DDA board member Sandi Smith. (Photos by the writer)

The meeting did not feature one of its typical highlights – discussion of the monthly parking report. However, the data was released to the public at the meeting, and it was mentioned that the data was now available to the public in draft form.

So this meeting report adds that provisional parking data to the data set that The Chronicle maintains – to chart the activity in Ann Arbor’s public parking system as the DDA measures it.

Highlights from public commentary included appreciation from representatives of the Neutral Zone for grants the organization has received from the DDA. The board also heard an update – during public commentary and in its committee reports – on a proposal to install an artificial ice rink on top of the new Library Lane underground parking garage.

Committee reports included updates on a possible economic development task force initiated by Ward 2 city councilmember Sally Petersen. Other updates included getDowntown’s commuter challenge, which takes place during the month of May, and the opening of the “Bike House” bicycle parking facility inside the Maynard parking structure.

Parking Data

The monthly parking report is a typical highlight of board meetings. Because the full board meeting falls on the first Wednesday of the month, the monthly report presented to the board is not from the immediately previous month, but rather for the month before that. So for the May 1, 2013 meeting, the monthly parking report would be expected to cover March 2013.

Parking Data: Background for March 2013

At the May 1 meeting, Sandi Smith raised the point that the board had by the time of the meeting received the monthly parking data from March 2013. Keith Orr noted that the operations committee meeting from the previous week had been cancelled – which is when the data would normally be reviewed. He said there was some concern about getting that data out. Anyone from the public can see it, he said, but he cautioned that the report had not been vetted, let alone proofread.

By way of background, the concern about getting the data out arose from an informal request from The Chronicle made on Monday, April 29 for the March 2013 parking report. DDA staff refused to provide it, based on the cancellation of the operations committee meeting, where the data is reviewed. Staff contended that the data could be released only through the DDA board.

When The Chronicle then made a formal request for the routine monthly report under Michigan’s Freedom of Information Act, DDA executive director Susan Pollay responded by asserting the DDA’s right under the statute to claim an extension of 10 business days beyond the standard 5-day response period.

That would have shielded the report from public view until the third week of May. On May 1, however, Sandi Smith handed the report to The Chronicle before the board meeting started. And Pollay followed with a formal response to the request made under Michigan’s FOIA, providing the document by email later in the day on May 1.

Parking Data: Parking Picture

Adding the provisional data from March 2013 shows that activity in Ann Arbor’s public parking system is consistent with the seasonal patterns over the last four years.

The two main measures used by the DDA to track overall activity in the public parking system are actually proxies for the number of parking hours used in the system: revenue and number of hourly patrons. An hourly patron is someone who pays by the hour in a structure or in a surface lot – as contrasted with someone who pays for a monthly permit.

Since 2009, revenue has shown increases year-over-year for the same month. Parking rate increases account for at least some of that additional revenue. And since September 2012, the total parking system inventory has been increased by the completion of the new underground parking garage at Library Lane. The new garage offers 738 spaces compared to the 194 spaces provided by the surface parking lot where it was built.

Chart 1: Ann Arbor public parking system – total revenue.

The number of patrons over the last four years has shown relatively flat performance within the seasonal pattern:

Chart 2: Ann Arbor public parking system – hourly patrons.

The top-performing facilities in terms of gross revenue per space continue to be surface parking lots – the lot at Huron/Ashley/First (aka Brown Block) as well as the Kline lot (red and blue lines in Chart 3). While the Brown Block lot has historically outperformed the Kline lot, over the last year the gap between the two lots seems to be growing:

Chart 3: Ann Arbor public parking system: Revenue per space – surface lots.

However, those two surface lots – or surface lots in general – don’t make up a significant percentage of the revenue for the whole system. It’s metered parking (on-street) that makes up the largest part of the revenue in the parking system (black line in Chart 4):

Chart 4: Ann Arbor public parking system – total revenue by facility. Metered parking revenue is in black. Structured parking facilities are shown in shades of red. Surface facilities are shown in shades of green.

Even though metered parking is the largest revenue component in the Ann Arbor public parking system, on a revenue-per-space basis, it’s one of the weakest performing facilities. The new Library Lane garage, on a revenue-per-space basis, now exceeds that of the performance of parking meters:

Chart 5: Ann Arbor public parking system – focus on structures.

Communications, Committee Reports

The board’s May 1 meeting included the usual range of reports from its standing committees and the downtown citizens advisory council, as well as public commentary.

Comm/Comm: Neutral Zone

During public commentary time at the start of the meeting, Jon Weise introduced himself as the executive director of the Neutral Zone. He thanked the DDA for all the support and partnership that the DDA had provided to the Neutral Zone over the last several years. He highlighted the Neutral Zone’s participation in the DDA’s energy savings grant program – which pays for an energy audit and a percentage of energy improvements to a property. He reported a 25% savings in energy costs as a result of that program. And year and a half ago, the Neutral Zone had again approached the DDA for some help in redoing the driveway. The DDA had helped to broker an arrangement with the contractors who are in town working on streets and roads. “We are thrilled to be here and to thank you and to tell you how much we love the DDA,” Weise said.

Mary Thiefels introduced herself as the visual arts coordinator at the Neutral Zone. She had a long history of public art in Ann Arbor and in southern Michigan, she told the board. She was trying to extend public art opportunities to the youth of the community, she said. She wanted to provide a preliminary report on activity associated with the program. Applications had been sent out to all the youth at the Neutral Zone, she said, and there were seven applicants. It’s being set up as a work-study type arrangement, she said. A site will be chosen – most likely one of the railroad underpasses. The youth will submit a proposal and develop a budget and a timeline, she said, and will document the process. A final press release will be sent out when it concludes with an unveiling of the project. Thiefels wanted the youth to have a full-circle experience of ownership and design, learning how to talk about what they want to create and following through.

Comm/Comm: shur!

During public commentary at the start of the meeting, Dave MacNamara addressed the board on behalf of himself and Omari Rush for “shur! Live, Work, and Play Better.” He told the board he was not there to complain but rather to thank the DDA for what it does. The shur! series involves young professionals who want to be downtown and who want to start local businesses. He told the board that young professionals like him were there to stay. He wanted to help promote what the DDA does, to give Ann Arbor an edge.

Comm/Comm: Ice Rink

During public commentary time at the start of the meeting, Alan Haber gave the board an update on his group’s proposal for a temporary artificial ice skating rink to be installed on top of the Library Lane underground parking garage. They’d met with the DDA’s partnerships committee. Members of that committee had given his group a number of questions to pursue. His group had also held a meeting with the city attorney’s office, to see if it’s possible to use the top of the underground structure for other purposes besides parking. There was a possibility that the contract – under which the DDA manages the city’s public parking system, on behalf of the city – might need to be amended, Haber said.

Haber said that some city councilmembers are working on a resolution that might change the zoning of the surface lot from public land parking to public land non-parking. Another question from the city attorney involved the legal form of the entity that Haber’s group would need to form – a nonprofit or a cooperative. Haber said his group was asked to look at a comparable rink in Boulder, Colorado. He reported that people seem to like that rink and it gets a lot of publicity. The rink had been established by the Boulder equivalent of the Ann Arbor DDA, Haber said. Haber told the board that his group was hoping to have a two-year pro forma, for initial operation of the rink over a two-year period. He said his group had talked to the library board about the security issues. [Haber and Stewart Gordon had made a presentation to the Ann Arbor District Library board's April 15, 2013 meeting.]

In her report from the DDA partnerships committee, Sandi Smith confirmed the committee did have a presentation from Haber’s group about the potential ice skating rink on the Library Lane lot. The committee continues to have questions about financial aspects and security. At this point, there were more questions than answers, she felt. The committee had sent the group back to the drawing board, Smith said – adding that the group’s proposal needed to have more flesh on the bone.

Comm/Comm: Downtown Citizens Advisory Council

Ray Detter gave his monthly report on behalf of the downtown citizens advisory council. He invited everyone to an annual downtown potluck party that he helps to host at his home. [The two addresses on the invitation are 120 and 126 N. Division.] This year the potluck falls on June 6, starting at 6:30 p.m.

Detter then described what the downtown citizens advisory council is. Members are appointed by the mayor and city council, he said. The only qualification is to live in the DDA district. The group meets in city hall, typically on the day before the full meetings of the DDA board. Detter reported to the board that there are 11 active members of the CAC, and there’s a limit of 15. Detter announced that if anyone wants to join, the council would be glad to have them.

He highlighted the Downtown Ann Arbor Historical Street Exhibit Program as a project that the citizens advisory council had initiated. This year from May 15-16, 600 high school students would be visiting downtown Ann Arbor to participate in one of 13 tours that would be conducted over the two days.

Comm/Comm: Cinetopia

During the time for communications from DDA board members, Russ Collins, who’s executive director of the Michigan Theater, stated simply: “Go to Cinetopia!” Cinetopia is an international film festival that takes place in Ann Arbor and Detroit from June 6-9 this year.

Comm/Comm: Economic Development

Sandi Smith, in her report from the partnerships committee, said that Ward 2 city councilmember Sally Petersen had attended the last committee meeting.

DDA board member Joan Lowenstein and mayor John Hieftje, who also serves on the board.

Petersen had floated an idea for an economic development task force with membership from the DDA, Ann Arbor SPARK, and city councilmembers – to look at goals and tactics. Smith said she didn’t think the proposal had been presented to the council yet. Mayor John Hieftje, who sits on the DDA board, indicated that it would likely be on the May 20 city council meeting agenda.

Joan Lowenstein added that the partnerships committee would be getting an update from Ann Arbor SPARK CEO Paul Krutko about SPARK’s work plan and how the DDA can work more with SPARK. Lowenstein said the DDA has been working with SPARK all along. So she thought that the update from Krutko would cover projects that the DDA and SPARK could continue to work on together.

Comm/Comm: Commuter Challenge

Reporting from the operations committee, Keith Orr noted that May 1 was the first day of getDowntown’s commuter challenge. So far this year 1,400 people have registered, from 232 organizations. He reported that DDA staff are also participating, as well as some DDA board members. It’s not too late to sign up, he said. His own restaurant, the \aut\ BAR, is also participating, Orr said.

Comm/Comm: Bike House

Keith Orr reported from the operations committee that the “bike house” would be launching May 17. Two parking spaces in the Maynard parking structure are being converted to a walled-off secure location for bicycle parking. The capacity of the bike house will be 37 bicycles, Orr reported. It’s hard to miss, he said, with its lime green walls. “As we speak, the hoops are going in.” He gave May 17 as the official launch date, which is Bike-to-Work day. Cupcakes would be served, he said.

Russ Collins quipped that he was disappointed that the bike house is so aesthetically pleasing. [Previous descriptions of the new facility had called it a "bike cage."] It means that there would be no opportunity for a cage fight fundraiser, say between Bob Guenzel and Ken Fisher, Collins joked.

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

Absent: Roger Hewitt, John Mouat.

Next board meeting: Noon on Wednesday, June 7, 2013, at the DDA offices, 150 S. Fifth Ave., Suite 301. [Check Chronicle event listings to confirm date]

The Chronicle could not survive without regular voluntary subscriptions to support our coverage of public bodies like the Ann Arbor Downtown Development Authority. Click this link for details: Subscribe to The Chronicle. And if you’re already supporting us, please encourage your friends, neighbors and colleagues to help support The Chronicle, too!

Cover of the A2Y Chamber member directory. The Ann Arbor Chronicle is among the members listed.

In the interim, the city council has undoubtedly received communications lobbying for and against these changes. Among those communications was a letter sent on April 12 – with signatures from representatives of eight different entities that have significant specific interests in downtown Ann Arbor: “We write to oppose the proposed ordinance amendment … [P]aramount is the proposed change to the current ordinance procedure for calculating potential rebates of higher than anticipated TIF revenues back to taxing units …”

One of the eight signatories is unique – for two reasons.

