According to the report, the expenditure budget will be approximately $1.3 million higher than originally projected. The increase is due to a $700,000 increase to transportation costs, a $300,000 increase of the substitute budget, and an increase of $300,000 for the health care budget to cover anticipated usage through the remainder of the fiscal year.

The $1.3 million increase in expenditures comes after the trustees had already amended the budget by $2.5 million two months ago, on March 13, 2013, to account for the second quarter financial report.

At its next regular meeting, the board will be asked to take action to amend the general appropriations and approve the third quarter disbursements.

This brief was filed from the board room of the Ann Arbor District Library in downtown Ann Arbor at Fifth and William. A more detailed report of the meeting will follow.

The draft AATA budget provided on Sept. 12 to the city council as a communication item for the council’s Sept. 17 meeting showed a surplus of $22,692 over the budgeted expenses of $33,344,048. The need for the AATA to use $300,000 of unrestricted net assets – to cover the difference between expenditures and revenues –  was prompted by notification on Sept. 14 by the Michigan Dept. of Transportation (MDOT) that a new interpretation of the state’s operating assistance formula would reduce AATA’s assistance by $803,500.

The possibility of the reduction in funding was known previously. At the board’s Aug. 16, 2012 meeting, Charles Griffith had reported from the performance monitoring and external relations committee on the topic. From The Chronicle’s report: “An issue of concern, Griffith said, is the possibility of state operating assistance decreasing for fiscal year 2013, due to a change in the formula the state has been using to distribute money to transit agencies around the state. It could result in a loss of $800,000 in next year’s budget. Griffith said that ‘we have folks working on that,’ and the AATA is working with some of the other transit agencies in the state, and will be attempting to address that going forward.”

About half the reductions in expenses in the final budget, compared to the draft, were made in wage reductions – a total of $294,473. Percentage-wise, the budget for management wages was reduced by 2.79% compared to a 1.24% decrease in non-management wages. That reflects a wage freeze for non-union employees. According to CEO Michael Ford, no reduction in service was required in order to balance this year’s budget.  [Google Spreadsheet compiled by The Chronicle showing contrast by category between draft and final budget.]

Last year, the AATA adopted a budget with a deficit of close to $1 million. At the time, AATA board members characterized the strategy as making investments in service expansion in advance of the transition of the AATA to a new authority incorporated under Act 196 of 1986. The AATA has called a special meeting of the board for Oct. 2, 2012 to make a formal request of Washtenaw County to file the articles of incorporation for the new authority under Act 196.

At the board’s Sept. 27 meeting, board treasurer David Nacht was keen to stress that various initiatives in which the AATA has invested in the past year and in this next year’s budget could not be sustained without the kind of additional funding that could come from a countywide authority.

Based on the draft budget projections for the draft FY 2013 budget – which used the first nine months of actual expenses and revenues with seasonal adjustments – the  AATA expected to finish FY 2012 with a much smaller deficit of  $296,378. That’s about one-third of what was budgeted at the start of last year. But figures through the first 11 months of the year, included in the Sept. 27 board meeting information packet, show that the AATA has incurred a deficit of $1,077,250.

The AATA’s fund balance policy requires it to maintain reserves equal to at least three months’ worth of operating expenses. At the meeting, Nacht indicated that three months of operating expenses would be in reserve at the end of the 2013 fiscal year. The AATA’s controller put the actual amount of reserves at $8 million in the bank.

Also at its Sept. 17 meeting, board approved its work plan for the upcoming year. Key goals include the implementation of the transit master plan (including new governance under Act 196 and securing voter-approved funding), negotiating a new labor contract, building a replacement for the Blake Transit Center in downtown Ann Arbor, and developing a new model for paratransit services.

The work plan also calls for continued cooperation with the Ann Arbor Public Schools to expand student transportation options.

This brief was filed from the downtown location of the Ann Arbor District Library, where the AATA board holds its meetings. A more detailed report will follow: [link]

Reached by email, city administrator Steve Powers indicated that the city’s application had been for three firefighter positions for what he believed to be two-year grant period. Ann Arbor’s unit cost for a firefighter full-time equivalent is $79,599 per FTE. For a two-year grant period, that would translate to almost exactly four firefighters for each of two years. [642,294 /79,599 = 8.06]

Staff for Stabenow and Levin were not able to offer definitive information on the grant period.

Four additional firefighters would bring the total budgeted number in the city of Ann Arbor to 86. The city council approved a fiscal year 2013 budget on May 21, 2012 that provided for 82 firefighter positions.

As part of its approval of the fiscal year 2013 budget, the council passed a resolution that did not modify city administrator Steve Powers’ proposed budget. Rather, it directed Powers to bring forward an amendment to the budget in the future – in case the state of Michigan fire protection funding or the SAFER grant were awarded. The budget resolution directed the administrator to hire up to six firefighters, which in Ann Arbor’s department would amount to $477,594 ($79,599 per FTE). Adding six firefighters would bring the budgeted staffing to 88, which Ann Arbor fire chief Chuck Hubbard has said would be his target.

The council’s next meeting is June 4, 2012. Powers indicated in his email that the exact details of the grant term would be confirmed by May 31.

For a detailed account of the council deliberations on the budget, see Chronicle coverage: “Debate Details: FY 2013 Budget”

Update early May 31: According to city administrator Steve Powers, “The SAFER grant is for two years. The funding will allow the hiring of at least three firefighters and possibly four. Staff will need to review the official award to maximize the number of positions.”

In the couple of weeks leading up to the May 21, 2012 meeting, councilmembers had their hands literally full with the FY 2013 budget. (Photo by the writer, taken on May 18.)

