At Aubree’s in Depot Town, volunteers who worked for SCIT (Stop City Income Tax) appeared more interested in the pizza provided by SCIT than in additional voting results, which as early as 9 p.m. were clearly in their favor. Peter Fletcher, spokesperson for SCIT, was not available for comment on Tuesday evening.

A bit north, at the Corner Brewery, a smaller crowd of those who had worked for the proposals included Ypsilanti city councilmember Peter Murdock, mayor Paul Schreiber, and Beth Bashert, chair of the campaign to pass both proposals.

Bashert said she was “very disappointed, but the voters have spoken, and they want solutions not based on increasing revenue. In the next couple of years council will have to make choices.” She said the question of trying again was “not relevant now. The voters have spoken.” She described the campaign as “fantastic, with the support of all key leaders.”

When asked “What’s next?” Schreiber answered: “The budget – we have to make cuts. The last thing I want is an emergency manager in Ypsilanti. We have to continue the trend of the last 10 years of cutting. There will be staff cuts; we’re looking at the fire department.”

Ypsilanti city council is scheduled to begin discussion of the 2012-2013 budget on Thursday evening, May 10. Schreiber said he also expects on Thursday to announce the candidate for city manager. With the clear result from the election, and new city manager in place, Ypsilanti will begin to make difficult decisions, he said.

Updated after initial publication: With all precincts reporting, the income tax was defeated by 1,808 votes against (64.39%) to 1,000 in favor (35.61%). The Water Street millage was rejected with 1,786 votes against (63.67%) to 1,019 votes in favor (36.33%).

The council has already convened two retreats on the budget – this report is a summary of those retreats.

From the May 19, 1936 edition of the Ann Arbor Daily News. The scan was passed along to The Chronicle by the city's environmental coordinator, Matt Naud. Naud's source was Craig Hupy, head of the city's systems planning unit, who discovered some old papers in an antique store.

Late last year, on Dec. 4, 2010, the Ann Arbor city council held the first of two budget retreats for the next year’s budget adoption process. The current 2011 fiscal year ends on June 30, 2011, and the council will need to finalize its FY 2012 budget in May. The council typically begins contemplating the next fiscal year’s budget at a retreat near the end of the calendar year.

Two days after the first retreat, at the Dec. 6 regular city council meeting, city administrator Roger Fraser and councilmembers recapped the event, with Stephen Rapundalo (Ward 2) describing it as the best retreat discussion on the budget since he’s been on the council. First elected to the council in 2005, Rapundalo has five previous budget seasons to compare against.

The December retreat agenda reflected two main items: (1) general economic conditions; and (2) a sustainable service delivery model. The grim condition of the state’s economy was a point that was also driven home by Kirk Profit – director of Governmental Consultant Services, the city’s lobbyist in Lansing – in a presentation to the council at their Dec. 6 regular meeting.

The second retreat, on Jan. 8, followed up with a focus on services. To prepare for the retreat, councilmembers had ranked various city services by priority.

At both retreats, councilmembers and staff took the opportunity to communicate a message to city labor unions, some of whom Rapundalo characterized as not yet having seen fit to “recognize economic reality.”

And as chair of the council’s labor committee, Rapundalo has said he’ll give updates at the council’s regular meetings on the status of labor negotiations. He started the updates at the council’s Jan. 20 meeting. The implicit message communicated by the first update: Ann Arbor’s labor unions aren’t making the kind of concessions they should reasonably make, given economic conditions.

This report features highlights of the discussion from both retreats – including issues like the city’s approach to fire and police protection, solid waste and composting, as well as possible replacement of the general fund operating millage with a city income tax.

At both retreats, city administrator Roger Fraser and key city staff did their best to frame the council’s conversation not as a question of what services to cut. Instead, they tried to get councilmembers to consider which services might be delivered in a different way. The sustainability of the service delivery model depends on how the city delivers those services to residents – ranging from employment of full-time city workers, outsourcing the work, or by not offering the service at all.

To frame the context of these comparatively brief retreat highlights, we first offer a look back to 1936, when the city delivered a sidewalk snowplowing service to its residents. How? Partly by hiring in teams of horses to do the job.

How Services Are Delivered

The list of services provided to councilmembers for their Dec. 4, 2010 retreat included a blank column headed with “eliminate/modify.” In the course of the morning and early afternoon at the retreat, it became apparent that councilmembers considered all the items on the list as part of the core set of services the city should deliver. That is, there was no consensus that any of the items should be eliminated outright. Councilmembers seemed open, however, to contemplating modifications to the way that some of the city services are delivered.

How: Clearing Snow

In 1936, Ann Arbor city engineer George H. Sandenburgh delivered a report to the common council of Ann Arbor suggesting that the city would in the future need to purchase tractors in order to continue to deliver the sidewalk snowplowing service it provided at that time. [This historical tidbit comes from the May 19, 1936 edition of the Ann Arbor Daily News. A scan from that newspaper, which is the lead art of this article, was passed along to The Chronicle by the city's environmental coordinator, Matt Naud. Naud's source was Craig Hupy, head of the city's systems planning unit, who discovered some old papers in an antique store.]

Six years earlier, a Feb. 3, 1930 report to the common council had included the following in the city’s inventory of equipment:

Snow Removal Equipment

10 Steel Snow Plows for Sidewalks 250.00
2 Standard Snow Plows              40.00
2 Wooden Plows                      5.00
2 High Speed Snow Plows           500.00
5 Doz. Snow Shovels                60.00
1 Doz. Snow Pushers                 8.00  

City Team Equipment and Supplies

1 Team Horses                   $ 300.00
1 Set Double Harness               70.00
2 Halters                           1.00
2 Stable Blankets                   1.00
2 Woolen Blankets                  10.00
3 Tons of Hay                      45.00
80 Bu. Oats                        50.00
1 Troy Dump Wagon                  75.00
1 Wagon with Wood Box              30.00
1 Pair of Bob Sleighs              10.00

-

That inventory comes from part of the Ann Arbor District Library’s online set of 40 year’s worth of Ann Arbor city council minutes, from 1891-1930. [Chronicle coverage of the library's presentation of the online archive to the city: "Mayor Walker: 'Print it in the NEWSPAPER!'"] Based on the city’s inventory of a single team of horses, and 10 sidewalk snowplows, it appears that the strategy used for clearing snow from sidewalks involved hiring additional horse teams to do some plowing.

The modification to the sidewalk snow-clearing service that was suggested by city engineer Sandenburgh in 1936 indicated a future where city-owned equipment would be used to do the job. Sometime between 1936 and 2010, a decision was made that sidewalk snow-clearing would not be a service delivered by the city directly – except in the form of ordinance enforcement. Currently, property owners are required by ordinance to clear the snow from sidewalks fronting their property. Chapter 49 of the city code, which deals with sidewalks, dates in relevant part from 1986:

Within 24 hours after the end of each accumulation of snow greater than 1 inch, the owner or occupant of every residentially zoned property shall remove the accumulation from the adjacent public sidewalk and walks and ramps leading to a crosswalk. The accumulation may be from any source including precipitation and drifting. Immediately after the accumulation of ice on such sidewalk, it shall be treated with sand, salt or other substance to prevent it from being slippery and the ice shall be removed within 24 hours after accumulation.

The city service of sidewalk snow-clearing can be used to illustrate a range of different ways city services can be provided, including not providing the service at all:

• No service with respect to clearing snow from sidewalks.
• No clearing of snow by the city except through ordinance enforcement.
• Clearing of snow by the city through employment of temporary workers who use their own equipment (e.g. horses and plows).
• Clearing of snow by the city through employment of temporary workers who use a mix of their own and city-owned equipment (e.g., their own horses, but city plows).
• Clearing of snow by the city through employment of temporary workers who use only city-owned equipment (e.g., tractors).
• Clearing of snow by the city through employment of full-time city workers, who use only city-owned equipment.

If service delivery uses full-time city workers, it’s a fair question to ask: Where do city workers live? At the Dec. 4 budget retreat, Stephen Kunselman (Ward 3) indicated a preference to have city workers live in the city of Ann Arbor – they can be ambassadors for the city in their own community, and they will take greater pride in their work. It’s not possible, however, to enforce residency requirements.

Kunselman pointed to efforts by Detroit’s mayor Dave Bing to provide incentives for city workers to live in the city. City administrator Roger Fraser told Kunselman that he was open to a conversation about that. [It did not seem to be Kunselman's intent to draw out the fact that Fraser himself doesn't live in the city.] But of all the things Fraser wanted to focus on, there were many items on the list ahead of that. It’d be a low priority in terms of his optimism about the positive impact; it’d take time, even if the strategy were effective. Fraser concluded that the potential payoff is fairly remote.

How: Funding a Service

Photo taken Dec. 13, 2010 looking east along the north side of Liberty Street between Ashley and Main. The Main Street BIZ district begins at the alley just beyond the green and blue downtown way-finding sign in the right of the frame.

How a service is paid for – with general fund property taxes, gas taxes collected by the state, a special dedicated millage, a special assessment district, a combination of property and personal income taxes – also counts as the way a service is provided.

With respect to clearing snow from sidewalks, the newly created Main Street BIZ illustrates how property owners can choose to impose an extra property tax assessment on themselves to fund the clearing of sidewalk snow.

After the snow and ice accumulation that occurred in the city on Dec. 11-12, 2010, there was a visible difference in sidewalk snow clearing effectiveness inside the Main Street BIZ boundary compared to outside the boundary.

Sidewalks are one thing, but even on Ann Arbor streets, snow-clearing services are not delivered to all residents in exactly the same way. At the city council’s Dec. 21, 2009 meeting, Christopher Taylor (Ward 3) reported that the city had struck a deal to subcontract out snow removal with the Pittsfield Village Condominium Association. In that area, Taylor said, the city had a hard time doing snow removal well – due to the winding streets and the lack of lawn extensions. The association contracts with a snow-removal provider that uses smaller vehicles to navigate the tighter quarters, and street snow removal is coordinated with sidewalk snow-clearing done by the association.

The Main Street BIZ pursued a fairly lengthy process in winning its eventual approval. At their April 1, 2009 meeting, the Ann Arbor Downtown Development Authority board authorized $83,270 to help fund the administrative and legal costs associated with that process. After that meeting, former DDA board member and downtown property owner Ed Shaffran – who helped lead the effort to create the Main Street BIZ – told The Chronicle how he saw the BIZ fitting into the funding of government services:

Shaffran said that the intent of property owners on Main Street was to provide assurance – by undertaking to assess themselves a higher property tax – that the kind of services they wanted would actually be provided into the future. Shaffran went on to speculate that this could be a pre-cursor of “a la carte government” as revenues to municipalities dwindled. He suggested that the concept of a BIZ could be extended to residential neighborhoods as well. The strategy for providing services, he said, could evolve to be a system where a minimum baseline level would be provided by government, with BIZ-like affiliations electing to augment (or not) that baseline level.

Service When It’s Not a Snow Job

At the Jan. 8, 2011 retreat, councilmembers engaged in some back-and-forth about the quality of snow-removal service in the city of Ann Arbor. Mayor John Hieftje ventured that snow removal is twice as good as it was back in 1999. Stephen Rapundalo (Ward 2) reiterated the view, which he’d expressed at the December 2009 budget retreat, that the quality of snow removal in the city is “abysmal.” At this year’s retreat, he contended that if you go to the city limits, it’s as if someone draws a line where snow removal begins and ends. [It's a point that has been noted by others.]

The city council recently approved an expenditure for a remote vehicle monitoring system that includes, among other features, the ability to track the progress of snowplowing in real time.

Snow removal, of course, is just one service of many that cities might provide.

Not Snow: Solid Waste

Collection of waste material that residents prefer not to store on their property is a basic city service – stuff that ranges from grass clippings, to leaves, empty milk jugs, old newspapers, bags of cat litter, or empty cans of shaving cream. For the city of Ann Arbor, these items correspond to one of three wheeled collection carts – a compost cart, a recycling cart, and a trash cart – which have been distributed to residents and are emptied once a week with a truck equipped with a robot arm controlled by the driver.

At the Jan. 8 retreat, public services area administrator Sue McCormick revealed an underlying assumption by staff in the solid waste program: Residents would not tolerate different days for pickup for different collection carts. Some councilmembers suggested that this might not necessarily be the case. It was left for future thought, along with the possibility that this could simply be a “legend,” along with other assumptions. Why would the flexibility to pick up different carts on different days make a difference? It’s because it might be possible to be efficient enough to collect one kind of cart with few enough routes that only a four-day schedule would be required for that kind of cart.

As for the challenge of keeping track of which days certain carts were to be set out, it was suggested that the city could deploy messaging systems that would push the information to residents.

More significant than the possibility of varying the pickup schedule is the idea of contracting out the trash collection service to a private hauler. At the Dec. 4, 2010 retreat, city administrator Roger Fraser observed that the city had spent a lot of time developing its solid waste plan. The solid waste plan suggests the idea that the city would work its way out of the business of collecting solid waste.

The city has already worked its way out of the business of part of the solid waste collection that it previously ran: At its Dec. 6, 2010 meeting, two days after the first budget retreat, the council approved a contract with WeCare Organics to operate the city’s compost facility. It was a controversial issue for many residents and had led to the postponement of the measure at the city council’s Nov. 15, 2010 meeting.

So the idea of contracting out the collection of trash at the curbside is now also in the works – based on the city’s solid waste plan. From the city of Ann Arbor 2002-2007 solid waste plan:

Three key issues were built into the survey to determine public opinion on possible program directions for reducing waste – rolling back taxes with a for-fee trash collection system, anti-litter campaigns, and food waste composting pilots. … Under a PAYT system, the financing for trash collection would be directly paid by the consumer, with a partial roll-back in taxes, while recycling, composting and other waste services would continue to be covered at no extra charge. …The majority of those interviewed (61% residential; 79% business) felt that the existing system of “tax-paid full service” was preferable to a PAYT mechanism.

Some councilmembers appeared taken slightly unaware by Fraser’s update. But Fraser reminded the council that they’d heard the idea at the previous year’s budget retreat. From The Chronicle’s report of the December 2009 budget retreat:

Reduce solid waste millage

On this proposal, the city would get out of the business of garbage collection, but stay in the business of recycling. The city would contract with a waste hauler, which would then be paid directly by residents under some kind of franchising arrangement that would allow them to “pay as they go.” That would allow a reduction in the solid waste millage, which could be passed along to residents. Or voters could be asked to continue to pay the same percentage, but direct to other areas the part not needed to fund garbage collection.

When considering whether residents would choose to continue paying the same amount even though their service had been reduced, and then pay again separately for waste hauling, Stephen Rapundalo asked, “Why would they do that?”

Stephen Kunselman (Ward 3) cautioned that this kind of “pay as you go” system could have the unintended consequence of encouraging the dumping of trash wherever people could find a place – something he said he’d seen as administrator of  Sumpter Township in the early 2000s.

Now, Fraser said at the Jan. 8, 2011 retreat, the city is taking a full look at that to see if there’s a benefit to exploring implementation in the next fiscal year. He told councilmembers that an alternative study on trash collection would be presented to them in March.