First, the Ann Arbor/Ypsilanti Regional Chamber is the only one of which The Ann Arbor Chronicle is a member.

Second, the chamber is unique among the eight because it’s the one that has the legal and public policy resources to arrive at a position based on the legal and public policy merits of the issue. But in this case, the chamber has chosen a view that seems only half-informed by legal and public policy analysis.

With access to legal talent like Doug McClure, a recent candidate for 22nd Circuit Court judge who is chair of the chamber’s public policy committee, I’d expect this regional chamber to support the kind of clear, solid, forward-looking legal foundation that the proposed ordinance amendments would provide for us as a regional community. That’s especially true given that so many people – for and against the ordinance changes – agree that the current ordinance language lacks clarity.

And the idea that the chamber would support whatever interpretation the DDA chooses to give the ordinance – in the DDA’s sole judgment, with millions of regional tax dollars at stake – is bizarre from a public policy point of view. It’s especially bizarre given that this purportedly regional chamber has access to regional public policy talent like Andy LaBarre. He’s the chamber’s vice president of government relations who’s a former staffer for Congressman John Dingell. LaBarre is also an elected representative serving on a regional governing body that has tax dollars at stake in this debate – the Washtenaw County board of commissioners.

But the chamber chose to glance past the legal and public policy issues, opting instead to allow personal, petty mayoral politics to cloud its collective thinking.

What’s even more incredible is that the chamber has chosen wording for its letter – which it then recruited the other entities to sign – that would actually point an alert reader to the relevant legal and public policy issues. If the chamber itself had taken the words in its own letter more seriously, perhaps that would have guided the organization to take a position in favor of the ordinance changes.

In this column, I’ll lay out an analysis of the wording that the chamber has chosen – “… which the DDA calculates using its judgment within the standards set by the ordinance” – and explain why those words point the way to supporting the ordinance changes.

Brief Background

Among the revisions the council is poised to make to Chapter 7 – the part of the city code that establishes the Ann Arbor Downtown Development Authority – are some related to board membership. Term limits would be placed on DDA board members. And elected officials of taxing jurisdictions that have their taxes captured by the DDA could serve on the DDA board only by mutual written agreement. [.pdf of ordinance revisions given initial approval on April 1, 2013]

Those are amendments that count arguably as “just politics”– and could be scrapped, as far as I’m concerned. If we don’t like mayor John Hieftje’s appointments to the DDA board, then we should elect somebody else as mayor, or ask our city council representatives to vote against the confirmation of Hieftje’s nominations.

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

The Chronicle has reported on this issue in gory detail on multiple occasions, and I won’t repeat that history and analysis here. For those readers who need additional background, here’s a sampling of more recent Chronicle reports: “Deliberations on DDA Pave Way for Final Vote,” “DDA Ramps Up PR After First Council Vote,” and “Column: Math Is Hard, But This Ain’t Math.”

However, it’s worth highlighting at least one bit of what appears to be revisionist history. Questions about how the DDA’s TIF capture is calculated first arose in the spring of 2011. The context was the year-long, extremely difficult negotiations between the DDA and the city over terms of a new contract under which the DDA would manage the city’s parking system. The Chapter 7 issue emerged just as the DDA board was set to vote on the parking system contract at its May 2, 2011 meeting.

When the issue was first identified by the city’s financial staff, the DDA board postponed voting on the new contract. The period of the postponement was used to analyze whether the DDA’s Chapter 7 obligations could be met – at the same time the DDA was ratifying a new parking system contract, which required the DDA to pay the city of Ann Arbor 17% of gross parking revenues.

At the time, the consistent narrative on all sides was this: We didn’t realize the Chapter 7 paragraphs even existed. So when representatives of the DDA now contend that “We’ve been doing it this way for 30 years – why change now?” that’s not consistent with their 2011 narrative.

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

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

Its Judgment

Now back to the A2Y Chamber’s letter. The one-page document is relatively brief – just three paragraphs. The key phrase comes in the first paragraph [emphasis added]:

We write to oppose the proposed ordinance amendment before the Ann Arbor City Council pertaining to the City’s Downtown Development Authority (DDA). There are many important issues brought forth within this ordinance, but paramount is the proposed change to the current Ordinance procedure for calculating potential rebates of higher than anticipated Tax Increment Financing (TIF) revenues back to taxing units, which the DDA calculates using its judgment within the standards set by the Ordinance.

If you stress the word “its” in the phrase “its judgment,” that induces the natural question: Who else’s judgment, besides the DDA’s, should be used to calculate the return of TIF monies?

Its Judgment: City Attorney? City Treasurer?

Besides the DDA, it might be reasonable to turn to the Ann Arbor city attorney for guidance on the TIF capture question. The city attorney has a special role to play, because the TIF rebate calculations are ensconced in a city ordinance – and one of the city attorney’s responsibilities under the city charter is to “prosecute ordinance violations.” Does the city attorney’s office have a view on the subject?

Based on an email sent nearly two years ago, on May 2, 2011 by city treasurer Matt Horning to DDA deputy director Joe Morehouse, the city attorney office’s initial review of the existing Chapter 7 ordinance language was at least consistent with the kind of clarification the city council’s April 15 approval would give.

Unless you believe that Horning was acting as an agent of city councilmember Stephen Kunselman – sponsor of the ordinance amendments and master of inflammatory political rhetoric surrounding mayor John Hieftje – then there’s no anti-mayor politics at the core of this issue. It’s just law and math.

Horning’s email expresses his view that the relevant paragraphs of the ordinance are to be understood as a limit on the DDA’s TIF capture revenue, and he reports that a preliminary consultation had been received from the city attorney’s office:

It is a bit ambiguous, but I think the intent is that the DDA should not get any more tax revenue than was anticipated by the plan. From 1982 to 2002, the original plan had very high estimates of capture, and so this clause was far from being triggered. In the new plan, the estimates were reduced significantly. From 2003 until now, the capture has exceeded the plan. … We have had preliminary consultation with the attorney’s office, but have yet to obtain an opinion as to whether our interpretation is correct. [.pdf of Horning's May 2, 2011 email]

This issue would present a logical opportunity for city attorney Stephen Postema to contribute an opinion – given that it’s a million-dollar issue. But for reasons that remain opaque to many in the community, Postema has resisted writing any opinions during his roughly 10-year career as city attorney. Under the city charter, the city attorney’s written opinions are to be filed with the city clerk’s office for easy reference by third parties. None have been filed.

So it’s fair to conclude that Horning was never provided with a formal opinion from the city attorney’s office. He may have received an “advice memo” on the topic – but the city typically shields such memos from disclosure, citing attorney-client privilege.

Still it’s relevant that Horning consulted with the city attorney’s office, and apparently got at least a preliminary indication back in 2011 that the paragraph in question can be reasonably understood as a limit on the DDA’s TIF revenue – a cap on the TIF revenue it receives. Otherwise put, the paragraph explains conditions under which a refund to other taxing authorities should be paid, independent of other considerations.

And under questioning from city councilmember Sumi Kailasapathy (Ward 1) at the council’s April 1, 2013 meeting, assistant city attorney Mary Fales appeared to support that view as well. From The Chronicle’s meeting report:

Kailasapathy indicated she felt there was some confusion, because what [Stephen] Kunselman was talking about is fund balance – which is a balance sheet item. But the TIF refund described in Chapter 7 actually has to do with the revenue income level, she explained. So if you take in revenue at a certain level, and if there is excess, then you have to refund some of it. She asked [assistant city attorney Mary] Fales if Fales agreed that this was a point of confusion. She asked Fales to confirm that the refund is actually based on revenue, not on the balance sheet. “I think that’s true,” Fales said.

That’s different from the DDA’s current legal position, which seems to be that the paragraph is a calculation related only to surplus funds that the DDA might have after satisfying obligations to make payments toward bonds. Further, the DDA’s position is that ordinance language allows the DDA to plan for bond obligations to be taken on by the DDA, independent of the cap on TIF revenues expressed in the ordinance.

Its Judgment: Other Taxing Jurisdictions?

Who else, besides the Ann Arbor DDA, might have a judgment to offer in this dispute? I think one logical set of interested parties, whose judgment should count for something, would be the jurisdictions whose taxes are captured by the DDA.

We know a dispute exists over the interpretation of the ordinance with respect to tax capture. So it’s reasonable to ask what the view is of those taxing authorities, whose tax revenues are captured and used by the DDA. After the DDA board meeting on April 3, 2013, I talked with DDA board treasurer Roger Hewitt, who defended the DDA’s unilateral decision in 2011 on the interpretation of the ordinance. His defense depended in part on his claim that DDA board members were hearing objections only from the Ann Arbor District Library.

However, that’s not the whole story. During that period in 2011, The Chronicle had reported concerns expressed by Josie Parker, director of the Ann Arbor District Library, but also by Larry Whitworth, who at the time served as president of Washtenaw Community College.

How about the Ann Arbor city council and the Washtenaw County board of commissioners? Hewitt contended on April 3 that the DDA board was hearing in 2011 that those bodies agreed with the DDA’s interpretation. I’ll give Hewitt this: It’s easy to imagine that Leah Gunn – who has served on the DDA board since 1991 and was a county commissioner in 2011 – would agree with her own interpretation. It’s also easy to imagine that then-councilmember Sandi Smith and mayor John Hieftje – who are also long-time DDA board members – would agree with their own interpretation.

But despite individual opinions, neither of those two bodies – the Ann Arbor city council, or the Washtenaw County board of commissioners – weighed in with a resolution stating their agreement with the DDA’a position. And I think whatever private assurance the DDA board and staff might have received about the view of other public bodies, that’s not an adequate foundation on which to base a multimillion-dollar decision.

To test the strength of the claim that the current Washtenaw County board agrees with the DDA’s interpretation of the TIF capture, I asked commissioner Andy LaBarre to take off his A2Y Chamber hat and put on his Washtenaw County board of commissioners cap. Does he even have a position on the DDA ordinance revisions that the city council is considering on April 15? Via email, LaBarre’s answer as a commissioner was this:

No, as a county commissioner I don’t have a position because I don’t know with enough certainty if the TIF calculation is correct. I would guess the calculation is on, but I don’t have a high enough confidence in that to take a formal position. Or more to the point, I don’t personally have the same level of certainty the [Chamber's] letter does.

In connection with the other taxing jurisdictions, there’s a myth surrounding their status in this dispute – a myth that for many people justifies their belief that the DDA alone should reasonably decide this issue. The myth was recited recently by city council veteran Marcia Higgins at a Sunday night caucus: that the other taxing jurisdictions had an opportunity in 1982, and again in 2003, to opt out of having their taxes captured by the Ann Arbor DDA.

Higgins isn’t the only veteran public official who believes this. I keep encountering all sorts of people who take as an article of faith that of course the other taxing jurisdictions had an opportunity to opt out of having their taxes captured. One of those people is a member of the A2Y Chamber’s public policy committee.

I understand how the idea that the other jurisdictions had an opt-out opportunity helps people get comfortable with the idea that it should now only be up to the DDA to decide the calculation. But the historical facts don’t lend that comfort.

Fact: The opt-out provision in the state statute was added in 1994, after the Ann Arbor DDA was established. Here’s the amendment that was added:

(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. The resolution takes effect when filed with that clerk and remains effective until a copy of a resolution rescinding that resolution is filed with that clerk.

And the 2003 renewal plan was crafted so that it did not trigger the opt-out provision – because it did not alter the boundary of the DDA’s TIF capture district.

