Ann Arbor Council Defers Action Again

Ann Arbor city council meeting (May 23, 2011 session of May 16 meeting): At a continued session from its May 16 meeting, the Ann Arbor city council was expected to wrap up outstanding issues related to the Ann Arbor Downtown Development Authority. Those issues include: (1) ratification of a new contract under which the Ann Arbor Downtown Development Authority would continue to manage the city’s public parking system; and (2) acceptance of prior contributions by the DDA to city projects, as payment for excess tax increment finance (TIF) revenues that have been captured in the DDA’s TIF district since 2003.

Settling those issues, which were crystallized at a special meeting of the DDA board on Friday, May 20, would allow the council to make final decisions on the fiscal year 2012 budget. While the fiscal year starts on July 1, the council is required by the city charter to adopt the budget, with any amendments, no later than its second meeting in May. If the council fails to act by then, the budget proposed by the city administrator in April is considered to be adopted. That budget currently calls for eliminating a total of 20 positions in the police and fire departments. Several firefighters attended Monday’s meeting.

After a few introductory remarks from mayor John Hieftje, instead of settling the outstanding DDA issues, the council voted immediately to recess the meeting – again – to be continued on May 31 at 7 p.m. The twice-paused meeting counts as the same meeting that began on May 16.

Hieftje’s introductory comments alluded in part to some remarks made at the council’s May 16 session about a “rainy day fund,” which had prompted the mayor to ask the city attorney’s office to draft a response. As part of his introductory comments, Hieftje also explained that he and Christopher Taylor (Ward 3) had worked on drafting language that would provide some assurance to the DDA that the city would “backstop” the DDA’s fund balances, but said they were not ready to offer a resolution to the council that evening.

The immediate vote to recess the meeting again prevented Stephen Kunselman (Ward 3) from introducing a resolution that calls for moving responsibility for the public parking system back to the city of Ann Arbor from the DDA, and reducing the number of DDA staff from four to two.  The resolution would almost certainly not have passed as drafted – but there could be some interest on the council, as well as on the DDA board, for establishing an oversight body for the parking system that would not be the DDA.

Following city council’s inaction, a joint meeting of the two “mutually beneficial” committees – one from the DDA board, another from council – has been scheduled for Wednesday, May 25 at 7:30 a.m. at the DDA’s offices at 150 S. Fifth Ave. The committees have been negotiating the parking contract for more than a year.

Is There a “Rainy Day Fund”?

Mayor John Hieftje led off his very brief comments on May 23 with an allusion to the public commentary given by Stephen Ranzini at the council’s May 16 meeting. Hieftje said the council had received some written communication from the city attorney’s office about the comments. By way of background, The Chronicle’s May 16 meeting report on Ranzini’s remarks reads in part:

University Bank president Stephen Ranzini introduced himself to the council as speaking for himself. He noted that he was a member of the city’s economic development corporation board.

…

Ranzini said the city had a $29 million net increase in assets in FY 2010 – which the private sector would call a “profit.” He also said the city had $103 million in unrestricted funds, based on the city’s audited statements. He was referring to the city’s Comprehensive Annual Financial Report (CAFR) [emphasis added]:

$103,726,801 is unrestricted and may be used to meet the government’s ongoing obligations to citizens and creditors, subject to the purpose of the fund in which they are located. This balance is comprised of $43,955,179 in governmental activities and $59,771,622 in business-type activities. [page 10]

“Governmental activities” include general fund activities such as police and fire protection and parks and recreation. “Business-type activities” include funds like water, sewer, and solid waste.

Later during the May 16 session, Hieftje asked the city’s CFO and interim city administrator Tom Crawford and city attorney Stephen Postema to comment. From The Chronicle’s report:

Crawford suggested that Ranzini was referring to the aggregated fund balance. For some of that amount, it’s not appropriate to use it for the general fund, he said, because it comes from ratepayers for utilities.

A lot of that $103 million is reserved for construction of the new wastewater treatment plant, Crawford said. Use of those funds is not a city charter issue – it’s a basic law. Crawford said that he had a lot of concern about the idea of borrowing funds from one fund to another. He allowed that the current situation is painful, but said the city has historically not taken short-term solutions for long-term problems. And that’s the kind of fiscal discipline that has allowed the city to remain financially stable.

Hieftje asked city attorney Stephen Postema to lay out what the legal consequences would be from the state if the city were to take money inappropriately from a utility fund. Postema said he’d have to get back to the council with the specifics on that.

The city attorney’s office followed up with a memo that reiterated the nature of the funds mentioned by Ranzini – it states that they’re restricted either by statute or by basic accounting principles, and should not be thought of as a “rainy day fund.” With respect to the legal implications, the memo states:

Any improper use of such funds exposes the City to possible legal action, including possibly an action for refund of water and sewer rates collected and used for non-water or sewer purposes. Such use also could pose a risk for bonds issued to fund water and sewer improvements, which are paid for through water and sewer rates that are collected.

DDA Issues

Instead of voting on two issues that need to be wrapped up before the council can finalize its FY 2012 budget, the city council has effectively asked the two “mutually beneficial” committees – one from the city council and another from the DDA board – to meet again to alter the parking contract, which was already ratified (with a contingency) by the DDA board at a special meeting held on Friday, May 20.

The council’s committee consists of  Christopher Taylor (Ward 3), Carsten Hohnke (Ward 5), and Margie Teall (Ward 4). The DDA’s committee consists of Sandi Smith (who also serves on city council, representing Ward 1), Gary Boren, Russ Collins and Roger Hewitt. The committees have been negotiating a new contract under which the DDA would continue to manage the city’s public parking system. On the two committees it’s Hewitt and Taylor who’ve been leading the work, which moved into public view in June 2010. The negotiation was expected to be completed by Oct. 31, 2010.