Not Snow: Public Safety – Police, Fire

The idea of outsourcing police services – by contracting with the Washtenaw County sheriff’s office – was briefly touched on at the Dec. 4, 2010 retreat. Barnett Jones, head of the city’s safety services, reiterated the same sentiments he’d expressed at the 2009 retreat. He brought the perspective of having previously worn a brown shirt, working for the Oakland County sheriff’s department, selling townships on the idea of contracting for police services. The difference, he said, is that Ann Arbor already has the best police force in the county. Further, he explained, the county would have to add considerably to its force in order to provide service to Ann Arbor.

In any case, councilmembers did not appear to have great interest in altering the basic way Ann Arbor provides police services – which is by hiring full-time city employees to do the job.

Fire protection was a different story. Councilmembers expressed keen interest in exploring alternatives to providing fire protection by some other means than staffing fire stations around the clock with full-time career firefighters. Jones explained that there are three basic approaches to providing fire protection: (1) volunteer firefighters, (2) paid on-call firefighters, and (3) full-time career firefighters. Jones described how departments are starting to spring up that are a blend of (2) and (3) – a combination of full-time employees, who are career firefighters, and others who are paid to be on call to perform fire suppression duties. He cited Troy as perhaps the largest city that used such a combination department for fire suppression. He suggested that Troy would not use that strategy if they didn’t think they were getting effective fire protection.

Councilmembers were keen to get an understanding about what the implications for emergency medical response would be – many fire department calls are in response to medical calls. Fire dispatch is now handled by Huron Valley Ambulance, with the goal of reducing unnecessary medical runs by the fire department. But this goal has not been entirely met. Fraser explained that there’s a need to clarify existing protocols and to clarify the exact definition of a Category 2 call. The category had been defined two decades ago by responders in the eastern part of the county, he said, and hasn’t been reconsidered in two decades. He characterized the wasted runs as translating to a multimillion-dollar impact on the system.

Stephen Kunselman (Ward 3) expressed concern that when a combination paid/on-call department was introduced in the townships, it became a way for politicians to get elected – giving jobs to their neighbors, so that they could go hang out at the fire station with the big trucks. He urged caution about implementing a combination paid/on-call fire department.

Mayor John Hieftje pointed to a decrease in the number of fires since 1970, which he attributed to good building codes, suggesting that the need for fire suppression resources is not as great now as it was historically.

Unknowns

The budget planning process in any year includes a number of factors that cannot be completely known. These were also discussed at the two retreats.

Unknowns: Labor Contracts – Aligning Labor, Budget Strategies

Among the city’s assumptions in planning for the FY 2012 budget is that currently unresolved labor contracts will settle in a way that results in no increases to their wage structure, plus additional reductions equivalent to the cost savings the city would see if all employees were on the new health care plan. It is, of course, not possible to know if those contracts will settle in the way the city is assuming for budget planning purposes.

What’s the city’s plan for getting the contracts to settle? At the Dec. 4, 2010 retreat, city administrator Roger Fraser and the city’s CFO, Tom Crawford, described a strategy of aligning the budget and the labor strategy. Stephen Rapundalo (Ward 2) called it the “number one issue.”

What’s meant by aligning the two strategies? It essentially means including health care costs in the equation that determines the budget reduction target for each department.

By way of background, the city has a new health plan it would like all workers to use – it includes monthly employee contributions, higher deductibles, and out-of-pocket maximums. Non-union staff have transferred to the new plan, as have a few of the city’s unions – though not those with the greatest number of employees: AFSCME, police officers, and fire fighters. The city’s net cost per employee for the new plan is $10,686, compared with $12,310 for the AFSCME workers’ plan, $13,121 for the police officers’ plan, and $12,871 for the fire fighters.

At the Dec. 4 retreat, Sandi Smith (Ward 1) expressed surprise at the cost of even the city’s plan. She said it’s twice what she pays with a self-funded plan. Fraser noted that to truly compare the plans, you’d have to compare details, and there are different assumptions about risks. He also noted that in the public sector, you can’t go in and say, “Here’s your new plan!” Implementation has to be incremental, he said. Crawford also observed that with police and fire fighters “who are out there every day, it’ll be different than …”  and Fraser completed his sentence by quipping, “… people who work in real estate.” It was a playful allusion to Smith’s line of work.

Fraser explained the budget and labor strategy alignment this way: Suppose every department has a base reduction target of at least 2.5%. For departments with employees who have not adopted the new city health care plan, the inclusion of health care in the equation could result, for example, in an extra 1.5% added to the target. That department’s total reduction target would become 4%.

Councilmembers and staff alike were frank during both retreats about what this implies: Unions need to accept the new city health plan, or accept the fact that there will be fewer of their members employed by the city.

Rapundalo expressed some frustration that the major unions have not yet adopted the city health plan. He characterized it as a lack of understanding and appreciation or an unwillingness to understand impacts on the entire organization. “The consequences are not going to be pleasant,” he warned.

Fraser was somewhat more accommodating of the union perspective, telling councilmembers that as elected officials they are representing citizens. But people who are selected to lead labor unions, said Fraser, while they work at the city to provide services, their task is to “optimize their circumstances as employees.”

Unknowns: DDA Parking

The city has a contract with the Ann Arbor Downtown Development Authority under which the DDA manages the city’s public parking system. The contract currently runs through 2015. The 10-year contract stipulates that the DDA will pay the city $1 million in “rent” annually, with the provision that the city could request up to $2 million in a given, year as long as the amount for the entire 10-year period does not exceed $10 million. Through the first five years of the contract, the city requested the maximum $2 million payment – reaching that $10 million mark.

Last year, in the sixth year of the contract, the DDA decided to authorize an additional $2 million not required under the agreement – a vote that was controversial on the DDA board.  It was a move that allowed the city council to revise the city administrator’s proposed budget, which averted some planned layoffs of police officers and fire fighters. The city had not assumed the additional payment as part of its budget planning. As city administrator Roger Fraser explained at the Dec. 4 retreat, the $2 million was “not a part of our optimism,” because there were no ongoing conversations between the city and the DDA at the time.

This year, the city is assuming $2 million from the DDA for its budget planning. That’s because since June 2010, the city and the DDA have engaged in a regular extended conversation via their respective “mutually beneficial” committees about renegotiating the parking contract. The strategy the committees are currently exploring is switching from a fixed fee “rental” style agreement – based on the idea that the DDA is using city-owned assets to run the public parking system – to a percentage-of-gross style arrangement, which aligns the two parties’ interests. [Most recent Chronicle coverage: "Parking Money for City Budget Still Unclear"]

Based on the most recent percentage-of-gross figures the DDA has discussed, in the next year or two, the payment could amount to slightly less than $2 million. As parking revenues increase in later years of the contract, the return to the city is projected to reach and exceed $2 million, even on the lower percentage-of-gross figures the DDA is currently discussing. The city’s CFO, Tom Crawford, wrote in response to an emailed query from The Chronicle that if the amount received by the city is slightly less than $2 million in the first year, he would probably recommend making up the difference from the general fund reserve, based on the idea that the shortfall would not persist beyond the first year or two.

Unknowns: State Shared Revenue

The concept behind the state shared revenue system is that local municipalities in Michigan have a restricted ability to levy taxes, so the state reapportions to local municipalities some revenues out of the 6% sales tax that it collects. The reapportionment comes in two flavors: the constitutional portion (15% of the 4% gross collections of the state sales tax) and the statutory portion (up to 21.3% of the 4% gross collections of the state sales tax). The legislature controls the statutory portion, but not the constitutional portion.

Historically, the amount of statutory state shared revenue received by the city of Ann Arbor has fallen from $6.5 million in FY 2001 to just under $2 million in FY 2011.

The city’s budget planning right now assumes that state shared revenue will remain stable, despite some indications from the state legislature that the state might significantly reduce it. At the Dec. 4 retreat, Fraser indicated that the budget planning decision reflects less conservatism than the city has displayed in previous years of budget planning. Conservatism means that if anything, you understate revenues and overstate expenses, so that there is maximum flexibility to adjust mid-year.

This year, the city is minimizing the conservatism on both sides, to be as lean as it can possibly be, which means there’ll be less flexibility during the year, Fraser said. The risk associated with this strategy, said Fraser, is that a budget amendment might be needed in the middle of the year, if something unforeseen occurs.

Revenue: Operating Millage or City Income Tax

Local municipalities have four sources of possible revenue: (1) property taxes; (2) fees for services; (3) state shared revenue – apportioned from the state sales tax; and (4) city income tax.

The city of Ann Arbor does not levy just one kind of property tax. Ann Arbor tax bills include separate taxes to support: general operations, employee benefits, solid waste system, debt, street repair, city parks, open space acquisition and mass transit.

An example of fees for service is the drinking water utility – residents pay for the amount of water they use.

It’s not an option for a city to levy any kind of sales tax in addition to the state sales tax. For example, the city of Ann Arbor is not legally empowered to apply an entertainment tax that could be added to University of Michigan football tickets. Part of the rationale behind the state shared revenue system is for local municipalities to have their inability to levy extra taxes balanced out by revenue that is shared with them by the state.

A feature of the Ann Arbor city charter that distinguishes Ann Arbor from other Michigan cities is the relationship between the general operations property tax and a city income tax. Per the city charter, Ann Arbor can enact one, but not both kinds of tax:

City Tax Limit SECTION 8.7. (a) … In any calendar year in which the Uniform City Income Tax Ordinance is in effect on the day when the budget is adopted, the City may not levy any part of the three-fourths of one percent property tax previously mentioned …

But if the city of Ann Arbor were to enact a city income tax, it’s only the general operations property tax that would disappear – the other city property taxes would remain.

Cities can enact a city income tax under the state statute Uniform City Income Tax, which allows an income tax of up to 1% to be levied on residents of a city, and on non-residents up to 1/2 of the percentage levied on residents. For example, if a city enacted a .5% income tax on residents, then non-residents would pay no more than .25%.

Supporters of a city income tax for Ann Arbor typically defend against tax burden arguments by pointing to the fact that the city charter stipulates that a city income tax replaces, rather than supplements, the roughly 6 mill general operations property tax for residents. [For readers who wonder how much property tax they would save, the line item, on summer tax bills, is labeled CITY OPER].

Supporters also typically point out that 40% of the real estate in Ann Arbor is not subject to property tax – due to the large city park system and the presence of the University of Michigan, whose land is not subject to property tax. So funding operations from property taxes is more challenging than in cities where a greater percentage of the property is subject to a tax.

Supporters also typically point to the large number of workers who have jobs in the city of Ann Arbor – many of them at UM – who live outside the city. That translates into larger potential revenue from an income tax than in cities that have a smaller number of commuters.

Detractors of a city income tax typically point to the potential barrier such a tax might represent to businesses choosing to locate in Ann Arbor, or to the inequity of the income tax with respect to resident renters – who may not see the reduction in their landlord’s property tax passed along to them in lower rents. Some oppose the idea on philosophical grounds, arguing that applying the tax to non-resident workers amounts to taxation without representation. Income taxes as a source of revenue are also somewhat less stable than property taxes.

City Income Tax: Previous Discussions

Two years ago, at the Jan. 2009 budget retreat, then-councilmember Leigh Greden advocated for an exploration of replacing the general operating millage with an 1% city income tax. The budget retreat discussion resulted in the dissemination of a previous, 2004 city income tax study. The 2004 study had been preceded by a 1997 city income tax study.

In July 2009, the city released a more current study. But in August of that year, it became clear at a city council work session that there was no enthusiasm on the part of the council to place the issue on the ballot in the fall.

Yet at that year’s budget retreat on Dec. 5, 2009, Christopher Taylor (Ward 3) again raised the issue of exploring a city income tax. And at a Feb. 16, 2010 meeting of the city council’s budget committee, which included [and still includes] Taylor, members gave city administrator Roger Fraser the green light to conduct a survey of voter attitudes on the city income tax.

City Income Tax: Current Discussions

Through the city council and mayoral election season in 2010, the idea of a city income tax received some discussion as an issue. During his campaign, Tony Derezinski (Ward 2) in particular expressed support for the idea. He’s now part of a working group on the council, which also includes Taylor and Marcia Higgins (Ward 4), that is taking a closer look at revenue questions. At the Dec. 4, 2010 retreat, city administrator Roger Fraser expressed the same sentiment he’d conveyed to members of the budget committee back in February 2010: That he thought he had an obligation to ask the citizens to consider the income tax question before cutting services.

Fraser stressed the need to engage the public on the question, saying that the first thing people will ask is, What have you done already to address expenses? He said that they’d need to be clear about what the city had accomplished – that includes reducing the work force from a peak of 1,005 ten years ago to fewer than 750 today.

At the Jan. 8, 2011 retreat, there was some back-and-forth about whether the work group looking at the income tax question – as well as the possibility of a Headlee override – should be called a “committee” or a “work group.” Implicit context for the distinction is that council committees are supposed to do their best to conduct their meetings openly in accordance with the Michigan Open Meetings Act – based on a two-decades-old city council resolution. Work groups are not considered to have the same obligation.

Discussion at the Jan. 8 retreat included the possibility that the revenue work group would also take a look at the street repair millage. Stephen Kunselman (Ward 3) expressed some interest in wrapping sidewalk replacement into the activities the millage revenue could cover. Currently, property owners are responsible for maintaining the sidewalks adjoining their property.

Collaboration: UM, AAPS, County, Townships

At the Dec. 4, 2010 retreat, the council discussed collaboration by the city with a range of other entities – University of Michigan, Ann Arbor Public Schools, the county surrounding municipalities – as a way to maximize use of resources.

At some points, the conversation grew very specific. For example, public services area administrator Sue McCormick revealed the city would be presenting an invoice to UM in connection with traffic control and police staffing for the Big Chill hockey game, which was held on Dec. 11. Some councilmembers seemed to suggest that concessions from the university could be won by withholding city consent when the university wanted something from the city. The university’s desire to include Monroe Street as part of the UM Law School campus was cited as a specific example. Fraser, though, counseled that each situation should be evaluated unto itself. He pointed to the planned Fuller Road Station as an example of the importance of that principle.

McCormick indicated the possibility of future collaboration with UM on maintenance of longer buses. Background on this issue includes the inter-campus transportation challenge that UM faces, which could potentially be alleviated by purchasing longer, articulated coaches. UM currently has no maintenance facilities that can accommodate longer buses. But the city’s maintenance yard at the Wheeler Service Center could conceivably be used to work on such vehicles, because the maintenance bays are configured so they’re face-to-face. Nothing has come to fruition yet with UM on that possibility, McCormick reported.

Fraser stressed that any collaboration was a slow process, even when partners are willing. He pointed to the new integrated funding model for human services, which involved a collaboration between the city, Washtenaw County, the Urban County, Washtenaw United Way, and the Ann Arbor Area Community Foundation. Fraser said that effort required just short of 24 months – and the only thing that was done was to change a process. No organization gave up any of their authority. It wasn’t that it was uncomfortable, he said, but each one of the groups had boards and they each had their own process for approval.