Think about the end date of the 2003 renewal plan – the year 2033. Dating from 1982, when the DDA was established, that will mark a half-century of tax capture from other jurisdictions’ tax levy, absent any legislative ability of those jurisdictions to object.

In that context, I think it’s reasonable to expect the Ann Arbor DDA to show a little more respect for the judgment of the other taxing authorities, when it comes to settling this dispute.

But the real question is this: Is it even a matter of judgment, or is it a matter of law and math?

Its Judgment

Back to the chamber’s letter: “… which the DDA calculates using its judgment within the standards set by the ordinance …”

If you stress the word “judgment” in the phrase “its judgment,” that induces the natural question: What else might the DDA use instead of judgment? Given that the “standards set by the ordinance” are part of the ordinance, I think it’s reasonable to expect that the DDA would simply apply the law.

How does judgment even enter into the equation?

Its Judgment: Calculations

I’ve added paragraph numbers below to help keep things straight, but in the city code the paragraphs aren’t numbered. The main paragraph in question is this one [emphasis added]:

¶1 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.

On the question of how the calculations are to be done, it’s clear from the city treasurer’s May 2, 2011 email that he was using a cumulative method of evaluating the rate of growth – which is the method that the current ordinance amendments would explicitly clarify.

Here’s how I reach that conclusion. Based on the calculations I did back in 2011 using the cumulative method, I came up with more than $2 million that the DDA should have rebated to the other taxing jurisdictions. That’s roughly what city treasurer Matt Horning indicated in his March 2, 2011 email to DDA deputy director Joe Morehouse: “As you can see, the result would be a $2 million issue for the DDA, $1.2 million of which would be owed to the City.”

Instead, the DDA calculated a rebate using a method that requires consideration of just the immediately preceding year – instead of evaluating the anticipated rate of growth since the start of the TIF plan. Using that approach, the DDA came up with a roughly $1.1 million combined total that was owed to the other taxing jurisdictions. That is, based on the totals Horning reported, he was not evaluating the rate of growth just by looking at the immediately preceding year, but rather using the same kind of cumulative method that I did. And that’s the same kind of method that the ordinance revisions seek to clarify.

Just as an exercise, let’s imagine a completely different scenario – a hypothetical one where the actual growth in tax valuation in the DDA district was far less than anticipated in the plan. That’s the scenario in Chart A below.

Chart A: Hypothetical TIF valuation. Blue bars are the estimates for growth in the DDA TIF plan. The red line is the hypothetical actual valuation in the DDA district.

In Chart A, I think it’s clear to any fair-minded, reasonable person that no rebates would owed by the DDA for this time period – because for every year, the tax valuation was less than what was anticipated in the TIF plan. That is, the red line is lower than the blue bars.

But wait. On the DDA’s interpretation of the ordinance, which would use a year-to-year approach, in YEAR X+8, a rebate would be owed. To see this, have a look at Chart B, which is just like Chart A, with the addition of a purple line:

Chart B: Chart A: Hypothetical TIF valuation. Blue bars are the estimates for growth in the DDA TIF plan. The red line is the hypothetical actual valuation in the DDA district. For YEAR X+8, under the year-to-year method, you compare the slope of the purple line with the slope of the red line.

Using the year-to-year method, in YEAR X+8 you must check the slope of the purple line (anticipated rate of growth from previous year) against the slope of the red line (actual rate of growth). When you check the slopes of those two lines in Chart B, it’s clear that the “actual rate” exceeds the “anticipated rate” of growth – which means that on that scenario, which intuitively calls for no rebate, you’d still wind up rebating TIF capture to the other taxing authorities. Conclusion: the year-to-year method is absurd.

Moving from the hypothetical to the actual world, in Chart C below, the actual valuation (the green line) exceeds the growth anticipated in the TIF plan. So intuitively, a rebate is owed, defined by half the distance between the green line and the blue bars. Only if you were looking for an arbitrary and counter-intuitive way to calculate excess would you say: Look at YEAR X+8! The green line sloped downward that year, so that means that actual growth was not as much as anticipated!

Chart C: The green line shows actual valuation. The blue bars depict the TIF plan projections for the increase in valuation, based on pessimistic, realistic, or optimistic projections. Year X is 2004. Data for the final two years was estimated. For other years, the figures are actual.

There’s no politics in that chart. It’s abundantly clear that the cumulative method is the only reasonable application of the existing ordinance language.

Its Judgment: Loopholes

Just for readability, here’s the key paragraph again, with emphasis added in italics. Again, I’ve added paragraph numbers to help keep things straight, but in the city code the paragraphs aren’t numbered.

¶1 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.

The DDA’a current legal position relies crucially on the ordering of three un-numbered paragraphs in the ordinance and equally crucially on a choice of antecedent for the phrase “as set forth above” in this paragraph. [Again, I've added numbering to keep things straight, but the paragraphs are un-numbered in the city ordinance.]

¶3 Tax funds that are paid to the downtown development authority due to the captured assessed value shall first be used to pay the required amounts into the bond and interest redemption funds and the required reserves thereto. Thereafter, the funds shall be distributed as set forth above or shall be divided among the taxing units in relation to their proportion of the current tax levies.

By way of background, the use of “above” to refer to a specific portion of a piece of legislation is frowned upon by the state of Michigan’s Legislative Services Bureau in its official style guide. A complete list of vague and ambiguous terms to be avoided, according the LSB style manual, includes: above, hereinabove, aforementioned, hereinafter, aforesaid, hereinbefore, foregoing, heretofore, hereafter, preceding, herein. But that style guide dates from 2003, and Ann Arbor’s DDA ordinance was originally enacted in 1982, so we’re stuck with “as set forth above.”

On the DDA’s interpretation, “as set forth above” crucially refers to ¶1. That puts payment of the “refund” – according to calculations explained in ¶1 – chronologically second after payment of bond obligations, even though it’s listed first. Based on this chronological sequence, the DDA’s position is essentially that the language in ¶3 can be used as a loophole – to circumvent the requirement in ¶1 that excess TIF revenue be returned to the other taxing authorities. On the DDA’s interpretation, if the check the DDA writes to pay bonds is so large that the DDA can’t write a check to pay refunds to other taxing authorities, then the DDA doesn’t have to pay refunds to the other taxing authorities.

But more sensibly, the language in ¶1 is a condition that is supposed to affect how the DDA plans for the amount of bonding obligations it is able take on. That is to say, the most sensible way to understand the ordinance, taken as a whole, is that the DDA is supposed to take on bonding obligations only to the extent that these obligations would still allow the DDA to pay refunds to other taxing jurisdictions as spelled out in ¶1. That’s the only sensible interpretation to give the ordinance, even if the DDA is correct in assigning ¶1 as the antecedent of “as set forth above.”

But I don’t think it’s even reasonable to interpret the antecedent of “as set forth above” as ¶1. According to the DDA’s interpretation, the phrase “as set forth above” and “divided among the taxing units” would be redundant – because ¶1 would be nothing more than a special condition on how the money is to be divided. So the DDA could maintain its peculiar interpretation of the ordinance, even if the phrase “as set forth above” were completely omitted.

More plausibly, the antecedent of “as set forth above” would not make the phrase redundant, but refers simply to a section even farther “above” – about the purpose of the DDA. That purpose is “… to act in the best interests of the city to halt property value deterioration, increase property tax valuation where possible in the business district of the city, eliminate the causes of that deterioration, and to promote economic growth…”

Or a different likely antecedent of “as set forth above” would be the content of the “development plan” described in the section on the powers of the authority.

Either of those antecedents yields a paraphrase of ¶3 that does not allow for the “loophole” interpretation used by the DDA and would not result in redundancy. That sensible paraphrase would go something like this:

Tax funds that are paid to the downtown development authority due to the captured assessed value, after the “excess” to greater-than-anticipated growth is divided among the other taxing jurisdictions, shall first be used to pay the required amounts into the bond and interest redemption funds and the required reserves thereto. Thereafter, the funds shall be spent by the downtown development authority in the service of the development plan and according the authority’s purpose, or shall be divided among the taxing units in relation to their proportion of the current tax levies.

A further difficulty for the DDA’s legal position is that it did pay back more than $400,000 to other taxing jurisdictions in 2011. So if the DDA’s current legal position is correct, then it violated the ordinance in 2011 – because ¶3 doesn’t provide an option. The ordinance does not state that the money “may first be used to pay” but rather that the money “shall first be used to pay.”

If the DDA is serious about its current legal position, then it has a fiduciary and legal responsibility to reclaim the money it “erroneously” paid back in 2011. The fact that the DDA has not done so reveals that the DDA does not actually believe its own current legal position.

Conclusion: Kunselman

I totally understand why some councilmembers might feel uncomfortable voting for the clarification of the ordinance language – even if they can acknowledge how the amendments merely give clarity to the most sensible interpretation that already exists in the ordinance language.

And I totally understand why some councilmembers might feel uncomfortable voting for the ordinance amendments – even if they agree that the clarified interpretation would still result in an adequate amount of TIF revenue to the DDA. That’s because the clarified method of calculation still results in more TIF revenue to the DDA than the DDA itself is currently projecting on a 10-year horizon.

Why am I so understanding? As one city councilmember described it to me, they’re reluctant to vote for the amendments because they’re concerned this might appear to be condoning Stephen Kunselman’s “bad behavior.” As I understand it, the “bad behavior” includes Kunselman’s reported desire to provide “consequences” for those DDA board members who have in the past supported Kunselman’s opponents in city council races.

That will make it an easy political vote for some councilmembers on April 15: Vote against Kunselman based on his overtly political and “ill-mannered” style. So I completely understand why some councilmembers will take that easy political path and vote against the amendments. I hope for better from my local elected representatives, but would still predict that some will take the easy political path.

What I don’t understand is why the A2Y Chamber, with sufficient legal and public policy resources to reach the same non-political conclusion that the city treasurer did, decided to ignore the merits of the legal and public policy issues.

As a chamber member, I think The Chronicle deserved way better than we got from that organization’s April 12 letter opposing the ordinance amendments.

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Among the possible revisions, Kunselman indicated he would be suggesting that the appointments and reappointments to the DDA board include a public hearing.

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]

The break on the price is related to the “bathtub” design for the foundation of a 244-space parking deck, which makes up the first two stories of the development. The site of the development is near Allen Creek, and some kind of design strategy is required in order to deal with the possibility of water entering the parking structure. Rather than use a hybrid design that would entail pumping water out of the structure and into the city’s stormwater system on an ongoing basis, Village Green wants to use a complete bathtub-type design that will cost around $250,000. The city’s price break is thus a portion of that cost.

The parking deck is being developed in cooperation with the Ann Arbor Downtown Development Authority, which has pledged to make payments on around $9 million worth of bonds, after the structure is completed and has been issued a permit for occupancy.

The timeline put in place on Aug. 5, 2010 – when the city council most recently approved an extension of Village Green’s option to purchase the First and Washington city-owned parcel – called for Village Green to purchase the land by June 1, 2011. However, that deadline was subject to an extension of 90 days by the city administrator – an option which the interim administrator then exercised. That sets a new deadline of Aug. 30, 2011 for purchase of the parcel. The proceeds from the sale of the land were a part of the city’s financing plan for the new municipal center at Fifth and Huron, which is currently in the final stages of construction.

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 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 board had been expected to vote on the measure at that meeting, but postponed it amid questions about the administration of the city’s ordinance on distribution of DDA TIF capture. [Chronicle coverage: "DDA Delays Parking Vote Amid TIF Questions"]

The delay in settling the parking contract has led to a delay in the Ann Arbor city council’s willingness to approve its fiscal 2012 budget.

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

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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]

The revised plan was previously approved by the Washtenaw County brownfield redevelopment authority at its March 10, 2011 meeting, when the authority also approved an interlocal agreement to transfer tax increment financing (TIF) revenues from the Dexter Downtown Development Authority. The amended plan was approved on Feb. 28, 2011 by the Dexter Village Council.

