Another thorough treatment of an arcane, yet vital, public process.

By the way, you may add to your list of “John Floyd’s Philosophic Objections”, the use of public school taxes for any purpose other than – public schools. If Ann Arbor Spark is really worth funding, let them get their own tax from the voters. Passing taxes under the guise of one use (k-12 education), and then putting those taxes to use for an utterly unrelated activity (Ann Arbor Spark), is another manifestation of the rot in our political culture.

Many political actors in Michigan view the School Aid Fund (including local operating millages) as a slush fund to be raided for whatever thing they cannot otherwise fund. The BEST that can said about this practice is that it amounts to eating our seed corn. It is something of an irony that our technology-business accelerator is funded at the expense of the next generation’s ability start tech companies.

The SmartZone succeeded the IT Zone (founded 1999). Here’s what Crain’s said about it: “A group of University of Michigan professors who wanted to wire downtown Ann Arbor with higher-bandwidth Internet connections founded the Ann Arbor IT Zone in October 1999″. From the county resolution, “The purpose of the SmartZone is to support small, start-up technology
companies, primarily in the information technology field within the Zone.” Later Washtenaw Development Corporation merged with it to form SPARK, which has taken on a much more diffuse mission.

The kind of limit on TIF capture expressed in the DDA ordinance is, I’m pretty sure, peculiar to the Ann Arbor DDA. I can’t find anything in the LDFA foundational arguments expressing a limit that is triggered when actual tax valuation exceeds projected values. However, it’s worth noting that the LDFA’s tax capture is simply defined at 50% [emphasis added]:

Under this Plan, tax increment revenues subject to capture by the LDF A shall include, to the maximum extent permitted by Act 281 of 1986, as amended, the following: Ann Arbor portion of the district – 50% of operating millage of local school districts and 50% of the State Education Tax levied upon the Captured Property. Ypsilanti: no revenue shall be captured at the present time.

That part is emphasized, because even though Ypsilanti does not generate any revenue for the LDFA, the Ypsilanti city council still appoints three seats to the LDFA board. Why? I don’t know. It was set up that way.

Also related to the question of who gets a seat at the table is the fact that Skip Simms, an employee of the LDFA’s main contractor (Ann Arbor SPARK), also sits on the LDFA board – as a non-voting ex officio member. He was appointed to that position a couple years ago. [cf. Chronicle coverage: "Expanded LDFA Board Reflects on Purpose"] Even as a non-voting member, that’s pretty odd, I think. It would be similar to appointing Mark Lyons, manager of Republic Parking, to an ex officio seat at the DDA board table. Yet, the LDFA was set up that way. It’s a part of the agreement between Ypsilanti and the city of Ann Arbor on the LDFA that a representative of the “accelerator” (i.e., Ann Arbor SPARK) will have an ex officio seat on the LDFA board.

The Ann Arbor city council appointment to the LDFA board actually received some discussion at Monday’s July 18 council meeting – Stephen Rapundalo’s continued appointment was for another four years, despite the fact that he might not be re-elected. That’s because the terms for such appointments as expressed in the LDFA bylaws are only for four years. Based on the brief council discussion, it appears that a bylaws change to address that is on the horizon.

Part of the reason there is not more outcry about the LDFA’s capture of local education tax dollars is due to the way that local education is funded in the state of Michigan – local taxes are forwarded to the state, which then re-allocates the money to the individual school districts on a per pupil basis. So there’s no direct negative impact to Ann Arbor’s local schools – it’s a negative impact spread out over all schools statewide, which elected officials who voted for this judged to be a minimal amount. From the LDFA TIF agreement:

Based on current state law, this Plan shall have no direct impact upon the local school districts, as it has no direct impact upon the per pupil reimbursement from the State to the public schools. The impact to the State School Aide Fund will be approximately $24,000,000 over the 15 years of the LDFA plan. This translates to approximately $1,600,000 annually, or $0.79/student statewide.

The LDFA’s relationship to Ann Arbor SPARK is roughly parallel to the DDA’s relationship to Republic Parking. In both cases, the TIF authority contracts with its vendor to provide services. The services Ann Arbor SPARK provides to the LDFA are for a “business accelerator” as specified in the SMART ZONE legislation that was enacted in the early 2000s, which allowed the creation of Ann Arbor’s LDFA. Just like Republic Parking, Ann Arbor SPARK is supposed to have an existence and a mission independent of its contract with the LDFA. That mission independent of the business accelerator (which takes the form of three separate incubators operated by SPARK) is what the city of Ann Arbor has supported with an additional annual general fund contribution to SPARK of $75,000.

So to continue with the football analogy, let’s imagine that the way the LDFA is set up and the way it interacts with SPARK is a football game. Some objections fall into the category of “I think football is a dangerous/stupid sport; let’s not play it.” For example, John, I think your basic philosophical objection to TIF as an approach to finance falls into that category.

But there are other objections that fall more into the category of “We need a better helmet-to-helmet contact rule.” Those are objections that I think have at least some small short-term chance of getting some action. For example, I think it’s reasonable to separate off Ypsilanti representation on the board to ex officio status until such time that there are actually tax dollars generated from the Ypsilanti district. I also think it’s reasonable to change the Ann Arbor-Ypsilanti agreement to stipulate that a representative of an LDFA contractor should not have any seat on the board (ex officio or not). I also think it’s reasonable to require that the LDFA hold its meetings at some location other than its main contractor’s (Ann Arbor SPARK’s) offices.

I also think that it would be worth reflecting on the fact that making cash payments for the operation of a business accelerator is one of myriad possible uses of LDFA monies. Another specified use in the foundational documents relates to investments in actual physical infrastructure. What kind of physical infrastructure? One example would be a high-capacity fiber-based communications network. Sound familiar? That’s what we in Ann Arbor were hoping that Google would build for us. At the time of the all the energy and excitement about that (March 2010), Wes Vivian addressed city councilmembers and told them that if Google doesn’t build that network, then the city needs to figure out a way to make it happen independently of Google. At a city council work session around that same time period, Sandi Smith (Ward 1) confirmed with Stephen Rapundalo (Ward 2) – the city council’s representative to the LDFA – that building a fiber communications network was one possible use of LDFA money.

A fiber network is at least something that in 2018, maybe the LDFA board could point to as “That’s what we built, you’re welcome.” That would stand in contrast to claims about “number of jobs created,” for which there doesn’t seem to be standard way to count. Why 2018? The LDFA is supposed to have a lifespan of 15 years, starting in 2003 – unless it is renewed.

There must be a better way to get Brady Hoke on the Totter. This sort of sucking up really does not become you.

I’m still a tad fuzzy on the “PROJECTED TIFF Capture” idea. I’ll have to re-read your work.

I have several objections to “Tax Capture (theft, really)”, as well as to the existence of the DDA as an entity apart from city government. We can talk about them some other time.

Does this same sort of limitation cover the Local Development Finance Authority (the tax-capture entity, co-terminus with the DDA zone, that funds Ann Arbor Spark with public education money)?

Thank you for all this great exposition. I know I’ll find it really valuable once I get past the sports analogies. I’m nearly illiterate in that regard though I do know that we want a level playing field for the citizens of the town.

Whether related or not – I note that three (revised?) DDA annual reports are on the agenda to Council tonight.