; preparation and contents; limitation; definition; public hearing; fiscal and economic implications; recommendations; agreements; modification of plan. Sec. 14. (1) When the authority determines that it is necessary for the achievement of the purposes of this act, the authority shall prepare and submit a tax increment financing plan to the governing body of the municipality …

The complete Ann Arbor DDA TIF plan is available on the DDA’s website. The TIF plan includes estimates of the year-to-year increase in new taxable value in the district.

Here’s how the DDA’s TIF capture is limited by the TIF plan: If the growth rate of the TIF capture exceeds the amount estimated in the plan, then the excess is supposed to be returned to the various taxing authorities. From the city’s DDA ordinance:

If the captured assessed valuation derived from new construction, and increase in value of property newly constructed or existing property improved subsequent thereto, grows at a rate faster than that anticipated in the tax increment plan, at least 50% of such additional amounts shall be divided among the taxing units in relation to their proportion of the current tax levies. If the captured assessed valuation derived from new construction grows at a rate of over twice that anticipated in the plan, all of such excess amounts over twice that anticipated shall be divided among the taxing units. Only after approval of the governmental units may these restrictions be removed. [.pdf of Ann Arbor city ordinance establishing DDA]

TIF Question: Breaking the News

The 50%-return condition specified in the city’s DDA ordinance is the issue that was raised at the DDA’s Monday meeting. It was Roger Hewitt who announced at the meeting that the question had been identified by the city of Ann Arbor. [The growth in TIF capture does, in fact, appear to have outpaced the growth anticipated in the plan.] Leah Gunn, who is the longest-serving member of the board, elicited from Hewitt that he’d received a rather concerned phone call from deputy DDA director, Joe Morehouse, at about 9:30 a.m. [The meeting started at noon.]

Mayor John Hieftje – who sits on the DDA board, serving a slot designated in the state enabling legislation – said the city had become aware of the issue late Friday, April 30. He said the city’s legal staff had worked over the weekend on the issue and would need additional time, working with the DDA, to sort things out. It was interesting that the language had been sitting there for some time, he said, and had not been addressed. He allowed that the language of the ordinance was not very clear.

The immediate consequence of the news was that the board did not vote on the new parking contract under which the DDA would continue to operate the public parking system. The proposed contract called for the city of Ann Arbor to receive 17% of gross parking revenues and would provide the DDA with the authority to set rates, without the possibility of a city council veto – the council currently has the power of veto. Hewitt said he felt it was imprudent to discuss the parking contract, when the potential financial impact on the DDA  – due to the TIF issue raised by the city – would be significant but uncertain.

Hieftje was keen to see the item formally moved and then formally tabled, to make clear what the status of the agenda item was.

Outcome: The board voted unanimously to table the resolution ratifying the parking contract.

TIF Question: Board Reaction

Sandi Smith, who serves on the Ann Arbor city council as well as the DDA board, was effusive in thanking the other members of the DDA’s “mutually beneficial” committee – Roger Hewitt, Russ Collins and Gary Boren – for their hard work on trying to reach an agreement on the new parking contract. They’ve been working for well over a year on the agreement. She noted that DDA board members are all volunteers who could be doing things other than holding 7 a.m. meetings.

Board members Sandi Smith and Keith Orr before the start of the DDA's May 2 board meeting.

[Smith was implicitly contrasting DDA board members with city councilmembers, who receive an annual salary of just under $16,000. She was referring to the early Monday morning meetings the two committees from the council and the DDA board have held over the last few months.]

DDA board chair Joan Lowenstein pointed out that the DDA has a current contract under which it manages the public parking system – the contract runs through 2015, and can be extended at the DDA’s option through 2018. That contract would allow the city of Ann Arbor to withdraw about $2 million less per year from the public parking system revenues than the contract that was on the DDA’s agenda for consideration.

