Council Postpones Final DDA Vote

On a unanimous vote taken at about 3 a.m., the Ann Arbor city council decided to postpone all remaining action items on its agenda until its May 6 meeting, including revisions to the city’s ordinance governing the Downtown Development Authority.

The council was in the middle of deliberations on the DDA ordinance when Chuck Warpehoski (Ward 5) suggested that it would be appropriate to adjourn the meeting, given the late hour. The politics of the issue had become heated. And two councilmembers who had supported the ordinance revisions at first reading had needed to leave the meeting before it ended – Marcia Higgins (Ward 4) and Sumi Kailasapathy (Ward 1).

Early in the meeting, Stephen Kunselman (Ward 3) had indicated he’d be moving for postponement. But when the council came to the item on its agenda around 2 a.m., mayor John Hiefjte likely recognized the needed votes to pass the ordinance revisions were not at the table. So Hieftje made an effort to force a vote up or down.

Hieftje forged ahead despite Kunselman’s observation that Kunselman’s turn in the roll call vote was last that night, so he’d be able to assess the status of the vote tally, and vote with the prevailing side. Voting with the prevailing side would give him the opportunity to bring the matter for reconsideration at the next council meeting, with a full complement of councilmembers at the table.

A motion to postpone to a date certain was defeated, as was a motion to table. When the council set about amending the ordinance, an effort to strip out term limits failed. At that point Warpehoski suggested the adjournment. On the advice of the city attorney, a decision was made to postpone all remaining action items on the agenda.

The duration of the meeting was due in part to 45 speakers during the public hearing on the DDA ordinance, and 51 speakers on the 413 E. Huron site plan, which was also postponed.

Several revisions to Chapter 7, a city ordinance governing the Ann Arbor DDA, had received an initial approval by the city council at its April 1, 2013 meeting. The revisions would result in roughly something like $500,000 in additional annual revenue for the city of Ann Arbor – compared to what it would receive under the DDA’s current interpretation of the ordinance. However the exact amount provided by city staff has varied.

The revisions ultimately postoned by the council fell roughly into two categories: (1) those involving board composition and policies; and (2) calculation of tax increment finance (TIF) capture in the DDA district.

In the first category, the revisions to Chapter 7 that have received initial approval by the council included: a new prohibition against non-mayoral elected officials serving on the DDA board except by agreement with the other taxing jurisdictions; term limits on DDA board members; and a new requirement that the DDA submit its annual report to the city in early January.

More significantly, the changes include revisions to Chapter 7 that would clarify how the DDA’s TIF tax capture is calculated. While the interpretation of the language is disputed, it’s generally acknowledged that the ordinance language doesn’t provide explicit and clear guidance on the calculations.

The “increment” in a tax increment finance 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 DDA will capture roughly $3.9 million in taxes.

The ordinance revisions clarify existing ordinance language, which includes a paragraph that appears to limit the amount of TIF that can be captured. The limit is defined relative to the projections for the valuation of the increment in the TIF plan, which is a foundational document for the DDA. The result of the clarification to the Chapter 7 language would mean in the neighborhood of $300,000 less TIF revenue for the DDA in FY 2014 – compared to the $3.933 million shown in the DDA’s adopted budget for that year. For FY 2015, the gap between the DDA’s budget and the projected TIF revenue – using the proposed clarifying change to Chapter 7 – would be around $70,000 according to one projection.

However, the total increment in the district on which TIF is computed has shown significant growth. And under the proposed clarification of Chapter 7, that growth would result in a return of TIF money to other taxing jurisdictions (would otherwise be captured by the DDA) totaling $931,000 each year for FY 2014-15. The city of Ann Arbor’s share of that would be roughly $500,000, of which  about $300,000 would go into the general fund. The city’s general fund includes the transit millage, so about $60,000 of that would be passed through to the Ann Arbor Transportation Authority.

The amount of TIF capture that’s returned to the other taxing jurisdictions is tied to growth in the valuation by the Chapter 7 language. Under Chapter 7, if the actual rate of growth outpaces the growth rate that’s anticipated in the TIF plan, then at least half the excess amount is supposed to be redistributed to the other taxing authorities in the DDA district. In 2011, the DDA for the first time returned excess TIF capture to other authorities, when the existence of the Chapter 7 language was reportedly first noticed. At that time, the DDA made repayments of TIF monies to other authorities of around $400,000, which covered what was owed going back to 2003. When the DDA calculated the amounts owed in 2011, the city of Ann Arbor waived its roughly $700,000 share.

In 2011, the DDA used a year-to-year interpretation of the Chapter 7 language instead of computing rate of growth against the base year in a cumulative fashion. That is a point that the Chapter 7 revisions would clarify.

Before giving initial approval on April 1, but postponing its vote on April 15, the council had previously postponed voting at its March 18, 2013 and March 4, 2013 meetings.

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]