The amendments approved by the council included modifications that added a secretary position to the 15th District Court, increased human services funding by $46,899, added $78,000 to the Ann Arbor Housing Commission budget, and eliminated a contract with RecycleBank to administer a coupon program to encourage residents to recycle.

One resolution – which did not actually modify the budget – simply directed the city administrator to bring a future mid-year budget amendment to add up to six firefighters to the budget – if a federal grant and increased state fire protection allocations materialize.

Amendments that were brought forward, but that did not win council approval, included a proposal to leave money in various city funds, totaling $307,299, instead of transferring that amount to the public art fund. Also failing to win approval was an amendment that would give a specific interpretation to the city’s downtown development authority tax increment finance (TIF) capture ordinance – that would have benefited the city’s general fund by around $200,000. Both of those amendments were brought forward by Stephen Kunselman (Ward 3).

Another amendment that failed would have restored loose leaf collection service in the fall, as well as holiday tree pickup. And an amendment to fund additional police officers also did not succeed. Both of those amendments were proposed by Jane Lumm (Ward 2). Lumm was joined by Mike Anglin (Ward 5) in dissenting on the final budget vote.

The total expenditure budget for FY 2013 as proposed – across all funds, including utilities, solid waste and the like – came to $404,900,312 in revenues against $382,172,603 in expenses.

The originally proposed budget for the much smaller general fund – out of which the city pays for services like fire and police, planning, financial services, administration, parks and recreation – showed $79,193,112 in revenues against expenses totaling $78,869,750 for a planned surplus of $323,362. The following year, FY 2014, had been projected to be basically a break-even year.

The cumulative impact of the amendments approved by the council on Monday night increased expenditures to $79,070,842 against revenues of $79,193,112, for a surplus of $122,270. Below is a detailed list of proposed amendments and outcomes.