Regarding the city’s relationship with other municipalities, Fraser described how he and the mayor had begun in 2003 working to change the nature of the relationship of the city of Ann Arbor and its neighbors. He said if he were to describe the nature of the relationship that he saw when he arrived in 2002 between the townships and the city of Ann Arbor, he felt Ann Arbor would have been described as “self-absorbed and selfish and not willing to play fair with others.” There was a lot of healing that needed to be done before the city could even begin to have a conversation about collaboration on service delivery, said Fraser.

But that had not been true with Washtenaw County, Fraser said:  ”[Bob] Guenzel and I hit it off right away.” [Guenzel was until last year Washtenaw County administrator – he retired in May 2010.] Fraser said that he and Guenzel had even talked about combining the city and the county together, but as a practical matter it’s not authorized under state law. But Fraser concluded that Guenzel’s and his vision were very similar in terms of looking for opportunities to seek collaboration.

Public Engagement

At both retreats, city councilmembers and city staff acknowledged the challenge of engaging the public effectively. Fraser noted that most citizens don’t pay attention to a fine level of detail. The city can put the information out there, he said, but the question becomes: “What information can be provided and what can we expect them to retain?”

At the Dec. 4, 2010 retreat, Mike Anglin (Ward 5) suggested that then was the time to engage the public on the question of re-thinking how fire protection would be provided. Stephen Rapundalo (Ward 2) objected, saying that at that point they had nothing to propose. So councilmembers grappled with the question: When should public engagement start? Regarding the community task forces that were eventually formed two years ago to study Mack Pool and Ann Arbor Senior Center – resulting in plans to help keep the facilities open – Sue McCormick noted that those processes didn’t begin with engagement, but rather with a proposal to to eliminate those facilities. Christopher Taylor (Ward 3) suggested that public engagement would most effectively begin with a proposal to do something different.

Fraser’s remarks made mid-retreat can serve as a summary of the message the city hopes to communicate to the public. The city can’t continue to pare down the number of people it employs and continue to provide the same services. “Our future has to be different. Your expectations have to be different. The community’s expectations have to be different about what it is that they can expect from us as an organization. … There’s nothing on the horizon to suggest that denial will work.”

Coda: Retreating to Luxury?

In recapping the first retreat at the Dec. 6 city council meeting, Fraser pointed out that the council’s budget retreat was not held in a luxurious location, but rather one of the crew work rooms at the city’s Wheeler Service Center on Stone School Road. [While not austere, the crew work rooms are in no way comparable to the Book Cadillac hotel, where Washtenaw Community College trustees held a retreat in March 2010.]

Bill Kinley moderated a mayoral debate at University Commons on Monday between incumbent John Hieftje and challenger Patricia Lesko.

Kinley, a University Commons resident and local developer, moderated Monday’s event, which drew about 50 people to listen as incumbent mayor John Hieftje and challenger Patricia Lesko answered questions for an hour on a range of topics, from Argo Dam and Fuller Road Station to the city budget and possible income tax.

It’s the latest in a series of exchanges between the two candidates, as the Democrats head into next week’s Aug. 3 primary election. [See Chronicle coverage: "Ann Arbor Forums: The More, The Mayor-ier" and "Ann Arbor Dems Primary: Mayoral Race."]

After introducing the candidates, Kinley cautioned that the residents there are “a group of wordy people.” They know that “platform” and “platitude” derive from the French word “plat,” he said, “so if you can keep platitudes to a minimum, you’ll find the reception here is much more responsive.”

Each candidate was given two minutes to answer the question. The first person who answered was also given the option of an additional one minute response. Questions had been developed by Kinley and the program committee for University Commons.

Selling Parkland

Question: Ann Arbor is known for its parks, but lacks adequate funds to maintain them. What is your position on selling the Huron Hills golf course or other designated parkland, in order to raise funds for park maintenance?

Lesko on Selling Parkland

The question contains a fallacious assumption, she said – that the city doesn’t have enough money to support its parks. Lesko said she used the word “support” deliberately, because that’s what the city should do. The current administration, however, is under the impression that some parks are “bloodsuckers,” she said, sucking the life blood out of the city’s $300 million budget. There’s a belief that the parks need to support themselves, that they’re “deadbeats.” That’s not the case.

There is a millage for parks and a greenbelt millage, she noted – a double commitment to supporting parks. If she were mayor, selling Huron Hills would not be an option. It’s being made unprofitable by an accounting sleight of hand, she said, and that’s not acceptable. It’s an historic golf course.

Lesko said that she doesn’t golf, but she swims, bikes, kayaks and does a variety of recreational activity. This community should have a wide variety of sporting and recreational facilities available, that are supported by taxpayers. The city shouldn’t have to raise revenues to do that – residents pay property taxes that are already relatively high, she said.

Hieftje on Selling Parkland

Hieftje said he would never advocate selling the golf course, and that the city is managing the parks pretty well. The mowing schedule has been changed from 14 days to 19 days, he noted, and unfortunately there’s been more rain so the grass has been growing faster and people can see the difference.

He pointed out that councilmember Stephen Rapundalo, who attended Monday’s forum, has been working with a golf task force to turn Huron Hills around, and it’s becoming more profitable. Hopefully, he said, it will get to the point where it’s standing alone, the way it’s supposed to be. Otherwise, he said, parks continue to do well. He noted that the city and the state are in the midst of the worst financial crisis since the Great Depression.

His advocacy for parks has been well recognized, Hieftje said, noting that he won the Local Elected Official of the Year award from the Michigan Parks & Recreation Association. The city’s park system and open space around the city has expanded more since he’s been mayor than perhaps it has under any previous mayor, he said. They’ve done a great deal to grow the park system and take care of it. Much of the parkland that’s been added has been natural areas, like Bluffs Nature Area – areas that need less maintenance, he said. Ann Arbor is a city that loves its parks, he concluded, and it will stay that way for a very long time.

Lesko Rebuttal on Selling Parkland

Right now, the city is entertaining a notion to issue a request for proposals (RFP) to privatize Huron Hills, Lesko said. Councilmember Rapundalo sits on that committee, she noted, adding that she attended one meeting at which the RFP was discussed. Lesko said she couldn’t support issuing an RPF to privatize Huron Hills or any golf course or other recreational facility. Again, in Ann Arbor, residents support the parks with their tax dollars, she said. The current rhetoric is that the parks are subsidized, she said. “Again, that’s fallacious.”

Staffing Levels

Question: Will the city be able to retain staff levels, including essential workers like police and firefighters, and stay within budget for the coming year? What is your solution for adequate staffing within the present budget constraints. [Kinley noted that the city is in active negotiations with police and firefighter unions, which are operating under a temporary reduction agreement.]

Hieftje on Staffing Levels

Hieftje said he doesn’t think there’s a city budget in Michigan that has as many police officers and firefighters as it used to. Cities across the state have needed to make changes. Ann Arbor has the correct number of police, he said, and the correct number of firefighters. Hieftje reported that Ann Arbor’s police chief [Barnett Jones] told him the force could remain a pro-active one, given the current staffing levels. No police officers were laid off, Hieftje said, though a few positions were cut.

Crime is down 15% since 2002-03, which is quite remarkable, Hieftje said, given that we’re in the middle of a very tough economy. The city has moved in a good direction, he said.

Regarding firefighters, the council asked the fire chief to address three criteria, Hieftje said: 1) keep all the fire stations open, 2) ensure that an adequate number of firefighters will be available to perform rescue, which is to get four firefighters on the scene without affecting the current response time, and 3) ensure that 18 firefighters can get to the scene quickly enough to maintain the city’s insurance rating. Hieftje also noted that they’ve been enhancing mutual aid agreements with other communities, like Ypsilanti and Ypslianti Township, that factor into these scenarios.

It’s important to realize that there are 70% fewer fires now than there were in 1970, he said, due to things like improved building codes and sprinkler systems. In fact, the city’s fire department hooks up to a fire hydrant on average only 10-12 times per year, he said. Large fires do occur, but they’re quite rare. The fire department is like an insurance policy, Hieftje said – you need to have it in case you need it. The city also has an excellent ambulance service, he said.

Lesko on Staffing Levels

Lesko said she did a shift at the fire station. What she learned is that the fire department can provide 18 men within 8 minutes to exactly 24% of the city. “That is a circle around the main fire station,” she said. “You are out of that circle,” she told the audience. She and her children also live out of that circle, she said, and it’s not acceptable.

Patricia Lesko, Democratic candidate for mayor, at the July 26, 2010 mayoral forum at University Commons.

Yes, it is insurance, Lesko said, and at the moment the city is carrying major medical, knowing that at any moment they could get a very serious disease. How does the city fund core services like police and fire? she asked. They need to realize that services are being cut to fund other kinds of projects, she said, such as the Fuller Road “parking garage.” She contended that $900,000 for that project is coming out of the general fund – that could pay for several firefighter positions.

Lesko also referenced Hieftje’s statement that crime is down 15%. What does that mean? she asked. There are various categories of crime, like arson and larceny. To say that crime is down 15% is like cotton candy and rainbows, she said – you have to look at the various kinds of crime to understand what it really means. The president of the police officers union told her that crime is down because there are fewer police officers to report crime to, she said.

Officials never compare Ann Arbor to other cities its own size, Lesko said. If they did, they’d find that crime in those cities is down more. She said she’s not sure if it’s because they have more police, but they need to have an honest discussion about it.

Hieftje Rebuttal on Staffing Levels

“I tend to listen to the police chief and the fire chief more than I do the union chief,” Hieftje said. That’s a better way to go, as the city forms its policies for the long term, he said, noting that in the fire department, the fire chief is the only member of the department who’s not in the union.

He said that they have compared Ann Arbor to other cities – Lansing, for example, is almost the same size, and Ann Arbor’s crime rate is considerably lower than Lansing, he said. Crime in Ann Arbor has been low for a long time, and it continues to go down, he said.

Hieftje noted that at one time, the city used to cover the University of Michigan campus. Now, UM has a police force of 50-55 officers. Hieftje said that when he became mayor, the city had the same number of officers as they did when they were responsible for UM. Changes have been made that bring the number of officers more in line with current responsibilities, he said.

Fuller Road Station

Question for Lesko: The city and UM are developing a transit station on Fuller Road on the site of a parking lot that the university leases from the city. The lot is on land that’s designated as parkland. The university will continue to pay the city for use of the parking structure on the site, and is sharing costs of construction. The structure is geared toward ultimately being the site of a train station. You’ve been critical of this project, based on the leasing of parkland. The Sierra Club, one of your supporters, has also been critical of that agreement. Please expound on what you find unappealing about that project.

Lesko on Fuller Road Station

Lesko began by noting that the city’s park advisory commission (PAC) has also been critical of the project – some PAC members have asked very pointed questions about it, she said. Lesko said she’s not critical of transportation. She lived in Rome for three years, and she often takes the bus and rides her bike – her family has just one car. She’s a proponent of non-motorized and alternative transportation.

Rather, she said she’s critical of putting a parking structure on parkland, because in 2008 Ann Arbor voters approved a charter amendment that gave voters control of the disposition of city parkland. The long-term lease of the Fuller Road site is a defacto sale, she said, and it’s been called that by members of PAC. It “circumnavigates our right to vote,” she said. The Sierra Club came out against it before she did, and she agrees with them and with PAC.

The university has space on its own property nearby, she said – on the helipad, for example. If the university needs more parking, they have 600 acres on north campus, she said. They built the Arthur Miller Theatre on what used to be a parking lot. Now, they want to build a parking deck next to the river, on parkland. If the citizens of Ann Arbor would vote in favor of that, she said, then it would be clear: “I’m always in favor of referenda.”

Hieftje on Fuller Road Station

Fuller Road presents the city with an amazing opportunity, Hieftje said. He noted that PAC members aren’t against the proposal, but they’d like to ensure that they see more revenue coming from the user fee that UM would pay. That hasn’t been decided and he said the city is willing to take up that discussion. [Selected Chronicle coverage: "Hieftje Urges Unity on Fuller Road Station," and "Park Commission Asks for Transparency."]

It’s perhaps the most unique location in the state for a transit center, he said. They’ve been working very hard with state and federal officials on bringing east/west rail to Ann Arbor. The federal government has already dedicated $40 million to a high-speed rail project to fix the tracks in the Chicago area. Rail is coming this way, he said – Ann Arbor has been working with SEMCOG and the Michigan Dept. of Transportation (MDOT) to bring commuter rail to the city. The Fuller Road site is near the UM medical complex, where 18,000 people go to work every day, plus another 6,000 visitors. It’s probably the most concentrated employment center in the state,he said, and no other site in Washtenaw County fits the bill for a rail and transit center.

The university does need parking, Hieftje acknowledged. They just added a new women’s and children’s hospital, and they plan to hire 500 new workers every year. It’s the city’s largest employment center, he noted, and the fastest growing. It will be essential for the future of the community to have rail. We’re facing a carbon-challenged future, he said, one in which gas prices will go up. The site has been a parking lot since 1993, Hieftje said, but it’s not being sold or leased. It’s going to be used by several other entities, he said. Amtrak hopes to be there, he said, Greyhound would like to be there, and the AATA is working as a partner with the city. It will put the city on the track to anywhere, Hieftje concluded, including the airport.

Lesko Rebuttal on Fuller Road Station

Lesko said the mayor must have missed the PAC meeting where Eli Cooper, the city’s transportation program manager, told commissioners that Greyhound has backed away from participation. There are no trains, she said. SEMCOG has said that the cost per rider and the projected number of riders doesn’t work out for Ann Arbor to be able to qualify for funding that it needs, she said.

The city is building a parking garage for the university, and some of the money for it has already been paid from the general fund, Lesko said. In the meantime, the city has lost firefighters and services have been reduced. If the university needs a parking garage – and she’s sure they do – as mayor, Lesko said she’d partner with UM and see if they can reduce the number of commuters to the university and Ann Arbor. That’s the crux of the problem, she said. It’s important to reduce the number of people commuting into the city, which has 1,700 empty houses.

Downtown Density

Question for Hieftje: You’ve been very supportive of “densification,” after the successful adoption of the greenbelt millage. The idea was that the greenbelt would form a donut of preserved land around the city, while the city would have more development and go vertical. However, you and council have been less than supportive of some specific projects downtown, such as the hotel proposed at the corner of Washington and Division [Metro 202], and more recently, of The Moravian and Heritage Row projects, which have caused a great deal of turmoil. Explain your feeling about downtown density and how the city can move forward in reaching that goal.

Hieftje on Downtown Density (plus  Fuller Road Station Detour)

Hieftje said he has been supportive of downtown density, noting that the city recently completed a complete rezoning of the city. For the first time, there’s a height limitation of 16 stories, he said. The whole process took about six years and had incredible public input, he said.

The Washington and Division project is going back a few years, he said. [“I have a long memory,” Kinley quipped.] Council approved it, he said, but he wasn’t in favor of it because it didn’t fit the site. The Moravian actually isn’t in the downtown, he said. It was a large, boxy apartment building in an area that will eventually be redeveloped. But if they’re going to accept a building in that area, it should be more attractive, he said.

