Ann Arbor District Library trustees Ed Surovell and Rebecca Head. (Photo by the writer.)

Josie Parker briefed the board during her director’s report, saying she wanted trustees to be aware of the issue and of its potential impact on the library’s finances. Legislation has been introduced, but it’s not yet clear whether lawmakers will decided to eliminate the tax completely or simply reduce it. Also unclear is what – if any – options would be available to taxing authorities to replace that lost revenue. Parker noted that when Pfizer closed its Ann Arbor operation several years ago, the library also took a hit. Pfizer had been the city’s largest taxpayer.

Parker’s report also included news about a lawsuit brought by Herrick District Library against the Library of Michigan. The state library has decided not to appeal an August court of appeals decision, which ruled in favor of Herrick’s position. Herrick had challenged new rules that would have changed how public libraries qualify for state aid. The changes were seen as a threat to local control, by taking away certain decision-making authority from local libraries. AADL was the only individual library in the state to file an amicus curiae brief in support of Herrick.

There was no board discussion about a potential response to the Ann Arbor Downtown Development Authority’s excess tax capture decision. At issue is the interpretation of a city ordinance about tax increment finance (TIF) capture in the DDA’s downtown district. In July, the DDA board passed a resolution stating its opinion that the city’s ordinance does not require the DDA to return any money to taxing authorities in its TIF district – despite the fact that the DDA had already returned excess TIF revenue earlier this year.

The AADL is a taxing authority in the DDA’s TIF district and has been consulting with its legal counsel over the implications of that decision, as well as a possible response. Queried by The Chronicle after Monday’s meeting, Parker said the AADL has made no decision yet on the issue. [For background and analysis of the excess tax capture, see Chronicle columns: “Taxing Math Needs Another Look” and “TIF Capture is a Varsity Sport.”]

Director’s Report

AADL director Josie Parker told the board that it’s important to understand the implications of the possible elimination of the state’s personal property tax, which is being discussed by Gov. Rick Snyder’s administration and state legislators. The business tax is levied on non-permanent items like computers, industrial equipment and furniture. It contrasts with the state’s real property tax, which is levied on land and buildings.

The library has a dedicated millage, and would be among the taxing authorities affected by any reduction or elimination of the tax. The AADL is authorized to levy up to 1.92 mills. Its current budget includes a levy of 1.55 mills, unchanged from the previous year.

If the tax were eliminated, the library would lose an estimated $637,000 in revenue, Parker said.

It’s possible that the tax could be phased out over a period of several years, or that other revenue sources would be proposed by the state to replace it. But with an estimated $1.2 billion in tax revenue loss statewide, Parker said it’s slowly dawning on communities that if the personal property tax is eliminated, it would likely mean a loss of services too – ranging from police and fire services, to libraries. That’s especially true for municipalities and other taxing entities where the personal property tax makes up a large share of their total revenues, Parker said – in some cases, as much as 50%. Some libraries in the state have told the Michigan Library Association that they’d have to close completely, she said.

Earlier this month, David Zin, chief economist for the Michigan Senate Fiscal Agency, issued a memo summarizing an analysis of the legislation – Senate Bill 34 and Senate Bill 142. He writes: “Individual local units’ reliance on personal property taxes varies significantly, with smaller and more rural local units generally less reliant on personal property taxes than more developed urban areas.” [.pdf of Zin's memo]

It’s a complicated issue, Parker said, but one that the board needs to be aware of.

At Monday’s meeting, trustee Ed Surovell acknowledged that there are problems with the tax, though he indicated it is not onerous. He said his accountant complains that the depreciation schedules are difficult – requiring, for example, that computers be depreciated over 10 years, which is far longer than the computer’s life cycle. His business, Edward Surovell Realtors, pays about $16,000 to $18,000 in personal property taxes, he said. Large manufacturers like GM, with factories in which the equipment is far more valuable than the buildings, would pay significantly more.

As a private citizen, Surovell said, he’s concerned about how the tax might be replaced. However, he said he didn’t think legislators will repeal it because they’re not smart enough to figure out how to replace it. If you don’t want to tax businesses, he added, you’ll have to tax citizens. “I don’t think the current legislature will want to do that.”

Parker reported that lobbyists are being told that taxes would have to be raised locally, to replace the state personal property tax. This might be done by raising the current caps on the amount that local taxing authorities can levy. Parker said there seems to be no real recognition that the communities hit hardest will have the least ability to impose higher taxes on residents.

Parker said there are voices in Lansing that are clearly comfortable with saying that no matter how much pain it causes, these steps are necessary to achieve their goals. In Ann Arbor, those opinions aren’t often heard, she said, but it’s important to know what people in other parts of the state – including legislators – are saying.

Barbara Murphy wondered what the intent was behind repealing the tax. Rebecca Head said the rationale being used is that the personal property tax is not conducive to job growth. Surovell expressed skepticism: “That’s a great statement because it’s not arguable – it’s not grounded on anything.”

Several groups have mobilized on the issue. The Michigan Library Association (MLA) has joined a raft of other organizations in the Replace Don’t Erase Personal Property Tax Coalition. Other groups in the coalition include the Michigan Municipal League, Michigan Association of Counties, Michigan Association of School Administrators, Michigan Association of School Boards, Michigan Association of Chiefs of Police and the Michigan Professional Fire Fighters Union.

Parker is chair of the MLA’s legislative committee, which has made the issue its top priority, according to a statement on the association’s website.

On Sept. 20, the day after AADL’s board meeting, Governmental Consultant Services Inc. – the Lansing firm led by Kirk Profit that serves as a lobbyist for the MLA and other entities, including the city of Ann Arbor and Washtenaw County – issued a legislative briefing that addressed this issue. The document, authored by GCSI staff Erik Hingst and Nell Kuhnmuench, was sent to the MLA’s legislative committee. From that briefing:

As we have discussed, Senator Mike Nofs (R-Battle Creek) introduced Senate Bill 34 back in January that would eliminate the collection of Personal Property Taxes (PPT) in Michigan. Now that the Legislature has returned from the summer recess, the conversation regarding the outright repeal or phase out of PPT is beginning to escalate.

Clearly, the estimated $1 billion in projected revenue losses to local units of government would have a catastrophic impact on their operations and the state. While it would appear that the Administration is leaning toward replacing a portion of local revenues, an outright alternative dollar for dollar funding stream does not seem to be a priority for those advising the Governor.

The Michigan Municipal League, Michigan Townships Association and direct local units of government (through their respective Mayors and their elected and appointed officers) continue to call for a complete, constitutional replacement of any and all revenue. To date, neither the Senate nor the House has had any meaningful committee hearings on the issue. However, the likelihood of the legislature approving a replacement to be placed on the ballot would in our estimation be remote at this time.

The more likely scenario will be for the legislature to embrace the utilization of increased revenue the state estimates receiving from the replacement of the Michigan Business Tax with the new Corporate Income Tax and the elimination of a number of credits (advance manufacturing and the battery credits) that resulted from the adoption of the new corporate tax. The legislature could also establish a form of a local option for PPT through the expansion of local millage caps.

Regardless of the final product, the library community will have to be engaged in the conversation throughout the process. While the Association’s participation in the press conference calling for the replacement of revenue was an important first step, educating the members of the Senate and the House on the impact changes in this specific revenue stream will have on libraries will be critical! It will also be important for lawmakers to understand that District Libraries (and their specific, direct millages) will be in particular jeopardy.

We have begun our efforts on behalf of the Association with direct communication with Lieutenant Governor Brian Calley (the point person from the Administration on the issue) and his staff. Specifically, we have asked that they not forget District Libraries in particular when they draft their definition of “local units of government” so that they are equally eligible with other local units of government for whatever replacement revenue stream may be utilized.