• Increase District Court budget by $76,193 to add a secretary position. Outcome: Approved on a 10-1 vote, with Jane Lumm (Ward 2) dissenting. The amendment was put forward by Christopher Taylor (Ward 3).
  The increased expenditure did not identify a source of funds other than to tap the general fund. Rationale for the added position was that it restored a job that had been eliminated when it was uncertain whether Gov. Rick Snyder would appoint a replacement for judge Julie Creal, who resigned in 2011. Joe Burke was eventually appointed on Feb. 15, 2012 to replace her. The argument for adding the position was essentially that Burke needs the support staff.
• Policy Direction: Upon receipt of additional funding for fire protection from the federal or state government, make a future mid-year budget amendment to hire up to six additional firefighters for a total of 88 firefighters. Outcome: Approved on a unanimous vote. The amendment was put forward by Margie Teall (Ward 4).
  The funding for additional firefighters would potentially be a combination of a federal grant – for which the city has applied through a FEMA program called Staffing for Adequate Fire & Emergency Response grants (SAFER) – and possible increases in the state of Michigan’s fire protection allocation to municipalities that are home to state-owned institutions like the University of Michigan. The number of 88 had been identified by fire chief Chuck Hubbard as ideal at a working session conducted on March 12, 2012.
• Define DDA TIF capture on an interpretation of Chapter 7 that’s different from that of the Ann Arbor Downtown Development Authority, add $199,360 to general fund, and add two firefighter positions. Outcome: Rejected on a 3-8 vote. The amendment was put forward by Stephen Kunselman (Ward 3). It got support only from Kunselman, Jane Lumm (Ward 2) and Mike Anglin (Ward 5).
  The interpretation of Chapter 7 was controversial since it was first identified last year by city financial staff as having an impact on the amount of tax increment finance (TIF) capture to which the Ann Arbor DDA is entitled in its downtown district. For more detail see: “Column: Let’s Take Time on Ann Arbor Budget.” The interpretation of the ordinance and method of calculation of the TIF capture proposed by Kunselman would have had a substantial impact on the city’s revenue, as well as that of other taxing authorities in the DDA district, including the Ann Arbor District Library.
• Increase human services allocation by $46,899. Outcome: Approved on a unanimous vote. The amendment was brought forward by Jane Lumm (Ward 2) and Sandi Smith (Ward 1).
  Last year for FY 2012, the council amended the proposed budget to increase human service funding by $85,600, to bring the total allocation to nonprofits providing human services to $1,244,629. Compared to the originally proposed FY 2012 human services amount, this year’s FY 2013 amount is about $39,000 greater. But that reflects a $46,899 decrease from the level to which the council amended the budget last year.
• Decrease mayor/council travel budget by $6,500. Outcome: Rejected on a 2-9 vote. The amendment was brought forward by Sabra Briere (Ward 1), and won support only from Briere and Jane Lumm (Ward 2).
  The amount of $6,500 appears to arise out of an allocation of $550 for each of 10 councilmembers and $1,000 for the mayor. Two years ago on March 1, 2010, as the council was giving direction to then-city administrator Roger Fraser, a proposal was made to direct Fraser to eliminate travel for the mayor and councilmembers. The council decided on that occasion to preserve mayor John Hieftje’s allocation of $1,000.
• Eliminate RecycleBank funding, with virtually no impact this year to the solid waste budget. Outcome: Approved on a 8-3 vote. The amendment was brought forward by Sabra Briere (Ward 1), Carsten Hohnke (Ward 5), Stephen Kunselman (Ward 3), and Jane Lumm (Ward 2). It was opposed by Tony Derezinski (Ward 2), Margie Teall (Ward 4) and Christopher Taylor (Ward 3).
  RecycleBank administers a coupon-based reward program that is intended to increase rates of curbside recycling in the city. At its Sept. 19, 2011 meeting, the city council voted to retain the contract it had signed the previous year with RecycleBank. Leading up to that vote, there had been some interest on the council in canceling the contract entirely – because it was not clear that the impact of the coupon-based incentives was commensurate with the financial benefit to the city. But the council settled on a contract revision that was favorable to the city. The cost of continuing the contract this year would be $103,500. The cost of canceling is $107,200 – $90,000 in an equipment purchase settlement in accordance with terms of the contract and $17,200 for 60 days of contractual notice. Savings will be realized in subsequent years.
• Eliminate $307,299 in transfers to public art. Outcome: Rejected on a 2-9 vote. The amendment was brought forward by Stephen Kunselman (Ward 3) and Jane Lumm (Ward 2). It got support only from its two sponsors.
  The amendment stipulated that the transfers from various city funds into the public art fund would not take place, “notwithstanding city code” – a reference to the city’s Percent for Art ordinance. The Percent for Art ordinance requires that 1% of all capital improvement projects, up to a cap of $250,000 per capital project, be set aside for public art. The amendment would have prevented the transfer of $60,649 out of the drinking water fund, $22,400 out of the stormwater fund, $101,750 out of the sewer fund, and $122,500 out of the street millage fund. The council had re-debated its public art ordinance most recently at its May 7, 2012 meeting, in the context of a sculpture for the Justice Center lobby, which was ultimately approved.
• Increase Ann Arbor Housing Commission budget by $78,000 to offset cost of allocating retiree healthcare costs. Outcome: Approved on a unanimous vote. The amendment was brought forward by Sandi Smith (Ward 1) and Margie Teall (Ward 4).
  The resolution did not identify a source of revenue other than the general fund surplus to pay for the increase. However, the resolution made clear that the increase was for one year only, to give the AAHC time to find additional revenue. The increase to AAHC is intended to offset the additional costs to AAHC from the new method of allocating retiree health costs to different departments – based on where the liability is accruing. For the city’s general fund departments, this resulted in decreased costs this year totaling around $1 million. But for some organizations within the city, like AAHC, it resulted in increased costs. For detail on retiree cost allocation methodology, see The Chronicle’s coverage of a Feb. 13, 2012 working session.
• Count golf course support as parks support. Outcome: Approved with dissent only from Stephen Kunselman (Ward 3). The amendment was brought forward by Carsten Hohnke (Ward 5).
  The background to the amendment is a 2006 administrative policy approved by the council in connection with the parks maintenance and capital improvements millage. Among other things, under the 2006 administrative policy, general fund support for parks will decrease only in concert with the rest of the general fund budget. The council has revised the 2006 administrative policy twice previously. On May 17, 2010, the city council revised the 2006 administrative policy to eliminate the natural area preservation program’s automatic 3% increase, and reset NAP funding to levels proportionate with other programs. And on May 16, 2011 the council revised the 2006 administrative policy to allow non-millage funds to count as general fund support for the parks, for purposes of the policy that require general fund support. The parks maintenance and capital improvements millage will likely be put on the ballot for renewal in the Nov. 6, 2012 general election.
  The result of the other budget amendments that the council passed on the evening of May 21 would have triggered a need to adjust parks funding upwards by $49,000. The budget amendment on golf support did not change the 2006 administrative policy. Rather, it stipulated that the $272,220 included in the FY 2013 budget proposal as a transfer to the golf courses covered the adjustment (the $49,000) that would have been required to meet the 2006 policy.
• Restore non-containerized fall leaf collection and holiday tree pickup, through a one-time use of $383,000 and recurring use of $275,280 money from the solid waste fund. Outcome: Rejected on a 3-8 vote. The amendment was brought forward by Jane Lumm (Ward 2). Joining her in support were only Tony Derezinski (Ward 2) and Mike Anglin (Ward 5).
  The one-time use of funds would be for purchasing two sweeper/pusher vehicles. The amendment also called for recurring use of $275,280 to pay for labor/equipment costs. Of that amount, $25,204 would have gone to fund the curbside pickup of holiday trees. The amendment called for a range of different savings within the solid waste fund that might have been used to fund the recurring costs, including savings from the elimination of the RecycleBank contract.
• Add up to 10 sworn police officers – five to be funded through a federal Community Oriented Policing Services (COPS) grant and five to be funded through reductions in other departments. Outcome: Rejected with support only from Jane Lumm (Ward 2) and Stephen Kunselman (Ward 3). The amendment was brought forward by Lumm.
  The five positions to be added through the COPS grant would have been added only if the grant were awarded. The other five positions would have been funded from non-specific cuts to other city general fund departments: mayor and council ($8,957); 15th District Court ($94,617); public services ($192,265); and human resources ($35,939). The amendment also called for higher cost recovery for officers for which the Ann Arbor Transportation Authority (AATA) contracts.

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That’s right, I’d like to “kick the can down the road.” I suppose it’s a pretty big can. But it’s a short road – only one week.

When kicking the can down the road, be sure it’s a short road and does not contain worms. (Incredible self-portrait action shot by the writer.)

Letting that meeting continue past Monday will be a benefit to the council and Ann Arbor residents, as well as to other public bodies like the Ann Arbor District Library, Washtenaw County, Washtenaw Community College and the Ann Arbor Downtown Development Authority (DDA).

The city charter requires that by the end of that meeting, the council must approve the city budget for fiscal year 2013 – which begins on July 1, 2012. If the council does not act on the budget before the end of the meeting, then according to the city charter, the budget proposed by the city administrator on April 16, 2012 will automatically take effect. Last year, the “second meeting in May” was conducted over the course of sessions on three separate days, and did not end until May 31, 2011.