Hieftje then circled back to the question about Fuller Road Station, saying that the federal government just awarded $30 million to Dearborn for a new train station, because they’re convinced that rail will be a reality in the future. Battle Creek received about $10 million for its station. Cars for the new commuter rail are being refurbished, he said. The exact same track improvements in the Detroit and Chicago areas will clear the way for commuter rail. That means the Ann Arbor area might be looking at a future similar to a European city, he said, where you have high-speed rail that takes you far distances, plus commuter rail. That’s what will open up possibilities for transit-oriented development, he said, especially for areas of town like Broadway Village.

Lesko on Downtown Density

Sometimes, Lesko said, there’s a myopic obsession with downtown. She asked how many in the audience go downtown regularly, then said that she bikes and takes the bus downtown regularly. However, she said she’s knocked on about 5,000 doors and she’s met thousands of people who don’t go downtown.

Lesko said says she lives near the blight on Broadway, and she’s been knocking on doors near the blight of Georgetown Mall, too. The south side of Ann Arbor is looking more and more like Flint, she said, while people obsess about downtown. We need to take care of downtown, but the city is more than that. The city does need economic development and investment in the downtown – that’s crucial to the growth and sustainability of the community, Lesko said. But in terms of allowing denser development in the buffer neighborhoods – where The Moravian would have been located – we must be careful to protect the downtown, the buffer areas and the city as a whole. She said her administration would focus on the big picture.

Hieftje Rebuttal on Downtown Density

There certainly is an effort to look at the whole city outside of the downtown, Hieftje said. He pointed to the Washtenaw corridor study as an example of that – the city is working with the county and other municipalities on that. There are other areas that he’d like to see redeveloped, and they’ll see that when the economy comes back.

Hieftje said it’s important to remember that the city is just coming out of the worst time financially in several years. Lenders are very reluctant to lend for new construction, although there might be a couple of projects coming along soon. Zaragon Place 2 is one development that’s already been approved by planning commission.

He again mentioned the city’s effort to put in place design guidelines. A task force is working on that, he said, aiming to set some parameters on design. There shouldn’t be any more ugly buildings in the city, he said, adding that he understands it’s sometimes in the eye of the beholder. Still, they were coming up with guidelines to make sure buildings are attractive and withstand the test of time. It should be coming to city council later this year or early next year, he said.

Argo Dam

Question: Argo Pond is formed by a dam, and within the past few years, the state has said that parts of the dam should be repaired or that the dam should be removed. That’s caused a lot of controversy. Crew teams actively use it for practice, and others use it for recreation – these groups advocate repairing the dam. But the Huron River Watershed Council, one of the mayor’s supporters, has strongly recommended that the dam be removed. Now, the city has asked for an estimate for repairing the dam, and HRWC has asked that an estimate be made for removing the dam. What’s your position on the Argo Dam issue? [Background Chronicle coverage: "Two Dam Options for Argo."]

Hieftje on Argo Dam

For quite a while, the city’s position has been that there isn’t really anything wrong with the dam, Hieftje said. The state has been pursuing a different tact, he said, and had some problems with the raceway [headrace] and earthen embankment. From an environmental standpoint, there’s a limited amount to be gained by the removal of the dam, he said, adding that he’d be very happy to take a comprehensive look at all the dams on the river.

The dams at Gallup and Argo don’t produce electricity now. But the city’s energy commission, on which he also serves, has recommended keeping Argo Dam – they see a time when the way that we use energy and what we pay for it will change, he said. In the future, it might be profitable again to install turbines at Argo and generate electricity there.

But the rowing community and others who use the pond are also important constituencies, Hieftje said. If you look at high school sports, rowing is the most popular one, he said, and local teams have won regional and even national competitions. He said he’s in favor of keeping the dam, and of working up a comprehensive plan for the Huron River because it’s a great asset, it’s water is getting cleaner and it’s looking better all the time.

Lesko on Argo Dam

The question contains some fallacies and myths that have been circulated, Lesko said. One is that Argo Dam was ever in danger of failing. She said that Laura Rubin, the head of the Huron River Watershed Council, wrote an op/ed in the Ann Arbor News – the first sentence stated “Argo Dam is failing.” That wasn’t true, Lesko said. Then we were told the embankment was failing, she said, but that wasn’t true either.

Lesko said she was told by a park advisory commission (PAC) member that city staff pushed very hard to convince PAC that Argo Dam needed to be removed. “This is city government at its worst,” she said. We were told the pond wasn’t adequately oxygenated – that wasn’t true. There were members on PAC who became so frustrated with the faulty research being presented that they did their own research, Lesko said, and “decimated these notions.”

The state has been trying for years to get the city to do one thing, she said: maintain the toe drains. She likened it to the Larcom building [city hall] and its leaky roof that wasn’t fixed, or the Stadium bridges, which the city has known to be in dire straits for years, she said. The toe drains reflect a pattern of the city government not tending to its capital assets. Without the right people at the helm, she said, the city won’t take care of its assets.

Lesko said she kayaks almost every day between Bandemer and Argo. She said she’s not in favor of removing the dam, and part of the reason is that it would expose parkland [as the pond is reduced in width]. Based on the precedent of the Fuller Road parking garage, that newly-created parkland could be leased, she said. So she didn’t want to do that until the city closes the loophole on the charter amendment regarding the sale of parkland.

Hieftje Rebuttal on Argo Dam

Referring to Lesko’s responses, Hieftje said the question apparently has ranged far and wide, to include capital improvements, so he’d go that route too. A study recently came out that shows Ann Arbor has some of the lowest water and sewer rates in the state. At the same time, the city’s water wins awards almost every year as the best water in the state. The city is increasing its water rates about 3-4% per year, he said, while other cities are making often double-digit increases. At the same time, Ann Arbor has been saving money for a $140 million improvement on the sewage treatment plant, and some of the lines leading to it. This system was built in the 1930s with money from the Roosevelt administration during the Depression, Hieftje noted, when they were putting people to work on project, much like the federal government is doing today.

Water pipes were quite neglected in the 1980s and 1990s, Hieftje said, but the city has been replacing pipes at a pretty regular rate over the past few years – that’s another capital asset, he noted. They’ve also replaced two of the city’s aging maintenance facilities [on North Main and 415 W. Washington] with a brand new maintenance facility. “So there is a lot of work going on in taking care of the city’s infrastructure,” he said.

The county ended the city’s lease at the county courthouse, he added – because the county wanted to move their juvenile court into that location. So the city had to build a new police station and courthouse, he said, which should be finished on time by the end of the year.

Why Ann Arbor Is Lovable

Question: Recently, once again, the city has received a “best of” award. Ann Arbor has received many awards through the years. What makes this city so doggone lovable?

Lesko on Why Ann Arbor Is Lovable

Lesko described how she’s lived here for 26 years, first coming to attend UM as an undergrad. She lived in Rome, Italy but came home again. Her family has lived in Michigan about 170 years. The quality of life here is indescribable, she said. Her family lives near Bandemer Park – they can load up their kayaks and be in the water in five minutes. She said she rides her bike downtown, though the bike lanes are in a “sorry state.” She takes the bus, just like she did when she lived in a European capital and took the bus everywhere. Having a top-notch bus service is a great goal. She said she had a wonderful discussion with the CEO of the Ann Arbor Transportation Authority [Michael Ford] about her vision for Ann Arbor’s bus system.

But above all, she said, the quality of life is tied to where she lives. It’s a neighborhood they chose because it’s racially and socio-economically diverse, she said. Unfortunately, there aren’t many sections like that. The city needs to maintain its racially diverse and socio-economically diverse housing stock. As a native Michigander, she said she can’t think of living anyplace else. “The bumper sticker says it all: I’d rather be in Ann Arbor.”

[Editor's note: Hieftje was not asked to respond to this question.]

City Income Tax

Question: Like most cities in the state and nation, Ann Arbor is fiscally challenged. We have declining revenues and increasing expenses. One option for stabilizing the city’s long-term revenues is to change to a city income tax, balanced by a reduction in property taxes for residents. Is a city income tax the proper solution for helping to maintain the fiscal stability of the city?

Hieftje on a City Income Tax

Hieftje said he’s been thinking about this for a long time, and every once in a while a very robust conversation will pop up about this issue. The income tax would be different than the other cities in Michigan that have it, he said, in that it’s in Ann Arbor’s city charter that if a city income tax is passed, there would be a 6 mill decrease in property taxes.

John Hieftje, incumbent and Democratic candidate for mayor, talks with a resident of University Commons before the July 26, 2010 mayoral forum.

Right now, 28% of a resident’s property taxes go to the city, he said. Property owners would get a break, and for many people, that might offset the income tax. But the income tax doesn’t have an even impact, he said. Renters, for example, likely wouldn’t see any benefit, because landlords wouldn’t necessarily pass on the property tax savings to them. It also shifts taxation from businesses to a greater burden on individuals – that’s something to consider.

He said he’s also worried about encountering a situation like one faced by Grand Rapids, which has had an income tax for many years. It’s a thriving city, he noted, often held up as the best on the west side of the state – it’s just about twice as big as Ann Arbor. Yet in January they cut 140 jobs, including some police and firefighters. They passed an increase in the income tax, to bring in another $8 million, yet they’re still struggling. The problem is that revenues from the income tax are falling at the same time as their property taxes are falling. When you implement an income tax, you introduce a new variable, he said.

Lesko on a City Income Tax

Pointing to a magazine she had in front of her, Lesko said that it reports the population of Grand Rapids is 778,000, which she noted was not slightly more than twice the size of Ann Arbor, as Hieftje had stated. [Based on the 2000 census, the city of Grand Rapids has a population of 197,800 – the Grand Rapids metropolitan area, to which Lesko was likely referring, has a population of 778,009.]

Lesko then read an excerpt from an article in the magazine, which described Grand Rapids as a thriving city. Ann Arbor should be thriving equal to Grand Rapids, she said, because we pay property taxes that are some of the highest in the state.

She said she agreed with many things that Hieftje cited as reasons why a city income tax isn’t a great idea, including the fact that it pushes the tax burden from businesses onto individuals. She said that as an individual, she would never vote for a city income tax. But as the city’s next mayor, she said, if there’s consensus on council to put it on the ballot, “I will bring it to you, and you will decide.”

Lesko noted that councilmember Stephen Rapundalo [who represents Ward 2 and who attended Monday's forum] has supported an income tax, and that there are reasons for it. But the question again contains some myths, she said. The city is not fiscally challenged. Pfizer left the city with 4.68% less revenue – that’s the glass half empty view, she said. The glass-half-full view is that they have 95% of their property tax revenue left. The city has increased fees for water and sewer – those increases are among the smallest because the city started with higher fees, she said. It’s important to tell the whole story, she said.

Hieftje Rebuttal on a City Income Tax

The water rates are still some of the lowest in the state, Hieftje countered. And regarding population size, there’s a difference between the metro area and the city itself.

Returning to the income tax question, it’s a discussion that comes up occasionally, and he’s concerned about the “double hit” of getting into a recession and seeing both falling income tax and property tax revenues. The other thing that’s happening is that the state revenue-sharing cuts have been deep, he said. The city is getting close to $4 million less than they used to in 2002. He said they were hopeful that state revenue-sharing would stay flat over the next two years, and not decrease.

If an income tax were to be accepted by the voters, there would need to be a considerable education program, he said, because most people don’t understand that they’d get a 6 mill property tax break. He said he’s certainly not recommending that the city needs more revenue at this time. The city has been doing an admirable job of keeping all the balls in the air while moving forward on a number of initiatives, he concluded.

City Income Tax (Redux)

[Later in the meeting, the candidates were asked a follow-up question by Don Kaul, a University Commons resident and columnist.] Question: In your responses to the city income tax question, neither of you mentioned the people who live outside the city but who earn their living here. Is it possible to single out those people for a tax?

Lesko on a City Income Tax (Redux)

In going door to door, Lesko said she ran into two professors who teach at Wayne State, and they made the same kind of argument. It’s a valid argument. As an individual, she said disagrees with that vehemently. The city has adequate revenue right now to fund superior services, excellent recreational facilities, and superior infrastructure, she said. At their last mayoral debate, state Rep. Alma Wheeler Smith talked about this, and Lesko said she agree with her – that’s how you build a city. Do we need another tax? As an individual, Lesko said she’d say no. But as an elected official, if there’s a will within the citizenry and council to examine it more closely, she would support that and bring it to the ballot for a vote. But from her perspective, the city doesn’t have a revenue problem, she said. The city has a spending problem.

Hieftje on a City Income Tax (Redux)

In Michigan, local governments can impose a property tax and an income tax, Hieftje said. The income tax would need to be 1% for residents and .5% for non-residents. “You don’t get to choose – it’s a package deal,” he said. What’s more, Ann Arbor is the only city that would require a 6-mill cut in property taxes, if an income tax is levied. Even without that, the city does well, Hieftje said. He noted that he wouldn’t trade places with any mayor – and that he makes that statement often. Ann Arbor’s services are better than most places in Michigan, he said, and Ann Arbor’s millage is slightly lower than it was in 2000. There was a failed millage in Troy recently, and now that city is eliminating a third of its workforce, he said. Royal Oak is struggling too. So far, throughout this long economic malaise, Ann Arbor continues to hold up well, he concluded, and they are not proposing a tax increase.

Lesko Rebuttal on a City Income Tax (Redux)

Lesko noted that this is something Hieftje says all the time – that Ann Arbor is doing better than Troy, Royal Oak and Grand Rapids. We should be, she said, because we pay more. They’re paying less and getting fewer services. We’re paying more, and getting fewer services, she said, and that’s a fundamental difference.

Payment In Lieu of Taxes (PILOT)

Question for Lesko: On your blog, you’ve suggested that the city use your ideas for increasing revenues and decreasing expenses. One of those suggestions is to ask the largest nonprofits to make voluntary payments in lieu of taxes – what’s known as a PILOT. Which nonprofits should be approached?

Lesko on PILOT

Boston and Providence, Rhode Island – cities which host multiple universities, she noted – have voluntary PILOT programs. Right now, UM pays the city about $8.8 million for water, sewer and other services, which works out to be about $2,200 per acre of land it owns, she said: “That’s a low charge for the university.”

Cities that go about implementing PILOT programs generally hire consultants who have done it elsewhere, Lesko said. She described the process like this: The mayor goes to the university and asks for a voluntary payment. When that overture is rejected, then the mayor goes to the state legislators and suggests putting a tax on tuition. Then, the consultant comes in and crafts a program. Lesko said that Providence gets “millions and millions and millions of dollars” in PILOT payments, as does Boston.

Lesko said that Hieftje often states that 40% of the city’s land is off the tax rolls – that’s a little misleading, she said. The figure includes parkland, which was never intended to be on the tax rolls. The city wouldn’t approach religious groups or small nonprofits for PILOT, she said, but could approach large nonprofits – a consultant would come in and design a program to identify those. But it won’t be done unless there’s the political will to do it, she added. “You can’t win the lottery without buying a ticket. We will have a PILOT program if there are people in place who support a PILOT program.” There hasn’t been a PILOT program because there aren’t people who are willing to go forward and design one, she said.