We cannot stress enough the importance of the entire library community reaching out to their respective Senate and House members to emphasize the importance of replacing PPT revenue with a meaningful, reliable alternative!

Director’s Report: Herrick Lawsuit

Parker’s report also included news about a lawsuit brought by Herrick District Library against the Library of Michigan. The state librarian announced at a recent Library of Michigan board meeting that the state library won’t appeal a Court of Appeals decision, which was handed down in August and ruled in favor of Herrick. Rather than being appealed to the state Supreme Court, the lawsuit has ended, Parker said, and that’s good news. [.pdf of appeals court opinion]

By way of background, in 2008 the Library of Michigan announced new rules that would have changed how public libraries qualify for state aid. In 2009, Herrick District Library in Holland filed a lawsuit against the state library, challenging those new rules. Herrick argued that the state library has no authority to set these rules, and is taking away local control from district libraries.

From previous Chronicle coverage:

The lawsuit focused on rules requiring that a public library provide the same level of service to all areas it serves.

Libraries have the authority to contract with areas outside of its millage boundaries to provide varying levels of service. A contracting municipality, for example, could receive limited library services for its residents, and pay an amount lower than what’s levied by the library millage within the library district’s boundary. The new rules prohibit this approach – and if a library continued to provide contracted services at a lower level, it would not qualify for state aid.

Herrick’s lawsuit argues that the Library of Michigan and the state’s History, Arts and Library Department – which previously housed the state library but which has since been dissolved – lack statutory authority to set rules for determining how state aid is distributed to public libraries. The suit also argues that neither the state constitution nor the statutes that govern public libraries require that libraries deliver the same level of service to contracting jurisdictions. Finally, the lawsuit contends that because the new rules are vague and overly broad, they are unconstitutional.

At its December 2010 meeting, the AADL board voted to file an amicus curiae – or “friend of the court” – brief in support of the Herrick library’s position. Parker has provided previous updates on this lawsuit, including the board’s meetings in March 2011 and April 2011.

At Monday’s meeting, Parker noted that while four library cooperatives filed briefs in support of Herrick’s position, AADL was the only individual library to do so. She said she was proud that the board had stepped up and understood the issues. It’s clearly an historical decision with broad implications for other government agencies as well, she said.

Now, state aid will be distributed to libraries in compliance with the court of appeals ruling. More information about that method is expected to be communicated to libraries in October, Parker said.

Because of uncertainty associated with the status of state aid, AADL’s budgets for the past few years – including the budget for the current fiscal year, which the board approved in May – have not included any anticipated revenues from state aid. The library’s fiscal year runs from July 1 through June 30. [.pdf of 2011-12 budget] However, the library has continued to receive some state aid. In fiscal 2010-11, the library recorded $$67,562 in state aid, including $45,180 earmarked for the Washtenaw Library for the Blind and Physically Disabled, which AADL operates. That’s down from a total of $71,634 in FY 2009-10.

Finance Report

Ken Nieman – AADL’s associate director of finance, human resources and operations – gave a brief financial update during the meeting. Through the end of August, the library has received $7,060,073 in tax revenues, or about 63% of what’s budgeted for the fiscal year, which runs from July 1, 2011 through June 30, 2012.

The library’s unrestricted cash balance stands at $12,755,062.

Nieman noted that four line items are over budget: employee costs, purchased services, communications and postage. Those expenses are expected to come back in line with budgeted amounts by the end of the fiscal year. [.pdf of full finance report]

There were no comments or questions from board members about the report.

Board Meeting Date Change

The library board typically meets on the third Monday of each month. On the agenda for the Sept. 19 meeting was a resolution changing the meeting dates for October and November. In each case, the meetings were moved to the next day – Tuesday, Oct. 18 and Tuesday, Nov. 22.

Board members didn’t provide a reason for the change during the meeting. In a follow-up email to The Chronicle, board president Margaret Leary clarified that scheduling issues drove the decision – she would have been unable to attend the meetings on their regular dates, and asked that the meetings be shifted.

Outcome: The board voted unanimously to change the meeting dates in October and November.

Present: Rebecca Head, Nancy Kaplan, Margaret Leary, Barbara Murphy, Jan Barney Newman, Prue Rosenthal, Ed Surovell. Also AADL director Josie Parker.

Next meeting: Tuesday, Oct. 18, 2011 at 7 p.m. in the library’s fourth floor meeting room, 343 S. Fifth Ave. [confirm date]

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Mary Hathaway spoke to the Ann Arbor District Library board about efforts to create a public gathering place atop the underground parking structure adjacent to the downtown library. (Photo by the writer.)

The commentary focused on what’s now being called the “Library Green” – an effort to create a public park atop the underground parking structure that’s being built on South Fifth Avenue, adjacent to the downtown library building. Advocates for the park conveyed that they’ve taken to heart the concerns of the library, and hope to partner with AADL to develop an area that benefits the public and helps the library to thrive.

The board began its meeting with a closed session, in part for the purpose of getting advice from AADL’s legal counsel. In her written report to the board, AADL director Josie Parker noted that the library is considering the legal and financial implications of the Ann Arbor Downtown Development Authority’s decision regarding “excess” taxes captured in the DDA’s tax increment finance (TIF) district.

Board members did not discuss this issue, but voted to schedule another closed session at their Sept. 19 meeting again to hear advice from legal counsel.

Public Commentary

It’s rare that people address the AADL board during public commentary time, but on Monday night four people attended in support of a public park – now dubbed “Library Green” – atop the city-owned Library Lot, adjacent to the downtown library. Three of them addressed the board. Alan Haber, who has frequently been the point person for this effort, attended the meeting but did not speak during public commentary.

Will Hathaway said he was representing a group of people who’ve been talking for several months about how to create a park on the land next to the downtown library, where an underground parking structure is currently being built – the parking structure is set to be completed in early 2012. He thanked AADL director Josie Parker for meeting with him and his mother, Mary Hathaway, about the project, and noted that AADL board member Ed Surovell had also met with them and had been very generous with his time. Hathaway said they’d come away from those meetings with a better understanding of the issues and challenges that the library faces, and he wanted to convey to the board how those conversations had a big impact on his group.

The group has been giving a lot of thought on how to address the library’s concerns, and how development of the Library Lot could have a synergy with the downtown library branch, Hathaway said. The group has also met with other people who have experience with downtown developments, he said. They’ve worked up sketches for possible development of a public park, taking to heart the aspirations and hopes of the library. Everyone in the group cares about the library and wants it to thrive at the center of Ann Arbor, he said, and that’s what he wanted to convey to the board.

Mary Hathaway said she agreed with her son’s statement, and that the group hoped to be partners with the library. Among other things, the group viewed part of their mission as addressing some of the problems that were found at another nearby public park, she said. [Hathaway did not identify the park by name, but was likely referring to Liberty Plaza at the southwest corner of Liberty and Division. It is often a hangout for panhandlers, and aside from certain events – like the Sonic Lunch concert series – the park is not widely used by the general public.]

Odile Hugenot Haber told the board that the group is now referring to the project as “Library Green” in hopes of attracting more support. [Previously, it has been called the "community commons."] Their vision is of a park with a playground, fountains, a theater and a “beautiful room” to hold events like weddings and community functions, Haber said. The more activities that take place there, the more diverse mix of people it will draw, she noted. Haber also addressed what she called a great fear that many people had of the homeless. Before coming to Ann Arbor she lived in Berkeley, California, she said, and helped start a movement called “Homeless, Not Helpless.” Many homeless people have skills, she noted, and we need to look at them not as bums, but as people who are down and out, yet who can still contribute to society. Haber urged the library to participate in developing the vision for a public commons.

Board members did not respond to public commentary during the meeting.