Last year’s extension of that second meeting in May – achieved  by recessing and reconvening on subsequent days – stemmed from the council’s desire to achieve clarity about issues related to the DDA. The issue centered around tax increment finance (TIF) capture, as well as the contract under which the DDA operates the city’s public parking system.

This year, one of the amendments that’s almost certain to be proposed on Monday – by Stephen Kunselman (Ward 3) – revisits the issue of the DDA’s TIF capture, and provides a recurring revenue source for the city to fund two firefighter positions this year, and perhaps more in subsequent years. Kunselman’s amendment calls for the kind of interpretation of the city’s ordinance on DDA TIF capture for which I’ve previously advocated. [See "Column: Tax Capture is a Varsity Sport"]

So this year, I’d like to suggest that city councilmembers plan now to take advantage of the parliamentary option of recessing their May 21 meeting until May 28 – so that they and the public can give thorough consideration to at least nine other budget amendments (in addition to Kunselman’s DDA/firefighter amendment) that could be brought forward on Monday.

The formal public hearing on the budget was already held and closed on May 7, 2012. It enjoyed the participation of just three Ann Arbor residents. By establishing the May 21 session as an occasion to sketch out the intent and the mechanics of proposed budget amendments, the council would better serve the public’s interest in being able to advocate for or against the various proposed amendments to the budget.

I’d also like to use the occasion of this column to lay out the content of some of the fire protection amendments, and to single out Kunselman’s amendment as one that I think especially deserves the entire council’s support.  

Budget Principle: Recurring versus Non-Recurring

When the city’s chief financial officer, Tom Crawford, talks about the city budget he doesn’t talk only about expenses and revenues. He always bases the conversation on this notion: Are these expenses and revenues recurring or non-recurring?

A simple example of recurring revenue is money from taxes – the city levies taxes every year in a recurrent way. The exact amount might vary based on the economy, but the city’s tax levy will reliably generate money in a way that can be reasonably estimated each year into the future. A simple example of a recurring expense is an employee’s salary. When the city hires someone to do a job – like arrest criminals, or put out fires, or review proposed new buildings – our basic expectation is that we’ll have a recurring need to pay that person’s salary each year.

A simple example of  non-recurring revenue is proceeds from the sale of land. When the city receives a $90,000 payment from the Ann Arbor Transportation Authority for a strip of land in downtown Ann Arbor, the city cannot reliably expect every year in the future that it will have an available strip of land it can sell and that someone actually wants to buy for $90,000. On the expense side, an example of a non-recurring item would be a payment made to induce a police officer to retire earlier than that officer would have otherwise retired. The following year, that payment would not need to recur – because the employee has already retired.

If asked on Monday night to comment during deliberations, one basic principle that Crawford will likely apply to any proposed budget amendment is this: Pay for additional recurring expenses only out of additional recurring revenues.

By way of example, suppose a councilmember were to propose a budget amendment that funds an extra firefighter position (which would cost roughly $80,000) from the proceeds of the land sale to the AATA ($90,000). One way to phrase an argument against that proposed amendment would be simply to say: That’s an attempt to fund a recurring expense from non-recurring revenue.

To be clear, no one on the Ann Arbor city council has proposed funding a firefighter position from the land sale to the AATA. However, at least three different councilmembers have drafted modifications to the FY 2013 budget that would add firefighter positions: Stephen Kunselman (Ward 3), Jane Lumm (Ward 2) and Margie Teall (Ward 4).

Fire Protection – Use of Fund Balance

The two budget amendments drafted by Lumm and Teall are similar, in that they would bring the budgeted number of firefighters from 82 to 88 – for an addition of six, compared to the city administrator’s proposed budgeted levels.  They’re also similar in their approach to paying for the additional firefighter positions. Teall’s resolution stipulates the combination of a federal grant – for which the city has applied through a FEMA program called Staffing For Adequate Fire & Emergency Response Grants (SAFER) – and possible increases in the state of Michigan’s fire protection allocation to municipalities that are home to state-owned institutions.

The state fire protection grant program is based on the fact that state-owned institutions do not generate property tax revenues to the municipalities that must provide those state-owned institutions with fire protection. In Ann Arbor’s case, it’s the University of Michigan that generates no direct property taxes; but Ann Arbor provides fire protection for UM.

However, Teall’s resolution essentially provides direction to the city administration to tap the city’s fund balance reserve –  if a SAFER grant or additional funding from the state is not available or is insufficient. From a draft of Teall’s resolved clause:

RESOLVED, the City increase the General Fund Fire Services Unit FTEs by six, and funding for the positions totaling $477,594 ($79,599 per FTE) be added to the adopted budget, funded from the receipt of additional Fire Protection monies from the State, potential Grant Funds and the use of fund balance, as needed, from the General Fund.

Lumm’s resolution is similar:

RESOLVED, the Administrator’s proposed budget be amended to add six FTEs to the fire department FTE budget (88 FTE total) and $477,594 be added to the fire department GF expenditure budget to fund the expected cost of the six additional FTEs

RESOLVED,  the additional $477,594 in FY 13 GF expenditures be funded in the following priority order: (1) Revenues from the SAFER Grant (2) Revenues from the increase over the Administrator’s budgeted amount in the State Fire Protection Grant  …

Lumm’s draft amendment continues with contingencies for this year based on reducing funds from a possible High Speed Rail Local Match allocation; but it also includes the possibility of drawing on the general fund reserve.

It’s fair, I think, to describe the strategies of Lumm and Teall for funding additional firefighter positions (SAFER grant and increased fire protection grants from the state) as depending on revenues that might be recurring, but that are not yet in hand, and that currently have some uncertainty attached. Their amendments have in common a willingness to backstop that hoped-for revenue with use of the fund balance.

