Just before their Thursday post-election meeting on Nov. 4, Ann Arbor city councilmembers heard a work session presentation from the Ann Arbor Downtown Development Authority. The hour-long work session covered the DDA’s proposal for a process to develop city-owned downtown surface parking lots. It’s a process in which the DDA would play a leading role. The DDA’s proposal has evolved in the course of ongoing discussions between the city and the DDA since early summer.
The DDA will make another work session presentation before the city council’s meeting on Monday, Nov. 15 – this one about the parking contract under which the DDA uses city-owned assets like decks, lots, and streets to manage the city’s parking system. The current $10-million contract runs through 2015. But the DDA has already paid the city $12 million on that contract, and the city wants an even better deal. Although it won’t be part of the parking contract language, the DDA sees the ability to take more leadership in the development of city-owned surface lots as part of the benefit it would get from a renegotiated parking deal with the city.
For the city, the parking deal is crucial for its budget planning for FY 2012. Already at its mid-October meeting, some city councilmembers began to raise questions about projections for FY 2012. The council must approve the FY 2012 budget this coming May. [The city's fiscal year begins on July 1 each year – the current budget year is FY 2011.] This past May, the city’s projected budget deficit for FY 2012 was $5 million, which already assumed an additional $2 million payment from the DDA.
There are likely enough votes on the 12-member DDA board to approve the new deal. And based on the most recent city-DDA discussions, the new arrangement is likely to take the form of a percentage-of-gross arrangement – 17.5% of gross parking revenues would be paid to the city.
But here’s a different way to describe the arrangement: The city of Ann Arbor would impose a 17.5% parking tax on downtown motorists. That is, downtown parking patrons will pay exactly 17.5% more to park than is actually required for the public parking system to sustain itself, in order that general fund revenues for the city of Ann Arbor can be supplemented.
And to derive support for the city of Ann Arbor general fund from the parking system, the DDA’s parking fund will operate at a greater deficit for the next few years than it would if the city honored the current parking contract. During that period, the DDA’s tax increment finance revenues – the amount it captures from other taxing authorities besides the city of Ann Arbor – will need to remain uninvested on behalf of the broader community. The unspent TIF fund balance will be able to offset the parking fund deficit, leaving the DDA still solvent, but barely so.
Two important questions have been ignored in the course of the city-DDA negotiations: (1) Is it appropriate to use non-city TIF funds – from the county, Ann Arbor District Library, Washtenaw Community College and Ann Arbor Transportation Authority – to offset the parking fund deficit caused by striking a new parking deal with the city? and (2) If the city’s public parking system generates more revenue than is required to operate and maintain it, what investment of that excess revenue would yield the greatest and best return for the community?
Background: Ancient History
At the start of the parking contract negotiations in the early summer, a term sheet with three key parking-contract-related items was intended to guide the negotiations between the respective “mutually beneficial” committees from the DDA and the city council: (1) a role for the DDA in enforcement of parking regulations; (2) a role for the DDA in enforcement of other non-parking city ordinances; and (3) increased services in the downtown area. But in late September 2010, it was apparent that these points would no longer be a part of the discussion.
The term sheet had been produced in late April 2010 by a “working group” of councilmembers and DDA board members that met out of public view and outside the committee structure established in the summer of 2009 by the DDA board and the city council to re-negotiate the contract. But the city council had first broached the subject of a new parking deal with a January 2009 resolution calling on the DDA to begin conversations about a revision to the contract. Why then? Sandi Smith (Ward 1), who serves on both the city council and the DDA board, had noticed that for the two-year budget plan covering 2010 and 2011, the city’s financial staff had penciled in $2 million in FY 2011 as a payment from the DDA. And Smith understood better perhaps than most of her council colleagues that the payment was not required under the city-DDA parking contract.
