From left: Princess Logan and Monique Franklin, students at Ypsilanti High School, are part of the Young Women Making Washtenaw Better program. Seated behind them is Natalia Harris, community outreach coordinator for the Washtenaw County sheriff’s office, which sponsors YWMWB. (Photos by the writer.)

In her state-of-the-county address, county administrator Verna McDaniel set a goal of identifying $6.99 million in structural reductions for the 2014 budget. The approach to addressing this $6.99 million target depends on whether the county moves ahead with a major bond proposal, which would cover the county’s pension and retiree healthcare obligations. [See Chronicle coverage: "County Board Debates $345M Bond Proposal."]

If the board decides not to bond for those obligations, McDaniel said that most of the $6.99 million would need to come from a reduction in operating costs, as well as $100,000 in cuts to outside agency funding. Finding the $6.99 million in cuts would be very challenging, she added, given the amount of reductions that have already occurred in the past few years. Serviceability levels and major programs would be affected.

Action related to the bonding proposal – for up to $345 million, the largest ever issued by the county – was originally on the May 15 agenda. But early in the meeting, board chair Yousef Rabhi announced a decision to push back the process until the board’s July 10 meeting. He cited the need for more time for public input and additional information – including updated actuarial reports that are due in late June. Public hearings on the proposal are set for June 5 and July 10, with a board working session on the issue scheduled for June 6.

The board also voted to hold a special meeting on July 24, to allow for additional bond-related votes and public commentary, if needed. Rabhi also announced a series of informal meetings at coffee shops in Ann Arbor to discuss the bond proposal with residents. The first “Bonding Over Coffee” will be held on Tuesday, May 28 from 4-6 p.m. in the basement of Elixir Vitae (formerly Café Ambrosia) at 326 Maynard St. in Ann Arbor.

Among the several items that the board is expected to vote on at its July 10 meeting is a “notice of intent” to issue the bonds. This is a standard initial step in the bonding process, letting residents know that they have 45 days during which they can circulate petitions to require a vote of the people before any bonds are issued. Ronnie Peterson reminded commissioners that just a few years ago, a citizens group had gathered enough signatures to force another bond proposal – for expansion of the county jail – onto the ballot, where it was defeated by voters. For the current bond proposal, about 15,000 signatures would be required to force a voter referendum.

In another budget-related item on the May 15 agenda, the board received a first-quarter 2013 briefing. The county’s financial staff is now projecting a $818,999 shortfall for the year – the difference between $102,364,815 in projected general fund revenues and $103,183,814 in projected expenditures. That shortfall is lower than the $3.03 million shortfall that was originally projected for 2013.

The board continued its budget discussion at a retreat on May 16, where they worked to hone priorities for the next four years. This Chronicle report includes a summary of that two-hour session.

In other May 15 action, the board gave initial approval to set the 2013 county general operating millage rate at 4.5493 mills – unchanged from the current rate. Several other county millages are levied separately: emergency communications (0.2000 mills), the Huron Clinton Metroparks Authority (0.2146 mills), two for county parks and recreation (0.2353 mills and 0.2367 mills) and for the natural areas preservation program (0.2409 mills). That brings the total county millage rate to 5.6768 mills, a rate that’s also unchanged from 2012. A final vote and public hearing is expected on June 5.

The board also passed a resolution expressing support for the state of Michigan to expand the federal Medicaid program, as part of the Affordable Care Act – a measure currently being debated in the state legislature. During deliberations, Dan Smith (R-District 2) voiced his objection to the county weighing in on state issues, but he left the room prior to the vote.

A range of other issues were raised as items of communication by commissioners or during public commentary. Topics included: (1) a corridor improvement authority planned by Pittsfield Township for a section of State Street; and (2) the possibility of renewing the county’s membership in the Michigan Association of Counties.

Bonding Proposal

A resolution authorizing the publication of a “notice of intent” for a major bond issue was originally on the May 15 agenda of the board’s ways & means committee for initial approval. [.pdf of bond resolution on May 15 agenda] The proposed bond issue of up to $345 million, the largest in the county’s history, is intended to cover unfunded pension and retiree healthcare obligations from the Washtenaw County Employees’ Retirement System (WCERS) and Voluntary Employees Beneficiary Association (VEBA) – the defined benefit pension and retiree healthcare plans.

The proposal had first been mentioned publicly in mid-April, though the administration has been working on it since November of 2012, and commissioners had discussed it in closed session earlier this year as part of the county’s negotiations for new labor contracts.

In addition to the notice of intent to issue the bonds, the resolution on the May 15 agenda also would have officially retained Axe & Ecklund as bond counsel for this issue, and Municipal Financial Consultants Inc. (MFCI) as the financial consultant. Axe & Ecklund provides a 15% discount on its fees if the county hires MFCI as the financial consultant. MFCI president Meredith Shanle is Axe’s daughter.

Washtenaw County commissioner Yousef Rabhi (D-District 8) serves as board chair.

The notice of intent is a standard initial step in the bonding process. It must be published in a “newspaper of general circulation within the county,” letting residents know that they have 45 days during which they can circulate petitions to require a vote of the people before any bonds are issued. The notice must include a maximum amount of the bond issue, a maximum interest rate, and a maximum term for the bonds. Although the proposal previously presented to the board had indicated a 25-year bond term, the resolution regarding a notice of intent specified a maximum term of 30 years.

The amount of the bond issue is an estimate at this point and will not likely be as high as $345 million, according to the county’s bond counsel, John Axe of Axe & Ecklund. To set the specific amount of the bond issue, the county needs updated actuarial information – but those reports won’t be ready until late June.

The board has been briefed on this proposal most recently at a May 2 working session. [See Chronicle coverage: "County Board Debates $345M Bond Proposal."] At that time, Axe had indicated a timeline that included giving initial approval to two other bond-related resolutions on May 15, in addition to the notice of intent.

Those other resolutions were: (1) a resolution setting the bond’s maximum amount; and (2) a continuing disclosure resolution that’s standard for all bond issues over $1 million, indicating that the county will provide updated financial information annually during the term of the bond. However, neither of those two other resolutions were on the May 15 agenda when it was made available to the public prior to the meeting.

The bonding is made possible by Michigan’s Public Act 329 of 2012, which the state legislature passed in October of 2012. [.pdf of Public Act 329] The law enables municipalities to issue bonds to cover unfunded accrued pension and retiree healthcare liabilities, but has a sunset of Dec. 31, 2014. The county faces a $30 million contribution toward these obligations in 2014, and is looking for ways to manage that obligation.

The most recent estimates put the county’s maximum retirement obligations at $340.8 million. The board was presented with calculations for borrowing $344 million at an assumed average interest rate of 4%. The county would pay $239 million in interest over the life of the bond, for a total of $583 million in combined interest and principal.

County administrator Verna McDaniel is advocating for this move, in part to make long-term budgeting easier by having predictable bond payments. The bonding is also linked to new 10-year labor deals approved earlier this year, which closed the defined benefit plan to employees hired after Jan. 1, 2014. Unless the defined benefit plans were closed, the county would not have been allowed by law to proceed with this type of bonding. However, closing the plans also triggered the dramatic increase in contributions to those plans, which has prompted the bond proposal.

Bonding Proposal: Public Commentary

During the two times for public commentary on May 15, former county commissioner Wes Prater expressed concern about the proposed bonding. He pointed out that the total debt service is estimated at $583 million over 25 years, and that the first 18 months of payment is $25 million for interest only and no principal. Total interest is about $239 million – an average of $9.5 million annually that could be supporting county programs and services, Prater noted. It amounts to about 14% of the county’s tax revenue, just to make interest payments, he said.

Prater also noted that the bond proceeds wouldn’t immediately pay off the pension and retiree healthcare obligations, but would go into an intermediate trust that would make investments using the bond proceeds.

From left: Former county commissioner Wes Prater and current commissioner Kent Martinez-Kratz (D-District 1).

There’s another approach that the county could take, Prater said – a deficit recovery plan. It would require changing some policies and “you’d have to live within your means,” he said, which means the county couldn’t spend more revenue than it takes in. “That’s what this county has been doing for a long, long time.” [Prater had raised the suggestion of a deficit recovery plan at a May 2, 2013 working session of the county board, focused on the bond proposal. At that meeting, Kelly Belknap – the county’s finance director – stated that such a plan is only required for local governments that have fund deficits. She said none of the Washtenaw County funds have a deficit, so there’s no requirement to submit a deficit elimination plan to the state.]

Later in the evening, Prater again addressed the board. He suggested that commissioners put the proposal on the ballot for voters to decide, saying “it would certainly stop the controversy and it would certainly satisfy most everybody that I know of, including myself.” He hoped commissioners would at least talk about the pros and cons of doing that. Whenever the bond proposal is discussed, supporters of it talk about all the positive things, Prater said. No one talks about what would happen if “the market dunks – what happens then? Who’s holding the bag?” It’s a global economy, he noted, with a lot of uncertainty.

Bonding Proposal: Board Discussion – Postponing Notice of Intent

Near the start of the May 15 ways & means committee meeting, board chair Yousef Rabhi announced his decision to pull the bond-related resolution from that night’s agenda. He said the schedule for moving ahead with the bonding process had been “aggressive.” Because he believes the public should have a full voice and full access to information, he added, the board had also set an aggressive public engagement schedule. It included a May 13 press conference, as well as a to-be-scheduled public presentation on the issue, and future public hearings, he said.

Despite that, Rabhi noted that there were concerns about the timeline being too aggressive, and the public not having time to consider the information. So in consultation with other commissioners, Rabhi said, he decided it was appropriate to postpone action on the bond’s notice of intent until after the county receives the actuarial report at the end of June.

The resolution will be brought back for consideration at the ways & means committee meeting on July 10. Rabhi stressed that it was not a decision that he made alone. The overwhelming sentiment among commissioners was that the public needs more time to evaluate the information, discuss it, and fully understand its implications. “This is one of the most important issues that we will be dealing with as a board, and perhaps that this board has dealt with for many boards past.” It deserves full consideration by both the board and the community, he said.

Rabhi also stressed that issues underlying the motivation for this bond proposal are real, and must be dealt with. It’s an issue that many other governments face nationwide, he noted. “We must address this issue – it is a critical issue.”

He thanked residents who have contacted the county and given their input already, and he urged people to continue to share their concerns and to not jump to conclusions. “I don’t think that anything is a done deal here,” Rabhi said. “We are discussing this in an honest and open way, and we want your feedback. We want your participation and we want your questions. We want you to understand what we’re looking at and the information we have and the context of the decisions that we have to make.” He urged people to approach the issue with an open mind.

Rabhi, one of the commissioners representing Ann Arbor, also announced a series of coffee hours that he’ll be holding for constituents. Called “Bonding Over Coffee,” the series will start on Tuesday, May 28 from 4-6 p.m. in the basement of Elixir Vitae (formerly Café Ambrosia) at 326 Maynard St. in Ann Arbor. [.pdf of "Bonding Over Coffee" press release]

County commissioners Alicia Ping (R-District 3) and Ronnie Peterson (D-District 6).

Later in the meeting, Ronnie Peterson asked about the voter referendum process. If the board issues a notice of intent in early July, and residents are successful in collecting the 15,000 signatures needed to place a bond proposal on the ballot, what’s the earliest election at which that proposal might be put before voters?

Hedger replied that he thought it might be possible to put it on the Nov. 5 ballot, assuming that the notice of intent expires in August. It certainly couldn’t be on the August primary ballot, he said.

Peterson noted that people might think “that this is Ronnie instigating something, but this has happened before.” When the county proposed issuing a bond to fund the expansion of the county jail a few years ago, residents were able to gather the required number of signatures to put the proposal on the ballot in 2005. Voters subsequently defeated the bond proposal at the polls.

It doesn’t take much to get that many signatures, Peterson said. He also noted that commissioners hadn’t received the kind of negative feedback about the jail expansion as they have about the current bond proposal.

Bonding Proposal: Board Discussion – Special Meeting

Rabhi also announced a resolution to set a special meeting on July 24. Typically during the summer months of June, July and August, the board holds only one meeting – on the first Wednesday of those months. The July 24 meeting would give commissioners more opportunity to discuss the bonding proposal and vote on it, he said.

Specifically, the resolution stated that the meeting ”shall be convened to only discuss and vote on the following items: (1) resolution to issue retiree health care and pension bonds; (2) resolution of continuing disclosure related to that bond; and (3) resolution to consider the comprehensive financial plan related to the bond.” [.pdf of resolution setting special meeting on July 24]

Responding to a question from Peterson, Rabhi clarified that at the first meeting in July – on July 10 – commissioners would likely be asked to take an initial vote on these items, with a final vote on July 24. Also on the July 10 agenda would be the notice-of-intent resolution that had been pulled from the May 15 meeting.

Peterson said he appreciated how Rabhi was handling this issue, and noted that he had previously voiced concerns about the process. Peterson stressed that he was committed to honoring the county’s obligations to its retirees. “How do we get there is open for discussion,” he added.

Peterson wondered when the board would receive the documents that they’d be voting on in July. County administrator Verna McDaniel replied that documents – including the actuarial reports – would be provided “well in advance” of the July 10 meeting.

Peterson said he didn’t want to “throw a brick through a window,” but he wanted to know when the board would see a copy of the debt retirement schedule. After consulting with Curtis Hedger, the county’s corporation counsel, McDaniel said the debt schedule would be among the materials provided to commissioners prior to July 10.

Dan Smith also thanked Rabhi for postponing the timetable, and thanked the administration and staff for adjusting their budget development to fit the new timeline. If the board decided to take both initial and final votes on these bond-related issues on July 10, he wondered what the process would be if the board then decided to cancel the July 24 meeting.

Hedger clarified that the board could cancel the July 24 meeting at its July 10 meeting – if a majority of commissioners wanted to do that. Hedger noted that it only takes three commissioners to call a special meeting, according to state law.

Felicia Brabec (D-District 4) is chair of the county board’s ways & means committee and part of the county’s budget task force.

Peterson wanted to make sure that the public has plenty of opportunity to weigh in prior to a board vote. He hoped there would be at least two formal opportunities for the public to give input to the board.

Hedger replied that it would be possible to do two public hearings – one on June 5, before the actuarial information is received, and another one on July 10. Rabhi indicated that he would like to do that.

Andy LaBarre reported that the board’s June 6 working session will focus on the bonding proposal, and will provide another opportunity for public input and commissioner discussion. [LaBarre chairs the working sessions and sets those agendas.] Rabhi requested that the administration put a list of dates, times and locations on the county’s website, to let the public know when the board would be focusing specifically on the proposal, and what opportunities there would be for public commentary.

Peterson asked if any worst-case scenarios had been developed, to show what the county’s obligations would be if the stock market tanked. The financial consultants hired by the county should show the board “the good, the bad and the ugly,” he said. With only $16 million in general fund reserves, the county doesn’t have a lot of flexibility if things go bad, he added. If he had known the full range of possibilities for his own investments a few years ago, Peterson joked, he would have taken all his money and put it in a mattress. “I’m not instigating tonight,” he added. “I’m advocating.”

Rabhi assured Peterson that those discussions are happening now. He said LaBarre has been asking for that kind of information too, and administration is working on putting that together. Noting that Wes Prater had raised concerns about the county making just interest-only payments in the first years of the bond, Rabhi said the administration is also looking at options for paying down principal in the beginning years, too.

Outcome: The board unanimously approved setting a special meeting on July 24 to handle the bond resolutions. Also set are public hearings related to the bond proposal on June 5 and July 10.

First-Quarter Budget Update

County financial analyst Tina Gavalier gave the first-quarter budget report, for the period from Jan. 1 through March 30, 2013. She began by noting that with just three months of information, it’s still early to tell how finances are trending this year. [.pdf of Gavalier's presentation]

On the revenue side, she reviewed the news – delivered at the board’s April 17, 2013 meeting – that property tax revenues will be higher than expected this year, with a surplus of about $2.3 million compared to the original 2013 budget projections. The clerk/register of deeds office is also projecting a surplus of about $254,000 from higher-than-expected real estate transfer taxes and fee revenues. However, the 14A district court is projecting a revenue shortfall of about $297,000, with lower-than-anticipated court fines and fees. New case filings have declined for five consecutive years, she reported.

