Library View on DDA TIF Capture: Unchanged

At its most recent meeting on Sept. 16, 2013, the Ann Arbor city council again considered a revision to the ordinance regulating the tax increment finance (TIF) of the Ann Arbor Downtown Development Authority (DDA). The council had given initial approval to the Chapter 7 changes nearly six months ago, on April 1, 2013. But at the Sept 16 meeting, the council again postponed a final vote on the revisions, this time until Oct. 21.

Downtown location of the Ann Arbor District Library (Photo by the writer, Sept. 21, 2013)

Other taxing jurisdictions besides the city of Ann Arbor – entities that also have a portion of their levied taxes captured by the DDA – have something at stake.  Those units are Washtenaw County, Washtenaw Community College and the Ann Arbor District Library. The topic of other taxing jurisdictions’ interest in the Chapter 7 revisions has been raised at three public meetings since late August: (1) at an Aug. 26 meeting of a joint city council and DDA board committee; (2) at the Sept. 15 city council Sunday night caucus; and (3) at the Sept. 16 city council meeting.

Some councilmembers have speculated about the current view held by one of the other taxing jurisdictions in particular – the Ann Arbor District Library. AADL director Josie Parker wrote a letter to mayor John Hieftje in January 2012 outlining the library’s position on the matter at the time, something that has been widely reported. The Chronicle only recently became aware that a similar letter had been sent by Parker to the Ann Arbor DDA in August 2011.

Those letters articulate a view that’s consistent with op-eds published in The Chronicle on the topic – that the DDA owes more in repayments to the taxing jurisdictions than the DDA agreed it needed to pay back in May 2011. Further, the AADL’s position, as expressed in the two letters from Parker, is to reject the DDA’s most recent and current interpretation of the city ordinance  – which was stated only after the DDA had already made repayments of excess TIF capture in 2011. Those repayments had been made to cover several prior years, because the required repayment had been “overlooked.”

The DDA’s subsequent interpretation was that the DDA did not owe the money it had returned in 2011. DDA officials maintain that as long as the DDA had debt obligations, it would also not owe any return of excess TIF to the other taxing jurisdictions in the future. Based on calculations by The Chronicle, the DDA’s current interpretation probably deprives AADL of roughly $55,000-$60,000 annually, compared to the kind of interpretation AADL gives the ordinance. That amount could increase, or decrease, in the future.

The position articulated in Parker’s August 2011 letter includes the statement: “The Library fully intends to enforce its rights for all past and future amounts owed to the Library as a result of excess TIF capture. However, the Library would prefer to resolve these issues without court involvement.”

Responding to a question in a telephone interview with The Chronicle on Sept. 19, 2013, Parker stated: “The position of the Ann Arbor District Library is still accurately reflected in those letters.”

That statement appears to resolve any uncertainty that might exist about the AADL’s current position. At the Sept. 15 Sunday night caucus, for example, Sabra Briere (Ward 1) had ventured that Parker’s letter to Hieftje might be appropriately regarded as a “snapshot in time” and might not reflect the AADL’s current position. And Christopher Taylor (Ward 3), during the Aug. 26 joint committee meeting, appeared to discount the current relevance of the letter to Hieftje by asking what year it had been sent.

However, about the AADL’s position on the DDA TIF capture taken in 2011, Parker stated this week: “It has not changed.”

The Chapter 7 revisions that have already received initial approval would essentially clarify and enforce the existing language in a manner that would ensure return of the excess TIF capture to other jurisdictions – starting in fiscal year 2015 – at levels corresponding roughly to the AADL’s view of the existing language. In terms of the DDA’s TIF capture – which was about $3.76 million in the recently ended FY 2013 – around $0.9 million in additional revenue is at stake, an amount that would increase as downtown development increases.

Based on Chronicle calculations, the AADL’s portion of the nearly $1 million in additional TIF that would potentially be returned would be in the ballpark of $55,000-$60,000 annually. The AADL levies the smallest millage of any of the taxing authorities in the DDA district – at 1.55 mills. The AADL annual budget is about $12.3 million.