An estimated total of $312,000 in local and state taxes will be captured for eligible activities, administrative costs, and the Washtenaw County Brownfield Redevelopment Authority Local Site Remediation Revolving Fund over a projected four-year period. Of this total, $24,000 will be used for the county brownfield program’s administrative fees, and $48,000 will go into the Local Site Remediation Revolving Fund. After the project is completed and all TIF activities are fulfilled, an estimated increase of $162,103 annually would be distributed among the Dexter DDA and other taxing jurisdictions. According to a memo accompanying the resolution, the Washtenaw County annual millage payment from the property would increase from roughly $5,397 to $14,222.

This brief was filed from the boardroom in the Washtenaw County administration building, 220 N. Main St., Ann Arbor. A more detailed report will follow: [link]

While the city and the DDA have achieved much agreement on the non-monetary details of the arrangement, Wednesday’s board meeting left the financial piece still unclear.

Keith Orr pores over the figures under various scenarios for the new contract under which the DDA would operate the public parking system. (Photos by the writer.)

The board discussion included a focus on the contrast between the combined fund reserve of the DDA – which includes those funds it collects as a tax-increment finance authority – and the reserves of just the public parking fund. Sandi Smith, who’s a DDA board member and an Ann Arbor city councilmember, stressed throughout the conversation that it’s not just the overall fund balance, but the public parking fund balance itself that needs to be monitored.

Last week, the board had come to a consensus that the public parking system could absorb a payment to the city equal to 16% of gross parking revenues in every year of a 10-year contract, which represented a revision upward from its previous position of 14% in the first two years, followed by 15% in subsequent years.

After lengthy back-and-forth, the only consensus reached by DDA board members was that they were not prepared to revise their position upward (again) to meet the city’s request that the city be paid 16% of the public parking gross revenues in the first two years of the contract, but 17.5% in remaining years. Mayor John Hieftje, who serves on the DDA board, was the lone voice of support for that position.

The mayor also found himself somewhat isolated on another issue in front of the board at its Wednesday meeting – the only action item on the agenda. The board voted to sign a new, more favorable lease agreement for its roughly 3,000 feet of office space at 150 S. Fifth Ave. for a term of five years.

Although the mayor voted with the rest of the board in authorizing the lease agreement, he had announced at the city council’s Monday, April 4 meeting that he would be asking his fellow DDA members to consider moving into space that’s currently being renovated in the city hall building. Two days later, at Wednesday’s DDA board meeting, the mayor appeared to understand that there was little enthusiasm on the board for the move, based partly on the fact that it would cost the DDA more in the short term.

At the meeting, the board also heard its usual range of reports and communications, including an update from DTE on the addition of a new substation near the Broadway bridge, to meet increased demand for electricity.

City-DDA Parking Contract: History

The current 10-year contract, under which the DDA operates the city’s public parking system, expires in 2015 – with an option for the DDA to renew through 2018. That contract calls for the city to be paid $1 million in “rent” per year out of the public parking system, plus additional money into the street repair and maintenance fund totaling roughly $850,000.

A provision in the contract allows for the city to request that a double payment of $2 million be made in any one year out of the parking system, provided that the total amount in rent paid over the contract period does not exceed $10 million. When the contract was signed in 2005, then-city councilmember Leigh Greden told the DDA that it was only due to the dire financial condition of the city that year that the double payment was being requested in the first year of the contract – the double payment was not assumed to extend beyond that first year.

However, the city has requested the double payment of $2 million over each of the first five years of the contract. And last year, the DDA board authorized an additional double payment of $2 million not required by the contract, bringing the total rent paid to the city out of the public parking system since 2005 to $12 million. [See Chronicle coverage: "DDA OKs $2 million Over Strong Dissent"]

Newcombe Clark (far left) and Roger Hewitt (far right) point at a list of different payments made out of the public parking fund to the city. Turned in their seats looking at Hewitt are John Splitt and Gary Boren.

In addition to that money, over the last two years the DDA has agreed – outside the context of that contract – to donate proceeds from the 415 W. Washington and Fifth & William (the old YMCA) parking lots to the city. That move was motivated by a desire of the DDA to forestall the installation of parking meters by the city of Ann Arbor in residential neighborhoods to generate direct revenue to the city’s general fund budget. The city made that move as a part of its FY 2009 budget, approved in May of that year. By providing revenues that would at least partially replace money the city thought it could generate through meter installation, the DDA reduced the pressure to install the meters.

The DDA opposed meter installation at those locations, partly due to skepticism that they would actually generate very much revenue for the city, partly based on the fact that the DDA believed the city did not have the authority to install such meters, and also that the residential locations were unsuitable for parking meters.

[More background on the meter installation in previous Chronicle coverage: "City-DDA Parking Deal Possible"]

City-DDA Parking Contract: Negotiations, Outline

The negotiations between the city and the DDA are being handled by two “mutually beneficial” committees – one composed of Ann Arbor DDA board members and the other made up of city councilmembers. On the council’s committee are councilmembers Carsten Hohnke, Margie Teall and Christopher Taylor. Serving on the DDA committee are Gary Boren, Russ Collins, Roger Hewitt and Sandi Smith. The committees began meeting in public view in June 2010, after a “work group” had met privately starting in January of that year.

The original target date for a completed new parking agreement was Oct. 31, 2010. The two mutually beneficial committees had begun meeting on a once-monthly schedule, but at the urging of Susan Pollary, executive director of the DDA, they increased their meeting frequency to twice monthly, beginning in late summer 2010. And over the last several weeks, the two committees have been meeting at 7:30 a.m. every Monday morning trying to finalize details of the contract.

The work group that had met out of public view in the early part of 2010 produced a term sheet in spring 2010 to serve as an outline to the negotiations. It was on the basis of that term sheet that the DDA agreed to the extra double payment of $2 million last year. [See Chronicle coverage: "DDA OKs $2 Million Over Strong Dissent"].

A key concept of the term sheet was that the city would be held harmless financially. Other main points of the term sheet included [.pdf of complete term sheet]:

Parking Enforcement [...]
Throughout the City, the DDA will have primary, but non-exclusive, responsibility for enforcement of public-parking-related rules and regulations, including without limitation, expired meters, parking structure rule compliance, loading zones, and established residential parking permit zones (“Parking Codes”). [...]
Community Standards Code Enforcement in the DDA [...]
Within the DDA, the DDA will have primary, but non-exclusive, responsibility for enforcement of City ordinances now generally enforced by community standards officers, including without limitation, ordinances related to sidewalk clearance, debris, graffiti, and alley upkeep (“Community Codes”). [...]
Services in the DDA [...]
Within the DDA boundaries, the DDA will have primary, but non-exclusive, responsibility for delivering the preliminary list of services identified on “Exhibit 1”, attached. The DDA will deliver the identified services with at [sic] the identified service levels and frequencies. Generally, these are all services delivered currently delivered [sic] by the City within the DDA boundaries, excluding public safety, street clearing, and other services as identified in “Exhibit 1”. [...]
Development of City-owned Property Within the DDA District [...]
The working group envisions that the DDA would serve as a visioning, initiation and implementation engine for development of City-owned property within the DDA district. The nature and extent of this role will be discussed, considered and, if approved, implemented in parallel to any omnibus agreement, but would not be part of that agreement. [...]

The final point of the term sheet was, to some extent, addressed with the passage of a city council resolution on April 4, which tasked the DDA with leading a process to explore the future use of four parcels located in a rectangle bounded by Ashley, Division, Liberty, and William streets.

The middle two term sheet points – non-parking code enforcement done by the DDA and additional service enhancement to be performed by the DDA – were shed from the discussion fairly early in the negotiations.

The first term sheet point – that the DDA would enforce parking rules and write tickets – also did not make it into the draft contract. But vestiges of that idea remain in different places in the draft. The basic idea was that the DDA would like to have more direct influence on setting the parking policy – rates and hours of enforcement – and would like to maintain a more systematic communication with the city about parking policies. This basic notion was expressed at a city council meeting on April 19, 2010 when the DDA delivered a parking report to the city council. That parking report had been prompted by a Dec. 21, 2009 city council resolution that had contemplated, among other things, extending hours of parking meter enforcement past 6 p.m. – the evening enforcement provision did not pass on that occasion.

Some key features of the new draft contract include:

• Parking rates/hours to be set by DDA. The city council would not have a veto. [Currently the city council holds a veto on rate changes.] The contract stipulates that rates won’t be changed permanently without first: (1) announcing and providing written communication regarding details of the increase at a DDA board meeting; (2) at a subsequent board meeting, providing all members of the public a chance to speak before the DDA board on the matter – a public hearing; and (3) delaying any vote on the rate change until the board meeting following the public hearing.
• DDA to assist with directing parking enforcement. The contract calls for a Standing Committee to be formed that will meet for regular consultation about parking enforcement. The committee will consist of the executive director of the DDA, the parking manager, deputy police chief, community standards supervisor, and the city’s public services area administrator. This addresses the concern expressed by the DDA that while it already had the authority to set hours of enforcement (for example, for later in the evening), it could not actually schedule community standards officers to do the enforcement. [Currently, many downtown parkers pay for meters past 6 p.m. even though the meters aren't currently enforced that late.]
• City to report information to the DDA. The contract would call for the city to provide regular reports on its enforcement activity – data like how many citations have been issued and in which zones. The contract would also call for the city to provide reports to the DDA on its street maintenance activity in the downtown.
• Parking area defined. The contract provides a map designating exactly which areas the DDA has authority to decide placement of parking meters. Not included in the DDA parking area are any of the residential parking permit areas – a program over which the city will maintain its current control.

Leaving aside the financial aspects, the two mutually beneficial committees appear content that the new contract as drafted provides a level of clarity and communication for the operation of the public parking system that is a great improvement over the old contract.

City-DDA Parking Contract: How Much Money?

The two committees reached early agreement about the structure of the financial arrangement by which the city takes money out of the public parking system: It should be a percentage-of-gross formula that would aggregate all of the payments currently made to the city out of the public parking system. They disagree about how large the percentage should be. [Not included in the percentage-of-gross is a $500,000 payment the city receives from the DDA's TIF capture, which pays for part of the bonds issued to finance the city's new municipal center.]

On any of the percentage-of-gross scenarios, the city could essentially allocate its share of the public parking system revenues to whatever expenses it deems appropriate – its general fund, for example. But the city would presumably spend some fraction of the money on street maintenance in the downtown district – as a condition of the new contract, the city would be required to provide reports on its maintenance of streets where on-street metered parking is available. The term of the agreement has been discussed at varying lengths, but appears to have settled at around 10 years.

A fleeting part of the discussion in October 2010 were percentage-of-gross figures as high as 20% per year and as low as 10%. Fairly quickly, the city council’s committee settled into a position of 17.5%, except for the first two years of the contract, for which it was content with 16% – the 16-16-17.5 position.

The DDA’s committee consulted its full board at a Jan. 5, 2011 retreat, during which the board modeled the different percentage scenarios against its 10-year plan – a spreadsheet it uses to make financial projections. As part of any scenario, the DDA will be deferring some maintenance on the parking structures, in order to accommodate the city’s request for a new contract. The specific items to be deferred have been reviewed by the DDA’s engineering consultant.