The 2005-2015 agreement specified a $1 million “rent” payment for each of 10 years, with the stipulation that the city could request up to $2 million in any given year, as long as the total did not exceed $10 million for the 10-year contract period. The city requested $2 million in each of the first five years, which meant that the $2 million penciled in by the city for FY 2011 was not required under the contract. Over heated objections by some members of the DDA board, the DDA approved the additional payment in May 2010, which was added to the city’s FY 2011 general fund budget. The extra $2 million was apparently analyzed by the board and the city’s legal counsel as a unilateral revision to the current contract. [Chronicle coverage: "DDA Oks $2 Million over Strong Dissent." Additional Chronicle coverage on this issue: "DDA-City Development Ideas" and "DDA: Dogged Enough for Development?"]
Background: More Recent History
If the three main points on the term sheet related to parking contract language were, by the end of September 2010, no longer part of the active discussions between the city and the DDA, what was the focus of their October conversations?
Recent History – Oct. 11 and Oct. 25
At the Oct. 11 and Oct. 25 meetings of the two mutually beneficial committees, the focus turned to revision of the existing parking contract, as opposed to introducing fundamentally different roles and responsibilities for the DDA. DDA board member Russ Collins acknowledged that really what was left to do was to clean up the language of the parking contract so that it reflects what is actually happening. He expressed some level of frustration, saying, “I don’t know how hard to beat this.” He characterized it as details that the city and DDA staff – Sue McCormick, public services area administrator for the city, and Susan Pollay, executive director of the DDA – would need to work through. As for the committee members, he wondered how much they really wanted to “flog” it.
One key change in the conversation that took place at the October meetings was a shift from $2 million to $3 million to characterize the amount of the money to be transferred annually from the DDA to the city. This was not a proposed increase, but rather a way to label the total parking-system-related fund transfer that the DDA currently makes to the city. In addition to the flat $2 million parking payment the DDA has made in each of the last six years, the $3 million figure includes an estimated $835,930 payment to the street repair fund, plus around $170,000 from the Fifth & William and 415 W. Washington lots. The city council asked the DDA to funnel revenue from those two lots to the city over the last year – requests to which the DDA agreed.
Grouping all the separate parking-system-related payments under a single dollar figure sets the stage for contemplation of a percentage-of-gross payment arrangement. Rather than basing the payments on a concept of “rent” for the city-owned assets in the parking system, the DDA would simply pay the city a percentage of its gross parking revenues. That single amount would replace the four separate payments now made by the DDA to the city.
Other key ideas introduced at the October meetings included the ability of the DDA to direct the allocation of some minimum fraction of the city’s community standards labor for parking enforcement activity. During the conversation around that topic, Sue McCormick observed that the DDA’s requests for coverage of specific enforcement times and areas would need to accommodate the scheduling of enforcement officers, which is governed by union contracts. The DDA would need to provide any direction far enough in advance that union staff can bid on the shifts they’d like to work.
With respect to enforcement areas, the contract will need to specify with greater clarity what specific geographic areas of the city will have parking managed by the DDA. For the FY 2011 budget year, the city began a program to install additional parking meters near the downtown, motivated by a desire to generate more revenue to the city – a move the DDA felt violated the current parking contract. However, the DDA did not mount a legal challenge at the time.
During October committee conversations, Sandi Smith was keen to see city enforcement staff included in DDA operations committee meetings on a regular basis. It would allow them to provide the DDA with their perspective, as well as to give enforcement staff more insight into the DDA’s goals.
The notion of holding the city harmless for its enforcement activities drove much of the conversation at the October meetings. For example, if the DDA were to direct enforcement activities in a way that diminished parking fine revenues to the city, folks on the city’s side were interested in making sure the agreed-upon arrangement would hold the city harmless with respect to that diminished parking fine revenue. From the DDA’s perspective, if the city were guaranteed to be held harmless for any decrease in parking fine revenue, then the city would no longer have an incentive to staff parking enforcement at any particular level.