Hieftje on PILOT

“I have yet to hear of a city that has a state university that makes such a payment,” Hieftje said. Certainly, UM wouldn’t be happy about that. It’s a question that’s been studied by city attorneys probably for 130 years, he said, trying to figure out a way for the university to make a PILOT payment. City attorneys have said there’s no way to force the university to do that.

State legislators are also against it, he said. Hieftje asked the audience to picture themselves as a legislator from Traverse City. UM is, in reality, a university for the state of Michigan, and the state is giving hundreds of millions of dollars to UM. Under a PILOT program, UM would in turn give some of that money to Ann Arbor. If you’re from Traverse City, you might say, “If they’re going to give money to Ann Arbor, why not give it to Traverse City too?” Hieftje noted that there are state universities throughout Michigan, and this could set a precedent for giving money back to their local communities. It wouldn’t be long before the rest of the legislature asked “What’s going on here?”

Cities where universities are located have a certain benefit, he said, such as a stable employment base. Does the city want to pursue something that every legal authority he’s talked to, and every state legislator he’s talked to, continue to say isn’t going to happen? It makes for a really good talking point, he concluded, and there are private universities that are doing it – but not in Michigan.

Lesko Rebuttal on PILOT

Lesko pointed out that Hieftje was quoted in the newspaper saying he’s been trying to get a PILOT program going and trying to negotiate payments with the University of Michigan for a long time. “So which is it?” she asked. This isn’t supposed to be a “gotcha,” she said. It’s looking at what they’re planning to do at a particular time.

She described her plan as a can-do plan, with a can-do attitude. If the city attorney says they can’t do a PILOT program, do they stop there? “Is that what you do with your children? Is that what you taught them?” No, she said – you tell them not to give up. This is the lifeblood of the city, she said. Do you want a mayor who will stop the second somebody says you can’t do it? “I’m not that kind of manager in my own company, I’m not that kind of a CEO, I’m not that kind of a parent and I surely won’t be that kind of elected leader. A can-do attitude is what we need, and I have it.”

Downtown Development

Question: Recently there have been projects that have been denied by city council after a process. A developer submits a plan to the city for review. The city planning staff reviews it and recommends it to the planning commission, which is appointed by council. It reviews the project and passes along a recommendation to city council. These are for real estate developments. In the city code, there is a requirement that if a certain percentage of residents within a certain radius of a project ask for it, they can demand that the project get approval by a super-majority of city council – or 8 out of 11 votes, instead of the standard 6-vote majority. This process happened recently on two projects [The Moravian and Heritage Row], which were both recommended by staff and planning commission, but which were rejected by council because they didn’t reach the 8-vote majority. Is this a fair process? If not, how would you modify the super-majority rule to be more representative of a fair process to encourage development and not discourage good development?

Hieftje on Downtown Development

Hieftje clarified that The Moravian failed on a 6-5 vote, and Heritage Row vote was 7-3, with one councilmember absent. [Heritage Row initially failed on a 7-4 vote at council's June 21, 2010 meeting. It was brought back for reconsideration at a subsequent council meeting, where it failed by a 7-3 vote, with Mike Anglin absent. The Moravian was voted on at council's April 5, 2010 meeting.]

It’s important to distinguish between “by-right” developments and “planned unit developments” (PUDs), Hieftje said. By-right means that the developer, as a matter of law, meets the zoning requirements and has the right to build. A recent example of that is Zaragon Place 2, a 14-story building proposed for the corner of William and Thompson. He said he expects city council will vote for it because as a by-right project, they really don’t have much choice. City council doesn’t have a legal way to say no to a building – that’s why they need design guidelines, he said.

In contrast, a PUD requires special zoning for the site. Developers should all understand that when they bring a PUD, there’s no guarantee that it will be approved, he said. It ultimately comes down to a subjective opinion, and everyone on council can form their own opinion about whether the project meets the criteria needed to pass as a PUD, he said: Does it meet environmental standards? Does it have affordable housing? Is it a good fit for the neighborhood?

Lesko on Downtown Development

Lesko pointed out that the question was very specific: Is requiring an 8-vote super-majority fair to the developer? In terms of the current rules, it is totally fair, she said. If you want to change the rules, then there needs to be a discussion on that.

The city does need development, Lesko said. There needs to be an open and honest discussion about projects that come to council. The Moravian is a classic example, she said, “of a French farce without the wigs.” Ninety people lined up to speak at the council meeting on the night of the vote, then several councilmembers read their prepared remarks, she said. “What does that tell you? That they’d decided how to vote before they came in the room, right?” It was unbelievable to see the enthusiasm of people during public commentary, she said, and to see their commitment to participate in city government.

Lesko said the crux of the question is: How do we make neighborhoods and the developers that have projects in those neighborhoods have less antagonistic relationships? Because ultimately, the city does want development, she said. But letting planned unit developments into neighborhoods is an economic subsidy, she argued, because buying land in a neighborhood is less expensive than it is downtown. Zaragon Place 2 is a great development for that area, and they paid a premium for the location. The Moravian acquired several smaller parcels, then asked for a favor from city council, she said. When you ask for a favor, she added, sometimes you’re told no – that’s the problem. There needs to be a more honest discussion at council between citizens and councilmembers, she said, or council needs to say to developers that the city won’t give them exceptions. But antagonism is bad, and it’s something that needs to change, she concluded.

Hieftje Rebuttal on Downtown Development

The 8-vote super-majority is a very strong tool the neighbors can use to protect themselves, he said. Everyone can imagine living in a neighborhood and then having a large project come along that they might not want or that’s completely out of character with the neighborhood. If enough property owners agree that they want to protest it, that triggers the 8-vote requirement, he said. That’s the way it’s been set up for a very long time, Hieftje added, and he thinks it’s served the city well overall. The developer who brings a PUD before council should understand that it needs to meet the standards that councilmembers will hold it to.

Funding for Ann Arbor SPARK

Question for Lesko: An alphabet soup – DDA, LDFA, TIF, MEDC, SPARK. You know the question.

Lesko on Funding for Ann Arbor SPARK

Lesko said that she understood the question. The DDA is the Downtown Development Authority, she said, which was established to fight off blight in the downtown area. Some folks have questioned whether it’s outlived its mission. One of those folks was the city administrator, she said, who she contended in April put forth the idea of dissolving the DDA and taking the revenue in house.

The LDFA is the financing authority that provides money from local school districts to SPARK, as a contractor. [Ann Arbor SPARK is a nonprofit economic development agency.] At their last debate, she said, Hieftje stated that the state reimburses schools for that money. Then people “higher up the food chain,” she said – Alma Wheeler Smith, Jeff Irwin and Rebekah Warren – stood up and said the state’s not reimbursing schools for the money that the LDFA takes.

Lesko said that the Detroit Free Press did an exposé recently and said that in exchange for about $127 million in tax money, SPARK had created a “whopping” 900 jobs since 2006. “That’s not good enough,” she said. Going door to door, Lesko said she met a man who had an idea for a start-up and that he’d talked about it with Hieftje, who had told him to go to SPARK. SPARK said they’d help him write a business plan for $2,000. That’s a bad deal, Lesko said.

The city needs to encourage existing businesses. These are the people who have jobs now, she said. Fifty percent of start-ups fail after five years. She asked the audience whether they would invest their money knowing that they had a 50% chance of losing it all – she said she wouldn’t. The city needs to make Ann Arbor a magnet for existing businesses.

Hieftje on Funding for Ann Arbor SPARK

Hieftje said he’s a big believer in organizations like SPARK. When he’s in Lansing, other mayors are constantly saying they wished they had an organization like SPARK, he said. It’s renowned across the state for bringing jobs to the community, and they have a strong record of success.

Looking Ahead

[For the last question, Kinley flipped a coin to see who would choose the order of answering. As sitting mayor, Hieftje was allowed to make the call. He won the toss, and chose to answer the question first.] Question: How would you suggest that the city and its council and citizenry move forward in the two years following the November election?

Hieftje on Looking Ahead

The city needs to continue to do what they’ve been doing – it’s worked very well, he said. The city has made some dramatic reductions in its workforce, but has also added a lot of technology to bring efficiencies. One example is water meter reading. In the past, someone physically went to each meter, Hieftje explained. Now, the meters send out signals that can be read via computer.

He noted that the city used to have 21 department heads, and now has just five “bubbleheads” – a term derived from the city’s organizational chart. There’s been a large middle-management reduction. Conservatively, the city is saving about $15 million annually from these changes, he said. They’ll have to continue to “sharpen our pencils,” he said – everyone is working harder and being more frugal. That’s why the millage is slightly lower than it was in 2000.

Taxes are certainly not low in Ann Arbor, Hieftje said, but the city has managed to get this far without a millage increase. Just 28% of local taxes go to the city, he said. They could make some considerable cuts in the city’s 28% and taxpayers still might not notice that they were paying that much less. The city will continue to enforce the efficiencies they’ve put in place, he said, and continue to make that better.

Lesko on Looking Ahead

It sounds great, Lesko said, but it’s not the whole story. She noted that Hieftje stated that the city saved $15 million. But there are 200 fewer employees, and the city is paying about the same for personnel. Where are the savings? she asked. Folks who retire go into the city’s retirement system – there’s a $190 million unfunded pension liability, she said: “That scares me.” Pension payments are not optional.

The city needs to go forward by realizing real economy, she said, by tackling real non-essential spending, and by realizing that over the last decade, they’ve had leadership that’s been concerned with re-election. Lesko said that she’d have to take a leave of absence from her job to be mayor. She noted that she has small children, but this is important to her. She was raised by someone who believed that democracy should be participatory. Citizens need elected officials who aren’t going to tell people what they want to hear. They need people in office who are willing to talk about the hard issues, she said, like the $190 million unfunded pension liability.

The city is hiring consultants and full-time temporary laborers, Lesko said, and paying them peanuts. Single moms are being hired as full-time temps time after time, and being denied membership in the union, and being paid peanuts. That’s how the city is realizing these economies, she said. She added that she is not willing to head a city that takes advantage of people, and creates and perpetuates poverty. They have to talk about the hard issues, she said, and they can do it, as long as they have open, honest and transparent discussion.

Hieftje Rebuttal on Looking Ahead

Hieftje said he doesn’t know any single moms who are being paid peanuts – he hasn’t heard about that. And the city has a plan to deal with the pension liability, he said. Fortunately, it’s not due next week, he noted – not for a long time. He likened it to having a mortgage, with time to pay it. The city has a plan that its CFO has confidence in, he said. He acknowledged that financial markets have been down, and that certainly affects pensions.

He thanked the audience and organizers of the forum, and noted that he didn’t answer the earlier question about why Ann Arbor is a great city. A lot of that has to do with the people who live here, he said, who are willing to give their time and talent to move things forward. Many people in the room have served in that capacity, he noted, and he appreciates that. He pointed out that Kinley had served on the city’s residential task force.

Ann Arbor is in a very good position, Hieftje said, as the economy improves and they move out of this recession. The city is ready to spring forward, perhaps more than any other in the state, he said. A program on PBS last year reported on some great things about Ann Arbor, Hieftje noted. He said the title of the program was “Ann Arbor: Michigan’s Life Preserver,” adding that the rest of the state looks at Ann Arbor to be that for the economy. He thanked everyone for their contributions to that as well.

Residents of University Commons gathered for a mayoral forum held at their condo complex on July 26, 2010.

Posting of the budget committee's Tuesday meeting.

At a meeting of the Ann Arbor city council’s budget committee, the city’s chief financial officer, Tom Crawford, sketched a plan to start making available a wide range of raw data from the city, starting with numbers from the finance department. Crawford said he hopes to have a pilot in place by the end of February.

Budget committee members also discussed what the contents of a monthly statement should be that will now be provided to the committee and to the council as a body – such a report is required by the city’s charter.

The other main point addressed by the budget committee was raised by city administrator Roger Fraser, who suggested to councilmembers that they owed it to the community to put the question of a city income tax before the voters. Fraser said they had a responsibility to float the question, regardless of what their personal feelings were on the issue.

The meeting was also attended by Mayor John Hieftje, who is a member of the city council, but no longer part of the 5-member budget committee – the council reorganized its committee structure at its Dec. 21, 2009 meeting. Hieftje participated in deliberations on the question of when a city income tax ballot question might feasibly go on the ballot.

Data Catalog

The city’s chief financial officer, Tom Crawford, put the posting of the city’s financial data online in the context of a broader initiative – modeled on Washington D.C.’s data catalog – to make available basic data on the city’s website. The idea is that other interested parties might use the data to create reports and analyses that the city staff might not think to create, or simply not have the time and resources to create.

Crawford reassured councilmembers that the data could not be altered and then re-posted to the city’s website by the public. Addressing the issue that someone could alter the data, then disseminate in by some other means, Crawford cited the experience of the Ann Arbor Downtown Development Authority in developing a disclaimer that is included with the provision of its realtime parking data. [That disclaimer reads: "The DDA is not responsible for third party use of this data." For some background on the realtime parking data kerfuffle leading to that disclaimer, see "Plus, Data Access Talk"]

The first kind of data that would be posted as a part of the city’s data catalog, Crawford said, would be data from his own department. As a pilot, the data would be provided as comma-separated value (CSV) files, together with documentation summarizing what was contained in the data set, a contact person within the city, a statement addressing accuracy, and a list of field names.

Also included for each group of data would be one of the standard kind of reports that can be run from the data, Crawford explained. These sample reports could range from hundreds to thousands of pages, he said. [They will not be printed out.] Examples of the kinds of data that would be available are journal entries, P-card transactions, the check register, the aging report (people who owe the city money), and the investment report.

The move towards providing the financial data as a part of the data catalog comes in advance of deployment of new financial software, which the city council authorized purchase of at its Dec. 7, 2009 meeting. The new software will cost around $900,000, with a payback through savings realized in a little under three years. One of the benefits touted for the new software is the ability to generate a variety of different reports by a broader range of users, and with less effort.

Even using the old software, however, Crawford said the idea was to post the data in a way that involved “minimal human effort.” This came in response to a concern expressed by Christopher Taylor (Ward 3) about the burden it would place on city staff.

The question of city staff burden arose at a couple of points during the meeting. City administrator Roger Fraser responded to councilmember concerns that they were placing an undue burden on staff. He said that, yes, there’d been an uptick in council requests for reports and data – but that was understandable given the current budget climate and that city staff accepted that as a part of their job.

Monthly Report

The budget committee also discussed what the contents of the monthly report should be, which will now be provided to the council. A monthly financial statement is required under the city’s charter:

SECTION 5.6. The Controller shall be the chief accounting officer of the City. The Controller shall:

(6) Submit to the Council, through the City Administrator, by the tenth working day of each month, a statement showing the balances at the close of the preceding month, in all funds and budget items, the amount of the City’s known liabilities and budget items to which the same are to be charged, and all other information necessary to show the City’s financial condition;

Tom Crawford, the city’s CFO, reported that he and his staff had looked at the charter and come up with a report that they thought met the definition as described in the city charter.