Director’s Report

Josie Parker had provided a written report to the board prior to Monday’s meeting. Included in it – but not discussed at the board meeting – was a note that the library is considering the legal and financial implications of the Ann Arbor Downtown Development Authority’s decision regarding “excess” taxes captured in the DDA’s tax increment finance (TIF) district. The AADL board began its meeting with a closed session to discuss the opinion of its legal counsel, as well as for labor negotiations.

Although the board did not discuss the issue during the public portion of its meeting, board members scheduled another closed session at its Sept. 19 meeting that includes getting the opinion of legal counsel.

At issue is the interpretation of a city ordinance about TIF capture in the DDA’s downtown district, and a decision by the DDA board made at a special meeting held on July 27, 2011. At that meeting, the DDA board passed a resolution stating its view that the city’s ordinance did not require the DDA to return money to taxing authorities in its TIF district – which the DDA had already returned earlier this year. The language of the resolution was somewhat vague, stating that “no redistribution to relevant taxing authorities is required.” The AADL is a taxing authority in the DDA’s TIF district.

Parker had attended the July 27 special meeting, and afterwards told The Chronicle that the library would be working with its legal counsel, Hooper Hathaway, in preparing a response to the DDA’s decision. AADL board member Nancy Kaplan also attended the DDA’s July 27 meeting. Then-president of Washtenaw Community College, Larry Whitworth, told The Chronicle after the DDA’s July 27 meeting that WCC was disturbed by the DDA’s decision and that the college – as one of the taxing authorities in the TIF district – would also be responding to the DDA. And in a phone interview with The Chronicle on Tuesday morning, Aug. 16, county administrator Verna McDaniel said the county’s legal counsel is also reviewing the DDA’s decision.

By way of additional background, earlier this year – at a May 20, 2011 DDA board meeting– board members had voted to accept a method of excess TIF calculation that amounted to roughly $473,000 of excess TIF capture since 2004, to be divided among taxing authorities that have a portion of their tax revenues captured in the DDA TIF district: Washtenaw County, Washtenaw Community College, and the Ann Arbor District Library. The library’s share was about $75,000. The calculation also called for $711,767 to be returned to the city of Ann Arbor, but the Ann Arbor city council waived that repayment.

The Chronicle has published two op-ed pieces on the subject, arguing that the method the DDA used to calculate the excess TIF was not accurate: “Taxing Math Needs Another Look” and “TIF Capture is a Varsity Sport.”

Director’s Report: Other Items

Parker’s written report also noted that Eli Neiburger, AADL’s associate director of IT and product development, has accepted an invitation to serve as a member of the Digital Public Library of America (DPLA) Beta Sprint review panel. The DPLA’s steering committee is working to form a national digital public library – Parker participated in a working group for the effort earlier this year. The Beta Sprint project is looking for ideas and prototypes to show how the DPLA could index and provide access to a range of content. Based on the review panel’s recommendations, the DPLA steering committee – which includes Paul Courant, dean of libraries for the University of Michigan – will ask the creators of those ideas and prototypes to make presentations at a public meeting on Oct. 21, 2011 in Washington, D.C.

The director’s report also mentioned that Parker was asked write a blog post for the TechSoup for Libraries website. The post – titled “Utopian Benchmarks Are Not the Goal” – reflected on her experience as the representative for public library directors in the Public Access Technology Benchmarks Initiative, a consortium of 13 organizations working on a project funded by the U.S. Libraries Program of the Bill and Melinda Gates Foundation.

In addition to her written report, Parker mentioned three other items at Monday’s meeting. A project that Parker had first described at the board’s Dec. 20, 2010 meeting – a six-part public series of lectures, documentary film screenings and other events titled “From Bluegrass to Broadway: A Film History of America’s Popular Music” – has received funding from the National Endowment for the Humanities (NEH). Neiburger and Tim Grimes, AADL’s community relations and marketing manager, are advisors on the project, which is spearheaded by the Tribeca Film Institute.

Parker noted that this is the second NEH project to which library staff are connected – Grimes is also helping develop an NEH-funded project titled “Bridging Cultures Bookshelf: Muslim Worlds.” That effort will identify books and other resources that will ultimately be distributed to at least 1,000 public libraries nationwide, designed to spur discussion and programming about the Muslim culture. As a result of Grimes’ participation, AADL is one of six libraries chosen to serve as focus groups for the project. The focus groups will help gauge reaction to the books and themes proposed for the project. To be part of two NEH projects ”for a library our size, it’s pretty remarkable,” Parker said.

Parker also reported that she had attended a reception last week for the new Ann Arbor Public Schools superintendent, Patricia Green. She described Green as enthusiastic about being here – Parker said she looks forward to getting to know Green.

Finally, Parker gave the board an update on a decision the library staff made in 2004. Prior to that time, AADL contracted with a local collection agency to collect on accounts of unreturned materials and overdue fines. Once an account is turned over to a traditional collection agency, it’s all about the money, Parker said, and that wasn’t satisfactory to the library, which was interested in recovering its materials. So in 2004 AADL began contracting with the library division of Unique Management Services. [According to its website, the firm has trademarked a "Gentle Nudge" process to recover materials and fines.]

Parker said she just received a report from the firm for the period of February 2004 through July 2011. During that time, the return on investment for the library has been $7.12 for every dollar the library has paid the company. She said AADL will continue that service.

Responding to a question from board member Jan Barney Newman, Parker said that between 2004 and July 2011, the library submitted 10,233 accounts for collection. During that time, about $600,000 in cash was recovered, and about $122,000 in materials. She noted that collection is more difficult in a college town, with a more transient population. Parker also said it was important to put these numbers in the context of the library’s entire circulation – about 9 million items each year. Most people who use the library return their materials and pay their fines, she said.

Financial Report

Ken Nieman, AADL’s associate director of finance, HR and operations, gave a brief financial update to the board, referring to a written report provided in the board packet. [.pdf of finance report] He described the month of July as fairly typical, ending with a fund balance of $7.9 million and an unrestricted cash balance of $6.7 million. He noted that three items are currently over budget – employment costs, purchased services and communications – but are expected to fall back in line by the end of the fiscal year. The library’s fiscal year runs from July 1 through June 30.

Board members had no questions about the financial report.

December Meeting Date

The board voted on two items during its Aug. 15 meeting: (1) setting a closed session for its Sept. 19 meeting to discuss the opinion of legal counsel and for labor negotiations; and (2) changing its December meeting date from Monday, Dec. 19 to Thursday, Dec. 15. Both votes were unanimous, without discussion.

Present: Rebecca Head, Nancy Kaplan, Jan Barney Newman, Prue Rosenthal, Ed Surovell. Also AADL director Josie Parker.

Absent: Margaret Leary, Barbara Murphy

Next meeting: Monday, Sept. 19, 2011 at 7 p.m. in the library’s fourth floor meeting room, 343 S. Fifth Ave. [confirm date]

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At issue is the interpretation of a city ordinance about TIF capture in the DDA’s downtown district, and a decision by the DDA board made at a special meeting held on July 27, 2011. At that meeting, the DDA board passed a resolution stating its view that the city’s ordinance did not require the DDA to return money to taxing authorities in its TIF district – which the DDA had already returned earlier this year. The language of the resolution was somewhat vague, stating that “no redistribution to relevant taxing authorities is required.” The AADL is a taxing authority in the DDA’s TIF district.

Parker had attended the July 27 special meeting, and afterwards told The Chronicle that the library would be working with its legal counsel, Hooper Hathaway, in preparing a response to the DDA’s decision. AADL board member Nancy Kaplan also attended the DDA’s July 27 meeting. Then-president of Washtenaw Community College, Larry Whitworth, told The Chronicle after the DDA’s July 27 meeting that WCC was disturbed by the DDA’s decision and that the college – as one of the taxing authorities in the TIF district – would also be responding to the DDA.