From left: County finance director Kelly Belknap and finance analyst Tina Gavalier.

Projected expenses are $438,739 more than budgeted, with the largest over-expenditure – of $482,031 – coming from the sheriff’s office for inmate food and medical services, as well as law enforcement operating supplies. The district court is also reporting over-expenditures of $259,000 for overtime and contracts related to magistrate and mediation services. Those over-expenditures are offset by lower expenses from the trial court and support services.

Gavalier also highlighted a projected surplus of about $483,000 from tax appeals and refunds. So far this year, the county has spent about $42,000 for tax appeals and refunds based on board of review and tax tribunal decisions. The budgeted amount for this category is about $1.5 million for 2013.

Overall for 2013, the county’s financial staff is now projecting a $818,999 shortfall for the year – the difference between $102,364,815 in projected general fund revenues and $103,183,814 in projected expenditures. That shortfall is lower than the $3.03 million shortfall that was originally projected for 2013. The county had anticipated covering that $3.03 million by tapping its fund balance, but it’s now expected that the county will need $2.21 million less than that from the fund balance to cover the shortfall. The projected fund balance at the end of 2013 is expected to be about $16 million. [.pdf chart of 2013 budget as of March 30, 2013]

Gavalier told commissioners that the finance staff will be monitoring several items, including the impact of federal sequestration cuts, fringe benefit trends, personal property tax reform, actuarial valuations, and the county’s annual cost allocation plan. The board will get a second-quarter budget update in August.

First-Quarter Budget Update: Board Discussion

Dan Smith thanked the staff and department heads for keeping the budget “not only on track but above track.” Noting that there are three more quarters to go, Smith said the initial trends look good. He highlighted the projected $16 million fund balance by year’s end. Having that kind of fund balance allows the organization to be pro-active in managing its future, he said, rather than reactive.

Ronnie Peterson asked a question about the court budgets, joking that he wasn’t trying to get in trouble with the judges. “Whatever they want, give it to them,” he said. But he wondered how to address the budget fluctuations, especially if the county moves to a four-year budget process. Budgets for the jail, law enforcement and general criminal justice services are “almost uncontrollable,” he said, because those areas are responding to crisis needs. Sometimes the estimates are far off, he noted, and those shortfalls must be made up somehow. He’d rather see a more conservative projection when the budgets are developed.

Peterson contended that $16 million wasn’t a lot for a county the size of Washtenaw to have in reserves. “Any major crisis could make us spend a great portion of that,” he said.

Andy LaBarre asked Gavalier if she saw anything in the first quarter that would be a red flag – something that she hadn’t mentioned in the report, and that commissioners should be aware of. No, Gavalier replied. It’s important to “keep pressure on the organization,” she added, and to continue to monitor and collaborate with each department as the year progresses.

In response to a question from Felicia Brabec regarding the sheriff’s budget, Gavalier said the finance staff looks at expenditures and revenues separately, in reporting shortfalls or surpluses. The variance that she’s reporting is between the budgeted amounts and the first-quarter actual revenues and expenditures, Gavalier explained. When preparing the budget, the staff looks at the previous five years of expenditures to help project future expenses. It’s more difficult to project revenues for each unit, she noted, because that amount depends in large part on the overall county general fund revenue – the largest portion from property taxes. Gavalier added that more detailed budget figures are monitored at the departmental level, compared to what’s presented to the board.

State of the County

The board received a second budget-related update from county administrator Verna McDaniel, as part of developing a four-year budget from 2013 through 2017. [.pdf of McDaniel's presentation] At its May 1, 2013 meeting, the board had approved development of a four-year budget.

Washtenaw County administrator Verna McDaniel.

McDaniel reviewed the county’s current financial foundation, noting that the main guiding principal is fiscal stability. She cited the county’s AA+ rating from credit agencies, the building of its general fund reserves above the board’s policy of 8%, and the organization’s low debt ratio of 0.83% compared to the allowable level of 10%. She highlighted reductions that have been made since 2002, reflecting declines in property tax revenues as well as state shared-revenue funding. Most county departments have been reduced by at least 20% in the past five years, she said.

Unions have made concessions in their contracts, McDaniel added, and non-union employees have seen reductions as well. Personnel accounts for about 67% of the county’s general fund budget, or $65 million. Fringe benefits now equal about 66% of salaries, on average.

She pointed out that the county made $17.5 million in reductions for the 2012 and 2013 budgets, but not all of those were structural.

McDaniel noted that some general fund revenue sources – like property taxes and state revenue-sharing, which is now tied to performance measures – appear to be stabilizing. However, there are other areas of uncertainty, particularly with state and federal funding that support non-general fund programs. Also uncertain is the future of personal property tax replacement revenues. The tax will be phased out starting in 2014 through 2022. As part of that change, a statewide voter referendum is slated for August 2014 to ask voters to authorize replacement funds from other state revenue sources. It’s unclear what will happen if voters reject that proposal.

On the expenditure side, 72% of general fund dollars support public safety and justice operations. Those areas include the sheriff’s office, trial court, 14A district court, prosecuting attorney’s office, and public defender. About 70% of the county’s services are mandated, she noted, but the county has discretion over how those mandates are fulfilled.

McDaniel outlined key revenue assumptions that the administration is making in developing its budget projections. [.pdf of budget major assumptions] That includes an estimated 1% annual increase in tax revenues, state revenue-sharing reinstated at 75% of its previous levels, and police services contracts increasing by 1% in 2014 and 2015, but showing not increasing in the following two years.

Assumptions on the expenditure side include wage increases of 2% in 2014, 1% in 2015, and 2% in both 2016 and 2017. Fringe benefit packages will be changed for employees hired after Jan. 1, 2014, with defined contribution plans replacing defined benefit plans.

Looking at the period from 2014-2017, McDaniel told the board that she hopes to identify $6.99 million in structural cuts in the first year of that four-year period. [In 2014, the general fund budget is projected to be $107.429 million, according to McDaniel's preliminary report. That does not include the hoped-for $6.99 million in structural cuts.] That $6.99 million represents a slight increase from the $6.88 million in structural changes that McDaniel targeted in her previous budget briefing, delivered at the board’s Jan. 16, 2013 meeting.

If the $6.99 million in structural changes can be identified in that first year, it would eliminate compounded, projected deficits over the four-year period that would otherwise total $34.45 million. [.pdf of 2014-2017 budget estimate] The projections do not factor in a possible major bond proposal that the board is considering.

The approach to addressing this $6.99 million target depends on whether the county moves ahead with the bond proposal, which would cover the county’s pension and retiree healthcare obligations. [See Chronicle coverage: "County Board Debates $345M Bond Proposal."] If the board does decide to bond for those obligations, McDaniel said, then the goal in 2014 is to reduce operating costs by $1.83 million, cut $100,000 from outside agency funding, and realize $5.06 million in cost savings from bonding for obligations for the county’s pension and retiree healthcare.

If the board decides not to bond for those obligations, however, then McDaniel said that most of the $6.99 million would need to come from a reduction in operating costs, as well as $100,000 in cuts to outside agency funding. Finding the $6.99 million in cuts would be very challenging, she said, given the amount of reductions that have already occurred in the past few years. Serviceability levels and major programs would be affected.

Both scenarios assume an additional $2.4 million in revenue for 2014. It’s expected that will be achieved primarily from an increase in property tax revenues, as property values in the county climb.

McDaniel told the board that she and her staff need direction in terms of setting priorities and identifying core services. She indicated that the county can no longer provide the broad range of services that it has in the past, and structural changes are still needed.

The strategy to approach these changes includes a continued focus on internal collaboration, looking for alternative ways to deliver services that might generate revenue, and maximizing outside funding whenever possible, McDaniel said. The county needs to talk with community partners to see if there are services provided by the county that can be shifted to others, and to look for services that can be eliminated because the county can’t afford to provide them.

McDaniel also noted that 327 county FTEs now have healthcare benefits that the federal government defines as a “Cadillac plan.” If that remains in place, in 2018 the county will face a 40% federal excise tax on those benefits.

In closing her remarks, McDaniel said the administration will continue meeting with departments to review business plans and define budget targets for 2014-2017, with the goal of providing a budget proposal to the board in September. The coming months will also include town hall meetings with employees.

In seeking direction from the board, McDaniel asked that commissioners consider three questions:

• Do current budget allocations have the impact that commissioners desire?
• Should the general fund respond when there are federal/state revenue reductions in non-general fund programs?
• What community areas (internal and external) should have the greatest impact?

McDaniel told the board that the administration’s approach is to be very conservative. “It is very dangerous to not be conservative,” she said. “If you underestimate the magnitude of the problem, you will have an even bigger problem.”

She also cited the importance of finding structural solutions. If that doesn’t happen, then the board and administration will be facing these same problems year after year, she said. “It’s time for us to face our problems and deal with them effectively.”

State of the County: Board Discussion

Felicia Brabec described the situation as daunting. Andy LaBarre, characterizing the presentation as sobering, asked when the county had been at its peak, in terms of employees. Verna McDaniel replied that the county employment levels were highest “just before the economy went bad” in 2008. She noted that 650 current employees – about half of the county’s total workforce of 1,350 – are supported with general fund dollars. Other employees rely on federal and state funding, she said.

From left: County commissioners Dan Smith (R-District 2), Kent Martinez-Kratz (D-District 1), and Rolland Sizemore Jr. (D-District 5).

LaBarre noted that the county isn’t alone – saying cuts have been made statewide. “It just scares the heck out of me to think about more cutting,” he said, adding that employees are there for a reason – to provide services to taxpayers.

Alicia Ping referred to the data point that 72% of the county’s general fund budget is spent on public safety. Ping said it would be helpful to see the history of funding for the trial court and district court, which receive lump sum amounts from the county’s general fund. She was curious about whether the courts had cut in the same way that other county units had cut. “I’d like to know that we’re all in the game together,” Ping said. [The county's finance staff subsequently provided that data: .pdf of historical funding for public safety & justice operations]

Dan Smith asked for elaboration on the fact that fringe benefits equal 66% of salaries, on average. Kelly Belknap, the county’s finance director, replied that the percentage includes healthcare costs (medical and dental), pension contributions, workers compensation, Social Security and taxes. If someone’s salary is higher, then the percentage for benefits would be lower, she said. For employees with lower salaries, that percentage is higher.

D. Smith also noted that health care costs are estimated to increase 8% annually. Has the county been able to take into account the changes in federal and state law that aim to put downward pressure on healthcare costs? Belknap said that the county is self-insured, though it uses Blue Cross/Blue Shield as a provider. Some changes that the county has made in its healthcare benefits have kept costs down, but she said it’s still too soon to know the impact of federal and state legislation.

McDaniel added that nationally, healthcare costs have been increasing at about 12% annually. The county has been trending at 8% annual increases. “We’ve done some work, and it’s paid off,” she said. At the state level, McDaniel noted, Public Act 152 of 2011 put a cap on the amount that local governments can pay for healthcare benefits. On the federal level, the Affordable Care Act will institute an excise tax on “Cadillac” plans in 2018, she continued, so the county will need to deal with that.

D. Smith highlighted the board’s decision – as part of the negotiated 10-year labor contracts that were approved on March 20, 2013 – to close the county’s defined benefit pension and retiree healthcare plans for employees hired after Jan. 1, 2014. The decision to close those plans will result in dramatic increases to the county’s required contributions to those plans in the next few years, which is driving some of the healthcare cost increases, Smith noted. But that had been a board policy decision, he said.

Kent Martinez-Kratz asked whether the line item of “personal services” for the next four years included the upcoming contributions to the pension and retiree healthcare funds. [The line item represents salaries and benefits, and is projected to be $71.68 million in 2014, growing to $77.64 million by 2017.] [.pdf of chart showing budget projections] Finance analyst Tina Gavalier replied that those contributions are factored in, but only for general fund employees. Martinez-Kratz expressed some surprise that the increase per year wouldn’t be higher.

Brabec asked a question related to bonding for pension and retiree healthcare obligations, saying she was trying to understand the implications of that decision. She noted that McDaniel’s presentation had indicated that in the past, there were some county units that hadn’t seen reductions. Brabec asked for more details. McDaniel replied that the prosecuting attorney’s office and equalization department were two areas that haven’t been cut, as examples. “We have to be realistic about where we can cut without just really crippling a department or a service,” she said.

Brabec also asked about another assumption on the expenditure side – an estimated $1.5 million for information technology, with a projected 10% increase. Was that increase annual or over the four-year period? When McDaniel indicated that it was an annual increase, Brabec said it seemed “awfully high.” Gavalier reported that industry standard increases are closer to 20%. The county has IT maintenance contracts on huge systems, McDaniel added, which costs a lot to maintain and operate.

Outcome: This was not a voting item.

Budget Process Update

During the May 15 meeting, Felicia Brabec – chair of the board’s ways & means committee and a member of the budget task force – gave an update on the budget development process. The county’s finance staff is meeting with departmental staff – those will continue through early July, she said.

Regarding the bonding proposal, a press conference was held on Monday, May 13, she noted. Three members of the media asked questions of bond counsel John Axe and county administrator Verna McDaniel. Brabec reported that she and four other commissioners also attended: Alicia Ping, Yousef Rabhi, Rolland Sizemore Jr. and Andy LaBarre. She said she found it to be very educational.

Brabec noted that the resolution about the notice of intent had been pulled from the May 15 agenda, and the county awaits more information from its actuaries, which is expected to be ready by late June. At the board’s July 10 meeting, there will be several resolutions related to the bond that will be considered for initial approval, including the bond proposal itself and the creation of an intermediate trust. If passed, those resolutions could be considered for a final vote at the board’s special meeting on July 24, or the board could decide to take a final vote at the July 10 meeting, she noted.

May 16, 2013 Board Budget Retreat

During his report as board chair on May 15, Yousef Rabhi reviewed the plan for a second budget retreat the following day. The board had held its first budget retreat on March 7, 2013, where commissioners talked about big picture issues and engaged with other elected officials and department heads, he said. “Now, it’s time to drill down a little bit, to go into detail about what our weighted priorities are.”

Commissioners convened on May 16 at the county’s Learning Resource Center at 4135 Washtenaw Ave., near the county jail complex. The meeting, which was open to the public and videotaped for broadcast on Community Television Network, was attended by seven of the nine county commissioners and about a dozen staff members, including nearly all of the senior administrative staff. Also attending as observers were two of the five countywide elected officials: sheriff Jerry Clayton and prosecuting attorney Brian Mackie.

County administrator Verna McDaniel did not attend, due to a conflict with her daughter’s graduation from George Washington University. The two commissioners who did not attend represent districts in the Ypsilanti and Ypsilanti Township area: Rolland Sizemore Jr. (D-District 5) and Ronnie Peterson (D-District 6).

The retreat was facilitated by Lisa Brush, executive director of the nonprofit Stewardship Network. She is also the sister of Andy Brush, who leads the county’s IT unit and was on hand to help with technical support at the retreat. Also attending to help provide support was Mary O’Hare, who facilitated the March 7 retreat. [.pdf of O'Hare's summary from March 7, 2013 retreat]

At the March 7 retreat, commissioners had engaged in a broad discussion of possible areas of investment. O’Hare had provided summaries of five key areas that emerged from that retreat, framed as “success statements”:

• Ensure that Washtenaw County government has a sustainable & effective labor force. What success could look like: (1) Washtenaw County government attracts and retains talented and committed employees; (2) Washtenaw County makes ongoing investments in the professional development and education of its workforce; (3) Washtenaw County develops deep leadership “bench strength” to effectively lead the organization into the future.
• Mobility in Washtenaw County. What success could look like: (1) Washtenaw County has excellent roads, bridges, and related infrastructure to facilitate efficient movement of county residents and local goods and services, and/or; (2) Residents in Washtenaw County can travel easily and affordably throughout the county, using motorized or non-motorized routes and connections.
• Robust economic & workforce development. What success could look like: (1) Washtenaw County has the highest state employment rate, including communities on the eastside, and/or; (2) Entrepreneurs and local businesses have access to capital, talent, and supports needed to grow and thrive, and/or; (3) Housing and transportation costs will be affordable to residents earning less than 80% of the area’s median income, and/or; (4) Washtenaw County has safe and stable neighborhoods, with high rates of homeownership, and/or; (5) Washtenaw County, local communities, and private and corporate partners work together to strengthen the local economy, and/or; (6) All Washtenaw County residents have access to broadband internet connection.
• Ensure a community safety net (health & human services). What success could look like: (1) Washtenaw County residents have ready and affordable access to primary care for mental, oral, and physical health, and/or; (2) Children in Washtenaw County will have access to the care, support, and developmental tools they need to be ready for kindergarten, and/or; (3) Youth in Washtenaw County will graduate from high school, ready for college or career, and/or; (4) Residents of Washtenaw County will be food secure, and/or; (5) Poverty rates throughout Washtenaw County, including on the eastside, will be the lowest in the state, and/or; (6) Low-income residents have access to affordable transportation options.
• Reduce environmental impact. Success could look like: (1) Residents in Washtenaw County can easily travel throughout the county, using motorized or non-motorized routes and connections, preserves, parks and open spaces; and/or, (2) Residents in Washtenaw County can easily access parks, natural areas, and open spaces; and/or, (3) Washtenaw County government will be carbon neutral.