One of the elements of that report will be a report of the general fund’s revenues and expenditures. Crawford cautioned that the year-to-date percentages would not necessarily match the percentage of time that has passed to date in the fiscal year – it’s not linear. For example, now halfway through the fiscal year, most of the taxes were collected – but that’s a function of when taxes are collected, at the beginning of the year. Or halfway through the year, revenues from licensing and inspections in the building department are more than 50% of the year’s budgeted amount – but that actually translates into a projected shortfall.

Christopher Taylor (Ward 3) asked if the comparative year-to-date percentages could be included in the monthly report, just to orient councilmembers to the possible significance of the percentages. For example, 20% could either be awesome, Taylor said, or it could also mean that “the sky is falling.”

In discussing how the monthly report should be disseminated, Roger Fraser suggested that it be sent directly to all councilmembers. However, Marcia Higgins (Ward 4) weighed in in favor of first having the budget committee review it before disseminating it to other councilmembers. She reasoned that the rest of the council might not understand what they were looking at, and that budget committee members would then be in a position to help others on council.

Sabra Briere (Ward 1) said that she preferred to “err on the side of everybody-sees-it.” Crawford said that it could be posted on the website. Taylor suggested that if the report changed after review and questions by council, then it could be held until a final version was determined.

City Income Tax

City administrator Roger Fraser told the budget committee that revenue was not one of the items on the list of issues staff had been given to consider in preparation for the council’s Jan. 26 budget workshop [starting at 6 p.m. in city council chambers]. But on the question of a city income tax, Fraser said, “We owe it to the community to have that question out there.” He suggested that it be put before the voters either at the August 2010 primary election or the November 2010 general election.

Mayor John Hieftje would subsequently point out that choosing the primary versus the general election would not affect how soon the tax could be implemented.

When there seemed to be little enthusiasm in the room for the idea of floating a ballot question for voters on the implementation of a city income tax, Fraser pressed the point. He suggested that they spend a little bit of money to have a survey of voter attitudes done – similar to what the Ann Arbor Transportation Authority had undertaken recently to measure attitudes about a countywide transportation millage. He called undertaking such a survey “due diligence.”

Stephen Rapundalo (Ward 2) wondered if there was a good enough set of information out in the public for a survey to be meaningful – we might want to try to educate first and then survey voters. One specific example cited by Rapundalo was that many people are under the erroneous impression that an income tax would be implemented on top of a property tax for general operating expenses. [The city charter forces a choice between a property tax or an income tax – it's not possible to have both for general operating expenses. That said, there would still be other property taxes collected – for transportation, solid waste, and schools, for example.]

There was some sentiment expressed in the room that people essentially calculated whether their individual taxes would go up or down and decided their vote based on that.

Fraser responded that a properly designed survey would actually find out what it is that voters understand about the issue. He allowed that when the results of the survey came back, the council might well decide that there was no point in putting it on the ballot.

Quorum and Open Meetings Issues

The five-member budget committee as determined by a city council resolution at its Dec. 21, 2009 meeting consists of  Mike Anglin (Ward 5), Marcia Higgins (Ward 4), Christopher Taylor (Ward 3), Stephen Rapundalo (Ward 2) and Sabra Briere (Ward 1). Prior to that resolution, the council had combined its budget committee with its labor committee. Now, the labor committee is combined with the council administration committee.

At one of the spring 2009 Sunday night city council caucus meetings, Higgins had rejected the idea that other councilmembers should attend the budget committee’s meetings, citing the possibility that a quorum could be reached, with implications about whether any decisions made would become decisions of the council as a body as opposed to decisions of the budget committee.

The attendance on Tuesday of all five members of the budget committee, plus the mayor as an additional member of the council, constituted a quorum of councilmembers. The meeting was not social in nature and thus met the standard for definition of a meeting under Michigan Open Meetings Act.

Notice of Tuesday’s meeting of the budget committee was properly posted in the lobby of city hall; however, the notice did not include mention of the possibility that a quorum of councilmembers could be present.

The Open Meetings Act requires that minutes be recorded for the meeting – in the “action minutes” style used by the council, this would amount to a list of topics addressed as posted in the meeting notice, names of attendees, date and time of the meeting. Councilmembers present at the budget committee meeting did not vote on any resolutions.

The new wayfinding signs have poles that are perfect for locking bikes. In all fairness to this cyclist, he's unlocking his bike – the bike hoop just to the right was fully subscribed at the time he locked up. (Photo by the writer.)

Ann Arbor Downtown Development Authority (Sept. 2, 2009): In the last year, Ann Arbor’s Downtown Development Authority has moved three major projects from planning and approval phases towards actual start of construction.

For starters, visitors to downtown Ann Arbor will likely have noticed some of the new wayfinding signs that have already been installed over the last couple of weeks.  They’ll also have encountered the lane closures along Division Street, that has Eastlund Concrete pouring bumpouts as part of the Fifth and Division streetscape improvement project. And in mid-October, The Christman Company expects to start digging the massive hole at the Library Lot for the Fifth Avenue underground parking garage.

The DDA board meeting on Wednesday reflected this shift from planning to execution and monitoring: It was heavy on updates on how projects were faring in the field.

But in addition to the project updates, there was still room for planning ahead. For example, the board received a preliminary briefing on the impact of a possible city income tax on the DDA’s revenue – a $700,000 hit. The board also put a bit of time into discussion of its role in transportation. Plus, the board completed some unfinished business from its annual meeting in July by selecting a treasurer (Russ Collins) and confirming its selection of a chair (John Splitt).

Unfinished Business: Election of Officers

At the DDA board’s annual meeting in July, which followed its regular board meeting, the board was unable to reach a consensus on all of its officers for the coming year. We’d reported it this way:

Outcome of board elections: Orr elected secretary; Lowenstein elected vice-chair; Splitt elected chair [with outstanding question about validity of vote]; treasurer vote postponed until September’s meeting [Greff will continue to serve in that capacity until July 31, when her term as a DDA board member ends].

The outstanding question about the validity of the vote for the chair relates to a still-unresolved question about whether the line of mayoral succession should apply with respect to service on the DDA board. [For some discussion of the issue, see The Chronicle's article "Split DDA Board Agrees on Splitt."]

According to Susan Pollay, executive director of the DDA, an inquiry to the Michigan Municipal League and analysis by the DDA’s legal counsel did not provide a definitive answer. She said it was something that could be addressed by changing the DDA’s bylaws to answer explicitly the question: Does the mayor’s appointment to the DDA board mean that the line of succession to the mayorship applies to attendance and voting at DDA board meetings?

We failed to report explicitly that the board’s annual meeting in July had actually been continued until the Sept. 2 meeting. So on Wednesday, the board began by wrapping up its July annual meeting. Because Joan Lowenstein was absent, only Keith Orr was present as a current officer of the board with no uncertainty about his elected status. So it was Orr who chaired the meeting.

There was a single nomination – of Russ Collins – for treasurer, made by Sandi Smith and seconded by Roger Hewitt. Smith and Hewitt had both vied for the office of treasurer in July, with neither achieving a majority. On Wednesday, the vote was unanimous for Collins.

The vote for Splitt, who was the only nomination for chair, was equally straightforward.

Splitt had already chaired a special board meeting in August. Pollay explained to The Chronicle after the meeting that as chair of the capital improvements committee, which had called for the special meeting, Splitt seemed an appropriate choice to run the meeting.

Fifth Avenue Underground Parking Garage

Public Commentary on the Garage

During public commentary time, Michael Haller, who’s executive vice president of the Walbridge construction company, addressed the board on the topic of the underground parking garage.

Michael Haller: Haller spoke to the board immediately following the brief wrap-up of board elections, something he characterized as a “lean process” – it had lasted less than five minutes. He characterized himself as a big proponent of lean process. He said that he was disappointed that Walbridge didn’t make the short list of four companies for the construction manager job. [Christman was hired for the pre-construction work.] But Haller said that Walbridge would “put that behind us.” As a professional engineer with 36 years in the construction business, Haller said, he simply felt it was important that members of the community – like him, a resident of Burns Park – offer their services to the places they lived: “I’m here to help,” he said. He congratulated the DDA board on moving forward with the underground parking garage project, saying it was a big step. He also wanted to validate the decision of the DDA to competitively bid out the trade packages – for concrete, mechanical, and electrical work. He said that Ann Arbor was a perfect geographic location for that strategy, with a high concentration of qualified contractors who could do the work. Further, the current economic climate meant that the market was very competitive.

When’s the Hole Getting Dug and Where’s the Dirt Going?

Mike Ortlieb, of Carl Walker – the design firm that’s handling the Fifth Avenue underground parking structure project – gave the board a rundown of where the project stands. The design work was continuing as planned, he said. With the selection of The Christman Company as the pre-construction services manager, the work was now proceeding to the planning of excavation support. The bids for excavation support, Ortlieb said, would be going out later this month. A guaranteed maximum cost estimate would be completed by the end of September. In mid-October, they’d start digging the hole. Ortlieb confirmed that there was every intent of making it a competitively bid process, the cast-in-place concrete being one of the larger packages.

Addressing the issue of the interplay between on-the-fly design changes in response to possible decisions about what might be built on top of the structure, Ortlieb pointed out that it would take several months to dig the hole. [The city of Ann Arbor has issued an RFP (request for proposals) for development of the site.] Only after the hole was partially completed, he said, would the foundations start to go in. At that point, it would be important to have some final decisions made about how things would be configured. It would be around March or April 2010 when that would need to be settled. He affirmed that there was a well-defined grid system for the building with appropriate loading for a building that would be used in that area.

Board member Gary Boren got confirmation that the hole is going to be dug well before the spring of 2010.

Board member Sandi Smith asked about what was happening with the dirt from the hole. Adrian Iraola of Park Avenue Consultants, who’s coordinating the project for the DDA, reported that they’d been notified by the city of Ann Arbor that the municipal airport would not be suitable for dumping the dirt, because it would disrupt the storm water detention plan. Iraola said that by the end of the month, they’d have a better idea of where the dirt would go.

Fifth and Division Streetscape Plus Wayfinding

John Splitt, who chairs the capital improvements committee, reported that Eastlund Concrete was “pouring as we speak.”

Susan Pollay, the DDA’s executive director, said that wayfinding signs were already starting to pop up and the rest would be installed in the next couple of weeks. The signs that needed to meet MDOT standards, located along state arteries, would be going up within a month. By the end of October, Pollay said, the system would be complete. She allowed that there would need to be tweaks to the system.

Before the meeting started, Pollay told The Chronicle that there were some “typos” they were aware of already, plus some instances that were ambiguous. For example, westbound on Liberty, there’s a direction to turn north on Fourth Avenue to go to the “Main Street Area” – which might be a mistake or it might be intentionally leading motorists past the parking structure at Fourth & Washington.

There are also some cases, said Pollay, of the need for possible additional signs to complete the system. For example, there’s a direction to continue westbound on Liberty across Main Street to get “Visitor Information” – but no sign directing people to turn right on Ashley to head past the visitor’s center at Huron & Ashley.

Pollay also told the board that she’d received thanks from someone in the cycling community for the new “bike poles” and that it was a good idea that the DDA had used the extra rectangular space at the top for displaying information. [Editor's note: That had been The Chronicle cracking wise.]

Board member Russ Collins reported that he had been “collared” by a design professional and had been offered some extremely positive feedback on the design of the wayfinding signs – by someone who had been extremely critical of the initial designs. [For some background on that controversy see the Arbor Update "Wayfinding Design Charettes" thread.]

Collins’ evaluation of the wayfinding project: “Hoo-RAY!”

Transportation: Ypsi-Ann Arbor and The LINK

In reporting out from the DDA’s transportation committee, which he chairs, John Mouat described the results of a getDowntown survey and focus group on what improvements would get people to use alternative transportation. Those included faster service between Ypsilanti and Ann Arbor. He also reported on a discussion of the LINK, which he described as not “ended” but rather as on “pause.” [See Chronicle coverage reporting the cessation of LINK service: "AATA, Ypsi to Focus on Cost Cuts."]

Russ Collins asked his fellow board members to remember that something that gets lost in all of the discussion sometimes is data. When the LINK committee was initially set up, he said, things “got pulled out to a dysfunctional level.” By this he meant that the politics of where the LINK route should go caused people to not be mindful of the data. Alluding to Mayor John Hieftje’s comments just prior, about the highly-rated bus system in Ann Arbor, Collins said that the fact that Ann Arbor was highly rated meant that “we can meet with success based on the fact that we’re already a leader.” That meant the DDA should support the professionals in transportation planning, and not try to plan routes to go past a certain place just “because it feels good.”

In expressing this sentiment, Collins was consistent with remarks he’d made at the October 2008 DDA board retreat when he had stressed that the DDA itself is not a transportation authority.

Board member Newcombe Clark suggested that the DDA needed to start thinking proactively about not just how people get downtown, but also about how they use downtown. Could residents [as well as workers], Clark wondered, be eligible for the go!pass program?

“Ypsilanti,” Clark said, “that’s our affordable housing. We should be thinking about connecting Ypsilanti to Ann Arbor in the same way we thought of connecting Ann Arbor to outlying communities.” [In this, Clark was alluding to the pilot express bus service that's been offered between Chelsea and Ann Arbor for a year, with express service now recently introduced to Canton.] In suggesting express bus service between Ann Arbor and Ypsilanti, Clark contended that it should take far less than an hour to get between the two cities.

City Income Tax: Impact on the DDA

Board member Roger Hewitt said that a preliminary look had been taken at what the potential impact would be on the DDA’s revenue, if the city of Ann Arbor were to enact a city income tax. The DDA is funded through tax increment financing (TIF). The expected $3.9 million tax capture in 2009 comes from a variety of taxing authorities: the schools, the Ann Arbor Public Library, the county and the city of Ann Arbor.

The city charter specifies that an income tax can be imposed only if the general operating millage of the city is eliminated. And the DDA captures part of the general operating millage. So if the city’s general operating millage were eliminated – a consequence of imposing an income tax – that would mean a reduction in DDA revenue.

In relevant part, the analysis provided as a part of the board’s packet, and described in summary by Hewitt, is the DDA’s capture of the city of Ann Arbor’s total levy, broken down by individual millage. It’s the first line that would disappear as DDA revenue if a city income tax were to be enacted:

Operating          $699,844
Employee benefits  $233,274
Refuse collection  $279,906
Debt Service        $52,679
A.A.T.A.           $233,274
Streets            $226,285
Parks              $178,677
IFT                  $2,050
Total            $1,905,989

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For his part, Hieftje stressed that it was not clear that the city council would be voting to place the city income tax proposal on the ballot. If it did, said Hieftje, the timing would likely be for the May 2010 election. That would mean that no effect would be felt until 2011, he said. [The county clerk's deadline for placing a measure on the ballot for November's election was Aug. 25.]