Newcombe Clark wanted some clarification about the DDA’s May 2010 resolution that approved a transfer of $2 million to the city of Ann Arbor from the public parking system –  a transfer that was not required under the terms of the current parking contract. He wanted to know if the DDA would be able to meet the time frame specified in that resolution for completing a new parking contract.

At Smith’s urging, the exact language of that resolution was located not much later in the meeting. In relevant part, it reads:

RESOLVED, The DDA authorizes providing the City with $2 million in fiscal year 2010/11 with the following expectations:

• The DDA and City representatives who have developed the preliminary terms will continue to meet at least once a month to complete work on an agreement that will go to the DDA and City Council for approval, and these meetings will be open to the public.
• The DDA and City representatives will aim to conclude their work by October 31, 2010, but certainly no later than the end of the fiscal year 2010/11. [.pdf of DDA resolution of May 5, 2010 authorizing payment of $2 million to city of Ann Arbor]

Lowenstein concluded that if the DDA board reached a new agreement with the city on parking revenues by June 30, the end of FY 2011, the board would be abiding by the terms of its resolution.

Lowenstein suggested that once the legal interpretation of the ordinance was agreed on by the DDA and the city, there should be an independent audit to determine the amount of any money that needed to be divided up.

Leah Gunn noted that the DDA’s legal counsel, Jerry Lax with Bodman, would be unavailable beginning the next day, so she hoped the attorneys on the DDA board would be able to pitch in – they include Lownenstein, Bob Guenzel, and Gary Boren.

Smith asked for a proportionate breakdown of the TIF taxing entities. Hewitt said that the DDA’s TIF revenue is roughly 60% from the city of Ann Arbor and the remaining 40% from the Ann Arbor Transportation Authority, Washtenaw Community College, Washtenaw County and the Ann Arbor District Library. Josie Parker, director of the AADL, attended the meeting – she often attends meetings of the DDA board and its committees.

Hewitt noted that given the city’s need to have its budget approved by May 16, he expected the DDA board would need to convene a special meeting sometime before then. The city’s budget assumes roughly $2 million more in revenue from the public parking system than the current contract specifies.

TIF Question: Material Issues

In connection with the city’s DDA ordinance, which stipulates the minimum 50% return of TIF capture in excess of TIF plan estimates, an immediate question is whether the TIF capture has, in fact, outpaced the plan’s estimates.

An initial look at the numbers indicates that the taxable values subject to capture have increased faster than the TIF plan projections. Here’s a snapshot of numbers since the 2003 renewal of the Ann Arbor DDA. [Close-of-roll numbers in the left column come from the city of Ann Arbor treasurer's office. Estimates in columns 2-4 are from the DDA TIF plan Appendix C]

                                TIF PLAN ESTIMATES
Actual Valuation        "Realistic" "Optimistic"  "Pessimistic" 

2004    $76,955,174     $71,836,326  $72,658,263  $71,021,758
2005    $78,671,971     $73,937,930  $75,209,080  $72,683,949
2006    $81,877,369     $76,101,112  $77,849,585  $74,385,101
2007    $92,998,789     $78,327,678  $80,582,937  $76,126,129
2008    $92,204,889     $80,619,488  $83,412,404  $77,907,969
2009   $113,460,032     $82,978,457  $86,341,373  $79,731,579
2010   $140,612,435     $85,406,555  $89,373,346  $81,597,939
2011   $137,800,186     $87,905,812  $92,511,951  $83,508,054

-

In FY 2010, the amount of taxes generated for the DDA’s TIF district – based on the actual valuation – was $3,537,939. The DDA has budgeted $3,935,790 in TIF revenue for the current fiscal year, FY 2011. But currently the DDA anticipates this number to be closer to $3.7 million.