All scenarios also assume that at least part of the down payment and bond payments for the underground parking structure currently under construction will be paid out of the DDA’s tax capture fund – its TIF fund. [During his campaign for reelection in 2010, mayor John Hieftje defended himself against criticism over the use of bonds to pay for the underground parking structure, saying the bonds would be paid from parking revenues. For discussion of the use of TIF in connection with payments to the city out of the parking fund, see "Column: Impact of City-DDA Parking Deal"]

At its Jan. 5 retreat, the board came to a consensus that the public parking system could absorb a percentage-of-gross figure of 14% for the first two years of the contract and 15% for the years thereafter – the 14-14-15 position. At the Monday morning mutually beneficial committee meeting on March 28, the council’s committee members told their DDA counterparts that they wanted the full DDA board to reconsider its view – the city was still committed to the 16-16-17.5 position.

So at an operations committee meeting two days later on March 30 – attended by 10 of 12 board members – the DDA board considered the city’s request and came to a consensus that the public parking system could absorb a payment to the city in each year of the contract equal to 16% of the gross parking revenues – a flat-16 scenario.

The following Monday, April 4, when presented with the flat-16 offer by the DDA committee, the city council committee insisted on its 16-16-17.5 position, and asked that the committee take its request back to the full board again.

So at its Wednesday, April 6 regular board meeting, the DDA board informally entertained that request, conveyed through the council’s committee, to rethink its earlier consensus compromise flat-16 position.

City-DDA Parking Contract: April 6 DDA Board – Taxes, Parking

At the April 6 board meeting, Sandi Smith – who serves on both the DDA board and the Ann Arbor city council – added to the mix of alternatives a proposal that would split a 10-year contract period in half: 16% of gross parking system revenues would be paid to the city for the first five years of the contract, and 17.5% would be paid in each of the five remaining years. It’s a half-and-half scenario.

In weighing how to give direction to Roger Hewitt – who was going to be meeting with the city council’s mutually beneficial committee on Friday, April 8 – the Wednesday board meeting discussion wound through familiar issues: (1) appropriate levels for fund balances; (2) the relationship of the DDA to the city; and (3) which fund balances matter.

Lodged firmly in the memory of DDA board members are remarks made by the city’s chief financial officer, Tom Crawford, at the Jan. 5, 2009 city council meeting, when the size of the Fifth Avenue underground parking garage was trimmed back by 100 spaces, so that it no longer extended down to William Street. [The reduced project means that additional construction would need to take place to achieve an underground connection to any future building on the old Y Lot or to the new Blake Transit Center, which is currently being designed.]

From The Chronicle’s report of the Feb. 17, 2009 Ann Arbor city council meeting:

Crawford reported that on looking at the DDA’s financial picture, he noticed that they don’t have a minimum reserve policy. He said he generally used 15-20% as a minimum reserve. In light of the need to maintain adequate reserves, he said that in his view the project is “not affordable with the plans they have.”

The 15-20% figure appears to be more of an ideal, whereas the practical recommended minimum range – used, for example, in the city’s own budget planning – is 8-12%. [More detail on the fund balance question in previous Chronicle coverage: "Ann Arbor DDA Barely Passes Budget"]

On the 16-16-17.5 scenario, the overall combined reserve balance across all of the DDA’s funds would dip to 7.4% of expenses in 2016, which is less than the lower limit of the 8-12% recommended range used by Crawford. On the flat-16 scenario, the lowest overall fund balance would be 10.9%.

At Wednesday’s board meeting, mayor John Hieftje responded to concerns about the DDA’s overall fund balance by reiterating his position that the DDA is part of the city. [This position was also apparent in his expressed interest in having the DDA move its offices into newly renovated space in city hall.]

Hieftje said the city is responsible for backing up the DDA. He compared the city’s role to that of a parent – the DDA is “like a child,” he said, whose debt the city must ultimately cover. He felt comfortable with the overall fund balances on the 16-16-17.5 scenario. Hieftje was also critical of the DDA’s conservative estimates of the growth of the TIF, citing the additional tax revenue the DDA would be capturing due to two specific projects – 601 S. Forest and Zaragon Place II.

Countering the mayor’s emphasis on TIF as a means by which the DDA could shore up its overall fund balances was Sandi Smith. At Wednesday’s board meeting she drew out a contrast between the overall fund balance, which she allowed was important to watch, and the parking fund itself. She’d made the same point a week before at the DDA’s operations committee meeting. The 16-16-17.5 scenario, she contended, made it impossible to use the public parking system as an economic development tool.

On any of the scenarios that begin with a 16% payment, the parking fund reserves would dip to zero in the first two years of the contract. In the city’s preferred 16-16-17.5 scenario, the parking fund reserves would stay below 8% from 2014-2018, with a low of 4.2% in 2015.

[Note: The DDA leases some private lots for public parking from owners other than the city; revenues from those lots are not included in the gross to which the percentage-of-gross would apply in the new contract. In spreadsheets compiled by The Chronicle using DDA data, this difference is reflected in two separate revenue totals – one for total revenues, and the other for revenues that don't include rent paid by the DDA to lease privately-owned parking lots.] [.pdf of flat-16 scenario] [.pdf of 16-16-17.5 scenario][.pdf of half-and-half scenario] [Google Spreadsheet]

Not a prominent part of the DDA board’s discussion on Wednesday was the idea – from the term sheet produced by the working group a year ago – that the city should be held harmless compared to the way it has withdrawn money from the public parking fund in the past. It has been a frequent point made by city council committee members in their discussions with their DDA counterparts over the last several weeks.

For the council’s part, of crucial interest are the first two years of the contract, because the city does its budget planning in two-year cycles – 2012 is the first year of a two-year cycle, and the budget for that fiscal year, which begins July 1, 2011, is now being prepared. Councilmembers point out that compared to previous practice, the roughly $2.5 million the city would receive in the first year (based on percentage-of-gross payment of 16%) reflects a difference of about $300,000 compared to what the city has historically received. That’s part of the reason they are keen to see that difference made up in the third year of the contract.

By The Chronicle’s calculation, for the nine years from 2012-2020, the city would receive about $26.5 million based on past habit and practice. That’s based on $2 million of rent plus an escalating payment into the city’s street repair fund, starting with $835,000 in the first year. That compares with $27.4 million the city would receive over the same period, based on the flat-16 scenario.

At Wednesday’s meeting, DDA board members did raise the question of the city’s need after the second year. Newcombe Clark asked on Wednesday why the city felt it would necessarily have a need for public parking dollars in 2020.

The week before, at the DDA operations committee meeting, Hieftje assured other DDA board members that he felt the recession could be over in four years time. Joan Lowenstein pointed out that this same argument, which he was using to assure the DDA board that their fund balances would be adequate, could be used to question whether the city would have a need for the parking dollars.

As Roger Hewitt expressed some urgency that he needed direction for the next meeting of the mutually beneficial committees, a straw poll was suggested. Hieftje was resistant to the idea, saying that Hewitt should glean his conclusions from the board’s conversation.

John Splitt, John Mouat, and Sandi Smith seemed to indicate they’d support a half-and-half scenario – 16% in the first five years and 17.5% in the remaining five years. Bob Guenzel said he felt that the flat-16 already reflected a lot of movement by the DDA from its previous position of 14-14-15, but wanted to give Hewitt some flexibility. Keith Orr also indicated he felt that in the spirit of mutual sacrifice, the DDA had come a long way to the flat-16 scenario. [Orr has for the last year consistently referred to the mutual sacrifice as opposed to the mutual benefit.]

Gary Boren –  who was running the meeting because Lowenstein, the board chair, was participating only by speaker phone – suggested that there was at least a clear consensus that board members were not prepared to meet the city’s request of a 16-16-17.5 scenario. With the exception of the mayor, all board members agreed that they were a part of that consensus.

City-DDA Parking Contract: Coda – Friday Morning MBC Meeting

Early Friday morning, April 8, the two mutually beneficial committees met again. It was intended as a replacement for the meeting the following Monday. Councilmembers Christopher Taylor, Margie Teall and Carsten Hohnke were greeted with the news that the DDA board members had reached a consensus that they were not prepared to meet the council’s request for the 16-16-17.5 scenario. So the Monday, April 11 meeting was put back on the calendar. [Later on the evening of April 11, the council is due to receive a presentation on the city administrator's proposed budget for fiscal year 2012, which starts July 1, 2011.]

Roger Hewitt stressed that he’d already gone back to his full board twice with the council’s request – in fully public settings – after first consulting with his full board publicly at a retreat. He urged the council committee members to do the same with their council colleagues. For her part, Teall said that the lower the percentage-of-gross revenues in the contract was, the more likely it was that the city would come back to the DDA and ask for additional money. Hohnke, who was participating by speaker phone, seemed piqued that Sandi Smith’s position was not supportive of the council committee’s position – she serves on both the DDA board and the city council. He asked pointedly asked what “councilmember Smith” thought.

Smith reiterated the same point that she’d made at the DDA board meeting, saying that the parking fund balance on the 16-16-17.5 scenario was too precarious, and that on her half-and-half compromise – 16% in the first five years and 17.5% in the second five years – the parking fund balance was able to eke out enough of a cushion that she felt more comfortable with.

At the next mutually beneficial committee meeting on Monday morning, April 11, the committees are expected to settle on a percentage-of-gross figure to present to the city council, which could see a vote as early as the council’s April 19 meeting.

DDA Lease Renewal

At its April 6 board meeting, the DDA’s only action item was an authorization to sign a new lease for its office space.

Under terms of its current lease, which expires on June 30, 2011, the DDA pays $26 per square foot for 3,189 square feet of office space located at 150 S. Fifth Ave. Under terms of the new lease, the DDA would pay $16.75 per square foot in the first year of the five-year deal, for a total of $53,415. After the first year, the amount would increase to $17.25, $18, $18.75 and $19.50 per square foot. There’s an option for an additional five-year term.

Mayor John Hieftje had announced at the April 4 city council meeting that he’d be inviting the DDA board to consider moving the DDA offices to newly renovated space in the city hall building. But at the Wednesday DDA board meeting, he indicated that he’d discussed the lease with DDA board member Roger Hewitt and understood that securing just a one-year renewal of the lease would mean agreeing to the less favorable terms of the current lease for that year.

In introducing the item to the board, Roger Hewitt noted that the DDA staff had reviewed alternative spaces, using the services of a broker, but had ultimately been able to negotiate a new lease with the current landlord, Weinmann Block LLC. Alluding to the mayor’s offer announced at the city council meeting on Monday, Hewitt noted that if there was a desire to move out of the space before five years is up, they had the right under the terms of the new lease to sublet the space.

Gary Boren chaired the meeting, because the board’s chair, Joan Lowenstein, was joining the meeting by conference call. And Boren held off on taking a vote on the matter until the mayor could return to the table – he’d left the meeting to take a phone call.

On his return, Hieftje indicated that he understood the circumstances and was willing to support the five-year lease at the DDA’s current location.

Outcome: Hieftje voted for the five-year lease extension, along with the rest of the board. Newcombe Clark recused himself.

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: Library Lot, Development Process

Ray Detter, reporting out from the Downtown Citizens Advisory Council, and John Splitt, reporting out from the board’s bricks and money committee, both noted the termination of the RFP process for the future use of the Library Lot, which the city council had voted on at its meeting two days earlier on April 4. [Chronicle coverage: "Column: Library Lot from Bottom to Top" and "Ann Arbor Council Focuses on Downtown"]

Detter said that “no tears were shed” when the CAC discussed the issue at their meeting the previous evening, which was attended by Ward 1 city councilmember Sabra Briere. [Briere also attended the DDA board meeting on Wednesday.] Detter said that the CAC supported the idea that the DDA would lead the planning process for the rectangle bounded by Ashley, Division, Liberty and William streets, which includes the Library Lot. That planning process was authorized by a city council resolution also passed at the council’s April 4 meeting.

The rectangle identified as the area of focus for the planning process reflected an amendment undertaken by the council at its Monday meeting. In reporting news of the unanimously-passed city council resolution, Roger Hewitt expressed encouragement that it was something to be referred to the DDA’s partnerships committee and that it had been an important point of the mutually beneficial committee negotiations. Mayor John Hieftje said it was a matter of prioritizing which parcels would get addressed first.