The main exercise at the May 16 retreat entailed commissioners allocating their spending priorities in these five areas. They were given two packets of fake money – one bundle representing the finite amount of revenues in the county’s general fund budget, and another bundle representing revenue from outside sources, such as federal grants or additional taxes. Commissioners were instructed to allocate their dollars into the five priority areas, to indicate how much they’d like to spend on each area. The intent, Lisa Brush explained, is to begin developing a “collective vision” that will help inform budget decisions.

Alicia Ping (R-District 3) allocates fake money to indicate her spending priorities, as part of an exercise at the county board’s May 16, 2013 budget retreat.

Some commissioners raised concerns with this approach. Alicia Ping noted that in the category of mobility, there was no way to distinguish her specific priority – widening US-23, for example – with the priority of someone like commissioner Conan Smith, who might want that money to be spent on rail transit.

Ping also wanted to talk about where funding could be cut. She felt the exercise was focused on spending and on non-mandated services, but in fact the board needs to look at mandated services too. The mandated public safety & justice services – including lump sum payments to fund the courts – account for 72% of the general fund budget. Ping said the board needs to look at areas that in the past they’ve funded without question. They need to look at the entire budget, she said.

Dan Smith observed that about 70% of services in the county’s general fund budget are mandated. So the discretionary amount is relatively small. He said some of the things that are important to him – some mandated services that he’d be inclined to spend more money on – aren’t included in the five key areas identified from the previous retreat.

Andy LaBarre suggested that instead of looking at the fake money as funding, the paper could be viewed as “value tokens” that simply indicate how much weight each commissioner gives the five key areas that emerged from the first retreat. Ping replied that for her, those five areas didn’t match up with where she wanted to put her money: “My value bucket is missing from this picture.”

Yousef Rabhi, who as board chair led the planning for the retreat, responded by saying that this session was just another step to help narrow and weight the board’s priorities. It could lead to another retreat, working session, or discussions at a regular board meeting. He suggested that for this exercise, commissioners could write on their extra packet of fake money to indicate that it represented cuts from mandated services, or funding that could be shifted to from mandated to non-mandated priorities.

Commissioners spent the next portion of the retreat making their priority decisions by portioning out their fake money into boxes that represented each of the five key areas from the first retreat. Staff then compiled the results.

Overall, the safety net/human services funding and workforce/economic development categories each received about 30% of the fake money/value tokens. The remaining three categories received the following percentages: maximizing mobility (18%), environmental impact (15%) and effective labor force (8%).

Lisa Brush reported that the extra packets – representing grants, taxes or other revenue sources – were divided roughly in the same way, although about a third of the fake money in that category had been designated by commissioners as “don’t spend.”

Dan Smith reported that his decision was easy, since he didn’t favor funding any new activities. Instead, he put large chunks of his fake money into two categories: (1) workforce/economic development, where he designated it for making the county’s neighborhoods safe; and (2) mobility, where he designated the money for roads.

Conan Smith made an argument for looking at possible new millages, especially for safety net services, where federal funding is in decline, and for roads. The board and administration need to start talking to the community about how much citizens want to invest, he said.

Felicia Brabec wanted to look at how this exercise could translate into the real budgeting process. What would the 30% priority for safety net services look like, as part of the budget? Ping suggested looking at how the existing budget lines up with these key areas. Is the county currently allocating money in the areas that commissioners believe are priorities? It would be interesting to see where the budget is “out of whack” with those priorities, she said. Ping wanted to see numbers attached to the discussion.

From left, standing: Lisa Brush of the Stewardship Network, who facilitated the May 16 retreat, and Mary Jo Callan, director of the county’s office of community & economic development. Seated are Andy Brush, the county’s IT manager, and Mary O’Hare, who facilitated the board’s March 7 retreat. They were compiling results from the board’s priority-setting exercise.

Andy LaBarre continued that thought, saying he’d like to see numbers and scenarios that show him how much “pain” will result from these decisions.

Dan Smith noted that the board is facing $6.99 million in structural reductions for 2014, and there are huge decisions to be made that don’t relate to the priorities they’ve been discussing so far at the retreat. Those structural changes “need to be at the top of our list,” he said.

Brush indicated that the next step would be to identify the outcomes that commissioners would like to see, based on their priorities.

LaBarre stressed the need to get input from the two commissioners who didn’t attend the retreat – Sizemore and Peterson.

Conan Smith advocated for organizing into small committees, structured around the service areas that were formerly known as “communities of interest.” [Those are civic infrastructure, economic development, emergency preparedness and response, health and human services, land use and environment, public safety and justice, and support services.] The committees would consist of a few commissioners and staff, and could develop recommendations to bring to the full board, he said.

Others talked about having an additional retreat or working session discussions. Ping suggested meeting in different parts of the county, to make it easier for citizens to participate. But Conan Smith said he wasn’t interested in another session like this. “We’re not getting down to brass tacks,” he said, adding that it’s not possible for the group of nine commissioners to talk about the entire budget and get anything done.

Conan Smith also recommended that the board review the strategic plans, investment priorities and outcomes that other units of the county – like the sheriff’s office and office of community & economic development – have already developed. He noted that legally, it’s the responsibility of the county administrator to prepare and deliver a budget for the board to consider and approve. He’s heard some commissioners indicate they want a stronger hand in the budget process, but they’re going down a path where soon it will be hard to have a major influence.

Ping agreed with C. Smith. It seems like the budget is developed and brought to the commissioners, then they have only two meetings to make changes and adopt it, she said. Approving the budget is really the only responsibility of the board, she noted. Ping wants a hand in the budget process because otherwise, she said, the only way she can voice her opinion is to vote no on the budget after it’s presented.

C. Smith noted that the other option is to spend those two meeting at the end of the process arguing over $100,000 in a $200 million budget. [He was referring to both the general fund budget of roughly $100 million, as well as the non-general fund portion of the budget.]

Both LaBarre and Kent Martinez-Kratz highlighted the bonding proposal as the other big piece of this year’s budget process that needs to be settled. LaBarre also expressed support for the small committee approach, but said he worried that not all commissioners would participate – or perhaps they all wouldn’t have the chance to participate – and as a result those commissioners might not support the outcome of the process.

LaBarre also said that ultimately he didn’t care what process they used. He just wanted to “get something here that we can really chew on.” It’s helpful to talk about priorities, he added, but now it’s time to see some hard numbers.

In wrapping up the retreat, Rabhi noted that in the past, the chair of the board’s ways & means committee – currently Brabec – has typically been the board’s voice in budget planning. But he’s hearing that commissioners want more involvement, so he’d work with the Brabec and other board leadership to figure out an appropriate way to proceed.

Millage Rate

At their meeting on May 15, commissioners were asked to give initial approval to the 2013 county general operating millage rate at 4.5493 mills – unchanged from the current rate.

Several other county millages were authorized and are levied separately: emergency communications (0.2000 mills), the Huron Clinton Metroparks Authority (0.2146 mills), two for county parks and recreation (0.2353 mills and 0.2367 mills) and for the natural areas preservation program (0.2409 mills). That brings the total county millage rate to 5.6768 mills, a rate that’s also unchanged from 2012.

From left: Pete Simms of the county clerk’s office talks with corporation counsel Curtis Hedger.

This is an annual procedural action, not a vote to levy new taxes. With a few minor exceptions, the county board does not have authority to levy taxes independently. Millage increases, new millages or an action to reset a millage at its original rate (known as a Headlee override) would require voter approval.

The rates would be included on the July tax bills for property owners in Washtenaw County.

A related resolution set a public hearing for the millage rate at the board’s June 5 meeting. Curtis Hedger, the county’s corporation counsel, noted that this is commonly known as the “truth in taxation” hearing. The notice regarding the public hearing includes the county millage rates as well as rates for other taxes that the county receives revenue from via the state – specifically, the alcohol and cigarette tax.

When the state changed the timing of the levy from December to July, the county has been running into issues related to getting information from the state about alcohol and cigarette tax rates. This year, the state hasn’t yet provided those numbers, Hedger said. The board can still pass this resolution to set the county millage rates, Hedger said, but the county clerk will be directed not to publish the notice of a public hearing until the information on alcohol and cigarette tax rates is received.

Legally, he said, the notice of the public hearing – including the proposed millage rates – doesn’t have to be published until six days before the actual hearing. The hearing has to be held on June 5 because that’s the only time that the board meets, he noted, unless commissioners want to call a special meeting.

Outcome: The board unanimously gave initial approval to set the millage rate, with a final vote expected on June 5, when a public hearing is scheduled.

Medicaid Expansion

Commissioners were asked to consider a resolution expressing support for the state of Michigan to expand the federal Medicaid program, as part of the Affordable Care Act – informally known as Obamacare. The resolution of support was brought forward by commissioner Andy LaBarre (D-District 7).

Expansion of the Medicaid program would cover individuals and families earning up to 133% of the federal poverty level, and provide coverage for over 10,000 Washtenaw County residents who are not currently eligible. The resolution cites additional reasons to support the action:

Without the expansion, approximately 5,000 Washtenaw Health Plan (WHP) members will have no coverage options at all because their income is below 100% of poverty, thus by law, these individuals cannot buy subsidized coverage through the insurance exchange; and

WHP funding will be significantly cut on January 1, 2014, and ultimately eliminated completely, regardless of whether or not the state expands Medicaid, thus Washtenaw County’s ability to provide services to this population will be severely limited and these residents will be left to seek care in hospital emergency rooms, adding additional economic burdens to Washtenaw County residents who must indirectly pay those costs;

Republican Gov. Rick Snyder supports the expansion, but it’s not clear whether the Republican-controlled Michigan legislature will approve it.

Medicaid Expansion: Board Discussion

Dan Smith asked that the resolution be pulled out from the consent agenda and voted on separately. He thanked LaBarre for making this resolution very specific to Washtenaw County, with information about impacts to local residents.

Commissioners Alicia Ping (R-District 3) and Andy LaBarre (D-District 7).

He added that he gets emails from people urging him to contact state legislators to oppose the expansion, while the governor supports it. Clearly it’s a complex issue that Lansing is dealing with, he said, “and I have my hands very full dealing with things that are in front of this board.”

Smith said it’s been his position all along that weighing in on something like this as a body isn’t appropriate. He felt it would be more effective to work with legislators individually, “rather than interfering in Lansing’s business in a resolution of this form.”

[By way of background, at its Jan. 2, 2013 meeting, on a 5-4 vote the board voted to remove the ability of a commissioner to abstain from a vote. The question of abstaining from votes has related primarily to resolutions on state or federal issues, over which the county board has no direct control. In early 2012, Dan Smith had successfully convinced a majority of commissioners to add to the board rules the ability to abstain. That action was reversed by the majority of the newly elected board on Jan. 2 of this year.]

During the discussion on Medicaid expansion, LaBarre noted that he was following up on an issue that he had mentioned at the board’s previous meeting. LaBarre reminded commissioners that he serves as the county’s liaison to the Area Agency on Aging 1-B board board, which recently passed a similar resolution.

He said that if it would put Smith’s mind at ease, Macomb County also passed a similar resolution, and one of their commissioners (Toni Moceri) helped LaBarre with the resolution. Washtenaw County “wouldn’t be breaking new ground,” he noted, adding that he understood Smith’s position.

Felicia Brabec thanked LaBarre, noting that Medicaid expansion is important to the community with dire impacts on people who really need it. She serves on the board of the Washtenaw Community Health Organization (WCHO), which sees the need “in a very real way,” Brabec added. Without the expansion, a lot of residents will go without care.

Outcome: The resolution was approved on a 6-0 vote. Dan Smith (R-District 2) left the room prior to the vote. Conan Smith (D-District 9) and Rolland Sizemore Jr. (D-District 5) were also not in the room during the vote.

Grants for Workforce Development

Two items were on the agenda for initial approval for grants administered by the county’s office of community & economic development (OCED).

An additional $55,000 in funds was available for the Food Assistance Employment and Training (FAE&T) program, bringing the program’s fiscal year 2013 budget to $139,783. According to a staff memo, the program was established through the federal Food Stamp Act of 1977 to help people who are receiving food stamps get training that will lead to regular employment. Locally, this program is administered by OCED through the Michigan Works office in Ypsilanti. These extra funds are available because other entities did not use their allocation of funds, and the money is being redistributed.

The second item was an additional $73,300 for the Dislocated Worker program, bringing that budget to $586,398. That program, which is operated out of the Michigan Works Career Transition Center in Ypsilanti, provides training and services to help workers who have been displaced from their jobs.

Grants for Workforce Development – Board Discussion

Dan Smith commented that grants or other items from the OCED are on the agenda for almost every meeting, and address specific needs of the community. He thanked OCED director Mary Jo Callan and her staff for their work, including dealing with “fairly onerous” federal regulations associated with these grants.

In response to a question from Felicia Brabec about the dislocated worker grant, Callan explained that the state – which receives the federal funds and passes those on to local governments – provides supplemental allocations near the end of the fiscal year, using money that’s unspent at the state level or by other communities that receive these grants. It’s possible to carry over these funds into the next budget year, she said. For the purposes of the dislocated worker grant, the fiscal year starts July 1. The county intends to carry over the funds into the next fiscal year, to help offset federal sequestration cuts. For workforce development programs in Michigan, cuts will range from 16-25%, Callan said. In Washtenaw County, cuts will average 17-18%.

Outcome: Acceptance of both grants received initial approval by the board. A final vote is expected on June 5.

Urban County Plan

Washtenaw Urban County’s five-year strategic plan through 2018 and its 2013-14 annual plan was on the May 15 agenda for final approval. The board gave initial approval on May 1, 2013. [.pdf of draft strategic and annual plans]

The Urban County is a consortium of Washtenaw County and 18 local municipalities that receive federal funding for low-income neighborhoods. Members include the cities of Ann Arbor, Ypsilanti and Saline, and 15 townships. “Urban County” is a designation of the U.S. Dept. of Housing and Urban Development (HUD), identifying a county with more than 200,000 people. With that designation, individual governments within the Urban County can become members, entitling them to an allotment of funding through a variety of HUD programs. The Urban County is supported by the staff of Washtenaw County’s office of community & economic development (OCED).

Two HUD programs – the Community Development Block Grant and HOME Investment Partnership – are the primary funding sources for Urban County projects.

The plans indicate that the Urban County area is expected to receive about $2.7 million annually in federal funding, which will be used for these broad goals:

1. Increasing quality, affordable homeownership opportunities

2. Increasing quality, affordable rental housing

3. Improving public facilities and infrastructure

4. Supporting homeless prevention and rapid re‐housing services

5. Promoting access to public services and resources

6. Enhancing economic development activities

A public hearing had been held at the board’s April 17, 2013 meeting.

Outcome: The board gave final approval to the Urban County plans.

Appointments

Board chair Yousef Rabhi made two nominations at the May 15 meeting. He nominated Ed Toth to serve on the police services steering committee, filling the position of police chief for a non-contracting jurisdiction. Toth is chief of policy for the city of Chelsea.