By way of additional background, earlier this year – at a May 20, 2011 DDA board meeting – board members had voted to accept a method of excess TIF calculation that amounted to roughly $473,000 of excess TIF capture since 2004, to be divided among taxing authorities that have a portion of their tax revenues captured in the DDA TIF district: Washtenaw County, Washtenaw Community College, and the Ann Arbor District Library. The library’s share was about $75,000. The calculation also called for $711,767 to be returned to the city of Ann Arbor, but the Ann Arbor city council waived that repayment.

The Chronicle has published two op-ed pieces on the subject, arguing that the method the DDA used to calculate the excess TIF was not accurate: “Taxing Math Needs Another Look” and “TIF Capture is a Varsity Sport.”

This brief was immediately after adjournment of the Ann Arbor District Library board, which meets in the downtown AADL building at 343 S. Fifth Ave. A more detailed report will follow: [link]

At issue is the interpretation of a city ordinance about tax increment finance (TIF) capture in the DDA’s downtown district.

The decision at the special meeting, which was unanimously approved by the nine board members present, came after a closed session with Lax that lasted nearly an hour. The language of the resolution is somewhat vague, citing the city’s ordinance only in general terms and stating that “no redistribution to relevant taxing authorities is required.”

In separate phone interviews with The Chronicle following the meeting, three board members confirmed that the DDA’s position, as expressed in the resolution, is that the city’s ordinance does not require the DDA to redistribute TIF money to other taxing authorities. The DDA’s interpretation would render moot any argument about the method used in calculating that redistribution.

Earlier this year, the DDA had calculated that the city of Ann Arbor – as one of the taxing authorities – was owed $711,767, but the city waived payment of that amount. The DDA did return a total of $473,000 to Washtenaw County, Washtenaw Community College, and the Ann Arbor District Library. The resolution passed at Wednesday’s special meeting is consistent with the DDA’s position that the return of that money was not actually required.

Executives from the library and WCC, in phone interviews with The Chronicle following Wednesday’s meeting, indicated that they’ll be following up with a response to the DDA board’s decision.

Brief Background on Excess TIF

By way of background, at its May 2, 2011 meeting, was poised to ratify a new contract with the city of Ann Arbor, under which the DDA would continue to manage the city’s public parking system.  The DDA board was informed that day of a previously unnoticed provision in the city’s DDA ordinance – Chapter 7 of the city code. Chapter 7 appears to limit the amount of taxes the DDA can capture in its TIF district. Excess TIF capture is to be divided among the taxing authorities in the district.

Briefly put, the mechanism of a tax increment finance (TIF) district allows an entity like the Ann Arbor DDA to “capture” a portion of the property taxes in a specific geographic area that would otherwise be collected by taxing authorities in the district. The tax capture is only on the increment in valuation – the difference between the value of property when the district was established, and the value resulting from improvements made to the property.

At a May 20, 2011 meeting, the DDA board voted to accept a method of excess TIF calculation that amounted to roughly $473,000 of excess TIF capture since 2004, to be divided among the following taxing authorities, which have a portion of their tax revenues captured in the DDA TIF district: Washtenaw County, Washtenaw Community College, and the Ann Arbor District Library. At its May 30 session, the Ann Arbor city council voted to waive the $711,767 in excess TIF capture that was owed to the city of Ann Arbor based on that method of calculation.

The Chronicle has published two op-ed pieces on the subject, arguing that the method the DDA used to calculate the excess TIF is not accurate: “Taxing Math Needs Another Look” and “TIF Capture is a Varsity Sport.”

However, the resolution passed by the board at Wednesday’s special meeting appears to express the position that no calculations of any kind are required, because the DDA is not required to redistribute TIF capture to other taxing authorities. In its entirety, the resolution reads:

Resolution Regarding DDA TIF Distribution

Whereas, the city has an ordinance on tax increment financing,

Resolved, the DDA accepts the general guidance of its DDA attorney regarding the tax increment financing distribution, and based on the city ordinance, no redistribution to relevant taxing authorities is required.

In separate phone interviews with The Chronicle following the meeting, DDA board chair Gary Boren and board members Newcombe Clark and Joan Lowenstein indicated that, based on their current interpretation of the city ordinance, the DDA would not have returned the $473,000 to the other taxing authorities earlier this year.

Ann Arbor’s DDA Ordinance

What does Ann Arbor’s DDA ordinance say about tax capture? From Chapter 7 of the city code [emphasis added]:

(2) Tax increment financing: If the downtown development authority proposes a tax increment financing plan, it shall only plan the use of that portion of the captured assessed value that is due to new construction and improvements to existing buildings after December 31, 1981 to implement the downtown plan and any amendments thereto.

If the captured assessed valuation derived from new construction, and increase in value of property newly constructed or existing property improved subsequent thereto, grows at a rate faster than that anticipated in the tax increment plan, at least 50% of such additional amounts shall be divided among the taxing units in relation to their proportion of the current tax levies. If the captured assessed valuation derived from new construction grows at a rate of over twice that anticipated in the plan, all of such excess amounts over twice that anticipated shall be divided among the taxing units. Only after approval of the governmental units may these restrictions be removed.

After the then earliest dated bond issue of the downtown development authority is retired, the captured assessed valuation prior to the date of sale for that issue shall be returned to the rolls on the next succeeding tax levy.

Tax funds that are paid to the downtown development authority due to the captured assessed value shall first be used to pay the required amounts into the bond and interest redemption funds and the required reserves thereto. Thereafter, the funds shall be distributed as set forth above or shall be divided among the taxing units in relation to their proportion of the current tax levies.

The first italicized chunk of the ordinance (on calculations) has been the focus of previous public discussion and Chronicle analysis. It relates to how calculations are to be performed.

But the resolution approved at the DDA board’s special meeting expresses the view that no redistribution of TIF captured revenue is necessary. Following the meeting in a phone interview with The Chronicle, recently-elected DDA board chair Gary Boren said it’s important not to try to interpret the city ordinance by looking narrowly at a single sentence – the section on calculations – without the context of the entire ordinance.

According to DDA board member Joan Lowenstein, in a phone interview following the meeting, a crucial piece of that context is the second italicized chunk. She said it establishes that first-in-line to be paid is the debt owed by the DDA and other DDA projects, as planned by the DDA. After those payments are made, she explained, any TIF money left is to be redistributed “as set forth above” – that is, according to the first italicized chunk of text.

Lowenstein cited the state’s enabling legislation, which articulates the basic idea that DDA’s are not meant to be able to amass a “war chest” of funds. The state statute reads in relevant part:

The authority shall expend the tax increment revenues received for the development program only pursuant to the tax increment financing plan. Surplus funds shall revert proportionately to the respective taxing bodies.

The DDA is interpreting the Ann Arbor city ordinance, said Lowenstein, in the same spirit of those concepts laid out in the state enabling statute.

Reaction from Other Taxing Authorities

Among the other taxing authorities that have their taxes captured by the Ann Arbor DDA are the Ann Arbor District Library, the Washtenaw Community College, and Washtenaw County.

Josie Parker, executive director of the Ann Arbor District Library, attended the special meeting on July 27. In a follow-up phone interview with The Chronicle, she said the library would be working with its own legal counsel, Hooper Hathaway, in preparing a response to the DDA’s decision made at the special meeting. AADL board member Nancy Kaplan also attended the meeting.

Larry Whitworth, president of Washtenaw Community College, told The Chronicle by phone that he was disappointed by the DDA board’s decision made at the special meeting, and that WCC would be responding to that decision.