But board member Newcombe Clark questioned the narrowing of the focus – the original intent had been to take a comprehensive look at all of the city-owned parcels in the DDA district. He wanted to know why the specific area had been chosen.

Sandi Smith told him that it was about getting a council consensus. She noted that on the same evening, the city council had received a presentation on another downtown parcel, 415 W. Washington, which has its own process already. The sense of the city council, Smith said, was that it did not want to have the DDA start coming up with ideas for parcels that had processes that were already in place. She also said she felt that the rectangle of focus contained the greatest possibilities for development.

Clark wondered if there had been any discussion on “viability.” As an example, he said that given the zoning, size, geometry, cost of construction, demand, and rents in the area of the Fourth and Catherine lot, that might turn out to the most viable lot with respect to the goal of adding property to the tax base. He compared that with the Palio Lot, which is cramped, or the old Y Lot, where it might be difficult to reach an agreement on price – given that the city wants to recoup the money it paid for the property. He asked if any thought was given to the opportunities of all 16 of the city-owned downtown parcels, beyond the political consideration.

Clark said from what he understood of the situation, the only difference between this proposal and the 3-Site Plan is that it includes more sites. [The 3-Site Plan was a DDA effort in 2005 to develop city surface parking lots, including lots at First & William, First & Washington and the Kline’s Lot on the east side of Ashley Street, between William and Liberty. The concept underpinning the 3-Site Plan was that parking could be decoupled from development – build a parking structure at First & William and free up the other two sites for development without the constraint of building on-site parking. The 3-Site Plan was opposed by advocates for a greenway, and ultimately never received a vote by the city council.]

Smith said it is the DDA’s job to communicate the fact that none of this is happening in a vacuum and that whatever they undertake, they can’t ignore what is outside the rectangle. Clark wondered if he’d get his hand slapped if he began discussing in committee the forces that were operating outside the rectangle.

Hieftje assured him that he would not get his hand slapped for suggesting opportunities outside the box. He described the narrowing and prioritization of focus as the product of a legislative compromise. Clark quipped that he didn’t feel like he was doing anything if he didn’t get his hand slapped. Keith Orr noted that he felt like that the rectangle was the area that the DDA was focusing on anyway. Splitt said he appreciated the narrower focus.

Comm/Comm: DTE to Build New Substation

Paul Ganz, a DTE regional manager for an area that includes Ann Arbor, along with Michael Witkowski, a DTE engineer, presented the electric utility’s plans to invest $10 million in building a new substation in Ann Arbor, to meet increased demand for electricity. It will serve parts of downtown Ann Arbor. [Ganz last appeared before the DDA board on Sept. 1, 2010 to present them each with a commemorative cross-sectional slice of an old electrical cable that had been replaced as part of the construction of the new underground parking garage.]

Ganz described how a new substation needs to meet three criteria: (1) it must be in the center of the load; (2) land must be available; and (3) the land must be acquirable at a market price. He said that DTE had been working on it behind the scenes for a few years, and was now ready to roll out the plan.

Witkowski told the board that the area of focus for the new substation would be the Ann Arbor service center located at Huron River and Broadway. Currently, he said, the downtown Ann Arbor area is served by three substations – Argo, Burton and Hoover. He noted that the University of Michigan was always growing and that new projects like Zaragon Place II and 601 S. Forest meant that demand for electricity continued to grow.

Witkowski listed out a number of new projects that have been built or are expected to be built that would add around 20 MVA (megavolt amperes) of new load. The existing three substations have 4.8 kV circuits and are typically limited to 4 MVA of load. Other substations outside the central area, Wikkowski said, have 13.2 kV circuits, which can handle around 9 MVA of load. The idea is to add another 13.2 kV substation – the Buckler substation, which will be located at the Ann Arbor service center just north of the Huron River, and south of Canal Street, near the Broadway bridge.

DTE began internal planning in 2008, plans to break ground in the fall of 2011, and hopes to have the new substation up and energized by the spring of 2013. It will come before the Ann Arbor city planning commission sometime in May 2011. In 2013, he said, 601 S. Forest will come online, and DTE wants to be ready for that. The new substation will give DTE more flexibility, he said, and will allow the jumping of circuits during outages, so that coverage can continue to be provided.

In response to a question from Sandi Smith, Witkowski explained that a developer may have to share part of the cost of upgrades of electrical service. But Zaragon II, for example, did not result in a payment by the developer. The project was just under the amount of additional load that would have required a developer share.

Comm/Comm: Underground Parking Garage Construction Update

John Splitt reported on the recent incidents at the construction site of the underground parking site on South Fifth Avenue. [One was a breach in the earth retention system and the other was a sinkhole on the opposite side of the site. See Chronicle coverage: Column:Library Lot from Bottom to Top]. Splitt said that the construction management company, The Christman Company, had taken action and determined that there was no immediate danger, and the site is structurally sound.

Splitt said that the designer of the earth retention system, Soil and Materials Engineers Inc., and the installer of the system, Hardman Construction, had both inspected the structure. The safety fence surrounding the site has been moved back an extra 10 feet, Splitt reported, to give an additional measure of safety for pedestrians. Ground-penetrating radar had been used to determine if any other sinkholes exist.

The Christman Company will be using swing stages – similar to what window washers use – to allow SME Inc. to get up close and visually inspect each structural column. The investigation will continue at least another week, Splitt said. When the investigation is complete, Christman will allow its workers back in the main hole – meanwhile, work has been continuing on the east dog-leg.

Comm/Comm: Commuter Challenge

Director of the getDowntown program, Nancy Shore, addressed the board to alert them to this year’s commuter challenge, which takes place every May – it’s a way to encourage employees of downtown businesses to think about how they get to work.

She gave the board several reasons why she thinks the commuter challenge is important: (1) location – downtown is an important part of Ann Arbor; (2) jobs – the jobs of the future will be held by people who want to work in a downtown area where they can use public transportation to get to their work; (3) money – over 100 prizes are donated by downtown employers, plus gas prices are high now; (4) fun – there are a lot of different events associated with the challenge.

Comm/Comm: Liberty Square

Reporting out from the Downtown Citizens Advisory Council, Ray Detter said that every residential unit of Courthouse Square, located at Huron and Fourth, had now been inspected and that there were some signs of improvement in the performance of the management company.

Comm/Comm: Field Guide Downtown

As part of his Downtown Citizens Advisory Council report, Ray Detter said that a committee had been established to update the printed booklet “The Handbook: A Field Guide to Living in Downtown Ann Arbor.” He said that seven years ago the DDA had paid for the production of the booklets, but this time around, they would not be asking the DDA for any money. The updated version will become a part of the DDA’s website.

Present: Gary Boren, Newcombe Clark, Bob Guenzel, Roger Hewitt, John Hieftje, John Splitt, Sandi Smith, Keith Orr, Joan Lowenstein (by speaker phone), John Mouat.

Absent: Leah Gunn, Russ Collins

Next board meeting: Noon on Wednesday, May 4, 2011 at the DDA offices, 150 S. Fifth Ave., Suite 301. [confirm date] It’s anticipated that the board meeting will be rescheduled for a different day the same week.

From left to right: DDA board members Gary Boren, Roger Hewitt, John Hieftje, and Keith Orr. (Photos by the writer.)

In their one business item, the board approved an amendment to the contract with Village Green to develop a 244-space parking deck as the first two stories of a 9-story, 99-foot-tall building, City Apartments – a 156-unit residential planned unit development (PUD) at First and Washington.

Once the parking deck portion of the building is completed and issued a certificate of occupancy, the city of Ann Arbor has agreed to issue $9 million worth of bonds to purchase the deck, and the DDA has agreed to make the payments on those bonds. The amendment to the contract provides DDA consultants access to the site during construction activities to check that construction methods conform to standards that will ensure a 75-year life for the deck.

On the city council’s agenda for Monday, Feb. 7, 2011 is their own approval of the same amendment to the Village Green contract. The contract amendment is part of a timeline put in place on Aug. 5, 2010, when the city council approved an extension of Village Green’s option to purchase the First and Washington city-owned parcel for $3 million. That timeline calls for Village Green to purchase the land by June 1, 2011.

The $3 million proceeds from the hoped-for Village Green deal were part of the financing plan for the city’s new municipal center, and would have no direct impact on the current general fund’s $2.4 million deficit that’s forecast for the FY 2012 budget. However, during deliberations some DDA board members accepted the point made by their colleague Newcombe Clark – that there are likely indirect connections between the completion of the Village Green transaction and the city’s overall budget picture, at least in terms of cash flow.

In reports and communications entertained by the board, highlights included: (1) a continued interest on the part of the University of Michigan to absorb a segment of Monroe Street into the UM Law School campus; (2) complaints from the property manager at 416 Huron St. about disrepair of an alley and adjoining sidewalks in the area, as well as a lack of maintenance on property owned by the railroad; and (3) an elaboration by the mayor on some remarks about Borders that he’d made and that had been reported in the media.

Village Green

The board considered a resolution to approve an amendment to the contract between Village Green, the DDA and the city of Ann Arbor, under which terms Village Green will build a 244-space parking deck as the first two stories of a 9-story, 99-foot-tall building with 156 dwelling units: City Apartments.  The amendment to the contract, among other items, provides DDA consultants access to the site during construction activities to ensure that construction methods conform to standards that will ensure a 75-year life for the deck.

Village Green: Background

The parking deck under City Apartments would be owned by the city of Ann Arbor and managed by the DDA. Here’s how that would work: Once the parking deck portion of the building is completed and issued a certificate of occupancy, the city of Ann Arbor has agreed to issue $9 million worth of bonds to purchase the deck, and the DDA has agreed to make the payments on those bonds.

The city council authorized the issuance of the bonds at its Oct. 4, 2010 meeting, but the city will not actually issue them until construction of the deck is complete and a certificate of occupancy is issued for it. [After the DDA's bricks and money committee meeting on Jan. 26, 2011, Susan Pollay, executive director of the DDA, clarified for The Chronicle that the certificate of occupancy refers just to the parking deck – it will be completed before the apartments are ready for occupants to move in. Issuing the certificate of occupancy will be contingent on the parking area being safe for motorists to park their cars while construction continues on the upper floors.]

The timing of the bond issuance was part of the council’s deliberations at its Oct. 4, 2010 meeting:

Stephen Kunselman (Ward 3) led off deliberations by expressing his concern about what happens to the bond if the deck does not get built. The city’s CFO, Tom Crawford, explained that the payment is not owed until there is a certificate of occupancy issued for the City Apartments project, and thus the bonds would not be issued until the project was substantively complete. Crawford allowed for some flexibility in that respect, if the city saw that it could get a better interest rate by issuing the bonds a few months before the project is actually complete.

Based on the timeline approved by the council in connection with the extension of the purchase option, Crawford said, the project is supposed to be built by around May 2012.

By way of background, the City Apartments planned unit development (PUD) won city council approval on Dec. 1, 2008. Village Green had an option to purchase the land parcel at First and Washington, where City Apartments is planned, which was good through May 31, 2009, but was extended by the city council at its May 18, 2009 meeting through Dec. 3, 2009 – with the possibility of two three-month extensions that could be authorized by the city administrator. The reason given for the extension was to allow time for Village Green to arrange financing. Both additional extensions were granted by city administrator Roger Fraser, which gave Village Green a purchase option through June 1, 2010 2011.

But at its June 21, 2010 meeting, the city council approved an additional brief extension through Aug. 5, 2010 in order to allow time to establish a specific set of milestones that need to be completed. Then, at its Aug. 5, 2010 meeting, the council approved another extension to the purchase option through June 1, 2011. A detailed set of milestones was included as part of the resolution, which were intended to increase the probability that a purchase took place before the option ran out.