To the county’s food policy council, Rabhi nominated nutritionist and pharmacist Gail Solway for the healthcare position and Lauren Atkins Budde – who publishes the Have Fork, Will Eat blog – for the citizens position.

Outcome: Without discussion, all appointments were approved.

Communications & Commentary

During the evening there were multiple opportunities for communications from the administration and commissioners, as well as public commentary. In addition to issues reported earlier in this article, here are some other highlights.

Communications & Commentary: Michigan Association of Counties

Two representatives from the Michigan Association of Counties (MAC) – executive director Tim McGuire and Ben Bodkin, director of legislative affairs – were on hand to urge commissioners to renew the county’s membership in MAC. In 2011, the board voted to cut membership to the organization, as part of a broad effort to eliminate a budget deficit in 2012 and 2013.

From left: Tim McGuire, executive director of the Michigan Association of Counties, and Ben Bodkin, MAC’s director of legislative affairs, provided handouts and swag for commissioners. County administrator Verna McDaniel takes a look.

McGuire told commissioners that he’d had individual conversations with several of them, but he also wanted to make an appeal to the full board to consider rejoining MAC. Bodkin highlighted some of the issues that MAC has addressed on behalf of the 83 counties in Michigan, including state revenue-sharing and personal property tax legislation. He hoped Washtenaw would consider rejoining MAC to strengthen the county’s voice, protect taxpayer dollars, and get tools that can help make its work more effective.

McGuire spoke again, citing issues like transportation funding, Medicaid and indigent defense as other areas that MAC is working on. The organization has five standing committees that commissioners can participate in. All counties need to work together to make improvements, he said.

Ronnie Peterson said he’d been very active in MAC in the past, and had served on the search committee that had recommended hiring McGuire. He suggested scheduling a formal presentation from MAC, and he wanted to discuss the possibility of rejoining the organization, which he said was highly respected. The county needs to be a player at the state level, he said. The lobbyist that the county pays – Lansing-based Governmental Consultant Services Inc. – does a good job, Peterson added, but he felt that GCSI’s work is focused on specific projects.

Yousef Rabhi said he’d like to continue the discussion. He wondered how the voting worked for MAC – was it one county, one vote? McGuire replied that MAC’s board has 16 members representing different counties, and each member has an individual vote. At the organization’s conventions, it’s one vote per person with regard to electing those board members. There are also five standing committees at MAC: judiciary, taxation, transportation, human services and economic development. County commissioners from across the state serve on those, he said, and make recommendations on legislative stances. Those recommendations are considered by the board of directors, who develop a formal platform each year that’s used as a guide for lobbying.

Rabhi said he didn’t doubt MAC’s leadership capability or value. He noted that two years ago when the 2012 and 2013 budgets were developed, he was the one who proposed eliminating dues to MAC. The money was used instead to fund the county’s homeless shelter, he said, for which funding had been cut dramatically. One of Rabhi’s concerns with MAC is that some counties have higher populations – including Washtenaw – yet are at the table with the same vote as much smaller counties. “When you’re advocating for policy, that might not be representative of the wills of the people in the state and of the people that those county commissioners represent,” he said. It would be valuable to give weight to populations when MAC’s policy decisions are being made, Rabhi added. That’s how SEMCOG operates, he noted. That said, Rabhi indicated interest in further discussing the issue.

McGuire responded, saying that in his experience if something is good for Washtenaw County, it’s probably good for a county with a smaller population – and vice versa. It’s rare not to have consensus on issues that affect all counties, he said. McGuire felt it’s important to have Washtenaw County represented in MAC’s discussions, and he hoped commissioners would re-engage.

In response to a question from Dan Smith, McGuire said the dues for Washtenaw County would be $26,230 annually, based on population and state equalized value. Dues were frozen in 2003, he added, and have only been increased one time since then – by 3% in 2007. MAC recognized the economic situation, McGuire said, and has tried to make membership affordable for all counties by doing more with less.

Communications & Commentary: Corridor Improvement Authority

Dan Smith highlighted a communication that the board had received regarding the intent of Pittsfield Township to establish a corridor improvement authority (CIA) along State Street. [.pdf of Pittsfield communication] The letter indicates that the township would use tax increment financing as a funding mechanism, he noted. A portion of the proceeds from millages levied by the county and county parks & recreation would be captured by such a TIF.

Smith said he has no objections to what Pittsfield Township is doing regarding its CIA, but he noted that the county board needs to have a discussion about TIF. “Trying to deal with [such projects] as just single items makes it very difficult to really look at what we want to do with TIF financing throughout the county,” he said. If commissioners say yes to one and no to another, it looks like they’re playing favorites rather than following a policy. He’d like to discuss a policy so that when items like this come up, the board has a framework in which to act.

Yousef Rabhi offered to work with Smith to develop such a framework, which could then be brought to a working session for the full board to discuss.

The Pittsfield Township CIA would extend along State Street from Airport (just south of Ellsworth) to Campus Parkway (just north of Michigan Avenue). In April of 2013, the Pittsfield Township board approved the intent to establish this CIA. A public hearing is set for May 22 at 6:30 p.m. at the township hall, 6201 W. Michigan Ave.

Communications & Commentary: County Parks & Recreation

Rolland Sizemore Jr. and Dan Smith – who both also serve on the county parks & recreation commission – highlighted work that’s being done by that group, and noted that Rolling Hills and Independence Lake parks will be opening on Memorial Day weekend. Both of those facilities have water parks. The Independence Lake water park, located in Webster Township, is new. The water park at Rolling Hills in Ypsilanti Township has a new 30-foot water slide.

Communications & Commentary: Roads, Transportation

Rolland Sizemore Jr. asked when the county road commission would be coming to brief the board at a working session – he thought that was happening in October. Andy LaBarre, who chairs the working sessions, reported that one of the October working sessions is scheduled for the southeast Michigan regional transit authority, not the road commission. Sizemore replied that whenever the road commission is scheduled, he’d like for representatives from the Southeast Michigan Council of Governments (SEMCOG) to attend as well, since SEMCOG also had managed transportation projects. He noted that as the county board’s liaison to the road commission, he’s participating in a committee that’s evaluating the condition of roads countywide.

Yousef Rabhi reported that SEMCOG’s executive meeting would be held on May 16, when they would be taking up the 2040 long-range regional transportation plan. SEMCOG planners are recommending the expansion of I-94 in Detroit and I-75 in Oakland County. Rabhi characterized the expansion as unwise, and said he’ll be opposing it. Looking toward the future with more sustainable transit and fewer cars, he said, it doesn’t seem wise to expand the highway system and take property by imminent domain. “It’s painful for me to see that this is the direction that our region is choosing to go,” he said, even though he understands that the project would be funded with dollars allocated for roads. It seems like a poor use of taxpayer money, he said, but he asked for feedback from other commissioners and the public.

Communications & Commentary: Young Women Making Washtenaw Better

Several teens from Young Women Making Washtenaw Better, a program of the Washtenaw County sheriff’s office, introduced themselves to the board and spoke about the program, which celebrated its one-year anniversary in May. The program emphasizes leadership, community service and making a positive impact on the community. Also addressing the board was Natalia Harris, community outreach coordinator for the Washtenaw County sheriff’s office, who serves as facilitator for YWMWB. As part of the program’s advocacy focus, she said, members are going to different government groups and introducing themselves. The county board is the first group that YWMWB has attended, Harris said. “So I thank you for being our guinea pigs.”

Harris also invited commissioners to attend an ice cream social celebrating YWMWB’s one-year anniversary. The event is on Tuesday, May 21 at 4:30 p.m. at the sheriff’s office community engagement center, 4101 Washtenaw Ave. – in the community corrections building. She also noted that YWMWB can be a resource for the county, with volunteers working on a variety of community projects. Harris encouraged commissioners to contact her if they needed volunteers in their districts.

Several commissioners thanked the teens for attending the meeting. The county’s two female commissioners – Alicia Ping (R-District 3) and Felicia Brabec (D-District 4) – both offered to meet with the girls to talk about leadership issues.

Communications & Commentary: Thomas Partridge

Thomas Partridge spoke during both opportunities for public commentary. He objected to the fact that the budget retreat was not being held at the county boardroom, saying it was a retreat from the public. He urged commissioners to put forward an agenda that would address serious needs in the county. If they can’t do that, he added, they should step aside so that someone else can.

Attendance at the May 15, 2013 Washtenaw County board meeting was as follows:

Present: Alicia Ping, Felicia Brabec, Andy LaBarre, Kent Martinez-Kratz, Ronnie Peterson, Yousef Rabhi, Rolland Sizemore Jr., Dan Smith.

Absent: Conan Smith was at the meeting when attendance was taken, but did not take his seat for the rest of the meeting and did not participate in any votes.

Next regular board meeting: Wednesday, June 5, 2013 at 6:30 p.m. at the county administration building, 220 N. Main St. in Ann Arbor. The ways & means committee meets first, followed immediately by the regular board meeting. [Check Chronicle event listings to confirm date.] (Though the agenda states that the regular board meeting begins at 6:45 p.m., it usually starts much later – times vary depending on what’s on the agenda.) Public commentary is held at the beginning of each meeting, and no advance sign-up is required.

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On May 15, the board also scheduled a special board meeting for July 24, to allow for additional votes and public commentary related to the bond proposal, if needed.

The resolution that originally appeared on the May 15 agenda would have authorized the publication of a “notice of intent” about the bond issue. Several commissioners had previously expressed concern at the timeline, given that the county does not yet have the updated actuarial information it needs to set the specific amount of the bond issue. In explaining the decision to delay this process, Rabhi said he wanted to provide more time for public input, and to move the vote until after the actuarial information has been received. He also announced his intent to hold a series of informal meetings at coffee shops in Ann Arbor to discuss the bond proposal with residents. He’s calling the meetings “Bonding Over Coffee.”

The notice of intent is a standard initial step in the bonding process. It must be published in a “newspaper of general circulation within the county,” and lets residents know that they have 45 days during which they can circulate petitions to require a vote of the people before any bonds are issued. The notice must include a maximum amount of the bond issue, a maximum interest rate, and a maximum term for the bonds.

The amount of the bond issue is an estimate at this point and will not likely be as high as $345 million, according to the county’s bond counsel, John Axe of Axe & Ecklund. To set the specific amount of the bond issue, the county needs updated actuarial information – but those reports won’t be ready until late June. The board is expected to vote on publishing the notice of intent on July 10.

The board has been briefed on this proposal most recently at a May 2 working session. [See Chronicle coverage: "County Board Debates $345M Bond Proposal."] At that time, the county’s bond counsel – John Axe of Axe & Ecklund – had indicated a timeline that included giving initial approval to two other bond-related resolutions on May 15, in addition to the notice of intent.

Those other resolutions were: (1) a resolution setting the bond’s maximum amount; and (2) a continuing disclosure resolution that’s standard for all bond issues over $1 million, indicating that the county will provide updated financial information annually during the term of the bond. However, neither of those two other resolutions were on the May 15 agenda when it was made available to the public prior to the meeting. It’s likely those resolutions will also be on the board’s July 10 agenda for an initial vote.

The bonding is made possible by Michigan’s Public Act 329 of 2012, which the state legislature passed in October of 2012. [.pdf of Public Act 329] The law enables municipalities to issue bonds to cover unfunded accrued pension and retiree healthcare liabilities, but has a sunset of Dec. 31, 2014. The county faces a $30 million contribution toward these obligations in 2014, and is looking for ways to manage that obligation.

The most recent estimates put the county’s maximum retirement obligations at $340.8 million. The board was presented with calculations for borrowing $344 million at an assumed average interest rate of 4%. The county would pay $239 million in interest over the life of the bond, for a total of $583 million in combined interest and principal.

County administrator Verna McDaniel is advocating for this move, in part to make long-term budgeting easier by having predictable bond payments. The bonding is also linked to new 10-year labor deals approved earlier this year, which closed the defined benefit plan to employees hired after Jan. 1, 2014. Unless the defined benefit plans were closed, the county would not have been allowed by law to proceed with this type of bonding.

This brief was filed from the boardroom of the county administration building, 220 N. Main in Ann Arbor. A more detailed report will follow: [link]

From left: Washtenaw County commissioner Conan Smith, Meredith Shanle of Municipal Financial Consultants Inc., and bond attorney John Axe, Shanle’s father. (Photos by the writer.)

The bonding is made possible by Michigan’s Public Act 329 of 2012, which the state legislature passed in October of 2012. [.pdf of Public Act 329] The law enables municipalities to issue bonds to cover unfunded accrued pension and retiree healthcare liabilities, but has a sunset of Dec. 31, 2014. The county faces a $30 million contribution toward these obligations in 2014, and is looking for ways to manage that obligation.

The most recent estimates put the county’s maximum retirement obligations at $340.8 million. New actuarial reports are due in June, however, and estimates could change. The board was presented with calculations for borrowing $344 million at an assumed average interest rate of 4%. The county would pay $239 million in interest over the life of the 25-year bond, for a total of $583 million in combined interest and principal.

John Axe of Axe & Ecklund, a Grosse Pointe Farms attorney who has served as the county’s bond counsel for decades, helped craft the state legislation that permits this type of bonding. He was on hand at the working session to describe the proposal and answer questions. “If you don’t issue the bonds,” Axe said, “you’re going to have horrible budget problems.”

County administrator Verna McDaniel has advocated for this move, in part to make long-term budgeting easier by having predictable bond payments. She raised the proposal publicly for the first time at the board’s April 17, 2013 meeting. However, Axe told commissioners that he’d been asked by the county administration to start looking into this possibility in November of 2012. He also met earlier this year with the board in closed session, when labor negotiations were discussed.

During the May 2 working session, several commissioners referred to the fact that the new 10-year labor deals approved earlier this year had been key to moving forward with this bond proposal. Allusions to that connection have been made at previous board meetings, but not directly stated. The crucial point was closing the defined benefit plan to employees hired after Jan. 1, 2014. Unless the defined benefit plans were closed, the county would not have been allowed by law to proceed with this type of bonding.

Also a factor are the new accounting standards of GASB 68, which require that unfunded liabilities be included in an organization’s financial statements for fiscal years beginning after June 15, 2014.

Some commissioners expressed concern that the bonding process, now that it’s public, is being rushed. “If I’m borrowing $350 million, I think we should take our time to ask appropriate questions,” said commissioner Ronnie Peterson. “That’s a lot of money.” He felt it was important to see updated actuarial estimates, but noted that based on the board’s discussion, “it’s like we’ve already made up our minds.”

Dan Smith lobbied to explore more options, rather than just one proposal, and raised the possibility of putting this issue before voters. “What we’re really trying to do is to manage our cash flow,” he noted. Smith also expressed skepticism about projections that the bond proposal would result in more than $100 million in savings for the county over 25 years, compared to the amount that the county would pay for its retiree obligations without bonding.

But Conan Smith argued that the board “set the course” when it approved those labor contracts and voted to close the defined benefit plans earlier this year. He acknowledged concerns about the timing, “but in part it has to move so fast because this board closed the plan, and we’re looking at a $30 million payment in 2014 if we don’t do something. So it was a choice we made willfully and with full knowledge and now we’re designing a fiscal strategy to minimize the severity of the impact on our budget.”

That specific budget impact was not discussed publicly when the board voted on the new labor contracts.

Axe also urged the board to act quickly, saying that the proposal is interest-rate sensitive. The proposal assumes that the county would borrow at an average annual interest rate of 4%, then invest the bond proceeds to earn an average rate of return of 6.5% over the 25-year period.

The proposal calls for the board to take an initial vote at its next meeting, on May 15, followed by final approval to issue a “notice of intent” on June 5. The board would also need to approve a state-mandated comprehensive financial plan in July, setting the amount of the bond issue. The county would then submit an application to the state Dept. of Treasury, which must approve the bond issue.

Some commissioners hope to get more input from experts – faculty at the University of Michigan business school, for example, or the county treasurer – who don’t stand to benefit from this bond issue. Because of these concerns, the county is expected to hire a third-party consultant, Public Financial Management Inc., to review the proposal.