Given the apparent excess valuation compared to the TIF plan – even on the “optimistic” estimates – several questions arise when it comes to calculating a possible return of TIF capture to various taxing entities under the city’s DDA ordinance. Some of these questions were floated at the DDA’s board meeting. Others were identified in subsequent conversations between board members and The Chronicle:

1. What’s the relevant time period? The ordinance identifies the “rate” of growth, which entails comparing valuations over some period of time. Interpretation A would be that each year when the tax rolls are closed (after the Board of Review has handled all appeals), that year’s valuation is compared with the previous year’s, and the percentage difference is calculated. That percentage is compared with the percentage growth forecast by the TIF plan between those two years. Interpretation B would compare a given year’s valuation against the valuation in the first year of the plan (not the previous year) and compute the percentage difference between them. That percentage difference would then be compared against the percentage growth forecast by the TIF plan from the beginning of the plan to the current year.
2. Which set of TIF plan estimates are applicable – the one labeled pessimistic, optimistic or realistic? The ordinance language refers to “anticipated” growth, without specifying whether that means the “realistic,” “optimistic,” or “pessimistic” estimates. Arguments for either the “optimistic” estimate or the “pessimistic” estimate would be susceptible to the criticism it is not “realistic.” Initial ballpark calculations done by the city have been based on the “realistic” estimates.
3. Who is the responsible party for adherence to the ordinance? The taxes captured by the DDA’s TIF district are administered not by the DDA staff, but rather by the city assessor’s office, just as they are for all taxing entities. The city receives an administrative fee for this work equal to 1% of the tax bill – it’s labeled ADMIN FEE on the bill. [When the city council passed last year's budget, Stephen Kunselman (Ward 3) proposed a budget amendment to reduce the administrative fee, but it received little traction and did not pass.] So it’s the city that transfers the DDA’s TIF taxes to the DDA. For other taxing entities, like the Ann Arbor District Library, it’s not completely clear what their avenue of complaint is, if they are owed money that was erroneously captured – through the city of Ann Arbor or through the DDA?
4. Does the ordinance language refer to real property only, or also to personal property? The valuations included in this article lump together valuations of real property and personal property. Real property refers to building and land. Personal property refers to pieces of equipment. A specific example of personal property [but from outside the DDA TIF district] would be the planned acquisition by Sakti3 of battery cycling equipment and thermal chambers as a part of the firm’s expanded operations. Based on the DDA TIF plan, through 2003 personal property in the DDA district accounted for roughly 25% of TIF capture.
5. Do payments already made by the DDA to the city of Ann Arbor out of the TIF for the new municipal center count towards any sum that might need to be returned? In May 2008, the DDA board pledged up to $540,000 annually from its TIF capture to help finance the city’s new municipal center. [.pdf of May 7, 2008 DDA board meeting minutes] If it’s determined that too much money has been transferred to the DDA for its TIF capture, then the DDA might point to the money pledged as a part of the municipal center finance plan as covering any amount owed to the city of Ann Arbor.

Given the various open questions about the calculations, it’s not possible to say with great precision how much money might be at stake. Back-of-the napkin calculations by The Chronicle indicate since 2004, on the high side it could be in the range of $3 million total that may have been erroneously transferred to the DDA. Of that amount, the city of Ann Arbor’s share would be a bit less than $2 million. After the city council meeting on May 2, Tom Crawford, the city’s CFO, told The Chronicle that the city’s preliminary estimate was a bit lower – more in the range of $2 million total.

Communications, Committee Reports, Commentary

The board’s meeting included the usual range of reports from its standing committees and the Downtown Citizens Advisory Council. Every board meeting also includes two opportunities for public commentary – one near the start of the meeting and the other at its conclusion.

Comm/Comm: Bricks and Money Committee – Third Quarter

Roger Hewitt gave an update on the third-quarter financials for the DDA’s 2011 fiscal year. The TIF revenue drew some discussion. The DDA had budgeted $3,935,790 in TIF revenue, but now anticipates that revenues will be closer to $3.7 million. The difference was attributed to the overall loss in commercial property value, which balanced out the addition of new projects.