After the city council extended Village Green’s option to purchase the land, DDA board member Newcombe Clark had noted that the milestones that had been developed generally left little time for review by the DDA. From The Chronicle’s Sept. 1, 2010 DDA board meeting report:

Clark picked up on the fact that the turnaround time for DDA activities and involvement were all relatively short – in many cases a day. He suggested that the DDA “politely ask” that it be kept in the loop on those matters.

The amendment to the Village Green contract that was before the DDA board on Wednesday was part of the timeline of milestones. So where on the set of milestones did the amendment fall? It called for the DDA board to vote on the amendment on Nov. 3, 2010 – around three months earlier. The same amendment is on the city council’s agenda for Feb. 7, 2011.

By way of additional background, the $3 million transaction for the land parcel at First and Washington is part of the city’s financing plan for the new municipal center that is very close to completing construction. The city’s contingency strategy for dealing with the possibility that the deal doesn’t go through was discussed at a budget workshop last year:

City Budget: Debt

Sandi Smith (Ward 1) was puzzled by a line in the budget summary that reads “Loan payment for First and Washington – $150,000,” noting that she did not think the city owed any money on the property.

[City administrator Roger] Fraser allowed that Smith was correct – the city does not owe money on the property. However, the city is expecting $3 million from the sale of the property in connection with Village Green’s City Apartments project, which has site plan approval from the city, but has not moved forward yet due to lack of financing.

Fraser described the $150,000 as a contingency of sorts, borrowing some money to “tide us over” if the $3 million from the sale of that First & Washington property does not come through sometime soon. The option to purchase agreement has been extended once by city council through December 2009, with a provision that the city administrator can authorize two 3-month extensions, which he has done. When the second extension runs out at the end of June 2010, the council will need to act if there is to be an additional extension.

At the council’s Monday budget meeting, the city’s CFO, Tom Crawford, indicated that he’d had recent conversations with Village Green and that they were feeling positive.

Mayor John Hieftje asked Crawford to confirm that the city was within its legal limit for debt load – the city cannot have debt in excess of 10% of the total state equalized value of property. Crawford indicated that the city was at 2.6%, and he thus felt comfortable with the city’s debt level. Crawford also cited other cities’ debt load – Grand Rapids, Lansing and Kalamazoo – as comparable. Ann Arbor’s bond rating, said Crawford, was in the top 20 in the state.

This past week, Crawford confirmed by email for The Chronicle that no money had been borrowed as a part of that contingency strategy and that if any were to be borrowed, it would need to receive approval from the city council.

Village Green: Board Deliberations

Roger Hewitt reminded the board of the project’s background, highlighting the fact that the DDA would be purchasing the deck based on a fixed amount per parking space. He noted that the DDA board had already approved a contract and what was before the board was an amendment. The language of the amendment, Hewitt said, was meant to ensure that the 75-year life of the parking deck is reflected in the construction methods. He said there are a number of engineering and construction concerns that are addressed in the contract amendment, helping ensure that the DDA is “getting what we are paying for.”

Hewitt told the board that the language had been reviewed by Carl Walker Inc., the DDA’s engineering consultant for the parking structures it manages for the city, as well as by Jerry Lax, the DDA’s legal counsel. He declared his confidence that the DDA would be getting a deck with a 75-year life.

Susan Pollay, executive director of the DDA, stressed that Village Green’s interest in quality construction is aligned with the DDA’s interest. Village Green’s intent, she said, is not to sell the building but to continue to own and operate the apartment building. So constructing a deck of sufficient quality that will last 75 years is important to Village Green, she said, because the parking deck is effectively the basement of the apartment complex they will own and operate.

[At the DDA's bricks and money committee meeting the week before, Pollay had reported the possibility of increasing the building height by a few feet, to avoid the need to dewater the site during construction of the foundations. She said that Kevin McDonald, in the city attorney's office, was looking at the issue to determine whether that change to the building plan could be made at the administrative level, or if it would need to return to the city council for approval.]

Before the meeting started, Newcombe Clark had said he was not trying to be negative about the Village Green amendment. He did, however, want to draw out a number of points.

In deliberations, he reviewed with Pollay that the DDA would be managing the deck and that the city would own it. Hewitt further clarified that the DDA would manage the City Apartments deck in the same way it manages any other city-owned parking structure. Pollay offered Liberty Square as an example of how the arrangement would be handled – the city owns the deck and the rest of the structure is owned privately. Hewitt noted that the private space and public space are flip-flopped in Liberty Square, as compared to City Apartments – in Liberty Square, the private component is at the bottom of the building.

Clark stated that he was happy the project was now moving forward. He had concerns, however, about how the milestone timeline would be kept. He wondered what the impact would be of not keeping to the schedule and how that relates to the DDA’s 10-year plan. He noted that they were nine weeks behind schedule. [Based on the original Nov. 3, 2010 schedule for the vote, Clark was understating the delay by a few weeks. Queried by email, Clark joked to The Chronicle that this was perhaps the first time he'd ever been accused of understating something.]

Clark said he understood that hard work was being done to make up the time they were behind, but he worried that the bond issuance was scheduled to take place 12 days from then. He said he didn’t think that the DDA was ready for bonds to be issued. Pollay clarified that it’s the city that will be issuing the bonds, and that will not take place until the parking deck’s certificate of occupancy is issued. That’s when it becomes real, she said. And the city council has already authorized issuance of the bonds, she explained.

Clark moved on to the timeline item indicating that the construction documents are supposed to be 100% complete within three weeks. Pollay indicated that this part had been modified – construction specifications would be provided in early March and they would be able to approve any changes through June. Pollay indicated that Village Green is hoping to begin construction in July.

Clark then noted that the closing on the $3 million deal comes very close to the point when the city needs to finalize its annual budget. He expressed concern about the impact of a deal not going through on the city’s current budget. He allowed that the $3 million of proceeds from Village Green’s purchase of the parcel is slated to go into the fund that is paying for the new municipal center, which is nearing completion. But he noted that “money is money,” saying that a $3 million hole somewhere has to be plugged with something, which would leave a hole somewhere else. [The city's eventual strategy, if it becomes necessary due to the Village Green deal not going through, as reviewed in the background above, is to borrow the money in some form.]

Clark reiterated that he supported the project and said he hoped that Village Green would build the project. But he returned to his concern about the timeline not being met. He said the DDA kept moving things around in its 10-year financial plan, so he felt like he’d have a better idea of what the DDA’s 10-year plan will actually be in a month or two from now.

[If the Village Green project does not go through, it means that the DDA would be relieved of a $9 million obligation to make bond payments for the deck purchase. So Clark appeared to be putting the discussion in the general context of the still-unresolved parking contract negotiations between the city and the DDA. The city's budget planning currently assumes a $2 million payment from the DDA to the city that is not part of the current parking contract. As the negotiations have reached a critical point, some DDA board members have begun to express concerns about the DDA's ability to satisfy the city's desire to supplement its general fund. Some board members are also concerned about the DDA's own ability to complete specific projects they view as part of the DDA's mission.]

With respect to the Village Green timeline, Hewitt characterized it as the “city’s negotiating timeline, not the DDA’s timeline.” Any timing issue, Hewitt told Clark, is the city’s issue, not the DDA’s. Clark wondered if it weren’t the same issue. Hewitt ventured that the discussion seemed to be getting into a “larger realm,” and Clark replied that this was exactly his concern – that the larger issues were getting mixed into the discussion due to the compressed timeline.

Hewitt came back to the point that the DDA does not need to make any payments until the parking deck has a certificate of occupancy. That’s several years away, he said. Hewitt said that construction would typically be two years for something like this. As far as the larger issue of the city’s budget, he said, he didn’t feel it was their place to comment.

Russ Collins provided a way out of the conversation between Clark and Hewitt by telling Clark: “Point noted.” But he continued by saying, “The issues you’re raising don’t affect the material facts of this resolution.” It could affect the city’s cash flow, Collins allowed, which could in turn affect indirectly what the DDA was talking about.

Bob Guenzel sought clarification that it was a cash-flow issue and not a budget issue for the city. Clark indicated that it was a one-time payment for the sale of an asset. Guenzel supposed that the city had recorded the transaction as a receivable, but Clark said there was no actual purchase agreement yet. That is, Village Green has not yet executed their option. If there was already an agreement to purchase or Village Green had already purchased the land, Clark said he’d feel more comfortable about possibly needing to change the DDA’s budget, given that the city already has the $3 million budgeted.

Guenzel wrapped up the deliberations by saying, “As Russ said, it’s a point.”

Outcome: The board voted unanimously to approve the Village Green contract amendment. The city council will vote on the same amendment at its Feb. 7, 2011 meeting.

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 includes two opportunities for public commentary – one near the start of the meeting and the other at its conclusion.

Comm/Comm: Bricks

John Splitt reported out from the bricks part of the bricks and money committee, saying that concrete continued to be poured for the underground parking garage under construction on the city-owned Library Lot on South Fifth Avenue. A total of 3,000 cubic yards of concrete had been poured this month, Splitt reported. The largest mass pour of the project, he said, is due to take place in late February and will involve 5,000 cubic yards. The speed ramp on the east side of the garage is 80% complete, he reported, which will ease the construction workers access to the bottom of the construction pit.

The Fifth and Division streetscape improvement project has been shut down for the winter, but wiring of streetlights in connection with that project does continue, Splitt said.

He also announced that immediately following the meeting there would be a tour of potential different space for the DDA offices for anyone who was interested – next door at the City Center building, at the southwest corner of Huron and Fifth.

Comm/Comm: Money

Roger Hewitt reported on the second quarter financial picture for the period ending Dec. 31, 2010 or midway through the fiscal year. Highlights of Hewitt’s remarks included the fact that the DDA had received from the city nearly all of the taxes it captures through the TIF (tax increment financing) district, and those amounts are within 2% of what had been budgeted.

Hewitt also noted that reduced operational costs in the parking fund reflected the efforts of Republic Parking manager Mark Lyons to reduce costs. A drop in parking revenue compared to the budgeted amount, said Hewitt, reflected a delay from July to September in the implementation of a parking fee increase.

Hewitt also pointed out that the transfer into the parking maintenance fund will be less, because the DDA had requested of its parking structure engineering consultant, Carl Walker Inc., that time-sensitive priorities be identified. No critical maintenance would be delayed, he said. Only those activities that were more appearance-related – like painting, for example – would be delayed. Deck-coating or resurfacing, he said, would not be put off.

With respect to the quarterly parking figures, Hewitt concluded that usage continued to appear stable.

Comm/Comm: Partnerships

The partnerships committee meeting report was given by Russ Collins. Part of his report consisted of a report on the status of the DDA’s energy-saving grant program, a two-phase program that allows downtown businesses to conduct an energy audit, paid by the DDA, and to install improvements based on the audit, the cost of which is matched up to a $20,000 cap.

[At the partnerships meeting from the previous month, which The Chronicle attended, DDA executive director Susan Pollay stressed that the DDA had not spent more than was in the budget for the energy grant program – a conclusion that could have erroneously been reached by looking at the total that the DDA would spend, if every participant in the program installed improvements that resulted in the maximum $20,000 match, and if the DDA decided to match the expenditure. At the partnerships meeting, Pollay stressed that it was a "first in" program.]

Collins also reported that the PACE program, which the state legislature passed late last year, could be complementary to the DDA’s energy-saving grant program.