The DDA’s parking revenue does not include the fines that the city collects. The DDA’s parking revenue is restricted just to fees that motorists pay to park downtown. Currently, there are three basic parking rates, corresponding to three types of parking: on the street, surface parking lots, and multi-level parking structures. The DDA can make recommendations to change parking rates, which it can then implement unless the city council vetoes the changes. At the October meetings, DDA board member Roger Hewitt floated the idea that this council veto could be removed as a part of the new parking arrangement.
Part of the rationale for eliminating the council veto is based on the DDA’s transportation demand management (TDM) strategy for pricing. While there are currently three prices for the three types of parking, a TDM approach could possibly include a variety of different prices, based on geographic location and time of day. Those prices might well be adjusted with some frequency. The argument against a council veto is based partly on the logistics of getting city council approval for every proposed change in the TDM implementation. The two committees drew an analogy to the AATA bus fares, over which the city council does not exercise any discretion.
A percentage-of-gross payment arrangement with the city also serves to align the incentives of the city and the DDA on parking rates. Even if it had a veto power under a new parking contract, the city council might be less inclined to use it to block an increase, given that a parking increase would likely result in more revenue to the city. As Sue McCormick pointed out during the conversations, the percentage-of-gross arrangement also creates an incentive for the DDA to keep its direct parking costs down in a way that a percentage-of-net arrangement would not.
The Near Future
Based on the conversation at the Nov. 8 meeting of the committees, the key elements of the new parking agreement that the city council will hear from the DDA at its Monday, Nov. 15 work session will be the following:
- a payment from the DDA to the city expressed in terms of a gross percentage of parking revenue – 17.5%
- ability of the DDA to set parking rates for the system without veto power from the city council
- ability of the DDA to direct a minimum number of enforcement hours and regions to be implemented by the city’s staff
- a clear definition of the geographic regions of the city for which the DDA manages parking
- inclusion of city parking enforcement staff in DDA operations committee meetings.
The percentage-of-gross deal translates in the first few years into roughly a $3 million annual payment to the city from the DDA, which approximates what the DDA has paid the city each year for the last six years. In later years it will be even more. [In addition to the $2 million payment that is likely familiar to readers, the DDA has also paid an escalating amount into the city's street repair fund, estimated at $835,930 in FY 2012, and has committed revenues from the 415 W. Washington and Fifth & William surface parking lots, anticipated in FY 2012 to be $73,549.]
Numbers: Non-City Taxing Authorities
The negotiations between the city of Ann Arbor and the DDA over the parking deal aren’t really between two isolated parties. Those two entities each represent us – in different ways. The city of Ann Arbor is not representing itself – rather, it represents the interests of Ann Arbor taxpayers. The DDA is not representing itself – rather, it represents the interests of a broader community of taxpayers and taxing authorities besides the city of Ann Arbor: Washtenaw County, Ann Arbor District Library, Ann Arbor Transportation Authority and the Washtenaw Community College.
The DDA captures a portion of the taxes that would otherwise go to these other taxing authorities in the same way that it captures a portion of city of Ann Arbor taxes. Specifically, the DDA captures those other authorities’ taxes on the incremental increase in taxable value in the first year that improvements are made to property inside its district. The DDA does not capture taxes on the base taxable value of properties before the authority was created, nor does it capture taxes on the appreciation that accrues to properties after they have been improved.
The conversation between representatives of the city and the DDA has focused on a way to sustain the current habit of parking-system-related payments from the DDA to the city. The idea of a 17.5% of gross payment is a rough approximation of the continuation of this habit.
In the table below, the first column reflects what the DDA would pay the city if it continued to make payments the way it has for the last six years. It’s worth pointing out that if the DDA and the city honored the current parking contract, every number in the first column of dollar figures would be reduced by $2 million. The second column is the amount of gross revenue the DDA expects to see from parking fees. The final column is the difference between a 17.5-percentage-of-gross arrangement and continuation of the pattern of the last six years. [Parens indicate negative amounts.]