The two issues to be wrapped up are: (1) ratification of a new contract under which the DDA would continue to manage the city’s public parking system; and (2) acceptance of prior contributions by the DDA to city projects, as payment for excess tax increment finance (TIF) revenues that have been captured in the DDA’s TIF district since 2003.

DDA: Excess TIF Capture

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

The city council had been expected to consider on May 23 some kind of resolution establishing that the city of Ann Arbor does not expect a return of the $711,767 in excess TIF that it is due. Presumably some kind of resolution to that effect might be placed on the council’s agenda for the May 31 session of the meeting begun on May 16. The rationale expressed at Friday’s DDA special board meeting for not making the $711,767 payment to the city was based on a total of $7.5 million in TIF funds already returned to the city since 2003.

For the city’s part, the financial interest in forgoing the $711,767 one-time payment might be coupled with the negative impact the payment would have on the DDA’s ability to offer a parking contract that provides for a regular annual transfer of 17% of gross parking revenues to the city. Next year, that annual transfer would amount to more than $2.5 million.

It’s not clear if the council will scrutinize the assumptions on which the DDA excess TIF calculations are based. At the council’s May 2 meeting, CFO and interim city administrator Tom Crawford had indicated that the city’s initial calculations of the excess were based on the DDA TIF plan’s “realistic” revenue projections. [.pdf of table showing DDA's calculations in detail]

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

DDA: Parking Contract

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

To address the first issue, the council was expected to ratify some kind of resolution at their May 23 session to provide an assurance to the DDA that the city will underwrite the DDA’s fund balances – if those balances drop to unacceptable levels due to a parking contract that transfers 17% of gross parking revenues to the city.

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

That change likely did not satisfy councilmembers  who’ve previously indicated some opposition to granting the DDA increased control: Sabra Briere (Ward 1), Stephen Rapundalo (Ward 2), Stephen Kunselman (Ward 3), Marcia Higgins (Ward 4) and Mike Anglin (Ward 5). All five are up for re-election this year.

The change obviously did not satisfy Stephen Kunselman (Ward 3), who had intended to offer a resolution on May 23 that would have amended the FY 2012 in a way that assigned responsibility for management of the public parking system to the city’s public services area. Prior to 1992 the city’s public services area had responsibility for the public parking system.

The mechanism in Kunselman’s resolution for that re-assignment of responsibility is a transfer of money from the DDA’s parking fund to the city. Part of the resolution also earmarked parking funds for two police officers, which balanced those additional public safety positions by eliminating two positions at the DDA. [.pdf of Kunselman's intended resolution]

While Kunselman’s resolution was unlikely to have been approved by the council, even if he’d been able to offer it on Monday, there may be some interest among other councilmembers for a transition of responsibility for the public parking system back to the city. And the idea is not completely foreign to DDA board members, and may resonate with at least some of them.

From previous Chronicle reporting over the last year of negotiations [emphasis added]:

April 29, 2010: For example, at the April 25 [2011] meeting, [Russ] Collins indicated that he believed running the parking system was actually a distraction to the DDA. … And at the April 27 meeting, DDA board member John Mouat wondered if they’d reached a point where the DDA should just let the city take back the parking system.

Sept. 24, 2010: Collins advised that it was not a matter of movement, but rather that they’d learned that for the DDA to be involved in enforcement of parking regulations, it would be “very complicated.” In that case, said [Keith] Orr, it did not make sense to continue “butting our heads against the wall.” There seemed to be more excitement, said Orr, about being a development authority than being a parking authority.

June, 16 2010: Collins then tentatively raised the issue of a general strategic direction – he indicated he was almost hesitant to say it, because it probably wouldn’t come true. The notion of consolidating “the parking world” and then possibly moving that to a separate kind of authority “isn’t a crazy notion” from the DDA’s standpoint, he ventured. He allowed that this was probably a minority opinion on the DDA board at this point.

[Sandi] Smith offered the counterpoint that parking in itself was not the end – it’s a tool in the development toolbox. “Nobody comes downtown to park,” Smith noted, “they come downtown for other reasons.” Parking is something that can be leveraged and made part of a development strategy – she pointed to the fourth item on the term sheet. Collins said that for the foreseeable future, unifying management and enforcement within the DDA made sense. He reiterated, though, that as a strategic direction – in terms of aligning Ann Arbor with the way that other cities do things – it was worth bearing in mind that it could be separate. Other cities, he said, had parking authorities that handle these kind of things – it would be a good thought experiment. Other cities had already solved these problems of what’s in and what’s out and who enforces what, he noted.

It’s worth noting that on the DDA board, there are also very strong and adamant voices against the idea that the DDA should end its responsibility for managing the city’s parking system – most prominent among them is Leah Gunn.

A joint meeting of the two “mutually beneficial” committees is scheduled for Wednesday, May 25 at 7:30 a.m. at the DDA’s offices at 150 S. Fifth Ave.

Present: Stephen Rapundalo, Margie Teall, Sabra Briere, Sandi Smith, Stephen Kunselman, Marcia Higgins, John Hieftje, Christopher Taylor, Carsten Hohnke.

Absent: Mike Anglin, Tony Derezinski.

Next council session: May 31, 2011 at 7 p.m. in the council chambers at 301 E. Huron. [confirm date]