Collins also indicated that the DDA’s mutually beneficial committee had reported to the partnerships committee how the city council had reacted to the outcome of the DDA board retreat – when there’d been a board consensus that the percentage-of-gross figure the board wanted to consider as payment to the city was a few points lower than the city was hoping for. [Chronicle coverage: "Parking Money for City Budget Still Unclear"]

Collins also reported that there’d been discussion of the new role for the DDA in redeveloping downtown city-owned surface parking lots. Wendy Rampson, head of planning for the city of Ann Arbor, will be attending the next partnerships committee meeting – on Wednesday, Feb. 9 at 9 a.m. – to discuss how the new A2D2 design guidelines will be integrated into the city’s planning-related code. City staff has been asked to bring a map showing the specific parcels to be redeveloped. [At the council's Jan. 18, 2011 meeting, councilmembers deliberated on a resolution that would have articulated this DDA role in redevelopment of the surface lots. Some councilmembers mentioned the lack of a map identifying the parcels as one barrier to their adoption of the resolution – which was ultimately postponed. Chronicle coverage: "DDA-City Deal Stalls" and "Ann Arbor Hotel First to Get Design Review?"]

Comm/Comm: Economic Development and Communications – SPARK

Joan Lowenstein gave the report from the economic development and communications committee. At their meeting, Lowenstein reported, they’d reviewed existing communications efforts about the downtown and the DDA. That had established a context, she said, for exploring different kinds of communication that the DDA could pursue in partnership with others, or in identifying gaps that the DDA could fill.

She reported that Newcombe Clark had walked the committee through a plan from his current course of study at the UM business school, that had provided a good jumping off point for the discussion. A goal that the committee identified, said Lowenstein, is to focus communication on the many positive assets that downtown has to offer. So the DDA would need to identify its role in that communication. That could range from communicating about downtown assets to residents, visitors and employees, to communicating about the DDA itself.

Lowenstein said that Jennifer Owens, vice president of business development for Ann Arbor SPARK, would attend the next meeting of the committee on Feb. 23, 2011 to explore how SPARK and the DDA could align their efforts. [Committee meetings are open to the public and posted online on the DDA's calendar.]

John Mouat wondered what the impact on SPARK would be with key personnel departing for Lansing. He was referring Gov. Rick Snyder’s recent appointment of SPARK’s CEO Michael Finney and SPARK’s director of marketing and communications Elizabeth Parkinson to positions in the Michigan Economic Development Corp. (MEDC). Amy Cell SPARK’s vice president for talent enhancement, is also joining the MEDC.

Lowenstein said she felt that the SPARK positions would be replaced, and that it reflected greater interest in collaboration between the MEDC and SPARK, with perhaps some kind of “satellite MEDCs” being established. If anything, she concluded, SPARK’s role will increase rather than decrease. Bob Guenzel, who serves on SPARK’s board of directors, said that his understanding was that SPARK would be moving forward as before. Mayor John Hieftje, who also serves on SPARK’s board of directors, said there is an evolving discussion of the relationship between MEDC and various economic development groups like SPARK, and it was somewhat “in flux.” He said he had a lot of faith in Finney.

Comm/Comm: Transportation

Reporting out from the transportation committee was John Mouat, who said they’d spent their last meeting selecting items from the transportation demand management plan for discussion: (1) providing transportation and evening parking information for evening employees; (2) adding moped/motorcycle parking downtown; and (3) thinking of parking spaces as serving a variety of different uses, from electric vehicle spaces to taxi service.

Mouat also called the board’s attention to the committee’s work as it relates to the Ann Arbor Transportation Authority: the AATA’s 30-year transportation master planning effort; the Plymouth-State connector study; the possibility of making the downtown Blake Transit Center (BTC) on Fourth Avenue more of a multi-modal facility; and encouraging the use of the BTC as a hub for MegaBus, University of Michigan blue buses, Michigan Flyer, and Greyhound.

On a lighthearted note, Mouat reported on a conversation that an alternative transportation option, given the snowfall, might be dog sleds, which could, according to Susan Pollay, result in a need for barking structures. Collins ventured that the whole notion was a howling success.

Comm/Comm: Alley on the Edge

Bill Gross, property manager for 416 W. Huron, addressed the board during public commentary about a range of concerns related to the property – which sits just west of the railroad bridge and just east of the new HAWK traffic signal, across the street from the new YMCA building.

Huron Street runs east and west. This is the western edge of the DDA tax capture district. The view here is to the northeast, just west of the railroad tracks. From left to right: Ann Arbor School of Yoga, 416 W. Huron property, Delonis Center.

Some Chronicle readers may recognize Gross and the Huron Street property from the Art in the Barn holiday art show that Gross organizes in the yellow barn, located behind the painted gray brick building that fronts Huron Street.

Gross advised the board that he took care of the the property along the railroad tracks, which is actually the railroad’s responsibility – picking up trash and mowing the grass, he said. If he didn’t do it, nobody would, he told them. Referring to the walk-arounds in the downtown area that the board sometimes did, he asked them to tell him when they were coming – he’d make sure not to mow, so that they could see what it would look like if he didn’t take care of the property.

Gross also pointed out that the sidewalks along the street are in disrepair – they are tilted and exacerbate the standing water problems that are prevalent in the public alley between the 416 W. Huron building and the Ann Arbor School of Yoga building located just to the west.

Gross also raised concerns about behavior issues with people he said were residents of the Delonis Center homeless shelter, located slightly up the hill from the 416 W. Huron property, past the railroad bridge. He described an incident when someone was standing on the railroad track yelling and the response he received from the police when he called was that he was asked to keep an eye on that person.

[In a followup phone interview after the board meeting, Susan Pollay told The Chronicle that the alley was one of those that the DDA had not yet repaired – they'd done an inventory of alleys in the downtown area and had undertaken improvements in many of them to ensure that stormwater drains were reconstructed and that the downspouts from buildings fed properly into the stormwater drain system. The sidewalks, she said, had been slated to be repaired as part of Huron Street improvements that had been planned by the DDA.

Those improvements had originally been conceived after the "decade of parking structure repair" in the 1990s, when the DDA board had identified three key corridors as a next priority to focus on: Huron Street, Fifth Avenue and Division Street. Because Huron Street is a state trunk line, which requires coordination with the Michigan Dept. of Transportation (MDOT), it was treated separately, she said. The Fifth and Division streetscape improvement project – much of which was done this past summer, and which will be completed next spring – is the result of that strategy.

Where do the street and alley improvements stand as DDA projects? Huron Street improvements are still on the list of possible projects for the DDA to undertake. At the DDA's most recent retreat, board member Newcombe Clark ensured that Huron Street was one of the items board members could vote for during their dot-voting exercise. As part of that exercise, finishing the alley improvements received two board members' votes as short-term priorities.]

When board members began a back-and-forth with Gross, board chair Joan Lowenstein noted that it was not the board’s practice to engage in that kind of discussion, but she felt that some leeway was warranted.

Mayor John Hieftje suggested that Gross take up the behavior issues with the Delonis Center staff. Gross said he’d gotten only lip service from the shelter, but also that it’s difficult for shelter staff to see down the hill past the railroad bridge to the property he manages.

Russ Collins suggested that it was the DDA staff – not the board – that would be in a better position to address Gross’ concerns.

Clark then stated that he was biased because his mother owns the Ann Arbor School of Yoga, immediately adjacent to the 416 W. Huron property – the two buildings share the alley in question. But he went on to point out that the behavioral issues are difficult to address without officers assigned to a particular beat – Clark has often advocated for exploring the possibility of bringing back police beat patrols to the downtown area. He described how the alley flooding and the sidewalk improvements were part of projects that the DDA had planned for its district. “It’s still our district,” he pointed out. Board approval was necessary in order to finish those projects, he observed.

And that is the reason Gross was there before the board, Clark said: Gross had come to him and Clark had told him to come address the board. “The buck has stopped with us at this point. … We can choose in our priorities whether or not we want to address this.”

Comm/Comm: Downtown Citizens Advisory Council – Monroe Street

Ray Detter reported out from the previous evening’s downtown citizens advisory council meeting that Richard DeVarti, owner of Dominick’s on Monroe Street, had attended the meeting along with his brother Dave, a former DDA board member. They were again concerned about the possibility of the city allowing the University of Michigan to absorb a section of Monroe Street into the law school campus. Detter said the CAC saw no benefit to the city in allowing that move, citing the loss of street parking, not just for Dominick’s but also for the multi-family residential units in the area. Detter said it would be a disaster for Dominick’s business. [Previous Chronicle coverage: "UM Pitches Plan to Close Monroe Street" and "Expansion of Campus onto Monroe Street?"]

Comm/Comm: Streetlight Outage Reporting, Greenway

Ray Fullerton addressed the board on the subject of reporting streetlight outages. He noted that it is important for residents to report them, because the city itself only does an annual inspection and it could take as long as a year for a streetlight to get replaced.

Fullerton also noted that in connection with the current Parks & Recreation Open Space (PROS) plan adoption process, it had been reported that the DDA felt the possibilities for extending a greenway southward towards the UM athletic campus were not as great as in the other direction. He said that there was definitely the possibility of pathways to the south.

Comm/Comm: Downtown Marketing Task Force

Mayor John Hieftje said the downtown marketing task force, which had been meeting for a number of years, is currently on hiatus. The task force meetings are an opportunity to bring together members of the downtown business associations, he said, along with councilmembers. He noted that Margie Teall (Ward 4), Tony Derezinski (Ward 2) as well as Carsten Hohnke (Ward 5) had attended the task force meetings regularly along with him, the mayor – Hieftje pointed out that the name of the task force is actually the Mayor’s Downtown Marketing Task Force and has been around for a very long time.

They’d been thinking about how to recast the task force, possibly reducing the frequency of meetings to a quarterly basis. He made a pitch to DDA board members to attend the task force meetings, saying that there are interesting conversations that take place between people who are actually doing things. Hieftje said that while Susan Pollay, the DDA’s executive director, was nearly always present at the task force meetings, he felt the task force’s effectiveness was limited due to the lack of attendance from board members. It could be an enlightening conversation, he concluded.

Comm/Comm: Comments on Borders Clarified

Mayor John Hieftje announced that he had been quoted in the media a couple of weeks ago when he’d been asked by a couple of different news outlets about Borders Group, the Ann Arbor-based bookstore chain. Borders, he continued, was a concern due to reports of a possible bankruptcy and what might happen in the wake of that. [The mayor was quoted in a Jan. 9, 2011 Crain's Detroit Business article by Daniel Duggan as follows: "If the company were to fold altogether, the biggest blow to the city would be the big hole in the downtown," Hieftje said. "While it would be disappointing, the downtown market has been hot and I wouldn't be surprised to see that retail space snapped up."]

After he was quoted, the mayor reported, he had an appointment with the person who handled Borders’ real estate, and they had both acknowledged that it was unlikely that Borders would close its stores. If Borders did close stores, then the downtown Ann Arbor store would be one of the last to close, Hieftje ventured. Hieftje continued by saying that the person he’d talked with was opening up channels to explore ways to fill the retail space if the need came up.

One of the principle concerns that had been expressed, Hieftje said, was a perceived lack of parking. What they’d heard from other retailers is that it’s a great spot, but they wondered if there was sufficient parking. Hieftje went on to say that he’d pointed out that the new underground parking garage under construction on South Fifth Avenue would provide additional spaces, and that the person he’d spoken with was happy to hear that. The last thing he’d like to see, concluded Hieftje, is for Borders to move.

Present: Gary Boren, Newcombe Clark, Bob Guenzel, Roger Hewitt, John Hieftje, John Splitt, Russ Collins, Keith Orr, Joan Lowenstein, John Mouat

Absent: Sandi Smith, Leah Gunn

Next board meeting: Noon on Wednesday, March 2, 2011 at the DDA offices, 150 S. Fifth Ave., Suite 301. [confirm date]