Question of Interpretation

Leaving aside the method of calculation, the issue over which the Ann Arbor DDA and the other taxing jurisdictions might still disagree is this: What is the purpose of the calculations section of the ordinance (the first italicized chunk)? The Ann Arbor DDA sees that section as only applying when there are surplus funds – otherwise put, if there’s TIF capture revenue that’s not required for the DDA’s set of projects. And the DDA position essentially is that there are no surplus funds, so there’s no need to perform calculations to determine how that surplus is divided among the other taxing authorities.

Other taxing authorities might continue to see the purpose of that section in the same way that the DDA and most other observers interpreted it initially: It determines how much tax the Ann Arbor DDA is supposed to capture in the first place. That is, the library and other taxing authorities might see that section as comparable to the Scio Township DDA’s TIF capture, which is set up with the stipulation that only 50% of the eligible TIF capture goes to the Scio Township DDA. From the Scio Township DDA Development and Tax Increment Financing Plan:

The Authority proposes that per the current sharing agreement with the taxing jurisdictions, 50% of the eligible non-debt taxes levied on the captured assessed value within the Development Area be used by the Authority. (This sharing agreement will remain in effect unless the Authority reaches a mutual agreement with one or more of the other taxing jurisdictions to apply a different formula for a specified period of time. Any revision of the formula must not jeopardize the Authority’s ability to repay its debt obligations.)

Scio Township supervisor Spaulding Clark explained to The Chronicle in a phone interview on Wednesday that the 50% capture is achieved in actual practice by first distributing 100% of the allowable capture to the Scio Township DDA. Then the Scio Township DDA writes checks for 50% of that amount back to the relevant taxing authorities. The return of that 50%, said Clark, is not contingent on outstanding debt or other obligations of the Scio Township DDA.

Meeting Logistics

The special meeting was called to order by Gary Boren, who was recently elected chair of the DDA board. He described the provision of the Michigan Open Meetings Act under which the board would be entering a closed session – to discuss an attorney-client privileged legal opinion. The DDA’s legal counsel, Jerry Lax, now with Pear Sperling Eggan and Daniels PC, joined the board in their closed session.

After about an hour, the board emerged from its closed session. Board member Joan Lowenstein read the resolution aloud and the board voted unanimously to approve it, without deliberation. The board then immediately adjourned the meeting.

Present: Gary Boren, Newcombe Clark, Roger Hewitt, John Hieftje, John Splitt, Leah Gunn, Keith Orr, Joan Lowenstein, John Mouat

Absent: Bob Guenzel, Russ Collins, Sandi Smith

Next board meeting: Noon on Wednesday, Sept. 7, 2011, at the DDA offices, 150 S. Fifth Ave., Suite 301. [confirm date]

When you drop the ball, even if it's shaped more like a rugby ball than a football, you still have a chance to recover the fumble.

To me, the highlight of that meeting had nothing to do with the site plan or the building design – which has evolved somewhat since The Varsity’s review on June 22 by the city’s newly created design review board.

Instead, I think the most exciting play of the citizen participation game was a kind of Hail Mary forward pass flung down the field by John Floyd, a former candidate for city council. The ball was snagged out of the air, just before it hit the turf, by Tom Heywood, executive director of the State Street Area Association.

I don’t think Floyd and Heywood play for the same team – nobody was wearing numbered jerseys at the meeting – so that might count as an interception, not a completed forward pass.

Floyd’s Hail Mary was this question: What is the benefit to Ann Arbor’s bottom line, if the new taxable value from The Varsity is subject to “capture” through the Ann Arbor Downtown Development Authority’s TIF district?

Heywood then provided a description of how the TIF (tax increment finance) works: the DDA capture is only on the initial increment – the difference between the property’s initial value, and the value after a site is developed – not on its later appreciation. What made it highlight reel material was the run-after-the-catch: Heywood went on to describe how a recently-discovered stipulation in the city’s DDA ordinance (Chapter 7) actually limits the amount of taxes the DDA captures.

Heywood’s explanation of how the limit works was accurate, based on the interpretation of Chapter 7 that has been used by the DDA and accepted by the city of Ann Arbor. That interpretation – a year-to-year calculation of excess tax capture – resulted in a repayment earlier this year of roughly $473,000 from the DDA to the Ann Arbor District Library, the Washtenaw Community College, and Washtenaw County for excess taxes that the DDA had collected. The city of Ann Arbor chose to waive its $712,000 share of the calculated excess.

On the year-to-year interpretation of excess, Heywood was correct when he said that the DDA’s capture depends in part on which projects are added to the tax rolls in a given year. If new projects are spread over multiple years, the Chapter 7 limit does not have as great an impact as it would if they are all completed in a given year.

The tax capture issue, of course, is not within the control of The Varsity’s developer. Its discussion at the citizen participation meeting might be fairly characterized as playing football on a baseball field. I think the response of The Varsity’s development team to the tax issue was the right call: They said they’ll pay the tax bill, and if you’re not happy with the way that taxes are captured and distributed, then you should take it up with your local elected officials.

So after writing a column over a month ago, before that meeting – “Taxing Math Needs a Closer Look” – I’m taking it up, again, with Chronicle readers and my elected officials.

The year-to-year approach to the calculations is, I think, simply not defensible as correct, based on the language of the Chapter 7 ordinance. I think the correct way to calculate excess is based on comparing the total valuation in the district against the forecasted valuation – a cumulative method.

It turns out that I think I dropped the ball on one of the calculations in that previous column. But even factoring in a revised formula, the amount of excess taxes captured in the DDA district since 2003 appears to be around $2 million, instead of the roughly $1.2 million that the DDA and the city of Ann Arbor calculated as the excess.

In this column, I want to discuss briefly the corrected formula. It’s a way to remind elected officials of other taxing authorities – the library board, the county’s board of commissioners, and the community college’s board of trustees – that a significant number of tax dollars are in play for them, not just now, but into the future.

Hurry-Up Offense Style Review

For more detail and historical background, I’d invite readers to begin with the column from early June: “Taxing Math Needs a Closer Look.” Here, I just want to provide enough of an overview to make a revised formula from that column understandable.

Review: Chapter 7

Chapter 7 of Ann Arbor’s city code lays out how the tax capture of the Ann Arbor DDA is limited, or capped. The mechanism used to cap the amount of captured tax is the projected value of the increment in the TIF district, as laid out in the DDA TIF plan. The TIF plan is a required document under the state enabling legislation for DDAs (Act 197 of 1975). From Chapter 7 [emphasis and extra emphasis added]:

If the captured assessed valuation derived from new construction, and increase in value of property newly constructed or existing property improved subsequent thereto, grows at a rate faster than that anticipated in the tax increment plan, at least 50% of such additional amounts shall be divided among the taxing units in relation to their proportion of the current tax levies. If the captured assessed valuation derived from new construction grows at a rate of over twice that anticipated in the plan, all of such excess amounts over twice that anticipated shall be divided among the taxing units. Only after approval of the governmental units may these restrictions be removed. [.pdf of Ann Arbor city ordinance establishing the DDA]

Historically, the Chapter 7 provision has not been applied. But it was noticed this year by city of Ann Arbor financial staff and brought to the DDA’s attention. The result was a repayment of roughly $473,000 from the DDA to the Ann Arbor District Library, the Washtenaw Community College and Washtenaw County. The city of Ann Arbor chose to waive its $712,000 share of the calculated excess.

One major issue is how to understand “growth” as specified in Chapter 7. The city of Ann Arbor and the DDA have used a year-to-year method of defining excess. I think that’s not correct. Instead, I think that the correct way is to use a cumulative method.

Review: Year-to-Year versus Cumulative Approach

In Chart C, the blue bars represent the forecasted valuation of the tax increment on which the DDA tax capture will be based. (The forecasted valuation is included in the DDA TIF plan.) The red line reflects the actual valuation of the tax increment in the district. For future years, the red line reflects the DDA’s current 10-year budget planning document.