A2D2: Design Guidelines

Roger Hewitt, who’s the DDA board’s representative to the three-member A2D2 rezoning oversight committee – along with Marcia Higgins from city council, and Evan Pratt from the planning commission – reported that the oversight committee had met on Aug. 11. The consultant on the project, Winter & Companuy,  had condensed the 50 guidelines to 28 and organized them in outline form, Hewitt said. On Sept. 15 there would be a joint work session with the DDA, the planning commission, and the city council to address the subject of the A2D2 process, with a final decision expected at the Oct. 19 city council meeting.

Ray Detter, who’s president of Downtown Citizens Advisory Council, gave his report from the council’s most recent meeting, touching on a variety of topics, that included the design guidelines.

Ray Detter: Detter reported that the Downtown Citizens Advisory Council, at its meeting the previous evening, reaffirmed its support for the Fifth Avenue underground parking structure as well as the Fifth and Division streetscape improvements. He said the advisory council hoped there would be no more additional free-standing parking structures downtown. As far as what goes on top of the structure, he reiterated the view that it should be a residential development. He reminded the board that the final draft of the A2D2 design guidelines would be presented at the Kerrytown Concerthouse later that evening from 7-9 p.m. – the guidelines were expected to go before city council for final approval sometime in October. He said that the DCAC expected the result to be a compulsory process, with voluntary compliance. Detter also alerted the board to an issue concerning an alley between Washington and Liberty streets. The alley, Detter said, was to be kept open, according to a condominium agreement – the alley is jointly owned by the city of Ann Arbor and McKinley, an Ann Arbor development firm. The recent installation of bollards in the alleyway, he said, made access by pedestrians and emergency vehicles difficult. Detter said he’d be raising the issue of the alley in the future. [The issue was also raised at a recent Ann Arbor city council caucus meeting by Sabra Briere (Ward 1), who'd reported on a meeting she'd had with Detter.]

Parking Demand Management

Roger Hewitt, chair of the operations committee, reported that a couple of different parking demand managment strategies would be abandoned: valet parking and magnetic striped parking validation tickets. The parking validation tickets had too many technical problems, and based on initial assessment and conversations with other muncipalities who’d tried the system, the DDA had decided not to move forward with them.

The valet parking pilot that started in December 2008, but was put on hiatus over the summer, would not be restarted. It had never achieved reasonable numbers for use and was a money loser.

Board member Russ Collins offered some anecdotal evidence based on offering valet parking for season subscription holders for the Michigan Theater – Collins is executive director of the theater. He said that midway through the season they’d parked a total of four cars and they’d canceled it with no complaints. Valet parking, Collins contended, only works if people were accustomed to the pattern. A pattern, he continued, could only be established if valet parking were offered over a sustained period of time, and to do that, there had to be a willingness to absorb a significant financial loss, which didn’t seem prudent given the current economic climate.

Board member Jennifer Hall asked why valet parking had not been tried during the evenings. Hewitt replied that using valet parking for event parking, say for a concert, wasn’t feasible because everyone would want to arrive and leave at the same time and the service would be swamped.

Energy Saving Grant Program

Sandi Smith, who co-chairs the partnerships committee with Russ Collins, reported that the energy grant program would continue. Applications are due Sept. 30. The program helps downtown businesses by providing financial assistance in getting an energy audit for their buildings and in implementing recommendations.

Mutually Beneficial Committee

Sandi Smith reported that the mutually beneficial committee, which is charged with the task of renegotiating the parking agreement between the city of Ann Arbor and the DDA, has had no activity.

Thanking Rene Greff

The board passed a resolution honoring Rene Greff’s service on the DDA board, which ended this past July. It had begun in 2000, and included a turn as chair from 2003-04. Board member Sandi Smith said she appreciated Greff’s willingness “to say whatever you believe.” Our loss, Smith said, is Ypsilanti’s gain. [Greff and her husband, Matt, live in Ypsilanti – they own the Arbor Brewing Company on Washington Street in Ann Arbor. Greff is now a board member of the Ypsilanti DDA.] Board member Jennifer Hall expressed her hope that Greff would return to address the board from time to time as a business owner in Ann Arbor’s downtown. Greff, who was in the audience, replied, “Thank you, I will!”

Present: Gary Boren, Newcombe Clark, Jennifer Hall, Roger Hewitt, John Splitt, Sandi Smith, Leah Gunn, Russ Collins, Keith Orr, John Mouat, John Hieftje.

Absent: Joan Lowenstein.

Next board meeting: Noon on Wednesday, October 7, at the DDA offices, 150 S. Fifth Ave., Suite 301. [confirm date]

The city of Ann Arbor's CFO, Tom Crawford, prepares his laptop to make projections – which were blue, in both senses. (Photo by the writer.)

Ann Arbor City Council work session (Aug. 13, 2009): Towards the end of the city council’s Thursday evening work session on a possible city income tax, city administrator Roger Fraser asked the council for some direction. Here’s what he wanted to know: Should city staff place an item on the council’s Aug. 17 agenda that would allow the council to put the tax before the voters in November?

In response to Fraser, Marcia Higgins (Ward 4) said she wanted more dialogue on the exact percentage of the tax to be levied, even if the ballot language specified “up to 1%.” Carsten Hohnke (Ward 5) followed by saying it was clear that his colleague, Sandi Smith (Ward 1) had requested additional case-study scenarios for individuals and that he himself had wanted some cross-checking of commuter numbers with the city’s transportation staff. “We don’t do the community any favors by taking the conversation to the next level without more information,” Hohnke said. Sabra Briere (Ward 1) then advised that she thought an emotional reaction could be addressed, if people first became more knowledgeable – she herself had had problems correctly interpreting the charts in the city income tax study.

Finally, Tony Derezinski (Ward 2) declared, “Let’s cut to the chase. I think there’s a consensus we should not have it before us on Monday.” And no one disagreed with him.

Barring surprise, then, the Aug. 17 council meeting will end without the council authorizing the placement of a city income tax on the November ballot. That will be the last opportunity council has to make such a decision. It’s therefore almost certain that the ballot in November will not include a question on a city income tax for Ann Arbor. Based on council discussion during the work session, a city income tax will, however, eventually be given serious consideration as a May 2010 ballot issue.

In light of the prospect of a May 2010 ballot question, it’s worth noting the kinds of issues councilmembers raised with Fraser and the city’s CFO, Tom Crawford. We’ve also folded into this report an account of a recent meeting sponsored by the Ann Arbor Area Chamber of Commerce about the proposed tax.

Rather than portray the content of the work session chronologically, we’ve grouped topics thematically, and included the issues that councilmembers raised with city staff.

Ann Arbor city administrator Roger Fraser, at the city council work session on the city income tax. (Photo by the writer.)

What’s Behind Consideration of Alternative Funding?

Fraser sketched out briefly the rationale behind holding the work session about the possibility of a city income tax. Sabra Briere (Ward 1) had indicated her concern, Fraser said, that the council had not had a chance to talk amongst themselves about the implications for such a tax.

The current conversation about such a tax, Fraser said, could be traced back to at least December of 2008 when the city staff had indicated that they felt there were serious implications in the second year (FY 2011) of the two-year budget cycle they were planning at that time. The challenge they faced back in late 2008 and early 2009 was to trim 10% of expenditures over the course of two years. That strategy already included such measures as the closing of the senior center, the closing of Mack pool, and the elimination of 14 firefighters.

“We owe it to the community to describe what we’re facing,” Fraser said. The choice, Fraser continued, was to “live with these changes, or pony up more.”

When Would a City Income Tax Start to Help?

In light of the dire forecast for FY 2010, which Crawford had given at the council’s last meeting, Sabra Briere (Ward 1) wanted to know what kind of projection Crawford could make about when the implementation of an income tax would have an impact.

After implementing a city income tax, Crawford said, he estimated something like 70% compliance in its first year. It might take two, three, or even four years to achieve full compliance – that would depend on the effectiveness of the system. When could it be implemented, assuming it were on the ballot and passed in November 2009? Not until January 2011, said Crawford, which is already into FY 2012, leaving the projected hole in the budget for FY 2011 unaddressed. Briere suggested that this meant that passage of a city income tax in November 2009 would have no impact on the elimination of the senior center, closing of Mack Pool, or the reduction of the firefighting force by 14 people.

While Crawford agreed with Briere’s characterization of how the timing of additional revenue would work, he said that the anticipation of revenue could have an impact on how they treated the FY 2011 budget. Staff would not necessarily recommend cuts that could easily be undone the next year.

Leigh Greden (Ward 3) asked whether the implementation of a city income tax would have an impact on plans to lay off 14 firefighters. Was this a means to fill that gap in a short time? Crawford stressed that the point of his presentation to council at its previous meeting was to make clear that even after eliminating firefighter positions, there’d be a new problem to deal with.

Crawford stressed that an income tax is a tool to fix a hole, not a means to get revenue to undertake new things.

Fraser added that there was nothing on the horizon to give them optimism, and that the city needed to plan for something it could live with for the next 3-5 years.

Sandi Smith (Ward 1) chats with Lisa Allmendinger of the Ann Arbor Journal before the start of the Aug. 13 city council work session on the city income tax. (Photo by the writer.)

Alternative for Raising Revenue: Headlee Override

The Headlee Amendment limits how fast property tax revenue can rise to no more than the rate of inflation. The effect is that even though a millage rate of N might be authorized, only some percentage of N is actually collected. It’s possible to override the Headlee Amendment and restore the full millage rate of N. In Ann Arbor’s case, the authorized millage is 7.5 mills, but Headlee has reduced this to around 6.8 6.1682 mills.

Sandi Smith (Ward 1) confirmed with Crawford that the Headlee override, if passed in November 2009, would be effective July 2010. Crawford pointed out that even if the Headlee override were passed, revenue would remain subject to the same state laws and would thus consistently go down. He characterized a Headlee override as doing more of the same thing that they were already doing. On the other hand, an income tax, said Crawford, would stabilize things. Fraser added that the greatest benefit to an income tax is the redistribution of the burden, with the achievement of the greatest chance that revenues would keep pace with inflation.

However, along with the possibility of implementing a city income tax, Fraser said, it was also fair to contemplate asking voters to override the Headlee Amendment. That would restore the millage rate collected for general operating expenses to the full 7.5 mills specified by the charter.

Smith wanted to know how much additional revenue a Headlee override would mean for the city. Answer: $6 million.

General Constraints on Revenue Generation

The city is also constrained – like all other municipalities in Michigan – by state law, which prohibits the city from enacting anything other than property or income taxes. People often suggest, said Crawford, that the city apply a tax to University of Michigan football tickets – but state law would prohibit the application of such an entertainment tax. The replacement of a portion of the property tax with a city income tax, Crawford said, would mean a re-balancing of the tax burden – away from property owners.

Comparison to Other Communities

Sandi Smith (Ward 1) requested a comparison for similar cities like Madison, Wisc. and Austin, Texas, both for individuals and small/medium-sized companies on the overall tax burden. With respect to individuals, Crawford said that there’d been a 10-city comparison for individuals – including Chapel Hill, N.C., Boulder, Colo. and Madison, and that Ann Arbor was somewhere right in the middle with respect to disposable income and property tax burden.

In response to a question from Tony Derezinski (Ward 2) about what Ann Arbor might learn from a comparable city like Lansing, Crawford said that Lansing had been particularly useful in benchmarking the cost of administering the income tax. According to the city’s income tax study, the estimated cost of administering the city income tax would be around 7.5% of receipts.

In response to questions from Margie Teall (Ward 4) and Derezinski, Fraser and Crawford explained that it was difficult to benchmark – even against similar communities. Fraser said that Wisconsin works out support services for communities like Madison in a way that Michigan did not. Asked whether Madison had a city income tax, Crawford was not sure.

[When The Chronicle followed up by phone with the Madison city clerk's office, we learned that Madison does not levy a city income tax – it's precluded by state law. Wisconsin cities do, however, have the ability to increase the state sales tax for their benefit.]

University of Michigan’s Role

Crawford gave a quick overview at the start of the work session before fielding questions from council members. One highlight was the fact that 40% of the land inside the city is not subject to property tax. That 40% is owned either by the University of Michigan or the city itself.

Tony Derezinski (Ward 2) did a quick ballpark calculation on the $12 million to $14 million expected to be generated by collecting an income tax from non-residents: roughly 1/3 of those non-residents were UM employees, so that meant roughly $4 million to $5 million in additional revenue would be attributable to UM. Derezinski wanted to know from Crawford how that stacked up against the projected revenue loss as a result of the Pfizer property sale to UM, which took it off the tax rolls. Answer: Around $2 million per year was lost by the city of Ann Arbor with that sale.

Fraser emphasized that UM is an asset to the community – its main economic and cultural strength. UM generates around 1,600 to 2,000 new jobs every year, he said, adding that a city income tax could take advantage of that job growth.

Stephen Rapundalo (Ward 2) wanted to know what kind of fluctuations in revenue from a city income tax there’d been in communities without as strong a university presence as Ann Arbor. Crawford pointed to the stabilizing effect of not just UM, but also the fact that Ann Arbor was the county seat. Crawford said that they’d focused just on Ann Arbor, and looked at tax return data in Ann Arbor from 2001 through 2007, the last year data was available. There’d been a steady 1-2% taxable income increase each year, Crawford said. That did not take into account the impact of the Pfizer departure, which happened after the last year when data was available.

Crawford also explained with respect to Pfizer’s departure that private activity on the property, which now belongs to UM, could not have a property tax applied. That was different, Crawford said, from a situation in which the city of Ann Arbor leased property to a private enterprise – that private activity would be subject to property tax. But personal property that a company might bring into the former Pfizer space – if they were renting it from UM – would be subject to personal property tax.

City Income Tax from Different Groups’ Perspectives

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Commuters

Tony Derezinski (Ward 2) focused Crawford’s attention on the non-resident scenario on page 53 of the city income tax study, which indicated that between $12.4 million to $14.8 million would be collected from the 75,000 commuters who come to Ann Arbor to work – 21,000 of them at the University of Michigan and 54,000 at other workplaces. Derezinski noted that the other 22 cities in Michigan who taxed city income levied the tax on non-residents as well. [It's not required that a city income tax be applied to non-residents.] Derezinski said that he’d worked in two other cities where he’d not lived at the time: Lansing (living in Ann Arbor) and Grand Rapids (living in Muskegon).

Crawford said Ann Arbor was a good candidate for an income tax because of the number of commuters.

Carsten Hohnke (Ward 5) also focused in on Derezinski’s point of asking commuters to contribute to fund services in the city where they work, but do not live. If that was a rationale, then accuracy of information about the number of commuters is important, Hohnke said.

So Hohnke wanted to know how confident Crawford was in the estimate that there were 75,000 commuters. Crawford explained that the consultant on the study started with census data from the year 2000 and used formulas for inflows and outflows.

Hohnke pointed out that the number of commuters is also a statistic that comes up often in connection with transportation planning, so he wanted to know if the figure of 75,000 had been synched up with the transportation numbers for a reality check. Crawford indicated that this comparison hadn’t been done, but that he’d make a note to do it.