Transfer Parking 17.5% Gross YEAR Habitual Gross of Gross Minus Habit 2012 3,006,650 16,162,753 2,828,482 (178,168) 2013 3,042,916 17,471,502 3,057,513 14,597 2014 3,080,633 18,142,709 3,174,974 94,341 2015 3,119,858 18,914,835 3,310,096 190,238 2016 3,160,652 19,830,701 3,470,373 309,720 2017 3,203,079 20,410,989 3,571,923 368,845 2018 3,247,202 21,008,666 3,676,517 429,315 2019 3,293,090 21,721,400 3,801,245 508,155 2020 3,340,813 22,358,347 3,912,711 571,897
The DDA considers the initial lower number in the first year – compared to what the DDA would pay the city based on recent habit – as an accommodation by the city.
Numbers: A Greater Deficit
What the city-DDA conversation has mostly left out, however, is something that finally began to surface at the most recent meeting of the mutually beneficial committees on Nov. 8: On any scenario of continued payments to the city by the DDA, the DDA’s parking fund is projected to operate at a greater deficit for the next few years than it would without the payments. Some deficit was expected, based on the major capital projects of the Fifth Avenue underground parking structure and the Fifth and Division streetscape improvements that the DDA is currently undertaking.
To understand how the DDA plans to operate its parking fund at a deficit, but remain solvent, it’s useful to understand that the DDA’s budget has two sources of revenue that are reflected in four different funds. The DDA’s TIF fund receives revenues from tax increment capture, and the housing fund in turn receives transfers from the TIF fund. The parking fund receives revenues from parking fees, and the parking maintenance fund in turn receives transfers from the parking fund. One way to determine whether the DDA is solvent is by summing the fund balances in each of the four funds: parking, parking maintenance, TIF, and housing.
In the table below, based on DDA numbers, the first column of dollar figures are the combined totals for the DDA’s parking and parking maintenance funds, based on the assumption that the DDA continues payments as it has over the last six years. The second column shows what would happen to the total fund balance if the TIF capture were limited to just the city of Ann Arbor portion of the taxes [calculated here at 60% of the total capture]. The third column shows projected total fund balances including all of the TIF. The final column expresses the projected total fund balance as a percentage of operating expenses.
Sum of All-Fund All-Fund YEAR Prkng Minus Non-A2 All-Fund Pct of Exp 2012 (2,671,482) 710,158 2,845,806 14% 2013 (4,905,587) (961,323) 1,677,918 8% 2014 (5,258,327) (366,072) 2,958,326 14% 2015 (5,686,041) 176,987 4,212,498 20% 2016 (4,865,390) 1,983,142 6,755,310 31% 2017 (3,356,114) 4,578,286 10,113,783 46% 2018 (1,639,545) 7,418,378 13,743,203 63% 2019 (89,453) 10,114,738 17,256,302 77% 2020 2,792,616 14,199,517 22,185,382 100%
The first column of dollar figures shows that the parking funds, taken together, are projected to operate at a deficit through 2019. But the third column assures us the DDA is projected to remain solvent. Solvency is being achieved with projected TIF revenues – taxes collected from the city of Ann Arbor and other taxing authorities. What happens when we strip away the TIF dollars that are captured from non-city taxing authorities? That’s what the second column shows.
That’s the column that should be troubling to county administrator Verna McDaniel, Ann Arbor District Library director Josie Parker, Washtenaw Community College president Larry Whitworth, and Ann Arbor Transportation Authority CEO Michael Ford. The column demonstrates that the TIF captured from their public bodies is the only thing that will keep the DDA solvent in 2013 and 2014. The negative amounts in those years would disappear, if the city and the DDA honored the current parking contract.
It’s difficult to escape the conclusion that the material effect of the proposed new parking deal is this: Non-city TIF capture will be used as a means to add to the general fund budget of the city of Ann Arbor.
A Pause on Investment of TIF?
We’ve seen that some non-city TIF capture will need to sit uninvested in the broader community for a few years, because it’s needed in the short term to offset deficits caused by the renegotiated parking contract between the DDA and the city.