Otherwise put, their amendments have a backstop that would use non-recurring revenue to pay for recurring expenses. In contrast, Kunselman’s fire protection amendment does not depend on the general fund reserve as a backstop.

Fire Protection – Use of Recurring Revenue

In terms of the number of firefighters, Kunselman’s fire protection amendment is less ambitious. It seeks to add just two firefighter positions. However, his amendment identifies a recurring revenue source – the additional revenue that would be distributed to the city of Ann Arbor, if the city’s ordinance regulating the DDA’s TIF capture were interpreted in a particular way.

By way of background, in broad simple strokes, the DDA “captures” taxes that are levied in its downtown district by other taxing jurisdictions. But the DDA does not capture all the taxes levied. It captures only the taxes on the increment between the baseline value of a property and the value of built improvements on a property. And the Ann Arbor DDA captures taxes 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. In this way, it captures taxes that would otherwise go to the Ann Arbor District Library, Washtenaw County, Washtenaw Community College and the city of Ann Arbor.

The city’s ordinance on DDA tax capture appears to limit how much tax can be captured, based on the actual increase in value of property in the district, compared with the projected value in the DDA’s official TIF plan. From the relevant clause from Chapter 7 of the city code [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]

Last year, the impact of Chapter 7 was pointed out for the first time by city financial staff. It resulted in a combined refund of roughly $473,000 from the DDA to the Ann Arbor District Library, Washtenaw Community College and Washtenaw County. The city of Ann Arbor chose to waive its $712,000 share of the calculated excess. I argued in a column last year that the method of calculation for the excess was wrong, and that the amount returned should have been even greater. [See "Column: Tax Capture is a Varsity Sport"]

Subsequently, the DDA reversed its legal position and contended that no money should have been returned at all. The DDA’s position is based on the following clause of Chapter 7:

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.

Without delving into the details of how these TIF calculations work, Kunselman’s budget amendment calls for a Chapter 7 interpretation that is essentially consistent with the one I’ve argued for in the past. It results this year in roughly $200,000 more for the city’s general fund, which Kunselman proposes to use to fund two firefighter positions. From Kunselman’s draft resolution:

RESOLVED, That City Council directs the DDA to interpret and apply Chapter 7 of City Code using:

• both real and personal property,
• the “realistic” capture projection from the 2003 DDA Tax Increment Financing (TIF) Plan,
• a cumulative comparison of projected capture to actual capture; and
• consideration of only debt service payments for TIF related projects (i.e. exclude all debt service for the construction, maintenance, and management of the City’s parking system).

RESOLVED, That City Council directs the City Treasurer to distribute future TIF revenue to the DDA only up to the amount that would be realized in the plan plus any increases that are permissible in Chapter 7;

RESOLVED, That City Council directs the City Treasurer to distribute the excess amounts of future TIF revenue to the taxing authorities from which they were captured; and

RESOLVED, That the increased revenue to the General Fund in the amount of $199,360 be utilized to increase the Fire Department expenditure authorization in FY 2013 and to increase the authorized number of Fire FTEs by 2 positions.

Based on this “cumulative” approach to Chapter 7, the amount of additional revenue will recur.

So it’s fair to think of Kunselman’s proposed Chapter 7 interpretation as roughly approximating the following: From this point forward, new development in the DDA district will directly benefit the district’s taxing jurisdictions – by an amount equal to half the TIF that the DDA would otherwise capture on that new development. Considering all jurisdictions that have their taxes captured by the DDA, the city of Ann Arbor’s rough proportional share (across all funds) is about 60%. So the city of Ann Arbor’s rough benefit from the future new development would be about 30% of the TIF that the DDA would otherwise capture.

Four major projects in downtown will be completed in the next year or two, resulting in additional recurring revenue that the city of Ann Arbor could budget. Those four projects are: the Landmark Building, The Varsity, City Apartments, and Zaragon West.

If Ann Arbor’s proportional share of captured taxes is 60%, what about that other 40% of the TIF?

Inter-Governmental Cooperation

Other than the city of Ann Arbor’s share, the other 40% of the taxes captured by the Ann Arbor DDA are levied by the Ann Arbor District Library, Washtenaw County, and Washtenaw Community College.

The way that the Chapter 7 interpretation played out last year did not serve the city of Ann Arbor’s long-term interests for collaboration and cooperation, in the context of the city’s natural regional partners. Last year, when the Chapter 7 issue arose, the issue should have been identified for all parties who had a stake in the issue. Then, a mutual understanding could have been reached – by the  Ann Arbor District Library, Washtenaw County, Washtenaw Community College, the city of Ann Arbor, and the Ann Arbor DDA – about the interpretation and method of calculation for excess TIF capture.

Instead, when the Chapter 7 issue was first identified, the method of calculating excess TIF was unilaterally decided by the DDA, with the implicit endorsement of the city of Ann Arbor. Also decided unilaterally was the subsequent interpretation of Chapter 7 by the DDA as not requiring any TIF to be returned – last year or in the future. At the time, Larry Whitworth, who was then president of Washtenaw Community College, told The Chronicle that he was disturbed by the DDA’s decision. As recently as March 19, 2012, Josie Parker – director of the Ann Arbor District Library – has expressed a willingness to have a conversation with the DDA about the issue, because she sees the TIF capture issue differently from the DDA.

If the city of Ann Arbor and the Ann Arbor DDA don’t want to invite the other taxing jurisdictions to the table to work out a mutually agreeable interpretation and method of calculating excess TIF capture, then Ann Arbor’s wisest long-term choice is to defend the interests of those not at the table.