Seniors and Students

Leigh Greden (Ward 3) asked for clarification about what income is subject to a city income tax. Specifically, Greden was interested in understanding whether pension and retirement benefits would be subject to the tax. Crawford began his response by emphasizing that the city does not give tax advice to individuals. The basic picture, said Crawford, was that all salary, bonuses, wages, and commissions would be subject to a city income tax. That would not, Crawford said, include pensions.

Greden asked for clarification about whether this applied to private as well as public pensions or Social Security benefits. Crawford said he’d follow up on getting specific answers to Greden’s question as well as one from Sabra Briere (Ward 1) that came right on its heels: Are Pell Grants and other student loans subject to the tax? Crawford will be checking into that.

A rule of thumb on what tax was owed, Fraser said, was that whatever income is taxable for federal income tax purposes would also be taxable for a city income tax.

Before the working session started, Sabra Briere (Ward 1) shared a light moment with Kathy Griswold, former member of the Ann Arbor Public Schools board. (Photo by the writer.)

Sandi Smith (Ward 1) also wanted to know if residency for purposes of paying a city income tax was determined by where you vote. Crawford explained there were two basic ways of determining residency: (i) voter registration, and (ii) whether a homestead exemption for state taxes was claimed.

Smith explored with Crawford the possibility that a city income tax might encourage students not to register to vote.

Crawford said that with respect to students, who might not necessarily be earning large amounts of money, their income might not rise above whatever minimum threshold was established above which taxes would be owed – especially in light of the application of exemptions. Smith requested that another scenario be developed by Crawford for a student who was just on the edge of the income threshold.

Greden confirmed with Crawford that for seniors who were disabled, there could possibly be a double-exemption that applied.

Other Government Agencies: DDA and LDFA

Sandi Smith (Ward 1) asked about the effect on two entities that rely on the capture of tax-increment financing – the Downtown Development Authority (DDA) and the Local Development Finance Authority (LDFA). Crawford said that an income tax would mean about $700,000 less for the DDA, but that the LDFA would not be affected – they don’t capture any of the general operating millage levied by the city of Ann Arbor. Crawford added that there is no automatic provision for reimbursement of money to the DDA.

Businesses: Donuts?

Stephen Rapundalo (Ward 2) focused on the 54,000 commuters out of the total of the estimated 75,000 who are not UM workers. He acknowledged that for those businesses there existed the possibility that they might be scared away from locating within the city. They might choose instead to set up just across the line and still enjoy the cachet of an Ann Arbor mailing address. In response to Rapundalo’s request for an assessment of that kind of impact, Crawford characterized the issue as a difficult topic to get into, because there was no definitive data. Take Grand Rapids, Crawford said, which is “a lively city,” where there was no “donut effect” of businesses locating outside the city boundaries. For some businesses, Crawford said, an income tax would be beneficial – if the business owns its own building.

The question of whether a city income tax would force employers to increase wages was somewhat parallel, Crawford said, to the question of whether a property owner would lower rents when the general operating millage part of the property tax was eliminated. In the specific scenario involving a renter, which is laid out in the city’s 2009 income tax report, an estimated 50% of the property tax savings enjoyed by landlords would be passed along to renters due to market forces. The 50% estimate reflects an approach of “minimizing the maximum error.”

Sandi Smith (Ward 1) elicited from Crawford the clarification that personal property taxes pay into the general operating millage, and that this kind of tax on corporate entities would also be reduced. Asked whether this contributed to a burden shift away from corporations, Crawford allowed “That’s fair to say.” But Crawford stressed that any change in burden occurs because the same rules apply to everyone.

Mike Anglin (Ward 5) asked Crawford to lay out the corporate tax changes. Answer: Corporations would pay a 1% tax on earnings for business that occurs inside the city. Fraser added that businesses are free to define what business occurs in the city. He also pointed out that for businesses that own property in the city, it’s a benefit – their property taxes would decrease in the same way as those of individuals.

Chart from the city income tax study showing a burden shift among residents, non-residents and corporations. (Chart links to the city's 2009 income tax study.)

Carsten Hohnke (Ward 5) focused on the roughly $6 million currently contributed by corporations to the city’s general operations fund through property tax, which was estimated to drop to $3 million in the chart on page 36. Crawford stressed that the situation for every corporation would be different – corporate entities that owned their own buildings would benefit by not having to pay the general operating property tax millage, but those that did not wouldn’t necessarily benefit.

It is residents, said Crawford, that are the interesting category – it includes both renters and homeowners as well as landlords of residential property. Note: In terms of direct payment of taxes, the property-tax bar (blue) for “Residential” includes property taxes paid by people who live in their own homes and by landlords of residential properties in the city. The income-tax bar (yellow) for “Residential” includes income taxes paid by people who live in their own homes in the city, and by people who rent their homes in the city.

Hohnke returned Crawford’s focus to the burden-shift issue: “Is there not a net decrease in burden to corporations [that aren't in the business of providing housing]?”

Crawford explained how the projections of income tax that corporations would pay are just an estimate – to which Hohnke responded, “I understand it’s an estimate.”

Hohnke confirmed with Crawford that given the parameters that could be changed under Michigan’s Uniform City Income Tax Ordinance, there was a lack in flexibility to dial the burden up and down across various categories – residents, non-residents, and corporations.

Constraints on Mechanics of City Income Tax Implementation

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What Are the Parameters?

With respect to how the income tax would be implemented, Crawford reiterated a couple of times during the session that there was a limited set of choices to make: (i) exemption rates, (ii) the minimum level of income above which the tax would be applied, and (iii) the rate of taxation – which is prescribed by state law at a maximum of 1% for residents and 0.5% for non-residents.

Tony Derezinski (Ward 2) wanted to know why some of the other Michigan cities on page 16 of the city’s income tax study were levying rates greater than 1%. Crawford explained that those rates had been grandfathered in when the state law had changed to limit the rate to 1%. From the report:

2008 Tax Rates  

               ADOPTED      RES     CORP       NON      EXEMPT

Albion            1972     1.00     1.00     0.500     $   600
Battle Creek      1967     1.00     1.00     0.500     $   750
Big Rapids        1970     1.00     1.00     0.500     $   600
Detroit           1962     2.05     0.20     1.025     $   600
Flint             1965     1.00     1.00     0.500     $   600
Grand Rapids      1967     1.30     1.30     0.650     $   750
Grayling          1972     1.00     1.00     0.500     $ 3,000
Hamtramck         1962     1.00     1.00     0.500     $   600
Highland Park     1966     2.00     2.00     1.000     $   600
Hudson            1971     1.00     1.00     0.500     $ 1,000
Ionia             1994     1.00     1.00     0.500     $   700
Jackson           1970     1.00     1.00     0.500     $   600
Lansing           1968     1.00     1.00     0.500     $   600
Lapeer            1967     1.00     1.00     0.500     $   600
Muskegon          1993     1.00     1.00     0.500     $   600
Muskegon Heights  1990     1.00     1.00     0.500     $   600
Pontiac           1968     1.00     1.00     0.500     $   600
Port Huron        1969     1.00     1.00     0.500     $ 1,200
Portland          1969     1.00     1.00     0.500     $ 1,000
Saginaw           1965     1.50     1.50     0.750     $   750
Springfield       1989     1.00     1.00     0.500     $ 1,500
Walker            1988     1.00     1.00     0.500     $   750

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Which Constraints Are Specified in the Ballot Question?

Stephen Rapundalo (Ward 2) wanted to know which of the three parameters had to be specified in the ballot language. Fraser explained that the ballot language would simply ask the community whether it wanted to implement an income tax of up to 1%, which would be augmented by some additional language to the effect that the implementation of the income tax would thereby eliminate the general operating millage. The three choices, Fraser said, would not typically be ballot items.

Asked by Margie Teall (Ward 4) if they could not put the exemption levels in the ballot language, Fraser said that he was not sure, but that generally it’s not done.

Putting the Income Tax on the Ballot: If and When

Tony Derezinski (Ward 2) pointed out there were two questions concerning whether to put the city income tax on the ballot: If and when.

Should the Question Be Put on the Ballot?

Stephen Rapundalo (Ward 2) said that implementation of a city income tax would reflect “a fundamental shift in how we do business.” He contrasted the greater importance of that shift with the importance of one-time major capital expenditures, which were already sufficiently difficult and complex that it was crucial to study all of the facts and information surrounding them.

He concluded that it was important to get the information out in front of the residents – even though the question on the ballot would be simple, the implications would be complex. “We owe it to the public to put it out there,” he concluded.

There seemed to be a general sentiment in the room that the question should be put before voters.

When Should the Question Be Put on the Ballot?

Tony Derezinski (Ward 2) got clarification from Crawford that the soonest a city income tax could be placed on the ballot would be November 2009, when another tax proposal – the Washtenaw Intermediate School District (WISD) millage – would also be voted on.

The first date that such an income tax could be implemented is January of 2011 – which is the 2012 fiscal year. Implementation in January 2011 assumes that the ballot question would appear for the November 2009 election. In response to questions from Margie Teall (Ward 4), Crawford clarified that a January 2011 implementation date would also be consistent with passage of an income tax measure at the May 2010 election as well. The reason that some amount of time was required between passage of the measure by the voters and implementation, said Crawford, is that there is currently no system in place for actually collecting the tax.

Derezinski characterized the “when” question as a matter of choosing between November 2009 and May 2010. May 2010 would be “tight but doable” as far as implementing in January 2011, Derezinski said.

Derezinski said he thought that the more people looked at the numbers, the more support there’d be for the proposal and that it would “sell itself.” Derezinski said he thought it would have less chance of passing in November due to the short time frame for making the case for the tax, as well as the fact that there was already a tax proposal on the ballot for November – the WISD millage. So it was in part a strategic consideration, he said.

Teall clarified what impact a positive May 2010 vote would have on the implementation of a city income tax. Could it still be implemented in January 2011? Crawford said that it would still be possible. Missing a January 2011 implementation, he clarified for Teall, would mean that the next opportunity would be in January 2012 – it’s an annually collected tax.

Marcia Higgins (Ward 4) noted that there needed to be a decision Monday, but she did not think they had a consensus about what the correct percentage should be that would be specified on the ballot. Fraser pointed out that the ballot language would simply specify “up to 1%.”

Meta-Talk about Council’s Work Session

Christopher Taylor (Ward 3) and Mayor John Hieftje did not attend the work session.

In Hieftje’s absence, Marcia Higgins (Ward 4) chaired the meeting as mayor pro tem. Prompted by a question from an attendee in the audience about whether the meeting had been publicized, Higgins opened the meeting by asking city administrator Roger Fraser whether it had been posted. Frazier indicated that the meeting had been noticed on the board downstairs in the lobby as well as published on AnnArbor.com and the city’s website. A voice from the audience cheerfully reported: “I saw it on the web this afternoon!”

Ann Arbor Area Chamber of Commerce

Earlier this week, the Ann Arbor Area Chamber of Commerce held two information sessions about the city income tax, inviting local CPAs to explain how it would work and to field questions from chamber members. The Chronicle attended a session on Tuesday, where the half-dozen people who showed up expressed concerns about the tax.

Brad Smith, an attorney with the Ann Arbor office of Brinks Hofer Gilson & Lione, said he was shocked at how candid the feasibility study was about the goal of “sticking it to commuters.” His office employs between 30-35 people – most of them commute, he said, so they would pay the tax and not get any benefit from a property tax break.

Eric Sosenko, another attorney with Brinks Hofer, noted that their business wouldn’t get a break either – they rent their office on South Main, so they wouldn’t see a savings in property taxes to offset the income tax. They love being downtown, he said, but if the tax is passed, they’ll take a serious look outside the city as they grow and require larger space.

Some people at the chamber session expressed skepticism that landlords would pass along their property tax savings to tenants, which they said seems to be an assumption in the feasibility study. However, Ron Dankert, president of Swisher Commercial, said it’s possible the income tax would dampen downtown office rates for a different reason. If the tax prompted tenants to consider moving, he said, landlords might respond by lowering rents.

Several people commented on the administrative fee mentioned in the feasibility study, saying that it seemed like a large percentage and wondering why it was so high. Sue Biondi of Wright Griffin Davis and Co., who gave Tuesday’s presentation to chamber members, agreed that the fee seemed significant, and didn’t know what would account for that.

When the chamber meetings took place, the organization was still gathering feedback through an online survey sent to its members. Late in the week, the chamber announced some of the survey results: About 300 members took the survey, and 57% said that a city income tax would affect their decision to work at a place of employment in Ann Arbor. Of the respondents, 62% said that such a tax would affect their decision to operate or expand their business in Ann Arbor. On the question of whether they’d support a city income tax, 74% of respondents indicated that they would not.

Kyle Mazurek, the group’s vice president of government affairs, said that if city council votes to put the tax on the November ballot, the chamber’s public policy committee would weigh in on whether to support or oppose it. The chamber did not endorse city income tax proposals that were floated in 1997 and 2004.

Work can result in clutter, but councilmembers are admonished to clean up their own mess. To be fair, a few months ago, these signs showed up in several places around city hall, suggesting that the issue of clutter is a building-wide issue, not limited to the city council. (Photo by the writer.)

Although Ann Arbor city staff continue to work with the consultant on the report, The Chronicle is making the preliminary version available to the public for two reasons: (i) any differences between the preliminary version and the final version should reflect the possible back-and-forth city staff had with the consultant, and (ii) given the upcoming League of Women Voters debate on July 22, we deemed it important that city council candidates have equal access to the report in order to prepare for possible debate questions. One of our suggested questions focuses on how candidates would evaluate a possible city income tax.

Links to the body of the report (with searchable text) as well as a scanned image of the complete report with appendices appear after the break.

Text searchable PDF of report body 4MB

PDF scan of report including appendices 11MB

In 1997, a similar effort was undertaken by the University of Michigan School of Public Policy. Chronicle reader and Stopped.Watched. correspondent Vivienne Armentrout lent her perfect-bound copy of that 73-page document to The Chronicle, which we’ve scanned and converted to a 4 MB .pdf file: [1997 Ann Arbor Income Tax Study].

Although the document itself does not appear to feature any credit for authorship beyond the UM School of Public Policy, in a note to The Chronicle, Armentrout attributed it to Edward Gramlich, who went on to be appointed to the Federal Reserve Board of Governors by President Bill Clinton in 1997, a post he resigned in August 2005.

We have not examined the 1997 study in any detail, but note that it’s rich in historical background (referenda were held in Ann Arbor in the late ’60s and early ’70s, both of which failed) and offers plenty for mathematics mavens to sink their teeth into: ” … we transformed the equation 2.1 by taking the logarithm of both sides.”

We suggest that one use of comments on this article could be to summarize some bite-sized sections of the 1997 study for other readers.

Although the data is five years old, the 2004 study will be useful to Chronicle readers who would like to familiarize themselves with the relevant concepts involved.  Because of the multiple charts and graphs presented in landscape orientation, readers might find on-screen viewing somewhat cumbersome and should consider printing out selected portions.