Sandi Smith said the newest figures she’d seen showed another 2% loss.

Parking revenues are a part of every report out from the bricks and money committee. Hewitt noted that revenues were up, but not by as high a percent as the rate increase that had been implemented.

John Hieftje asked for someone to explain the jump in hourly parking patrons in March. Hewitt indicated that it’s a “slippery” number – it indicates people who park, but who don’t have monthly passes. There’s no accounting for the length of time they stayed. Hieftje pressed again, asking if there had been a big promotion or something during the month.

By way of partial explanation, Joan Lowenstein noted that last year, construction workers who had been working on the University of Michigan North Quad dormitory had been parking at the Maynard Street structure – using permits. Their spaces are now used by hourly patrons. The number was up by 13,000, said Hieftje, which is about one-third – it’s a big jump and it had caught his eye, he said. Hewitt said it takes a while for people to realize that the spaces are available again.

Comm/Comm: Bricks and Money Committee – Construction

Reporting out from the “bricks” part of the bricks and money committee, John Splitt gave an update on the Fifth and Division streetscape improvement project. He reported that Eastlund Concrete would be starting up work again very shortly, if they have not already started. Leah Gunn chimed in to say that the construction barrels have been set out.

DDA board members Leah Gunn and Keith Orr.

On the Fifth Avenue underground parking garage, Splitt reported that progress continues on the east leg near Division Street – walls are being poured in that part of the garage. The decks in the east leg are already poured. He reported that SME, the company that designed the earth retention system, has finished inspections of the earth retention system on the north side of the site and have moved to the west side. All necessary repairs have been accomplished on the north side.

[The inspections and repairs came as a result of a breach in the earth retention system that took place in late March.] Splitt said he’s hoping to schedule a tour of the site for the next meeting of the bricks and money committee. He indicated that a staircase on the east side of the garage will likely be completed by then. Details will be firmed up by the time of the next committee meeting.

Comm/Comm: Economic Development

Reporting out from the DDA’s communications and economic development committee, Joan Lowenstein said that Ann Arbor SPARK‘s director for research and business information, Donna Shirilla, had briefed the committee at its last meeting. Shirilla had said it’s clear that the IT sector is a prevalent part of the Ann Arbor downtown mix of businesses. One-third of the downtown businesses are in the IT sector, and 15% of the county’s IT employment is downtown. Small businesses like the atmosphere of downtown – the ambiance of downtown is what they’re looking for.

Shirilla said that higher rents don’t seem to be a deterrent to smaller IT businesses. Life sciences and the automotive industry are also represented, but they would typically need a larger floorplate. Once they reach a certain size, they leave. Downtown Ann Arbor offers lots of small spaces, but not much in the way of larger spaces, Shirilla reported.

Lowenstein said that in discussing possible DDA-SPARK collaboration, one idea the committee floated would be to jointly host a roundtable discussion with IT firms about available space and talent. The committee discussed information on housing and other amenities that would help SPARK recruit companies. The committee also talked about improvements to the DDA website. They decided they would not go to the time and expense of a complete redesign, but talked about reorganization of the information that’s presented on the website.

Comm/Comm: Partnerships Committee – Energy

Reporting out from the partnerships committee, Sandi Smith quipped that the co-chair of the committee, Russ Collins, goes to great lengths to avoid giving the report – he’d been called for jury duty in federal court in Detroit. [Another board member, Keith Orr, had been called for jury duty in the 15th District Court, but it turned out that no trial needed to be held in Judge Chris Easthope's court that day.]

Smith began by giving an update on the DDA’s energy saving grant program – it pays for energy audits and then matches business owner investments up to a cap of $20,000. She characterized the $650,000 spent on the program to date as a remarkable investment in buildings. It’s a good example of the DDA leveraging its investments to encourage private investment. Smith indicated that the next committee meeting will include a discussion about how to allocate a smaller amount annually [$100,000 compared to $200,000]. Strategies include making the grants smaller, focusing on just audits or possibly focusing just on matching grants. Another question, Smith said, is whether to focus on smaller or larger businesses.