In response to a question from Dan Smith, Axe told the board his firm would earn $485,000 in fees from this bond issue, at his standard rate. The county is also using Municipal Financial Consultants Inc. (MFCI) as the financial consultant on this proposal. Axe & Ecklund provides a 15% discount on its fees if the county hires MFCI as the financial consultant. MFCI president Meredith Shanle attended the May 2 working session. Though it was not mentioned at the meeting, Shanle is Axe’s daughter.

Board chair Yousef Rabhi stressed the importance of community engagement, and outlined plans for getting input – including a public presentation and possibly extra meetings. “Regardless of the decision that we make,” he said, “it’s important that the community is involved in that process.”

Public Commentary

At the start of the May 2 session, three people addressed the board. Wes Prater began by telling commissioners and staff that it was good to see everyone again. [Prater, a Democrat, previously served on the board for 10 years but was defeated by Republican Alicia Ping in November of 2012, following a redistricting that pitted both incumbents against each other in the general election.]

Prater reminded commissioners that when he served on the board, he had raised concerns about the county’s long-term liabilities. He pointed out that at the end of 2011, the county – including the road commission – had long-term liabilities for all types of debt totaling $430 million, up from $379 million in 2007. He urged commissioners to look closely at this increase so that they could determine why it had occurred, and figure out how to take care of it.

Former Washtenaw County commissioner Wes Prater, left, talks with corporation counsel Curtis Hedger at the May 2 working session.

He also asked if the county had responded to a letter sent out at the beginning of 2013 from the state treasurer’s office to each local unit of government, asking for a long-term deficit elimination plan. He said the plan must get approval from the governing board, and must be submitted to the state treasurer as part of the annual audit.

Later in the meeting, Kelly Belknap – the county’s finance director – replied that the plan is only required for local governments that have fund deficits. She said none of the county funds have a deficit, so there’s no requirement to submit a deficit elimination plan to the state.

Doug Gross, a certified financial planner from Saline, cautioned commissioners to think carefully about what business they’re in. The business is to provide services to taxpayers, he said. The county isn’t in the investment business, he said, and it takes a risk in borrowing money to fund an obligation that they should have been paying for all along.

It’s a risk to borrow the money and just hope for a higher rate of return, Gross said. There’s certainly a shot at achieving a higher rate of return, he added, given the low-interest rate environment. But the focus should really be on what can be done to lower employee benefits in the future. Are the benefits comparable to what the general public and taxpayers are getting? He thought the county’s benefits were likely way beyond what others are receiving. People are retiring in their 50s with lifetime pensions and that’s not sustainable, he said. And healthcare is no longer a retirement benefit for almost anyone in society, he added.

Gross suggested the county look at its labor contracts, and over time to stop offering the defined benefit plan. He realized there was an obligation to existing employees, but it doesn’t have to keep accruing.

In responding to Gross, commissioner Yousef Rabhi pointed out that the county reached new 10-year labor contracts earlier this year. [The new contracts were approved by the board on March 20, 2013, prior to the state's right-to-work law taking effect.] Those contracts close the current pension and retirement healthcare benefits for people hired after Jan. 1, 2014. Rabhi noted that the county wouldn’t be allowed to pursue the kind of bonds it’s seeking without closing those retirement defined-benefit plans, “so with the 10-year contract, that’s a step that we took – to cap the growing long-term liability.”

It wouldn’t make sense to borrow money if the plans weren’t capped, Rabhi said, because you wouldn’t know what your total liabilities were. “I don’t think that any of us would be at this stage of the road if we hadn’t gone through the 10-year contract process.” He praised the labor unions for making sacrifices. “What we’re trying here is something that isn’t necessarily being tried in a lot of different places. It’s been tried in a few places, and I think it’s worked relatively well,” he said. “But we are, in the tradition of Washtenaw County, leading the way in terms of how we can make some of these changes.” Rolland Sizemore Jr. replied to Rabhi, saying he’d like to know what places have tried this approach successfully.

At the end of the meeting, after commissioners had clarified that the pension and retirement health care plans will be closed, Gross pointed out that any new employees hired through 2013 will still be eligible for those benefits – so the county hasn’t actually closed those plans yet.

Gross also wondered whether the bond would be tax-exempt or taxable. If it’s taxable, interest rates will be higher, he noted, so the spread between what the county pays and what it hopes to earn off investments will be narrower. He didn’t think it would be viable as a taxable bond. [The proposed bond issue would be taxable.]

Thomas Partridge urged the board not to take on such high debt, but rather to put their efforts into funding affordable housing.

Bond Proposal: Public Process

Yousef Rabhi, the board’s chair, reported that he and vice chair Alicia Ping had been working to make sure this process is as open to the public as possible. Between this meeting and the May 15 vote, he wanted to make himself, Ping and Felicia Brabec – who chairs the board’s ways & means committee chair – available to the media. They were thinking of scheduling a press conference or informal discussion, he said. A lot of information has been released already to the public, Rabhi said, but Ping has also suggested that the administration develop a brochure about this bond proposal that would be distributed to libraries and other public places to ensure that the public is well informed about the process.

Washtenaw County commissioners Yousef Rabhi (D-District 8) and Alicia Ping (R-District 3). They serve as board chair and vice chair, respectively.

He also wants to schedule a public presentation sometime between May 15 and the final vote on June 5, so that the public can come and hear more details about the proposal and get their questions answered. In addition, there will be a formal public hearing at the board’s June 5 meeting. He said it’s an open process, and these outreach measures are a way to ensure that in a more formal way. “There’s an overwhelming sense on this board that we want to engage the public in this process,” he said. “Regardless of the decision that we make, it’s important that the community is involved in that process.”

Rabhi also noted that the county board meetings include opportunity for public commentary, and he encouraged the public to speak during that time.

Ping, the board’s vice chair, noted that the board has had a lot of conversations “touching around what we’re going to do.” Starting with this working session, she said, and in the next few meetings, “we’ll really be able to dive in” and get all questions answered.

Rolland Sizemore Jr. expressed concern about the process. Some commissioners have told him this process has to be completed by July, he said, and that the proposal might have to get initial approval and final approval on the same night. “That is going to be a major problem with me,” he said. [Typically, an initial vote is taken at the ways & means committee – on which all board members serve – followed by a final vote at the regular board meeting two weeks later. For most of the year, the ways & means committee and regular board meetings are held every two weeks, in back-to-back sessions on the same night. During the summer, those meetings are held only once a month.]

Noting that not everyone has a computer, Sizemore encouraged the public to call the county administration office at 734-222-6852 and ask questions.

Ronnie Peterson criticized the speed of the process, noting that one of the public forums was planned to happen after the board’s initial vote on May 15. “If I’m borrowing $350 million, I think we should take our time to ask appropriate questions. That’s a lot of money.”

Bond Proposal: Financial Analysis

Meredith Shanle of MFCI reviewed the documents she had provided to commissioners, showing how the bond proposal would cover the existing obligations for the Washtenaw County Employees’ Retirement System (WCERS) and Voluntary Employees Beneficiary Association (VEBA) – the defined benefit pension and retiree healthcare plans. The information included charts that compared existing debt obligations with the proposed bond payment schedule, as well as an analysis on the bonding’s impact on future borrowing. [.pdf of MFCI overview memo to commissioners] [.pdf of comparative charts on covering VEBA and WCERS obligations] [.pdf of MFCI memo regarding impact on future borrowing] [.pdf of MFCI debt load analysis]

Actuarial reports are being completed – likely available in June – to show the county’s updated obligations for VEBA and WCERS as of Dec. 31, 2012. The most recent actuarial report showed valuations at the end of 2011, when the county had $101.27 million in unfunded liabilities for its defined benefit pension (WCERS), and $148.46 million in unfunded liabilities for its retiree healthcare (VEBA).

However, those figures were based on assumptions that haven’t been updated since 1999. According to draft minutes of a April 16, 2013 special joint meeting of the WCERS and VEBA boards, county finance director Kelly Belknap asked for an expedited “experience review” to be completed by the actuarial Buck Consultants by June 25, 2013. Her request was approved by the boards at that special meeting. The review will focus on investment returns, mortality, wage inflation and core demographics since 2009, with a more in-depth study scheduled for a later time. According to minutes from a Feb. 7, 2013 VEBA meeting, this kind of study is typically conducted every three to five years, in order to inform actuarial valuations.

Until new actuarial reports are completed, MFCI has estimated that the maximum obligation is $340.8 million – $210.5 million for VEBA, and $130.3 million for WCERS. Calling this a “worst case assumption,” MFCI is recommending that the county board authorize a notice of intent to issue up to $345 million in bonds to fully fund both VEBA and WCERS.

Borrowing that amount at an assumed average interest rate of 4%, the county would pay $239 million in interest over the life of the 25-year bond, for a total of $583 million in combined interest and principal.

The annual payments would vary, beginning at $18.558 million in 2014 for interest only. Subsequent years would include both interest and principal payments: $14.110 million in 2015, $15.170 million in 2016, and $16.278 million in 2017. Payments increase incrementally in subsequent years, and starting in 2024 the county would be paying about $26.2 million annually. [.pdf of comparative charts on covering VEBA and WCERS obligations]

MFCI’s analysis assumes that the county would earn an average rate of return from the bond proceeds of 6.5% over the 25-year period of the bond. Proceeds from the bond, held in an intermediate trust, could be used to call the bonds after nine years, if some future event eliminates the WCERS and VEBA liabilities.

The MFCI analysis also states that the county would pay up to $112 million more to cover its VEBA and WCERS obligations if it doesn’t bond, based on the county’s current 27-year estimated debt payment schedule for those two funds. John Axe, the bond attorney used by the county, noted that the annual estimated contributions that the county will be required to make in the next few years – if it doesn’t bond – are considerably higher than the bond payments it would be making if it does bond. [.pdf of charts showing retiree fund payments without bonding]

The reason that most entities don’t want to close their defined benefit plans is that they don’t want to have to start making those annual contributions, Axe said. But Washtenaw County has done the “responsible thing,” he added, and closed its defined benefit plans. The bond proposal would cover the obligations “in an orderly way,” Axe said, by spreading out the debt over 25 years with a fixed-rate obligation, which is estimated to be about 4% on average. If the estimates are different when it comes time to issue the bonds, Axe said, then the proposal would need to be re-evaluated.

“If you don’t issue the bonds,” Axe added, “you’re going to have horrible budget problems.”

Another aspect of the MFCI analysis looked at how the proposed bond would impact the county’s debt limit and ability to bond for other purposes. Assuming that the county bonds for the entire $345 million, its overall debt would total $445.88 million – or 32% of what it is legally allowed to issue. The MFCI memo states:

We do not believe that the issuance of debt at that level will have any negative effect on the County’s ability to maintain its current credit rating or to issue future debt since the County would have in excess of $975,000,000 in additional room to issue debt in the future. Moreover, because the County is issuing this debt for the purpose of funding a debt which it currently owes, we believe the action will be welcomed by both Moody’s and Standard & Poor’s.

Bond Proposal: How It Would Work

John Axe of Axe & Ecklund, the bond counsel hired by the county, began his presentation by referring to a memorandum he had sent earlier to commissioners that outlined the process. [.pdf of Axe's process memo]

Axe said the process now being pursued by the county actually began in 2008. At that time, the bond proposal would have covered about half of the amount that’s now proposed, he said, and would have covered only VEBA, the retiree healthcare plan. The idea would have been to issue certificates of participation (COPs), a different type of financing than the bond issue that’s now being proposed.

But the county ultimately didn’t move ahead at that time, because of the economic meltdown that occurred about a month before the COPs would have been issued, Axe said. At that time, Washtenaw County was following the lead of Oakland County, he said, which had issued COPs a year earlier. It wasn’t the best type of borrowing situation, he noted, and bonds would have been preferred.

Axe reported that his firm had prepared legislation in 2006 to allow bonding for these retiree obligations. The legislation was supported by many units of local government statewide – including Washtenaw County – and was passed by the state legislature, but had been vetoed by then-Gov. Jennifer Granholm. Because of that, there was no other alternative except for COPs, he said.

In 2008, the proposal considered by Washtenaw County was to close the retiree healthcare plan at that time, and issue COPs to fully fund the liabilities of that plan for the employees that were covered by it. “What we’re doing today involves exactly the same thing,” Axe said, “except we’re now proposing a bond issue because the Michigan legislature finally approved essentially the same legislation that was proposed back in 2006.”

The legislation passed in 2012 permits this kind of bonding, Axe explained, to fully fund the pension and retiree healthcare plans – but only if those plans have been closed to new employees. “You have done that,” he said.

Andy LaBarre (D-District 7), chair of the Washtenaw County board’s working sessions.

Axe said his firm had been asked by the Washtenaw County administration to start working on this proposal in November of 2012. His firm prepared a memorandum on it that was given to commissioners at a working session in February. [There was no working session on this issue in February. It's likely that Axe was instead referring to a closed session that was held during the board's Feb. 20, 2013 meeting to discuss labor negotiations. Axe attended that meeting and participated in the closed session, which was not open to the public.]

Since February, Axe said, his firm and the financial consultant hired by the county have been working hard on this proposal. [This was not mentioned at the meeting, but the financial consultant – Municipal Financial Consultants Inc. (MFCI) – is closely tied with Axe. MFCI's president, Meredith Shanle, who also attended the May 2 working session, is Axe's daughter. And Axe & Ecklund provides a 15% discount on its fees if the county also hires MFCI as the financial consultant on a bond proposal.]

Axe then reviewed the legal steps that are required in this bonding process. He noted that this is a new process, and no one has ever issued these kinds of bonds – because they haven’t previously been permitted until the new law was signed in October of 2012. As of now, no unit of government has received approval from the state department of treasury – that approval is one of the requirements needed to issue these bonds, he noted.

Local units of government can only issue bonds if they’re “qualified,” Axe explained. To get qualified, a certified financial report must be submitted to the state annually, showing a balanced budget. This has been the case since 1982, he said. Before that, the only way to issue bonds was to get prior approval from the state. Axe said he helped draft the legislation passed in 1982 to allow for the qualifying process, noting that Washtenaw County has been qualified every year since then.

But for this new type of bond issue in Michigan, the qualifying process doesn’t apply, Axe said. Instead, each bond issue must be approved by the state department of treasury, after completing a series of steps. [.pdf of Axe memo outlining bonding process] [.pdf of bonding timeline]

Axe then outlined the required steps in this process:

• A notice of intent to issue bonds. This standard notice must be published in a “newspaper of general circulation within the county.” It lets residents know that they have 45 days during which they can circulate petitions to require a vote of the people before any bonds are issued. The notice must include a maximum amount of the bond issue, a maximum interest rate, and a maximum term for the bonds. To do this, the board needs updated actuarial information – but those reports won’t be ready until June, Axe said. So the maximum amounts at this point are estimated by the county’s financial consultant (MCFI) and assume a worst-case scenario. Axe said it’s likely that the bond issuance will be lower than estimated. Expected dates of board votes: initial approval on May 15, 2013, with final approval on June 5, 2013. Assuming board approval, a notice of intent would be published soon after the June 5 vote. Axe’s memo indicates the notice would be published in the Sunday, June 9 printed edition of AnnArbor.com.
• Approval of the bond resolution and “continuing disclosure” resolution. Even though the final amount of the bond won’t be determined, the board will be asked to set a maximum amount for the bond. The continuing disclosure resolution is standard for all bond issues over $1 million, and indicates that the county will provide updated financial information annually during the term of the bond. Expected dates of board votes: initial approval on May 15, 2013, with final approval on June 5, 2013.
• Meeting with credit rating agencies, request for bond ratings. The county currently holds an AA+ rating from Standard & Poor’s and an AA1 rating from Moody’s. The timeline distributed by Axe indicates that these meetings would be held in Chicago, but he did not address this item during his remarks. Expected meeting dates: June 12-13, 2013, with a request for bond ratings made on June 15.
• Actuarial reports approved by VEBA and WCERS boards. There are separate boards for the Washtenaw County Employees’ Retirement System (WCERS) and Voluntary Employees Beneficiary Association (VEBA). Members of these boards are appointed by the county board of commissioners. Both VEBA and WCERS boards will receive updated actuarial reports, as of Dec. 31, 2012, which they will then approve. The information in these reports will indicate the size of the county’s unfunded pension and retiree health care liabilities, and thus determine the amount of the bond issuance. Expected date of approval: June 25, 2013.
• Setting of the final amount of the bond issue and approval of the comprehensive financial plan. After the actuarial reports are received, the amount of the bond issue will be set to cover the unfunded liabilities. This amount will be part of a “comprehensive financial plan” that’s required by state law (Public Act 34). It will include a financial analysis of current and future liabilities, an estimated debt service schedule, and a description of the new retiree health care plan. It will also include a comparison of the county’s obligations with and without a bond issue. [.pdf of comprehensive financial plan components] Expected date of board approval: July 10, 2013.
• Receipt of credit rating. One of the requirements for these bonds is that at least one credit-rating agency give the bonds a minimum double-A rating. The best rating possible is triple-A. Expected date of rating: July 24, 2013.
• Expiration of 45-day notice of intent. This bond proposal assumes that petitions won’t be filed for a voter referendum. It also assumes that the notice of intent will be published on June 9. End date of 45-day notice: July 25, 2013.
• Application to state for approval to issue bonds. The application to the Michigan Dept. of Treasury must include several components, including documentation of the requirements listed above. [.pdf of bond application requirements] Expected application date: July 26, 2013.
• Approval from the Michigan Dept. of Treasury. Axe expects it will take about two months to receive approval from the state, which might require additional information. Expected date of approval: Sept. 26, 2013.
• Actions related to bond sale. Assuming that approval is received by the end of September, a notice of sale for the bonds would be published on Oct. 2, 2013, with the bond sale occurring on Oct. 16. Expected date of bond delivery to the county: Oct. 31, 2013.