Chart C. Blue bars are the forecast valuation in the Ann Arbor DDA's TIF plan. The red line is the actual valuation. For years 2013 and 2014, the DDA's 10-year plan is used. (Links to larger image.)

The easiest way to see the difference between the year-to-year method and the cumulative method is in year 2012. The actual valuation (red line) in 2012 drops compared to 2011. So on the year-to-year method, there can be no excess for that year – no matter what the forecast (blue bars) is. That outcome arises because the year-to-year method incorrectly re-sets the benchmark for calculating the growth rate to the immediately previous year.

The cumulative method, on the other hand, would determine that there is an excess for 2012. Even though the valuation dips from 2011 to 2012, the red line is still clearly higher than the blue bars.

This also highlights the fact that the year-to-year method does not impose an actual cap on the total TIF capture by the DDA for the period of the DDA’s existence. It only imposes a cap on the capture in any given year – which is defined relative to just the preceding year.

If the valuation of the increment spikes in the district, then in the first year of the spike, the year-to-year method calculates an excess valuation due to that spike. But after that spike levels off, the year-to-year method determines there is no excess. And even if an upward growth trend continues, the year-to-year method does not carry forward the excess from previous years in the same way that the cumulative method does.

So Tom Heywood’s comments at the citizen participation meeting for The Varsity were an accurate depiction of the way the city and the DDA have chosen to interpret Chapter 7 – on that interpretation, the timing of new development is significant.

Doubling the Score

If the cumulative interpretation of the Chapter 7 language is correct – and I think it is – then we still have to make a specific interpretation of the part of the ordinance that reads: “If the captured assessed valuation derived from new construction grows at a rate of over twice that anticipated in the plan, …”

It’s especially important because if the condition set forth in the if-statement is satisfied, the consequence is that all of that excess – not just 50% of it – must be divided among the other taxing authorities instead of being captured by the DDA.

I think if we adopt the cumulative interpretation of the ordinance, then the “twice that” clause can be paraphrased as follows: “If the actual valuation in the district is more than twice what the valuation was forecast by the TIF plan to be …”

In Chart C, that means: “If the red line is twice as high as the blue bars.” In spreadsheet terms (link are below), that’s “If Column C is more than twice as much as G …”

The point is, the condition has not yet been met that would trigger the “twice that” clause in the ordinance. But on the formula I used in the previous column to calculate excess, the “twice that” clause was triggered, and had an impact on the calculations. Replacing the formula with the correct one shows a less dire, but still significant impact.

On the original calculations in the previous column, the total amount of excess taxes that had been captured since 2003 worked out to roughly $3 million – as contrasted with the roughly $1.2 that the city and the DDA calculated. The revised calculation, with a correct implementation of the “twice that” clause, works out to $2.05 million. Even if the city of Ann Arbor were to waive its share, that would still work out to an additional $400,000 to be returned to other taxing authorities in the short term: Google spreadsheet: Cumulative Realistic (Revised)

More significant than the short-term picture is the roughly $600,000 a year that would in the future be divided among other taxing authorities instead of being captured in the DDA district. The city of Ann Arbor’s share of that is roughly 60%, or $360,000. Measured in numbers of city staff – whether they’re police officers or planning specialists or field services employees – that works out to almost four full-time employees.

Playing on the Varsity Squad

So what’s the actual answer to John Floyd’s question about possible benefit to the average citizen from The Varsity at Ann Arbor? Well, the current total valuation of the increment in the DDA district is far greater than the forecast in the DDA TIF plan. So a correctly interpreted Chapter 7 would ensure that future projects would effectively add at least half their valuation to the city’s tax base. That means at least half of the taxable value added by The Varsity to the city’s base would effectively be taxed by the city of Ann Arbor – just as properties outside the DDA district are taxed.

A correctly interpreted Chapter 7 would mean that Floyd’s standard critique of new downtown development – that it doesn’t add directly to the city’s general fund – is only half right. A correctly interpreted Chapter 7 would help make a case for increased development in the downtown area – half the added value of that development would go to the taxing authorities that levy taxes, instead of to the DDA.

In the nearly three years that I’ve covered the DDA for The Chronicle, I’ve developed some expectations of how its board and staff might handle certain situations based on past performance. When the Chapter 7 issue was raised by the city of Ann Arbor’s financial staff earlier this year, the DDA handled the calculation of excess in a way that was counter to my expectation, based on past observation.

It was like watching former Michigan football QB Tom Brady taking a snap from center and then tripping over his own feet as he dropped back to pass, then fumbling the ball. But Tom Brady wouldn’t just lie there on the ground and cry like some kind of scrimmage-squad Rudy. He’d scramble after that ball. And that’s what I think the DDA will do now.

It’s certainly what the DDA and the city of Ann Arbor need to do now – recover their own fumble. It’s the difference between playing for the scrimmage squad and playing for the varsity. It means acknowledging the correct way to calculate past excess TIF capture, making other taxing authorities whole, and making clear that the excess will be calculated correctly in the future.

If they don’t do that, a loose ball will still be bouncing around on the field. It could become a political football – and someone else might pick it up and run for a touchdown.

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At a special meeting on Friday, May 20, the DDA had calculated that a total of $1,185,132 should be returned to taxing authorities that levy property taxes in the downtown district. The city’s share of that is $711,767. The council’s resolution states that the acceptance of prior contributions to city projects on this occasion should not be interpreted as a precedent about the return of any future excess TIF capture that would be owed to the city under its DDA ordinance.

The assumptions on which the DDA based its calculations for the excess may not necessarily be acceptable to the other taxing units, which are due – from the DDA’s view – to receive a total of $473,365. Those other taxing units are: the Ann Arbor District Library; Washtenaw County; and Washtenaw Community College.

Those assumptions include the idea that the “excess” should be based on the “optimistic” projections in the DDA’s TIF plan – which reduces the excess compared to the “realistic” projections. The DDA also assumes that the excess should be computed year to year, not cumulatively – which also results in a lower excess amount. [.pdf of table showing DDA's calculations in detail]

It was uncertainty about the status of the excess TIF capture, and the city’s contract with the DDA (under which the DDA operates the city’s parking system) that led the council to delay approving its budget at its May 16 meeting.

This brief was filed from the city council’s chambers on the second floor of city hall, located at 301 E. Huron. A more detailed report will follow: [link]

(Left to right): DDA board members Roger Hewitt, mayor John Hieftje, and Leah Gunn at the special May 27 DDA board meeting. (Photos by the writer.)

The financial part of the contract calls for the city to receive 17% of gross revenues from the public parking system, and would have an initial term of 11 years, with one renewal option for another 11 years. That would end the contract in 2033, which coincides with the DDA’s currently established endpoint.

The contract includes a new underwriting clause for the DDA’s fund balance. Key features of that clause are: (1) it’s applicable only through 2016; (2) it’s triggered if combined DDA fund balance fall below $1 million; (3) the trigger is evaluated based on the annual audit of DDA books in September or October, for the previous fiscal year; (4) if underwriting were triggered, it would take the form of reducing existing payments that the DDA makes to the city; (5) the city’s liability is limited to $1 million annually and $2 million cumulatively; and (6) any money the city is deprived of through this underwriting would be restored to the city, at whatever point the DDA’s cumulative fund balance reaches $4 million.

After brief deliberations, the DDA board voted unanimously to ratify the contract, which now includes the underwriting clause. [.pdf of ratified draft contract]

With that vote, the DDA board also approved a new contract clause that specifies how the DDA board and city council will handle a contractually required consultation between the two groups, in conjunction with parking rate changes. The consultation by the DDA will now be a required agenda item at annual joint working sessions between the DDA board and the city council. Currently, the DDA proposes rate changes, which are automatically enacted, unless the city council vetoes them. The new contract stipulates that the DDA would have sole authority to set rates.