It was, of course, the DDA’s intent to use the TIF fund balances to offset the deficits in the parking fund. These were deficits that were anticipated to be caused by its major construction projects as well as other parking fund activity. That activity includes funding the go!pass program, which offsets bus fare costs for downtown employees. For these kinds of efforts, there is a narrative the DDA can tell to non-city taxing authorities about why parking decks or streetscape improvements downtown are worth using their TIF to support.
What other kinds of investments in the broader community will the DDA need to put on hold, in order to renegotiate the parking contract with the city? Two examples of programs the DDA’s current 10-year plan does not project continuing are its energy-saving grant program and the go!pass program. The go!pass program has funding authorized through 2013 – $540,060 for that year, but after that, the DDA’s 10-year plan assumes no funding for go!pass.
The DDA’s partnerships committee meeting on Wed., Nov. 10 also gave a glimpse into what might become a pattern in the next few years: Organizations apply for grants that are consistent with the DDA’s mission, which the DDA cannot afford to approve.
Last Wednesday, the DDA partnerships committee discussed a grant request from the Ann Arbor housing commission – a 50% match on a $1 million federal grant it has received to make capital improvements to Baker Commons, one of the commission’s downtown properties. The committee also entertained discussion on an additional grant to the Washtenaw Shelter Association for the Delonis Center. The DDA board had previously authorized $218,050 worth of improvements to WSA, while holding in abeyance the approval of more than $113,210 for installation of solar panels and for computer hardware at the shelter. Susan Pollay, executive director of the DDA, told the committee on Wednesday that her understanding was that given a choice, the WSA would prefer to see the new computers funded. The outcome of the committee’s deliberation was not in favor of either the housing commission’s or the shelter association’s proposal.
Tony Derezinski – one of two city council representatives to the DDA’s partnerships committee, who is also the liaison from the city council to the Ann Arbor housing commission – was able to coax an “undecided” determination out of the committee, as opposed to a no.
At the partnerships committee meeting, DDA board member Russ Collins linked the housing commission grant to the ongoing “mutually beneficial” discussions between the DDA and the city on the parking agreement. He noted that affordable housing was a city goal and would benefit the city, and therefore should perhaps be part of the context of the mutually beneficial discussions. That sentiment found an unwelcome reception with Margie Teall – a member of the city council who serves on the mutually beneficial committee and as a city council representative to the partnerships committee. She wondered what other projects Collins would want to include in the mutually beneficial discussions. She was implying it would be unreasonable to include the housing commission grant or any other similar projects in those discussions.
Collins’ suggestion also found little resonance with his fellow DDA board member John Splitt, who stated that part of what the DDA did was make investments in city-owned assets, and that the housing commission request was therefore no different than other DDA projects that involve investments in the city’s assets – Fifth and Division improvements, parking decks and the like.
It’s unlikely that the housing commission grant will be looped into the parking agreement discussion. But it’s clear from this partnerships committee conversation, as well as from the raw numbers, that the DDA will not be able to afford investments it would otherwise make, if the parking deal were not being renegotiated to the benefit of the city of Ann Arbor’s general fund.
Possible Solutions: Maintenance, Repair?
At the Nov. 8 meeting of the mutually beneficial committees, there was some recognition on the city’s side that the DDA is going to face a tough financial situation over the next few years.
Sue McCormick, looking at the healthy projected TIF fund balances over the next decade, suggested making the street repair payment out of the TIF fund instead of the parking fund. Joe Morehouse, deputy director of the DDA, pointed out that the number in the spreadsheet they were trying to improve was the sum of the TIF and the parking fund balances – transferring the amount to the city from one fund or the other wouldn’t change the bottom line. The DDA’s Roger Hewitt was also quick to cite policy grounds for not paying the city directly out of the TIF fund.