Axe stressed that until the actuarial reports are completed, the amount of the liabilities – and therefore the amount of the bond issue – can’t be determined. The current estimate of a $345 million maximum amount is a big number, he acknowledged. “It’s on purpose a big number,” he said, “because we don’t want to have to go back and put a new notice [of intent] in the paper later.”

He also noted that this plan couldn’t have been brought forward until the county board approved closing of the current pension and retiree healthcare plans, which was done as part of the new 10-year labor contracts that the board approved in March.

There has been only one other government entity so far to apply to the state for this type of bond issue, Axe said. Saginaw County applied in February. [.pdf of Saginaw County comprehensive financial plan related to its pension bond issue]

The state has not yet approved that application. Axe said he knows there are other governmental units that are in the process of applying, but no one else has submitted an application yet. He also noted that the more entities that apply, the slower the process will likely be. State government has downsized, he said, so there are fewer people to handle these requests.

Board Deliberations

The board’s discussion covered a wide range of issues related to the bond proposal, including many clarificational questions. This report presents a summary of the discussion, organized thematically – with the recognition that there is considerable overlap among these issues. Topics included the timing of the proposal, risks, investment-related issues, bond types, fees, credit ratings, a possible voter referendum, alternative options, and the need to seek additional advice and input.

Board Deliberations: Timing

Ronnie Peterson asked why the board was being asked to take an initial vote on the bond resolution prior to receiving the updated actuarial reports. John Axe replied that it’s simply to publish the notice of intent as early as possible, to start the 45-day clock for the possible voter referendum. If the board waits until its July 10 meeting to vote on the notice of intent, Axe said, then other applications to the state will likely be submitted ahead of Washtenaw County, thus delaying the process.

Commissioner Ronnie Peterson (D-District 6).

Peterson said he was disturbed that so much of the board action took place prior to public input. He wondered why the board couldn’t wait until the actuarial reports are seen. Axe explained that even though the board will be asked to approve the bond resolution – initially on May 15, with a final vote on June 5 – it won’t take effect until the rest of the process is completed. If the board doesn’t approve the comprehensive financial plan on July 10, for example, then “we stop,” Axe said.

Peterson again wondered why the board is rushing, noting that the state legislation doesn’t sunset until Dec. 31, 2014.

“Remember this – this is interest-rate sensitive,” Axe said. “The interest rates today are at good levels. No one can tell you for certain what the interest rates are going to be. We don’t think they’re going to go up, but we don’t know.” All of the assumptions are based on interest rates today, he added. If interest rates go way up, he’d likely advise the county to wait before issuing the bond. “We don’t want to sit around and wait the extra 45 days if we don’t have to,” Axe said.

Peterson didn’t appear to be persuaded. “In our conversation, it’s like we’ve already made up our minds,” he said. It seems like the board should have more information. There are three crucial documents – the actuarial reports for VEBA and WCERS, and the comprehensive financial plan showing how the bonds will be retired – that the board and the public won’t have before commissioners vote on the initial authorization for this bond proposal, Peterson said.

The board has another year and a half to work with this bond program, Peterson noted, so he hoped they would take more time to consider the impact of this proposed indebtedness.

Kent Martinez-Kratz asked what would happen if the county waited until after 2014 to make the bond issue. Axe replied that for the current type of bond, the law sunsets on Dec. 31, 2014, so the county wouldn’t have that option. It would be possible to issue certificates of participation (COPs), like Oakland County did in 2007. Martinez-Kratz alluded to a discussion that the board had with a representative of Oakland County on this issue. [This apparently occurred during a closed session – as there has not been a public presentation by any Oakland County official.]

Yousef Rabhi asked a series of clarificational questions about the proposed timeline. He noted that when the actuarial reports are provided in June and the information is not what the board expected, “we can pull the ‘off switch’ then.” Axe replied that the board isn’t committed to do anything until the comprehensive financial plan is approved, which can’t possibly occur until July at the earliest. And the county can’t issue the bonds until receiving state approval. The June 5 board vote simply authorizes the notice of intent and sets a maximum possible bond amount, Axe said.

Rabhi indicated that he’d be open to having an additional meeting in July, given the feedback he’s heard from other commissioners about having only one meeting, on July 10, to give both initial and final approval of the comprehensive financial plan.

Alicia Ping pointed out that the only reason the initial and final approval would be scheduled on July 10 is because the board traditionally only has one meeting in July. “I don’t think the intent here is to push anything through,” she said.

Board Deliberations: Interest Rates, Investments

Dan Smith asked Axe to elaborate on why this bond issue is time sensitive, regarding interest rates. Axe replied that no one can know the future. All of the financial analysis is based on current interest rates. The only reason to vote early is to “get the 45-day notice of intent out of the way,” Axe said. His advice is that unless there’s some good reason for waiting, the board should proceed.

D. Smith wondered why the county should be concerned about the interest rate, given the nature of this bond issue. It’s a bond issue unlike any other, he noted. It’s not for a capital project. Rather, in this case the proceeds will be directly invested back into the market.

It matters, Axe replied, because all of the financial analysis is done based on prevailing interest rates. The analysis is very conservative, and a 45-day wait probably won’t matter, he said. But unless there’s some reason, he wouldn’t advise waiting. All of the steps are interrelated, he added.

The analysis is based on paying an estimated average 4% interest rate for the bond over 25 years, Axe said, with the expectation of investing the proceeds of the bond sale and getting a 6.5% average rate of return on that investment over that period. The proceeds won’t be invested exclusively in other municipal bonds, Axe said. Proceeds will be held in an intermediate trust and managed by investment advisors hired by the county, with an estimated worst-case return of 6.5%.

Interest rates on the bond aren’t likely to go down much lower, Axe said – right now, they’re in the range of rates last seen in the 1930s. Axe added that this approach – borrowing at 4% and investing to get a 6.5% return – is an element of the plan, but it’s not the only element.

Commissioner Dan Smith (R-District 2).

D. Smith drew an analogy to taking out a mortgage on a house at 4%. So 100% of his house would be leveraged, and he owes the entire amount of his house. “I should take that money and go invest it in the stock market, because the stock market is going like gangbusters right now, and I could make 6-7% difference on that.” Axe replied that he wasn’t suggesting this is the same thing as Smith had described. The interest differential is only one aspect, Axe said. “I think you ought to hear the complete plan.”

Felicia Brabec asked about the investment strategy – hiring another company to invest the bond proceeds, and assuming that there would be rate of return higher than the interest on the bond payments. If there was a surplus from the investments, can that surplus be used to pay down the debt at a higher rate without a penalty?

Yes, Axe replied. The 25-year bonds would be callable in nine years – meaning that the bonds could be paid off fully or partially at that time, if the county decided to do that. The county could also choose to re-fund those bonds, if interest rates are lower in nine years.

Axe responded to a written question asking if the county is essentially gambling on market performance. The answer, he said, is that all investments – including those made currently by VEBA and WCERS financial advisors – are made by professional advisors. The estimated rate of return is calculated over a long period and is based on past experience, he said. The county is using an estimated rate of return that’s substantially below the current actuarial estimate, as well as below what the county has actually been getting from its VEBA and WCERS investments, he noted.

The most important thing is that you hire good people to make the investments, Axe said. Oakland County, for example, is in much better shape now than before they issued their bond, he said.

Andy LaBarre asked about a hypothetical situation in which the investments made “are bad from the start. Even the best investment management can lead us astray,” he said. “Are we really being as prudent as possible, and are we incurring any risks that we normally wouldn’t through any sort of investment?”

Axe replied that “you already owe the money” and are already relying on the market to provide returns for VEBA and WCERS funds. The board’s main responsibility is to hire the best possible investment managers. The county would want to do that anyway, he said, regardless of the bond proposal – because there is already a huge amount of money that’s currently being invested. “I wouldn’t be here if I didn’t think this process would work,” he said.

Board Deliberations: “Saving” Money

In response to a written question, Axe explained how the county will be saving money with this proposal. First, he said, the county has closed its VEBA and WCERS plans. That means the county now will know what its obligations are for employees who are currently in the plan. [Employees hired through Dec. 31, 2013 will still be eligible for these plans. And the obligations are based on actuarial estimates – for example, estimating how long retirees would be expected to live, on average.]

This bond will be paid off over 25 years, Axe said. In contrast, the county’s estimated actuarial liability has been calculated over a period of 27 years – so the county is actually shortening the period of its pension and retiree healthcare obligations.

When the bond proceeds are invested by the trustees – the managers of the intermediate trusts for VEBA and WCERS – the estimated average return is 6.5% He noted that the county’s current actuarial estimates call for 7.75% and 7.5% returns for VEBA and WCERS, respectively. So the estimated percentage return for the investments of the bond proceeds is more conservative than current actuarial estimates.

Conan Smith pointed out that the 7.75% is a policy target. The actual 10-year trailing return is 6.75%, he said.

Axe noted that the county already owes the money for its unfunded pension and retiree healthcare liabilities. “You’re not borrowing more than you already owe.” Instead of owing it to everyone who’s entitled to receive the benefits in the future, he said, “you’re going to owe it to the bond holders. That’s the only difference.”

C. Smith pointed to the MFCI estimate that the county would save $112 million because of the bond issue. When the bond is paid off in 2039 and if the estimate is accurate, he said, “we’re sitting on $100 million. What could we do with that money?” He wanted to know if the excess funds were restricted in any way.

Axe replied that the money would be coming to the county over a long period of time, and most of it would be seen in the early years of the bond schedule. If there was money left in the intermediate trust after VEBA and WCERS obligations were fully met, then that money could be returned to the county for other purposes, Axe said.

C. Smith observed that if the earnings from the bond are saved and invested, after the retiree obligations are met, that money would become general operating funds that a future board of commissioners can allocate in any way.

In light of the estimated $100 million-plus in savings, Ronnie Peterson wondered if the county is borrowing too much money. He felt the county would be better served by breaking close to even on this bond issue. He said he wasn’t troubled that there would be savings, but he was troubled by the large amount.

Dan Smith asked if the $112 million “savings” was largely due to “playing the spread” between the average 4% interest rate paid on the bond and the anticipated 6.5% earned from investing the bond proceeds. Yes, Axe said, that’s a large part of it. The restructuring also allows the county to avoid paying a “huge” amount upfront, he added. The county has closed its defined benefit plans, so it must make contributions to VEBA and WCERS, Axe said. “This is simply one of the ways that you can do it.”

After identifying a typo in MFCI’s report that resulted in a $10 million under-reporting of the total VEBA/WCERS estimated obligations, D. Smith addressed the issue of estimated contributions. He pointed out that MFCI had used a conservative estimate of the county’s total contributions – without bonding – which made the option of bonding appear more favorable. He said his understanding is that without bonding, contributions to VEBA and WCERS will spike in the next few years. [Estimates provided by MFCI call for roughly $30 million annual contributions for the next five years, without bonding.] But after that there could be a tapering off, he said. That’s why he’s interested in seeing the new actuarial projection, which might provide a different scenario.

Board Deliberations: Bond Types

Responding to a written question from the board, Axe explained the difference between a bond issue that’s authorized by the county board, and bonds based on approval by voters.

Bonds issued based on approval of the county board are called general obligation limited tax bonds. The word “limited” is critical, he said. It means that the only money that can be used to pay those bonds is money that comes into the county already – through taxes, state funding or other means. “You cannot levy any extra tax above the amount of tax that you can levy for operating purposes.” He noted that the county currently levies the maximum rate that it can. [That millage rate for 2013 will be set by the board by June. The 2012 county general operating millage rate was 4.5493 mills.]

Commissioner Rolland Sizemore Jr. (D-District 5).

In contrast, if the county gets voter approval for a bond issue, that gives the county the power to levy an extra tax in any amount – and there’s no limit to the rate or amount, Axe said. [At this point Conan Smith raised his arms in a gesture of enthusiasm, which elicited laughs from other commissioners.]

Axe then fielded another written question: What’s the chance of defaulting on a limited tax bond issue, compared to an unlimited tax bond issue? Washtenaw County has always been very careful about its bond issues and has paid everything on time, Axe said. The county has substantial reserves and is very conservative in its approach. “You don’t go out and issue a lot of bonds for wild purposes,” he said. The county always has a plan for allocating specific funds to make bond payments over many years. Axe said he’s been doing bond issues for Washtenaw County for decades, and in that time the county has never had any difficulty making bond payments.

Dan Smith followed up on the question about the default risk. He noted that Axe’s written response to this question had indicated that there’s no difference in default risk between limited and unlimited tax bonds. Axe replied that this is the judgment of the credit rating agencies. Washtenaw County bonds sell almost at the triple-A level, he said, because people are satisfied with the county’s history. The county is much more stable than other counties because of its demographics, Axe added. Specifically, the University of Michigan and other colleges and universities are located here, and the county has been on a growth path, although that growth has slowed in recent years.

D. Smith replied that there are still considerable differences in the way that limited and unlimited tax bonds are funded. It’s highly improbable, he said, but the county could go bankrupt in 15 years – how would that affect the situation? Axe replied that the county could go bankrupt regardless of whether these bonds are issued. If the county failed to make its obligations, it would go under emergency management.

Meredith Shanle of MFCI clarified that in general, there is a large difference between limited and unlimited tax bonds. But in the specific case of Washtenaw County, those types of bonds are basically the same, she said. With unlimited tax bonds, the county could keep raising the millage rate to cover those bond payments, she noted.

D. Smith observed that in the case of General Motors, no one thought that GM would ever default on its bonds, but it did. So it’s not reasonable to say that a default could never, ever happen – even in Washtenaw County, he said.

Responding to a question about whether the county would have a harder time issuing a limited tax bond if voters turned down an unlimited tax bond, Axe said no. That’s because the county has excellent credit rating, he said, and any action by voters wouldn’t have any bearing on that credit rating.

Regarding a voter-approved bond, Axe noted that the ballot question can’t be put forward until there’s an election, and the next time the county could do that would be at the November general election. He also pointed out that the county doesn’t plan to levy any additional tax as part of this bond proposal.

Axe was also asked about the experience of other government entities. He noted that Detroit had issued pension obligation certificates of participation (COPs), but failed to close its defined benefit plan. That meant that the liabilities were open-ended. In addition, when the city made an estimate of its unfunded pension liability, the estimate undershot the actual amount by $300 million, he said. “Even if everything had worked out brilliantly, they were still not going to be fully funded,” Axe said. “That was a catastrophe.”