The annual return of excess TIF to the AADL (and the other taxing jurisdictions, including the city of Ann Arbor) could increase (or decrease) depending on the amount of future new construction in the DDA district. The DDA captures taxes only on the difference between the taxable value of new construction compared with its baseline value. That’s the “increment” in the term “tax increment finance.”

The August 2011 letter from Parker to DDA executive director Susan Pollay argues that the DDA’s return of $74,666 to the AADL that year – which was meant to cover all the years dating back to 2004 – should have been around $200,000.

On July 1, 2013, a joint committee of councilmembers and DDA board members was tasked with developing recommendations on Chapter 7 changes. The approach the committee is currently taking is to change conceptually the way that Chapter 7 limits the DDA’s TIF capture. It’s a so-called “dual track” for consideration by the council. The other track is the set of revisions that have already received initial approval.

Under the existing ordinance language, the amount of DDA TIF capture is calibrated to projections in the DDA TIF plan, which is a foundational document for the DDA. The different conceptual approach would establish a basis level for the maximum captured taxable value in the DDA district and then set some clearly defined annual increase, keyed to a specific percentage or some variant of a consumer price index (CPI).

For example, the current taxable value on which the DDA captures taxes is roughly $137,000,000. That yielded about $3.76 million in TIF revenue to the DDA in fiscal year 2013, which ended on June 30. If that $137,000,000 were used as a basis for the cap, then a 3% increase applied annually would give the DDA a maximum of $5.063 million in 2023. In any given year, the DDA would receive the lesser of two values: (i) the unconstrained TIF captured on the taxable value; or (ii) the value of the cap.

A working document used by the joint committee at its Sept. 10 meeting showed two basic scenarios, one with a basis of $137,000,000 in taxable value for FY 2013, and a second one starting with a basis of $167,000,000 for the following year, in FY 2014. The second one received more interest from the committee. Depending on the choice of the escalator, it’s not clear if the cap would ever result in a determination that excess TIF should be returned.

Under the Chapter 7 revisions that have already received initial approval from the council, the approach was essentially to clarify the existing language, which relies on the difference between projected increases in the DDA tax base and the actual increase in the tax base. The new approach would remove that restriction and replace it with a fixed cap, which may or may not have a constraining effect on the DDA’s TIF revenue.

In that context, Sumi Kailasapathy (Ward 1) questioned at the council’s Sept. 16 meeting whether the council had the legal right to change the ordinance in that way – given the existing ordinance language, which reads: “Only after approval of the governmental units may these restrictions be removed.” The response from city attorney Stephen Postema at the meeting was to indicate that he’d provide an assessment of the proposed “dual-track” ordinance changes as a whole before the council was asked to vote.

The city attorney office’s view of the requirement of other governmental unit approval seems already apparent in the draft ordinance revisions that have received initial approval from the council. Namely, the council can alter the ordinance in whatever way it chooses, which would include deleting or altering the key sentence requiring approval of other governmental units. The city attorney’s office helped develop that set of revisions, and if given final approval the key sentence would be altered as follows [deleted text struck through and added text in bold italics]:

Only after approval notice to and the opportunity to comment of by the governmental units may these restrictions be removed.

Before the city council takes up the issue again on Oct. 21, the joint committee is scheduled to meet on Oct. 16 at 4 p.m. in the council workroom on the second floor of the Ann Arbor city hall, 301 E. Huron. The meeting is open to the public, and based on the first two committee meetings, an opportunity for public comment will be provided.

Links

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• [Aug. 11, 2011 letter: AADL to DDA executive director Susan Pollay]
• [Jan. 27, 2012 letter: AADL to mayor John Hieftje]
• [.pdf fixed cap joint committee working document]
• Column: TIF Capture is a Varsity Sport
• Column: Let’s Get TIF Capture Right
• Column: A TIF with A2Y Chamber
• Column: DDA, City Council, No Politics Here

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