What Kunselman’s amendment says to other taxing jurisdictions is this: You can trust Ann Arbor to defend your interests, when your interests depend on the city doing the right thing. Otherwise put: Ann Arbor knows how to be a good neighbor.

Recess, Reconvene

Of course, if the city council were simply to approve Kunselman’s amendment Monday night, they’d be doing that without giving the DDA a seat at the table. That’s partly why I think it’s reasonable for the council to allow the DDA sufficient time to present the city council with a revised 10-year budget plan (a tool the DDA uses for long-range planning) that factors in Kunselman’s proposed Chapter 7 interpretation and method of calculation.

That additional window of time could be achieved by recessing Monday’s council meeting and reconvening it a week later. The additional time would also allow the city council enough time to absorb the substance of Kunselman’s proposed amendment, and to satisfy itself that the DDA would still be able to meet all its financial obligations.

For some councilmembers, it will be difficult to see anything more in Kunselman’s amendment than a continued pattern on Kunselman’s part to use the DDA as a political punching bag, or as yet another way for the council to use the DDA as an ATM machine. As I’ve outlined in this column, I think the substance of Kunselman’s amendment deserves more than that kind of knee-jerk reaction.

In fact, it would not be unreasonable to hope that Teall, Kunselman and Lumm could use the additional time to sit down together and hammer out a fire protection budget amendment they could jointly present to the full council. Kunselman’s amendment could be a starting point for their conversation.

The council could also use the additional time to allow themselves and the public to get more familiar with the substance of at least nine other amendments that might eventually be voted on. [.pdf of set 1 of amendments] [.pdf of set 2 of amendments]

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The portion of the city budget relating to parks can be separated into two parts: (1) park operations; and (2) parks and recreation.

On Tuesday, PAC recommended approval of the FY 2013 parks operations budget, which includes the following proposed changes: (1) increasing the frequency of the mowing cycle from every 19 days to every 14 days; (2) increasing seasonal staffing between April 15–October 15 to maintain active recreation areas better; (3) establishing three seasonal park steward/supervisor positions to improve park maintenance and enforcement; and (4) increasing seasonal staffing at the ice arenas to improve facility cleanliness.

In a separate resolution, PAC recommended approval of the FY 2013 parks and recreation budget. The resolution commended parks staff for its work, and made several general recommendations: (1) reduce energy expense to reflect the benefit of infrastructure energy improvements at recreational facilities, including Cobblestone Farm and Mack Pool; (2) reduce materials and supplies used to maintain various facilities as a result of recent improvements; (3) reduce water usage expense to reflect actual usage better; (4) eliminate unnecessary software installations where appropriate; (5) increase revenue by initiating additional programming at the Argo Cascades; and (6) increasing revenue by increasing fees for admission to swimming pools.

Most of these changes have already been implemented, as part of the current year’s budget. Colin Smith, the city’s parks and rec manager, reminded commissioners that there will be no increase in budgeted expenses. These changes will be made within the budget plan that was discussed last year for FY 2013, when the FY 2012 budget was formally adopted. The city of Ann Arbor adopts budgets annually, but uses a two-year planning cycle.

This brief was filed from the second floor city council chambers at city hall, 301 E. Huron, where PAC holds its meetings. A more detailed report will follow: [link]

The total expenditure budget for FY 2013 – across all funds, including utilities, solid waste and the like – is proposed at $404,900,312 in revenues against $382,172,603 in expenses.

About half of the recurring expenditures in the proposed FY 2013 budget for the city of Ann Arbor general fund are made up by safety services – police and fire. (Image links to Google spreadsheet.)

The proposed budget for the much smaller general fund – out of which the city pays for services like fire and police, planning, financial services, administration, parks and recreation – shows $79,193,112 in revenues against expenses totaling $78,869,750 for a planned surplus of $323,362. The following year, FY 2014, is currently projected to be basically a break-even year.

That’s similar to the picture that chief financial officer Tom Crawford had sketched out for the city council at a Feb. 13, 2012 work session. But he’d projected close to $1 million in net surplus – which included $1.6 million in surplus on the recurring revenue and recurring expenses side.

So the city administrator’s budget includes some additional one-time, non-recurring expenses as well as some additional costs, compared to Crawford’s February sketch. An example of a greater recurring cost is the settlement of the firefighters union contract. A more frequent mowing cycle in the parks – every 14 days instead of every 19 days – is an additional cost. An example of an additional non-recurring cost is an allocation for the local matching portion of the High Speed Intercity Rail project – the city’s current nomenclature for the Fuller Road Station, while the final site determination of such a station is still pending.

With some notable exceptions in police and fire, the proposed FY 2013 budget mostly reflects the planning done a year ago when the FY 2012 budget was adopted. (Although the city of Ann Arbor adopts annual budgets, it plans in two-year cycles.)

Highlights of the proposed FY 2013 budget that are different from the two-year plan include the addition of one police officer instead of eliminating nine positions (for an additional cost of $1,038,167). Staffing for the police department as a whole, however, will include a reduction of 19 dispatcher positions, because the city is now contracting with Washtenaw County for dispatch services. In the city administrator’s budget message to the council, the savings due to the outsourcing of dispatch operations are identified as $1,238,297. Also identified in the budget message are $477,000 in savings from labor contract settlements with the police unions.