Responding to comments made by Smith, mayor John Hieftje continued a theme he’s begun in connection with the reduction in funding the DDA has needed to make in the energy saving grant program because of increased financial pressure. That theme is to highlight the city’s PACE (property assessed clean energy) program, which is being funded with a federal grant. Hieftje indicated that the city has hired a staff person to work on PACE, and part of her mission is to engage with other groups. Most of the pieces of the program are in place, he said. It would help if the DDA would help roll out PACE.

Smith noted that PACE is designed for much bigger property owners. The beneficiaries of the DDA’s energy saving grant program, like Vicki’s Wash and Wear Haircuts, are small businesses. For the re-lamping project that owner Vicki Honeyman had undertaken, the matching grant was a huge factor in allowing her to do that, Smith said.

Comm/Comm: Partnerships Committee – RFP Processes

Smith reported that the committee had had an interesting discussion with David di Rita of the Roxbury Group, which had served as the consultant for the Library Lot RFP (request for proposals) process. That process was terminated by the city council at its April 4, 2011 meeting. Di Rita had told the committee that some RFP processes he’d been involved with have worked well and others have not. The key is to have a vision and be clear in your RFP, he said. RFPs that are obscure and cast a wide net don’t typically go anywhere. Something that reflects a clear community vision tends to do better, he told the committee. [For Chronicle coverage that mentions that partnerships committee meeting: "Balancing Ann Arbor, Detroit and a Vision"]

Smith noted that in the city of Ann Arbor, RFPs are issued that are not clear and then people are surprised when proposals come back and it’s not what they want. Smith noted that Jesse Bernstein (chair of the Ann Arbor Transportation Authority board) and Josie Parker (director of the Ann Arbor District Library) also attended the committee meeting. The two had talked about long-term visioning – not just five or 10 years, but 30 years.

Comm/Comm: Transportation Committee

John Mouat reported out on the spring walk-around by the transportation committee. They’d looked at outskirt areas where people enter the downtown, he said. They’d considered what can be done in the short term with limited dollars. Areas they’d identified were on the west side where roads cross the railroad tracks. There are trip hazards near Main Street. Near Kerrytown they identified sidewalk improvements that could be undertaken. Other categories identified include: downtown bike sharrows – the new markings have been added by the city, but there are gaps in their placement, he said.

The committee took a look at countdown pedestrian signals – do they help or hurt? Mouat said there’d been a good response to the plantings added around the parking structures. The next step will be to put prices on items to make decisions on where to focus investment.

Comm/Comm: Scheduling – DCAC

For the first time in The Chronicle’s memory, Ray Detter did not deliver a report to the DDA board on the downtown citizens advisory council’s most recent meeting, which is typically held the Tuesday evening before the Wednesday when the DDA board meets. The board meeting had been shifted to Monday, in order to facilitate greater board member attendance for an anticipated parking contract vote.

During the board meeting, Detter was leading one of several tours of the downtown historical markers. The tours have been spotted in the wild on two occasions in the last week. [Occasion 1] [Occasion 2]

Comm/Comm: Scheduling – Open Meetings

Given the shifted scheduling of the meeting, at the start of the meeting Sandi Smith asked for confirmation that it had been properly noticed to the public. Joe Morehouse, deputy director of the DDA, indicated that the paper notice had been posted at the city hall building and at the DDA offices, and that it had been included in the city’s Legistar scheduling system.

Comm/Comm: Comment

No one addressed the board during either of the times on the agenda set aside for public commentary.

Present: Gary Boren, Newcombe Clark, Bob Guenzel, Roger Hewitt, John Hieftje, John Splitt, Sandi Smith, Leah Gunn, Keith Orr, Joan Lowenstein, John Mouat

Absent: Russ Collins

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