At that same meeting, Christopher Taylor, who serves on the city council’s negotiating committee, suggested deferring the annual $2 million transfer from parking fund into the maintenance fund for a couple of years. It’s troubling to see public officials even thinking along these lines, much less expressing this idea out loud, given the city’s specific history with deferred maintenance on parking structures. The historical failure of the city to perform routine maintenance on the parking structures, and the structures’ subsequent deterioration, is what led the city to hand off the parking operation to the DDA in the early 1990s.
The general area of maintenance and street repair is actually a place where the city of Ann Arbor has some room to extend a helping hand to the DDA. Prior to the award of the $14 million TIGER II grant to the city this fall, the city had a contingency plan for funding the replacement of the East Stadium bridges completely out of local street repair millage funds. The influx of federal dollars frees up local street repair funds to be spent on repair of local streets – which is what they’re collected for. But it would also mean that the DDA’s roughly $800,000 annual payment to the city’s street repair fund is far less crucial to the city’s ability to fund necessary street repairs than it was before the award of the news of the federal TIGER grant. It’s an area where the city is in a position to be generous to the DDA.
Central Questions: Use of TIF, Use of Parking Profit
In the course of the negotiations between the city and the DDA, the focus on two important questions has been lost: (1) Is it appropriate to use non-city TIF fund balances to offset the parking fund deficit caused by striking a new parking deal with the city? and (2) If the city’s public parking system generates more revenue than is required to operate and maintain it, what investment of that excess revenue would yield the greatest and best return for the community?
It’s a step forward if the preceding presentation of the numbers has at least established that question (1) is an actual question warranting an answer: It’s not a what-if scenario – it’s the situation we actually face.
It’s a question that appropriately falls to representatives of Washtenaw County, the Ann Arbor District Library, Ann Arbor Transportation Authority and the Washtenaw Community College to answer. One kind of answer I would anticipate from Leah Gunn – who serves on the DDA board as well as the county’s board of commissioners – is that this use of the TIF is appropriate, because a financially healthy city of Ann Arbor is essential to the health of the entire region. It’s a point of view that is not without some merit. However, there could be others at the county, or elsewhere in the community, with a different view.
For my part, it’s the second question that is more intriguing. Built into the question is an assumption that it’s not wrong to charge people more for parking than it costs to maintain the parking system. [The debate on that assumption is one I'm simply skirting.]
The question of how excess parking revenues should be spent is a pure public policy question, that is not necessarily contingent on who gets to make the public policy choice. But the negotiation between the city and the DDA has focused the public’s attention on the “who” of the policy choice, instead of the choice itself. The “who” making the choice is in some sense a surrogate for the how we feel about the choice itself.
The city’s choice is that excess parking revenues should support the general welfare – no specific item in the general fund is specified. The DDA’s choice is somewhat more specific in identifying investments in the parking/transportation system. So when the DDA spends excess parking revenues on bus passes for downtown workers, it does make some kind of rational sense – because that’s cheaper than building parking spaces for those workers.
But what I’d like is something even more specific. I’d like to be able to say to a motorist who’s effectively paying a parking tax: Here’s exactly what that tax is going to buy for the benefit of our community. I’d like to identify a specific transportation project that our “parking tax” revenues will fund. Is it a mono-rail in the Plymouth-State street corridor? ["Transit Connector Study: Initial Analysis"] Is it street cars for the Washtenaw Avenue corridor? Or is it an enhanced on-demand paratransit service to help people get around town without a car?
Another way of putting that: I’m looking for our elected officials to integrate a plan for excess parking revenue into the AATA’s current effort to develop a countywide transit plan. ["AATA Continues Push for Master Plan Input"]
The city and the DDA will likely ratify the new parking deal sometime before the city’s FY 2012 budget is approved next May. I’m not optimistic, but I’m looking to my elected representatives at the city for a better effort to break the cycle of addictive behavior they’ve displayed historically towards using parking revenues to subsidize the city’s general fund. Dipping into excess parking revenues to aspire to solvency is just not good enough. I want it invested in something special, something great, something that will make Ann Arbor better than what it is, not just better than other cities in Michigan.