The proposed budget also calls for maintaining the budgeted staffing for the fire department at 82 firefighters, instead of reducing firefighter positions by five positions (for an additional cost of $584,000). The recent contract settlement with the firefighters union is listed as a $229,000 additional cost – firefighters are being paid to work more hours. However, $657,000 in additional revenues to the fire department are also identified – due primarily to increased inspections and the fees associated with that. At the March 12 work session when fire chief Chuck Hubbard presented a new, three-station coverage model to the city council, he stated that he felt the ideal number of firefighters for the Ann Arbor department would be 88 firefighters.

In terms of utility rates, the drinking water, sanitary sewer, and stormwater fees are proposed to increase between 3.25% to 4.25%.

According to Ann Arbor’s city charter, the city administrator must present the city council with a proposed budget for the next fiscal year at its second meeting in April, which fell on April 16 this year. The city council then must make any amendments to the proposed budget by the second meeting in May. This year that falls on May 21. Public hearings on the budget and associated fee changes will be held at the council’s May 7 meeting.

Basic Revenues and Expenditures

On April 9, Ann Arbor city councilmembers were presented with a three-ring binder containing the “budget book.” The binder includes the budget message from the city administrator, and a more detailed breakdown of expenses and revenues. From the overview of the budget in the city administrator’s budget message, here’s the basic picture:

Proposed General Fund Expenditures
==================================
RECURRING ITEMS
$   375,710   Mayor & Council
  1,884,968   City Attorney
  2,850,801   City Administration - Administrator, Clerk, Human Resources
  2,282,293   Planning & Development
  1,785,341   Community Development
  3,637,332   Parks & Recreation
  3,353,179   Finance
  2,256,299   Public Services: Parks Forestry & Operations
  4,302,228   Public Services: Public Services All Other
 13,913,103   Fire
 24,401,485   Police
  3,992,372   Fifteenth District Court
  9,317,684   AATA
  3,467,954   Debt Service/Transfers/Other
-----------
$77,820,749   Subtotal Recurring Expenditures 

NON-RECURRING EXPENDITURES
==========================
$   272,220   Golf Operations Subsidy
    100,000   Building Settlement Funding
    154,000   Housing Commission Subsidy
     65,000   Court Facilities Fund Transfer
    150,000   Police Recruit Program
    307,781   High Speed Intercity Rail Grant Match
-----------
$ 1,049,001   Subtotal Non-Recurring Expenditures
===========
$78,869,750   Total General Fund Expenditures 

PROPOSED GENERAL FUND REVENUES
$49,431,784   Taxes
  9,265,416   State-shared Revenue
  5,722,493   Charges for Services
  4,501,601   Fines & Forfeitures
 10,271,818   Other
===========
$79,193,112   Total General Fund Revenues 

   $323,362   Excess of Revenues over Expenditures

-

That surplus is about $1 million less than the surplus that city of Ann Arbor chief financial officer Tom Crawford had projected and recommended at the council’s February work session. It’s worth pointing out that while the Ann Arbor Transportation Authority is included in the city’s general fund budget, the revenue from the city’s transit tax (roughly 2 mills) is essentially passed through to the AATA.

Across all of its funds, the city levies the following taxes. Amounts are in mills. (One mill is $1 for every $1,000 of taxable value of a piece of property.) The rates this year are the same as those for last year, except for the street reconstruction millage, which increased slightly for two reasons. First, it was approved by voters in November 2011, which reset it after being “Headlee-ized.” [The state's Headlee Amendment rolls back millage rates to prevent property tax revenues from increasing faster than the rate of inflation.] Voters also approved an addition 0.125 mill to fund sidewalk repair.

FY 2013 City of Ann Arbor Millage Rates
=======================================
 6.1682 GENERAL OPERATING
 2.0560 EMPLOYEE BENEFITS
 2.4670 REFUSE COLLECTION
 2.0560 AATA
 2.1250 STREET RECONSTRUCTION
 1.0969 PARK MAINTENANCE & CAPITAL IMPROVEMENTS
 0.4779 OPEN SPACE & PARKLAND  PRESERVATION
 0.1250 DEBT SERVICE
-------------
16.5720 TOTAL

-
[.pdf scan of city administrator's budget message] [.pdf scan of revenues and proposed fees] [.pdf scan of expenditures]

Initial Review

Councilmembers will have until May 21 – their second meeting in May – to amend the administrator’s proposed budget. According to the city charter, a failure by the council to act by the second meeting in May results in the automatic adoption of the city-administrator-proposed budget. An initial look by The Chronicle through the budget yielded the following highlights.

Initial Review: Station Model For Fire Protection: Three Stations?

At a city council work session held on March 12, 2012, fire chief Chuck Hubbard presented a proposal for a three-station model for fire protection. Currently the city has five stations. Hubbard’s proposal included the closure of Station #3, Station #4 and Station #6. But Hubbard’s proposal also included re-activating the dormant Station #2, and distributing existing resources across three stations – #2, #1, and #5. Hubbard’s plan is driven by a desire to provide better coverage for the city, as measured by the “four-in-four” standard – the ability to put four firefighters on a fire scene within four minutes of departing the fire station. [For more detail, see Chronicle coverage: "A Closer Look at Ann Arbor's Fire Station Plan."]

In the proposed budget, however, the breakdown of funds by activity appear to show a continuation of the five-station fire protection model.

                        Actual     Actual     Budget Forecasted    Request
Activity                FY2010     FY2011     FY2012     FY2012     FY2013
--------------------------------------------------------------------------
3231 Fire Station #1 5,274,813  5,680,028  4,912,966 11,148,606  4,803,239
3233 Fire Station #3   818,528    753,316    703,736             1,433,592
3234 Fire Station #4 1,035,898  1,061,235  1,050,551             1,032,018
3236 Fire Station #6 1,176,140  1,175,390  1,179,073             1,229,143
3237 Fire Station #5 1,182,880  1,204,505  1,318,853             1,283,750

-

According to city administrator Steve Powers at a press briefing before the April 16 council meeting, that breakdown does not reflect an abandonment of the plan to adopt the three-station model. However, it does reflect that Hubbard’s presentation was a proposal that will need additional public input, Powers said. Powers indicated that he and Hubbard would be going out to the community to present the plan and get reaction and input sometime in the fall of 2012, before making a decision. It’s a decision that can be made administratively, and does not need a vote by the city council.