The city council may now ratify the parking contract on Monday, May 31, which would help settle part of the city’s revenue issues in its fiscal year 2012 budget. It would allow the council to finalize its budget on that same evening. [For additional background, see Chronicle coverage: "Ann Arbor Council Defers Action Again"]

Councilmembers Sabra Briere (Ward 1) and Stephen Kunselman (Ward 3) sat in the audience of the DDA’s May 27 meeting. On May 31, the contract could face stiff opposition from at least those two, and possibly other councilmembers. After the DDA’s May 27 board meeting, Kunselman characterized the underwriting clause to The Chronicle as a “no-layoff clause for the DDA.”

Another lingering DDA issue that could result in discussion not just by the Ann Arbor city council – but also by the Washtenaw Community College board of trustees, the Washtenaw County board of commissioners, and the Ann Arbor District Library board – is the return of excess TIF capture by the DDA.

Parking Contract: Background

The DDA board had initially ratified the parking contract at a special meeting held on May 20. The board’s resolution at that time included a contingency that the city of Ann Arbor would provide an amendment to the contract that adequately underwrites the combined DDA fund balance.

The city council was expected to ratify its side of the parking agreement on May 23, at a continued session of a prior meeting that had begun on May 16. The council’s ratification was expected to include the required contingency clause. But the council instead gathered on May 23 and immediately voted to recessand continue the same May 16 meeting again – until May 31. At a May 25 meeting of two “mutually beneficial” committees – one from the city council and one from the DDA board – the committees hashed out additional contract language.

Board chair Joan Lowenstein led off the May 27 DDA board meeting with confirmation from DDA deputy director Joe Morehouse that the meeting had been properly noticed for the public. Morehouse confirmed that the notice had been posted more than 18 hours in advance of the meeting.

Lowenstein noted that the board’s agenda included just one item. She reviewed the recent history that had led the board to convene special meetings on successive Fridays.

By way of additional background, here’s a timeline overview of the more recent history of the attempt to finalize the parking contract. The complete history dates back around two years.

• May 2, 2011 – noon: DDA board is poised to ratify a new parking contract that would transfer 17% of gross revenues from the public parking system to the city of Ann Arbor; however, the board tables the item amid concerns about possible excess TIF (tax increment finance) capture. [link]
• May 2, 2011 – 7 p.m.: City council strikes the parking contract approval from its agenda. [link]
• May 16, 2011: City council begins meeting at which it intends to approve FY 2012 budget; but the council recesses before acting on the budget, to continue the same meeting on May 23. [link]
• May 20, 2011: DDA board convenes a special meeting; the board approves the contract, but in light of a $470,000 obligation due to excess TIF capture, they include a contingency on fund balance underwriting by the city. [link]
• May 23, 2011: City council convenes the continuation of its May 16 meeting, but immediately recesses, likely in order to prevent any discussion of a proposal from Stephen Kunselman (Ward 3) to return responsibility for the public parking system from the DDA to the city of Ann Arbor’s public services area. [link]
• May 25, 2011: “Mutually beneficial” committees from the city council and the DDA board meet and finalize language on fund balance underwriting and required consultation with the city council on rate changes. [link]
• May 27, 2011: DDA board convenes a special meeting and ratifies the contract.
• May 31, 2011: City council has scheduled a second continuation of its May 16 meeting.

At the DDA’s May 27 meeting, Lowenstein reminded the board that they had approved the parking contract with the city – but it was contingent on accepting a provision to underwrite the DDA’s fund balance to prevent the balance from getting too low. Lowenstein reviewed how the two mutually beneficial committees had then met and drafted a revision to the contract that would achieve that underwriting. Ratification of the underwriting clause was the purpose of the meeting, Lowenstein said.

Leah Gunn moved an additional amendment to the contract specifying how the periodic consultation on parking rates would work between the city and the DDA.

Bob Guenzel asked Roger Hewitt to go over both changes to the contract.

Parking Contract: Underwriting Clause

Hewitt noted that the first amendment addresses “backstopping.” The “fund balance” means the combined fund balance, not including the DDA’s housing fund. Hewitt said the amendment stipulates that if that combined fund balance falls below $1 million as confirmed by the annual audit, then the DDA may defer payments to the city up to $1 million in a given year, to a combined total of $2 million. Hewitt noted that the clause applies just for the first five years of the agreement.

From the contract:

4. Financial Obligations of the DDA
…
b. Through Fiscal Year 2015-16, should the DDA’s combined fund balance (excluding the Housing Fund) (“DDA Fund Balance”) fall below ONE MILLION DOLLARS ($1,000,000), as shown by the DDA’s annual audited reports, then DDA may reduce amounts payable to the City under Section 4(a) by amounts equal to the difference between the DDA Fund Balance and ONE MILLION DOLLARS ($1,000,000) (“Withheld Payments”), provided, however, that Withheld Payments shall not exceed (i) ONE MILLION DOLLARS ($1,000,000) in any given fiscal year; or (ii) TWO MILLION DOLLARS ($2,000,000) in the aggregate. The DDA agrees that prior to June 30, 2016, its discretionary grants and projects will not exceed the cost proposed in the DDA 10 Year Plan presented to the DDA Board at its meeting of May 20, unless otherwise approved by City Council.

If at any time during the Term of this Agreement, the DDA Fund Balance exceeds FOUR MILLION DOLLARS ($4,000,000), as shown by the DDA’s annual audited reports, then the DDA shall pay to the City an amount equal to the aggregate Withheld Payments, provided, however, that DDA may delay any portion of such payments that would reduce the DDA Fund Balance below FOUR MILLION DOLLARS ($4,000,000) until such time as the making of such payment would not reduce the DDA Fund Balance below FOUR MILLION DOLLARS ($4,000,000).

Hewitt noted that the DDA would make up deferred payments to the city when the fund balance gets above $4 million.

Sandi Smith, Russ Collins during the brief deliberations at the May 27 special meeting of the DDA board.

Keith Orr drew out the fact that the ability to defer payments applies only to the first five years of the contract, but repayment continues for the duration of the contract.

Guenzel asked Hewitt to elaborate on the part of the clause that limits DDA actions. Hewitt explained that the DDA has some amount of discretionary spending in its 10-year financial plan. That discretionary spending is currently scaled back. That’s essentially what was done at the DDA’s retreat, Hewitt said. What remains in the 10-year plan by way of discretionary spending includes support for the getDowntown go!pass program and consultants on redevelopment of downtown city-owned surface parking lots.

Russ Collins chimed in that the energy saving grants are also included in the discretionary spending. Collins noted that the clause limiting DDA action is meant to ensure that no “rogue streetscape improvements” are undertaken. Sandi Smith noted that currently there’s $400,000 per year designated for discretionary spending. Hewitt observed that the $400,000 is not for specific projects. Guenzel pointed out that additional projects could be undertaken with city council permission.

Parking Contract: Required Consultation

Roger Hewitt explained that the second contract revision was related to an amendment already made to the contract at the DDA’s May 20 special meeting – it added “city council” to the set of entities with which the DDA would consult before enacting any parking rate changes.

2. Operational Powers and Responsibilities Within DDA Parking Area
…
k. Subject to Article 8, applicable law, and City permitting regulations, and after consultation with the City Administrator, City Council, and downtown stakeholders, which may from time to time be identified by either the City or the DDA, the DDA shall determine the rates and hours of parking in the Municipal Parking System and file such rates and hours with the City Clerk and otherwise publish such rates in the same manner as City ordinances, which rates and hours shall take effect thirty (30) days after said filing.