Axe also responded to a written question about the Water Street project in Ypsilanti. The city of Ypsilanti had been working with a developer who was interested in redeveloping an area near downtown. The developer had told the city that the city needed to buy the property, remediate it, and put in public services, then the developer would put in housing there. The city agreed and issued a roughly $13 million bond to cover its costs. But remediation cost more than expected, Axe said, and worse than that, the developer backed out. Now, those bonds have been re-funded with a $15.74 million issue, he said. Axe indicated that it was a different situation than what the county is facing.

Board Deliberations: Risks

Felicia Brabec asked about possible pitfalls. She noted that Axe had mentioned the fact that Detroit hadn’t closed its defined benefit plan. That was one possible problem, but Washtenaw County had addressed it already, she noted. What other things should the board be concerned about?

So far, Axe replied, he hadn’t seen anything in the county’s approach that was inappropriate. He stressed that he’s had a lot of experience with this issue, dating back to his work on the state legislation in 2006. “You’ve done what you need to do,” he said, adding that he had confidence in the board that they would pick a strong investment manager and monitor the performance closely.

Brabec also wondered what the board could learn from Detroit’s experience, including the fact that Detroit’s defined benefit plan had been underfunded by $300 million. Underestimating the liabilities is one of her biggest concerns, she said. Axe replied that the board should pay very close attention to the actuaries. He noted that the actuaries are also making a projection. “They’re telling you how many people [they] think are going to live, and how long.” In the case of Detroit, he said, the actuarial reports were “terrible.” That’s how the city ended up with a $300 million underfunding.

Commissioner Conan Smith (D-District 9).

Conan Smith told his board colleagues that the bond itself “is not the thing that should scare anyone.” The bond is the most stable, predictable part of the entire formula, he said. The county will borrow a certain amount of money at a set interest rate, and with set payments over a certain period.

Rather, the “calculus of risk” for the county, C. Smith said, is on the return on investment from the bond proceeds, and whether that return will be sufficient to make the county’s actuarially-required contributions. Also unknown is what those contributions will actually be. If cancer is cured and people suddenly live 15-20 years longer, he noted, that will affect the actuarial projections dramatically, “and we will not have prepared for that with this bond.” But those extra costs would be incurred even if the county didn’t bond, he added. The bond is “a good, smart, stabilizing plan,” C. Smith said, and it ensures as much predictability in the budget as possible.

There are a lot of things out of the board’s control, he noted, including the market and how long people will live. “We’ll have to deal with those variables one way or the other.”

The other risk-tolerance question can be seen using Dan Smith’s house analogy, C. Smith said. If he could mortgage his house and get $200,000 in cash at 3%, then invest it in the market and earn 6%, “why wouldn’t I do that?” The question is how much risk are you willing to tolerate? he said. The board can look at the entire earnings history of the VEBA and WCERS funds, and use that as a fairly reliable measure of return on investment. “It’s just a question of how much confidence we as a board have in those figures.”

The board needs to assess if the bonding lessens the risk somewhat, C. Smith added. “My own personal assessment is that it lessens our risk.” The actuarial projections might change and the market might shift up or down, he said. But at the very least the bonding provides a foundation that the county can work from, to deal with the volatility between the bond payments and the market return, rather than the volatility for the VEBA and WCERS funds as a whole.

Dan Smith referred to communications from Axe that characterized the bond as “fully funding” the county’s VEBA and WCERS systems. He noted that it would really only be fully funded at the moment that the bonds are issued, “because everything in the future is dependent on the actuarial reports.” It’s possible that the bonds will overshoot or undershoot the actual amount needed. “Five years into this, we could be back in the same position,” D. Smith said.

Axe replied that there’s no guarantee about what will happen in the future. It’s not allowed under the law to borrow more than the fully funded amount, he said. That amount might change if people live longer. At least for future hires, the county is protected because the defined benefit plan is closed, Axe noted. But if people who are currently covered by the plan live an extra 10 years beyond the actuarial projections, “it will mess up the actuarial reports something fierce, there’s no doubt,” Axe said.

Axe added that all actuarial reports are based on history, but people are living longer than they used to live. He noted that when the federal Social Security system was set up in 1935, it was based on people beginning to collect benefits when they were 65. But the life expectancy at the time was 63.

D. Smith observed that it appears people have forgotten about recent history, and what dismal years there have been in the economy, especially in Michigan. To make long-term assumptions, using the past as a predictor of the future, is a scary approach, he said. In 2000 or 2001, no one except doomsday extremists would have predicted a housing market bubble. Basing the future on the past “is a little dicey,” D. Smith said.

Board Deliberations: Advice from Others

Rolland Sizemore Jr. wanted to get input from experts at the University of Michigan and Eastern Michigan University business schools. It bothered him that the county would be paying a third-party advisor to look into this proposal. “We’ll be paying out a ton of money to get the bonding, and we’re going to pay out a ton of money to figure out if it’s right.” He also asked for the opinion of the county treasurer, Catherine McClary, as well as the county’s current actuaries for the VEBA and WCERS funds, and the local state senator and representatives. [The state senator representing the Ann Arbor area is Rebekah Warren, who is married to county commissioner Conan Smith. The state representative for the district covering Ann Arbor is Jeff Irwin, a former Washtenaw County commissioner.]

Washtenaw County treasurer Catherine McClary talks with county commissioner Dan Smith after the May 2 working session.

Sizemore was concerned that the board seems to be pushing this through, without time to get outside advice.

Yousef Rabhi responded, saying he felt those concerns are valid. As a reaction to some concerns he’d heard from other commissioners, Rabhi said a third-party firm that’s not affiliated with Axe & Ecklund could be hired to review the process. That firm would be paid by the county. “We certainly don’t have to do that,” Rabhi said. But he’d recommended it, because he’s heard from others that another set of eyes is needed.

[That third-party firm is Public Financial Management Inc., with offices in Ann Arbor. Both PFM and Axe & Ecklund are part of the county's bond and financial consultants pool. For this project, PFM has not yet provided an estimate of their fees, which will be based on the number of hours needed to review the bond proposal. (.pdf of PFM's general consultant proposal, including the firm's fee structure)]

Rabhi agreed with Sizemore that the county is lucky to have others in the community who are qualified to look at this, and it would be great to have their input. He offered to work with Sizemore and the administration to find out the best way to engage these people.

Sizemore said that in his experience, when a consultant is hired, that consultant can be swayed to present the kind of response that the client wants. That wouldn’t be the case with a university expert, he said.

Dan Smith wanted to see a study that “paints the absolute worst-case scenario.” Looking at the markets today, predictions are “all over the place.” At this point, the board is getting only one opinion, he noted.

Board Deliberations: Axe & Ecklund, MFCI

Ronnie Peterson asked about the financial obligations that the county would have toward Axe & Ecklund. Axe replied that there are no financial obligations if the bond proposal doesn’t go through.

Axe also responded to written questions related to his firm. He was asked how the board can be assured that his advice is sound, when he stands to benefit from this proposal. Axe said that this question could be asked any time his firm gives advice on a bond issue. He noted that “we’re the lawyers, we’re not the financial advisors.” [The financial advisor used in this and many other county bond deals, MFCI, is led by Axe's daughter, Meredith Shanle.]

Axe said that if there’s any indication of a problem with a bond issue, “we would naturally bring it to your attention.” The firm has represented Washtenaw County on 131 bond issues since 1973. Since 1981, that amount has totaled $668 million. There’s never been a problem or legal challenge, he said. As bond counsel, his firm has the legal responsibility to defend the bonds for the life of the bonds. Over the years, he said, his firm has issued a lot of legal opinions on behalf of Washtenaw County.

Andy LaBarre asked if it was correct to say that as bond counsel, “you’re on the hook for 25 years?” Yes, Axe replied. “Absolutely.” He added that he valued the county’s business, and it’s his firm’s responsibility to point out any problems. Axe also noted that his firm is not being paid any extra to work on this particular bond issue. “We’re being paid the regular rate that’s already established in the contract we have.” [.pdf of Axe & Ecklund professional services contract with Washtenaw County]

Axe did not discuss details of his fees during the working session. Responding to a request from The Chronicle, the county administration provided that information. For bonds less than $500,000, the firm is paid $5,000. For amounts higher than that, the firm is paid a combination of flat rate and percentage of the bond issue. For amounts over $2 million, the flat rate is $12,500 plus .0025% (one quarter of 1%) of the amount in excess of $2 million. Additional fees and expenses may also be incurred, according to the fee schedule. [.pdf of Axe & Ecklund fee schedule]

The fees for this bond issue fall under Axe & Ecklund’s fee schedule for capital improvement bonds, because the state legislature amended the capital improvement bond statute to permit governmental entities to bond for their unfunded actuarial accrued liabilities (UAAL). In addition, Axe & Ecklund’s bond counsel fees are reduced by 15% when the county also hires MFCI as a financial consultant.

In response to a direct question from Dan Smith, Axe replied that his firm’s fee for this bond issue would be about $485,000.

Board Deliberations: Voter Referendum

Dan Smith noted that Axe, as bond counsel, didn’t see any reason to take this issue to the voters. However, as an elected official, Smith said, increasing the taxpayers’ debt load by about $700 per person sounds like a really good reason to ask them for their opinion, “whether we have to or not.” Smith said he understands that the county isn’t required to get voter approval.

Responding to a follow-up question from Andy LaBarre, Meredith Shanle of MFCI clarified that from an historical perspective, if the proposed bond issue takes place, the debt load would be 410% (about four times) higher than the debt that the county carried 30 years ago. During the same period, the county’s taxable value increased 445%.

Andy LaBarre, right, talks with former county commissioner Wes Prater.

Alicia Ping ventured that the county would not be increasing the debt load but simply recognizing it. When Shanle confirmed this assessment, Ping stated that the county is actually reducing its future liability with this approach.

Ping said she initially agreed with Dan Smith about taking this to the voters. Then she was informed that if the county did that, certain commissioners – like Conan Smith, she noted – could advocate to increase the millage rate and use the extra money for other purposes. So she felt that by not going to the voters, the board would be limiting its power to further tax the county’s residents. Shanle said that was correct.

Ronnie Peterson pointed out that the voters could be asked whether this approach – the one being proposed by Axe – is acceptable, capped at a certain amount to cover the VEBA and WCERS liabilities. That is, a voter referendum would not need to be only for an unlimited tax bond. A referendum could be put before voters for the exact proposal that’s now being considered by the board. “That’s not an open-ended bonding proposal,” Peterson said. “I don’t want the public to be mislead by the answer to that last question.”

Axe said that Peterson was correct, and noted that there is no proposal now to levy an additional tax. The proposal, however, “would certainly free up a huge amount of money to use for other projects,” Axe added.

That’s not the question, Peterson replied. The question, he said, is whether voters could have a choice to make this decision – to retire the debt obligation for VEBA and WCERS. And the answer is that they can.

Dan Smith said he wasn’t currently proposing that the proposal be put to voters, but rather he was exploring the board’s options. If commissioners did decide to put a question on the ballot, they’d likely ask voters to levy considerably less than the current proposal, he said. The amount of a new levy plus the bond proceeds would equal the amount required to retire the debt, he said.

In this approach, voters would be asked to approve levying a millage to cover a smaller bond issue, and the county would continue to contribute a portion of the retiree obligations from its general fund. “That keeps those general fund dollars from being directed toward something else,” D. Smith said.

Axe explained that if there’s a voter referendum for a general bond issue, then voters have given the board the power, over the life of the bond, to levy an unlimited tax in any year to pay the debt service due on that bond issue. The current proposal was made, without a recommendation for voter approval, because it’s well within the county’s ability to pay these bonds without levying a tax, Axe said.

On the other hand, if you put a specific millage on the ballot to pay for the bond, Axe said, that’s a different approach and one that wasn’t considered by his firm.

D. Smith reiterated that in the approach he described, the county wouldn’t issue bonds in an amount to cover the entire VEBA and WCERS liability. The bond issue would only be in an amount to manage the county’s current “cash flow crunch,” and the board would be getting the voters’ approval to do that.

Ping gave an analogy of having a $10 budget, and using $2 of that each year to pay back the bonds. If the board decides to do other projects and can afford to only pay back $1, would it be possible to levy a new millage to pay back the additional dollar? Axe replied that this would be possible if the voters approved the bond issue. Ping then stated that under this scenario, the board could spent $9 – knowing that there was a $2 debt obligation – and levy a tax for that additional $1. Axe replied that if the voters approved a bond issue, the board would have the flexibility to do that for the next 25 years.

Ping clarified that if voters don’t approve the bond issue, the board would always be required to make the $2 bond payment from existing funds, without an extra tax. “You got it,” Axe replied.

Yousef Rabhi continued Ping’s analogy, saying that right now, out of a $10 budget the county has a liability of $1.75 for its retiree obligations. Next year that amount could be $2, and $2.10 the following year. But by borrowing to cover those liabilities with a limited tax bond, the variations in those payments will be minimal. It’s money that the county would have spent out of its general fund anyway, he said. “But instead of paying off those liabilities, we’re paying off the bond,” Rabhi said.

With a voter-approved unlimited tax bond, the amount that’s borrowed could be covered in full or in part by an additional millage, Rabhi said. So if the general fund is only paying $1 and the millage is covering the other $1, then an extra $1 has been freed up from the general fund for other uses, he said. That approach would “actually expand the realm of revenue to pay off the bond.” So the potential would be there for taxpayers to end up paying more, he concluded.

At this point, Conan Smith observed that commissioners were blending two different things. “The only person in this room who is at all interested in an unlimited tax bond is me,” he joked. No one is proposing putting an unlimited tax bond on the ballot, he said. Rather, he said, Dan Smith and Ronnie Peterson are asking whether the board would voluntarily put the general obligation bond up for voter approval.

D. Smith and Peterson indicated that this was a correct assessment of their views.

Board Deliberations: Credit Rating

Andy LaBarre asked if the proposed savings anticipated with this bond issue – savings estimated by MFCI to be more than $100 million – would positively affect the county’s general credit rating, possibly getting it to a triple-A status.

Meredith Shanle of MFCI said rating agencies have indicated generally that they’d lower credit ratings if government entities don’t address their pension and retiree healthcare obligations. As far as increasing the county’s credit rating, she said the bond proposal might have a positive impact but that’s difficult to say. It certainly wouldn’t hurt the county, she said. “It will help you.”

From left: Washtenaw County prosecuting attorney Brian Mackie talks with county commissioner Ronnie Peterson.

Conan Smith noted that the county doesn’t have control over the process of moving its credit from a double-A to a triple-A rating. Over the last six months, there have been a number of bonds issued in Michigan – by Oakland County, for example – that have received a triple-A rating. What have those entities done that Washtenaw County could do to get a triple-A rating for this bond issue? he asked. C. Smith also noted that when Axe spoke to the board several months ago, he had indicated that the maximum difference between a double-A and triple-A rating, in terms of the interest rate that could be secured, was one-sixteenth of a percent.

Shanle replied that she could look into specific examples, but in general rating agencies want an entity to be conservative. In the case of Oakland County, she said, they operate on a three-year budget planning cycle. They’ve made cuts in their budgets – rating agencies like that, she said. Agencies also look at the fund balance as a percentage of expenditures, she noted.

C. Smith said his line of questioning was aimed at budgetary policy. The county administrator, Verna McDaniel, came to the board with a scan of the county’s financial situation, he said. She had proposed increasing the county’s fund balance up to 20% of total expenditures. He said he was skeptical of that move, because it takes away hard dollars from the county’s ability to spend that money on programs and services.

If the county is able to win triple-A rating, C. Smith said, and the interest rate that the county pays on its bond issue drops by one-sixteenth of a percent because of that, then it would take an “awfully big” bond offering to make it a worthwhile investment – one that could result in adding $4 million a year to the fund balance. “Well now, we have an awfully big bond offering,” he said, which might allow for moves like that to make fiscal sense. It would stabilize the long-term prospects of the organization, he said, and allow for more cash-on-hand to spend on programs and services. “This is why I’m keenly interested in that calculation,” he said, and keenly interested in what the county can do quickly to improve its credit rating.