By the fall, implementation of the three-station model would not be impeded by the East Stadium bridges reconstruction over State Street and the railroad tracks. The bridges would be crucial to providing Station #2 fire trucks access to the areas currently covered by Station #3, for example. The reconstruction of the bridges is expected to be complete, with traffic lanes reopened for vehicles by November 2012.

Powers was clear about the fact that no decision had been made either way on a three-station model.

Initial Review: High Speed Intercity Rail Grant Match

The overview of the budget presented above includes an item under non-recurring expenditures for $307,781 labeled “High Speed Intercity Rail Grant Match.” This item is addressed specifically in the proposed budget resolution that’s included in the city administrator’s budget message:

Whereas, The High Speed Intercity Rail project (in funds 00CP and 00MG) anticipates receipt of up to $307,781 by June 30, 2012 but may conclude the fiscal year with a fund deficit if the funds are not received, and the City has included sufficient funding in the FY 2013 budget to remedy the deficit should it materialize;
RESOLVED, That if the High Speed Intercity Rail project ends fiscal year 2012 with a deficit, the City’s approved deficit elimination plan (under MCL 141.921) would be the transfer of up to $307,781 from the General Fund as provided for in the FY 2013 budget;

The High Speed Intercity Rail project is more familiar in the community as the Fuller Road Station project. The project has been awarded $2.8 million by the Federal Rail Administration – for site analysis and environmental assessment. So from the point of view of the FRA grant, it’s somewhat premature to conclude with finality that the preferred site will be the Fuller Road site.

The FRA grant would cover 80% of the initial $3.5 million environmental assessment project. That leaves the required local matching share (20%) at $0.7 million. Some of the work associated with the environmental assessment that has already been completed would be eligible to count as part of the local match. The University of Michigan’s participation in the project was envisioned to help cover the local matching requirement of federal grants associated with the project.

So the anticipated receipt of $307,781 would possibly come from UM. It’s not clear when or if that money would be contributed by UM in connection with the project. That’s because on Feb. 10, 2012, UM and the city announced that the university was withdrawing from the project. [See Chronicle coverage: "UM, Ann Arbor Halt Fuller Road Project"]

At the press briefing before the April 16 council meeting, Powers indicated that in the coming weeks, a conversation would be initiated by the city with UM to explore what already-incurred site study costs could be borne by UM – in the context of the memorandum of understanding that had guided the partnership until earlier this year. To put the initial $3.5 million environmental assessment in perspective, the rail station component of the project is estimated to cost about $18 million, with necessary modifications and upgrades to tracks totaling an additional $6-7 million.

If conversations with UM do not yield a contribution of $307,781 by June 30, 2012, then the budget resolution essentially says that the general fund will be tapped to make the major grants fund and the general capital funds whole.

The general fund is the most flexible of all the city’s funds, in that it can be used as a last resort to backstop other funds. However, mayor John Hieftje has stated on several occasions, as the project has been discussed over the last few years, that it was not the city’s intention to use general fund money to pay for the Fuller Road Station project.

Initial Review: RecycleBank

At its Sept. 19, 2011 meeting, city council voted to retain the contract it had signed the previous year with RecycleBank – to administer a coupon incentive program associated with curbside single-stream recycling program. There had been some interest on the council in canceling the contract entirely, but the council settled on a contract revision that was favorable to the city.

The new contract reduced the per-household charge by about one-third, from $0.52 to $0.35 – which translated into a monthly payment reduction from $12,400 to $8,371. Under the contract authorized by the council, if the tonnage of recyclables collected increases above current levels, RecycleBank could earn an additional $50 per ton, for each ton collected above existing levels. There would be a cap of $150,000 per year.

Part of the reluctance of the council to cancel the contract were the terms under which the city could withdraw from the agreement. The language of the contract appears to indicate that the city cannot cancel the contract, without certain penalties, as long as there is money allocated in the budget for the contract.

City administrator Steve Powers indicated at the press briefing that there is money allocated for the RecycleBank contract in the FY 2013 budget.

Here’s some charts based on recent trash and recycling numbers from the city of Ann Arbor. [Google spreadsheet] Since the council approved the new RecycleBank contract in September 2011, recycling numbers have essentially tracked close to the previous year – with the exception of the most recent month’s numbers, March 2012, which showed a substantial year-over-year increase.

Ann Arbor curbside recycling tonnages by month, stacked by year. Most recent year (FY 2012) is in yellow. (Image links to higher resolution file. )

Ann Arbor curbside recycling and trash by month. The red line is trash. The blue line is recycling. (Image links to higher resolution file.)

Next Steps

In past years, a “budget town hall” has been held around this time of year – a public meeting typically videotaped by Community Television Network – to introduce the budget to the public. In lieu of that kind of event, Powers indicated at the press briefing that he was currently planning to appear on the CTN Conversations program on May 7, where viewers have an opportunity to call in with questions.

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.

The Chronicle could not survive without regular voluntary subscriptions to support our coverage of public bodies like the Ann Arbor city council. Click this link for details: Subscribe to The Chronicle. And if you’re already supporting us, please encourage your friends, neighbors and colleagues to help support The Chronicle, too!