So the amendment that the DDA considered on May 27 basically stipulated that a consultation with the city would come in the form of an agenda item for a standing joint work session established in the contract:

9. Periodic Consultation
…
b. Joint Working Session. As part of the annual established calendar for City Council Working Sessions, City Council shall designate one working session in the fall of each calendar year as a joint working session with the DDA. The agenda for the working session shall be prepared by the City Administrator in accordance with Council Rules and in consultation with the Executive Director of the DDA, provided that such agenda shall include
(i) the DDA’s evaluation of any meter parking rate increases effected during the foregoing year, including, without limitation, the public input associated therewith; and
(ii) a discussion regarding any then-contemplated future meter parking rate increases, which discussion shall satisfy the DDA’s City Council consultation obligation under Section 2(k). It is recommended that a portion of such agenda be dedicated to a discussion of operations under this Agreement and the utility of creating a joint study committee to address areas of mutual interest.

Keith Orr observed that the working session is basically a vehicle for satisfying the provision that requires consultation. Hewitt confirmed that was the case – it’s in the contract so that the city council and public is well-informed about what the DDA intends to do with parking rates and what the rationale is for any changes. Russ Collins said that this communication is in addition to the kind of discussions the DDA would have in public view anyway.

Sandi Smith, who serves on the DDA board as well as on the city council, observed that a consensus had finally been achieved. She thanked Hewitt and the other members of the DDA’s “mutually beneficial” committee – Collins and Gary Boren – for their work. Joan Lowenstein added that Christopher Taylor, on the city council’s “mutually beneficial” committee, has been very helpful.

Outcome: The board voted unanimously to approve the parking contract. [.pdf of ratified draft contract]

Parking Contract: City Council Politics

The new parking contract ratified by the DDA board on May 27 may well see strong opposition on the city council at its May 31 meeting, when the council is expected to take final action on its FY 2012 budget as well as the parking contract. While the city council has formally expressed a view on the financial terms of the contract – at its April 19, 2011 meeting – it has not weighed in formally on other aspects of the contract.

The clause that underwrites the DDA fund balance, which the DDA board approved at its May 27 special meeting, is one part of the contract to which some councilmembers might object. Immediately after the May 27 meeting, Stephen Kunselman (Ward 3) – who sat in the audience along with Sabra Briere (Ward 1) – characterized the underwriting clause as a “no-layoff clause for the DDA.”

City councilmember Stephen Kunselman, and DDA board member Bob Guenzel chat before the DDA's special board meeting on May 27.

Elimination of two staff positions at the DDA is part of a proposal by Kunselman to restore responsibility for the public parking system to the public services area of the city of Ann Arbor. [The DDA has four staff members: Susan Pollay, executive director; Joe Morehouse, deputy director; Julie Uden, management assistant; and Amber Miller, planning and research assistant.] Kunselman’s proposal did not receive any discussion at the council’s May 23 session. But that was only because the council voted to recess the meeting immediately after it started. [.pdf of Kunselman's intended resolution]

As it’s currently framed and worded, Kunselman’s proposal is unlikely to achieve support from a majority on the council. But this basic concept might have some traction on the council, and to some extent even on the DDA board: Assign responsibility for the public parking system to some other entity than the DDA – perhaps a body within the city’s organization similar to the park advisory commission.

A “parking advisory commission” would review and recommend city staff-proposed parking rate changes in a fashion that is parallel to the way that the park advisory commission recommends swimming pool admission fees. That is, the “parking advisory commission” would recommend rates to the city council, which would then give them final approval.

That’s essentially how parking rates are currently handled – the DDA proposes rates to the city council, which then can veto those rates, if it acts within 60 days. Under the new contract, however, the DDA would have the sole authority to set parking rates, albeit after a required consultation with the city council. In her most recent newsletter to her constituents, Sabra Briere (Ward 1) wrote that she felt the contract language gets things backwards:

The parking agreement also removes from Council the ability to reject any change in the parking fees, and requires that the City report to the DDA on how money is spent to maintain the streets in the DDA. Some of us on Council feel that this is backwards, and that the Council should be the responsible body, not the DDA.

I agree with that.

Mayor John Hieftje, who voted for the contract on May 27 as a DDA board member, said at the May 20 special meeting of the DDA board that he thinks the votes are there on the city council to support the contract. It was Hieftje who offered the amendment requiring the DDA to consult with the city council, saying he felt a stronger majority might be achieved with that amendment.

But based on their comments made at council meetings or Sunday caucus gatherings over the last several months, five councilmembers are at least somewhat likely to vote against a contract giving the DDA sole authority to set rates: Briere and Kunselman, along with Stephen Rapundalo (Ward 2), Marcia Higgins (Ward 4), and Mike Anglin (Ward 5). All five are running for re-election this year. Currently, all but Briere will be challenged either in their Democratic primaries, or in November’s general election.

Though not impossible, it would be difficult for Hieftje to reverse his position at the council table on the vote he made at the DDA board table. That same goes for Sandi Smith (Ward 1), who also voted for the contract on May 27 as a DDA board member. And given their intimate involvement in the negotiations with the DDA as members of the council’s “mutually beneficial” committee, it would be difficult for Christopher Taylor (Ward 3), Margie Teall (Ward 4), or Carsten Hohnke (Ward 5) to vote against the contract at the council table.

Of those, the most likely to waver could be Hohnke, who has previously demonstrated a willingness to abandon his committee’s position at the council table. Specifically, on April 19 he voted with the council majority – and contrary to the committee’s advice – on a directive to the committee to pursue a contract that transfered 18% of gross parking system revenues to the city of Ann Arbor.

That leaves Tony Derezinski (Ward 2), whose vote appears to be crucial to achieving the six votes necessary for passage of the contract. Derezinski serves on the partnerships committee of the DDA, and on that basis, might be assumed to lend his support to the contract.

Excess TIF Capture: Regional Politics

An issue as yet undiscussed by any public body except the DDA is excess tax that has been captured in the DDA’s TIF (tax increment finance) district dating back to 2003. The issue was brought to light by the city of Ann Arbor just before the DDA was set to vote on the parking contract on May 2.

Although the DDA has now calculated that the Ann Arbor District Library, Washtenaw Community College and Washtenaw County should be returned a combined $473,000, if the excess is computed differently, that could have an additional million-dollar impact on the DDA’s financial picture. [Chronicle coverage: "DDA Parking Excess Taxes Still Not Done"]

Two crucial decisions underpin the DDA’s calculations: (1) They’re based on the “optimistic” TIF growth projections in the TIF plan, not the “realistic” projections; and (2) They’re based on a year-to-year calculation of excess, not a cumulative calculation.

By not using the “realistic” projections, the calculations inherently favor the DDA. The year-to-year approach to the calculations does not inherently favor the DDA – that depends on the pattern of growth in the district. In the case of the attested pattern of TIF growth in the DDA’s district since 2003, however, the year-to-year calculation favors the DDA.

For its part, the city of Ann Arbor is expected to “forgive” the $711,767 in excess TIF capture from the city – in light of TIF money previously received for city of Ann Arbor projects. But that’s also not completely certain.

And if the other taxing units – the library board, the county board of commissioners, or the Washtenaw Community College board of trustees – scrutinize the calculations, those bodies might conclude that they want to insist on a different method of calculation.

If the DDA winds up needing to return significantly more than $473,000 to those taxing units, it increases the likelihood that the DDA would need to use the “underwriting” clause in the new parking contract.

Present: Bob Guenzel, Roger Hewitt, John Hieftje, John Splitt, Sandi Smith, Leah Gunn, Russ Collins, Keith Orr, Joan Lowenstein, John Mouat

Absent: Gary Boren, Newcombe Clark

Next board meeting: Noon on Wednesday, June 1, 2011 at the DDA offices, 150 S. Fifth Ave., Suite 301. [confirm date]

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