He noted that on May 1, the board authorized McDaniel to develop a four-year budget process, and he hoped that would help the credit rating. He asked Shanle to run an analysis on the interest-rate differential if the county secures a higher credit rating. He also asked for other recommendations for things the county can do over the next several months to increase their chances of a better rating.

Board Deliberations: Unfunded Liabilities

Ronnie Peterson criticized the fact that the board hadn’t been paying sufficient attention to the unfunded pension and retiree healthcare liabilities over the years.

Conan Smith responded to that complaint, saying that the county didn’t deliberately underfund the system. The county has always made its actuarial contributions to the retirement system. There were two contributing factors to the current situation, he said. The most impactful, he said, was that the county re-opened WCERS after it had been closed in the 1990s. “It was a closed plan. We opened it back up. We brought a lot of employees in, and now they’re ready to retire,” he said. “There’s been no time to develop a fund sizable enough to cover those liabilities.” [The decision to re-open WCERS was a board decision.]

The second factor was that in 2008 and 2009, the county lost a lot of money because of the market crash, he said. “It’s only 2013 – we haven’t had enough time to recoup those funds in the market.” It’s not the irresponsibility of government that has led to this point, C. Smith continued. “I want to make that absolutely clear – we have always been fiscally responsible.”

Board Deliberations: Other Options?

Ronnie Peterson asked if Axe and Shanle had looked at other options, such as transferring WCERS to the Municipal Employees’ Retirement System (MERS). Only a small subset of county employees are currently enrolled in MERS. Peterson wondered if it would be possible to do the transfer, and if it would change the county’s contribution for retiree obligations.

Conan Smith said he found Peterson’s suggestion really creative, but added that his gut feeling is there won’t be any savings from it. “We’re not going to be allowed to balance our costs on other people’s incoming employees.” He guessed the costs would remain about the same.

Diane Heidt, the county’s human resources and labor relations director, told the board that the new 10-year collective bargaining agreements specifically call for existing employees to use WCERS as the defined benefit plan. The only thing that the county could explore would be to use MERS for new hires starting in 2014, she said.

She also noted that any changes would require the county to re-open those labor agreements, which would “trigger all of the other issues that we’ve talked about.” [The new contracts, approved by the board on March 20, aimed to protect unions before Michigan’s right-to-work law took effect on March 28, and to cut legacy costs for the county. All but one of the new agreements run for more than 10 years, through Dec. 31, 2023. If the contracts are re-opened before that time, then the right-to-work law would take effect for county employees.]

Dan Smith noted that the board hasn’t been presented with other options, “and we’ve been put under incredible pressure to do this now.” He didn’t put a lot of stock in the argument about interest-rate sensitivity – saying he thought the county would end up borrowing at about the same interest rate that they would get from investing the bond proceeds. He’d like to investigate other options, rather than proceeding “headstrong” down this path. Given the law’s sunset date of Dec. 31, 2014, the board has about another year to look at this, he said.

“This truly is a restructuring of our debt,” D. Smith said. “What we’re really trying to do is to manage our cash flow.” The main concern is how to deal with the roughly $30 million annual contribution that the county would need to make to VEBA and WCERS, if the county didn’t bond. He equated it to refinancing into a 10-year interest-only mortgage. For the first 10 years, the payments are substantially less, but those payments increase when you start paying principal as well as interest.

Conan Smith said it’s important to remember that the board “set the course” when it approved those contracts and closed the define benefit plans earlier this year. He acknowledged concerns about the timing, “but in part it has to move so fast because this board closed the plan, and we’re looking at a $30 million payment in 2014, if we don’t do something.” He continued:

So it was a choice we made willfully and with full knowledge and now we’re designing a fiscal strategy to minimize the severity of the impact on our budget. That’s why we need to move fast, and I think we should move fast. I don’t want to see us taking that full amount out of the 2014 general fund. So let’s find some other way to do it. That’s critically important.”

Public Commentary, Part II

At the end of the meeting, Wes Prater spoke again and cautioned commissioners about the “visions of sugar plums” they were seeing from projected savings. He noted they were operating in a global economy, pointing to the ongoing financial crisis in Greece. All of the assumptions could change “with the line of a pencil,” Prater said. He indicated that the board was moving too fast, with not enough scrutiny and too many unanswered questions. Structural changes need to be made, he said, and the county needs to tighten its belt. He said he planned to be part of the process to help do that.

Doug Gross also spoke a second time, noting that to satisfy current employees, the county is discriminating against younger people, who won’t have access to the defined benefit plan. At a certain point, those new employees will want a better plan and the board might reverse itself and decide to re-open the defined benefit plan again. That’s what happened in 2008, when the board re-opened WCERS and pulled a lot of employees into the plan – when it had previously been closed in the 1990s. “You’re basically laying the groundwork to do the exact same thing all over again,” Gross said. The county needs a sustainable plan it can actually afford.

Thomas Partridge criticized the working session for being an unbalanced, single-issue meeting, even though the residents face multiple other issues, like homelessness, affordable housing, public transportation and health care.

Responding to the public commentary, Andy LaBarre – who chairs the board’s working sessions – said that the purpose of this meeting had been to discuss a single issue, and to have a policy discussion about the bond proposal. At this point, he said, this proposal is a possibility, not a certainty. “The die has not been cast.”

Present: Alicia Ping, Felicia Brabec, Andy LaBarre, Kent Martinez-Kratz, Ronnie Peterson, Yousef Rabhi, Rolland Sizemore Jr., Conan Smith, Dan Smith.

Next regular board meeting: Wednesday, May 15, 2013 at 6:30 p.m. at the county administration building, 220 N. Main St. in Ann Arbor. The ways & means committee meets first, followed immediately by the regular board meeting. [Check Chronicle event listings to confirm date.] (Though the agenda states that the regular board meeting begins at 6:45 p.m., it usually starts much later – times vary depending on what’s on the agenda.) Public commentary is held at the beginning of each meeting, and no advance sign-up is required.

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Jim Kosteva (left), University of Michigan's director of community relations, and Mike Anglin (Ward 5) peruse the University Record before the meeting. This week's edition of the Record includes an article on the founding of the Peace Corps. On Monday, the council approved a street closing on Oct. 14 in conjunction with the 50th anniversary of the Peace Corps founding. (Photos by the writer.)

First, the council voted to discontinue a pilot program to turn off selected streetlights. The program was designed to save $120,000 for the current fiscal year’s budget [FY 2011]. No additional streetlights will be turned off, and those that were switched off as part of the pilot program will be turned back on.

And the council voted to authorize the issuance of $9 million in general obligation bonds in connection with the parking deck to be built as part of Village Green’s City Apartments project at First and Washington. The bonds could take the form of conventional tax-exempt bonds, or other bonds, depending on which are legally available and most advantageous to the city when they’re issued. The bonds won’t be needed until the construction of Village Green’s project is completed.

In 2008 the Ann Arbor Downtown Development Authority passed a resolution authorizing that the bond payments be made from revenues generated by the city’s public parking system, which is managed by the DDA. The city council approved an extension to the purchase option agreement for the land at its Aug. 5 meeting.

Two expected votes did not take place. Revisions to the city’s zoning code that would change the specifications for area, height and placement in most zoning districts of the city outside the downtown were postponed at the request of Marcia Higgins (Ward 4), who said that she had questions she’d been unable to submit in time to get answers.

And in the absence of Sandi Smith (Ward 1) and Stephen Rapundalo (Ward 2) – who arrived late to the meeting – Tony Derezinski (Ward 2) asked for postponement of a five-year extension of the 2007 consent judgment the city reached with Joseph Freed and Associates LLC, developer of the Glen Ann Place project.

Glen Ann Place was a planned unit development (PUD) approved by the council in July 2005, but that did not win subsequent approval from the city’s historic district commission. Freed then filed suit against the city, the outcome of which was a consent judgment. Per the consent judgment, the height of the building was reduced from 10 to 9 stories. Glen Ann Place is planned to include retail and office uses on its first two floors, with residential on upper stories.

In other business, the council approved a handful of recommendations for liquor licenses, approved a rezoning for the land where the University of Michigan’s new soccer facility has been built, and approved an overhauling of the ordinance that governs how false alarms to fire and police are penalized.

The council also received a variety of updates from staff, including one on the traffic control plan for the East Stadium bridges when they are reconstructed next year, as well as a response from the city’s CFO to recent community discussion of significant unpaid taxes that might be owed to the city.

The city council also accepted a gift on behalf of the city from the Ann Arbor Summer Festival – a giant print of a photograph by Myra Klarman.

Streetlights

Before the council was a resolution to reverse course on a previous decision council made when it approved the budget for the current fiscal year, FY 2011, at its May 17, 2010 meeting. As part of the city administrator’s budget proposal, the city was to begin turning off 17% of the city’s streetlights in areas that by lighting standards were “overlit.” The move was expected to save the city $120,000 a year.

During deliberations back in May on a revision to the budget – to allocate some of the $2 million paid by the DDA to the city to parks mowing – Sandi Smith (Ward 1) saw the issue as one of public safety versus parks maintenance. From The Chronicle’s May 17, 2010 meeting report:

Sandi Smith (Ward 1) was not convinced that mowing and trimming in parks was the best use of the money. She was looking ahead to another amendment that proposed to undo the proposed de-energizing of some streetlights. She said she saw it as a safety versus shagginess-in-the-parks issue.

After the parks mowing amendment was approved over Smith’s dissent, she later proposed an amendment of her own, that would keep all the streetlights on. She got support for the idea from her ward-mate, Sabra Briere (Ward 1), as well as Stephen Kunselman (Ward 3) and Tony Derezinski (Ward 2). From The Chronicle’s meeting report:

Tony Derezinski (Ward 2) worried about the possibility of de-energizing streetlights. He thought it was perhaps a highway exception to general governmental immunity. Public services area administrator Sue McCormick noted that there was variability in lighting already – some residential areas have no lighting, some of them had lighting just at the street corners. She also noted that the areas where the de-energized lights were proposed were already lighted at twice the standard. Mayor John Hieftje asked if it was possible to get a demo.

Stephen Kunselman (Ward 3) said he was apprehensive about the designation of certain areas as “overlit.” He indicated that there were certain areas of the city classified as overlit that he did not find to be overlit. Hieftje indicated he would not support the amendment but would support a demonstration. He said he was concerned about the $120,000 that would need to come out of the city’s reserve, if the city did not go through with turning off some of the streetlights.

Outcome: The amendment to keep all the streetlights on failed, with support only from Briere, Derezinski, Kunselman, and Smith.

On Monday night, the resolution to cease the demonstration/pilot program and to turn the lights back on was sponsored by mayor John Hieftje and Christopher Taylor (Ward 3). The pilot program had been conducted in the general neighborhood where the two men live, and they’d made a nighttime field trip with neighbors, which Taylor had reported on at the council’s July 19, 2010 meeting:

Communication: Streetlights

Christopher Taylor (Ward 3) reported on a field trip at night he’d made with neighbors of the Brockman area to assess the initial result of a city program to deenergize some streetlights in order to save money. The measure was approved as part of the city’s FY 2011 budget, adopted in May 2010, and is expected to save around $120,000. The reaction of neighbors, Taylor said, was uniform: “They did not care for it.”

On Monday night, it was Taylor who introduced the resolution. Kunselman indicated he supported it. He noted that in many neighborhoods, given the large setbacks from the street, and the tree canopy, the porch lights from houses were not adequate illumination for sidewalks. Regarding the residents who complained about the lights being turned off, he said, they had “every right to be discombobulated.”

Mike Anglin asked if it might not be possible to lower the height of the streetlights to gain better illumination under the tree canopy. Hieftje pointed out that many of the lights are owned by DTE and there was considerable expense associated with changing the height of the lights.

Kunselman inquired about a possible city council work session with DTE. In the course of the conversation, Sue McCormick and Andrew Brix, the city’s energy programs manager, clarified that DTE is regulated by the Public Service Commission (PSC) and that DTE proposes rates that must then be approved by the PSC.

By way of background, rates are particularly relevant to streetlights, because they are not metered for actual energy used. Rather, a rate is determined based on the number and kind of lights. With newer, more energy-efficient lighting technologies like LED bulbs, even though less electricity is used by them, there is no cost savings, unless there is a rate established for the bulbs.

Brix explained that in January of 2010, the PSC had required all utilities to file an LED streetlight rate with the commission. From The Chronicle’s background provided in one of the spring budget meeting reports ["Budget Round 4: Lights, Streets, Grass"]:

According to Michigan Public Service Commission spokeswoman Judy Palnau, the MPSC issued an order on Jan. 11, 2010 that required DTE to file an application with MPSC seeking approval of rates on un-metered streetlights that would accommodate newer lighting technologies. The deadline for submission was Feb. 10, 2010. However, the issue of these LED rates is still pending at the MPSC.

At Monday’s meeting, however, Brix said that DTE had not articulated a rate in terms of “here’s your equipment, here’s your cost” but rather had provided a paragraph indicating a willingness to work with customers on installation of alternative lighting technologies.

Brix then described a limited pilot program in which 58 lights had been converted to LED bulbs in cooperation with DTE, where half the cost had been shared by DTE – otherwise, the conversion would not have made sense to the city from the expense side. The area of that 58-light LED pilot, said Brix, was bounded roughly by Hill, Packard, and East University.

Related to a different streetlight project, Brix also confirmed that the city had initially had trouble getting credit for an agreed-upon reduced rate for LED streetlights installed in downtown Ann Arbor. However, he reported that communication was now better and that the city had been back-credited, so the city had been “made whole,” he said.

Carsten Hohnke (Ward 5) noted that there is also an LED streetlight installation in the Glendale area, and that the residents are extremely satisfied. Prompted by Hohnke, Brix confirmed that with LED technology, there is considerable flexibility to choose the spectrum of lighting – the city opts for a rough equivalent of “moonlight” – as well as 0-100% dimming.

Marcia Higgins (Ward 4) got confirmation that the new streetlights being installed on Stadium Boulevard between Pauline and 7th are owned by the city. She noted that the residents along the corridor had voted for a different lighting intensity to distinguish the residential section from the commercial district.

Bonds for Village Green’s City Apartments

Before the council was a proposal to authorize issuance of $9 million in general obligation bonds in connection with the parking deck to be built as part of Village Green’s City Apartments project at First and Washington.

The bonds could take the form of conventional tax-exempt bonds, conventional taxable bonds, Build America Bonds, Recovery Zone Economic Development Bonds and/or Recovery Zone Facility Bonds, depending on which are legally available and most advantageous to the city at the time they are issued.

In 2008 the Ann Arbor Downtown Development Authority passed a resolution authorizing that the bond payments be made from revenues generated by the city’s public parking system, which is managed by the DDA. The city council approved an extension to the purchase option agreement for the land at its Aug. 5, 2010 meeting.

Stephen Kunselman (Ward 3) led off deliberations by expressing his concern about what happens to the bond if the deck does not get built. The city’s CFO, Tom Crawford, explained that the payment is not owed until there is a certificate of occupancy issued for the City Apartments project, and thus the bonds would not be issued until the project was substantively complete. Crawford allowed for some flexibility in that respect, if the city saw that it could get a better interest rate by issuing the bonds a few months before the project is actually complete.

Based on the timeline approved by the council in connection with the extension of the purchase option, Crawford said, the project is supposed to be built by around May 2012.

Outcome: The council voted unanimously to authorize the issuance of $9 million in bonds.

Glen Ann Place

Before the council was a request to extend for five years the 2007 consent judgment it reached with Joseph Freed and Associates LLC, developer of the Glen Ann Place project. Glen Ann Place was a planned unit development (PUD) approved by the council in July 2005, but that did not win subsequent approval from the city’s historic district commission.

Rendering of Glen Ann Place. The view is from the northeast. The pedestrian bridges cross Glen Avenue. From this angle, Ann Street is on the far side of the building.

Freed then filed suit against the city, the outcome of which was a consent judgment. Per the consent judgment, the height of the building was reduced from 10 to 9 stories.

Glen Ann Place is planned to include retail and office uses on its first two floors, with residential on upper stories. The site plan approvals in the consent judgment are set to expire on Nov. 30, 2010.

Although Freed was requesting a five-year extension, the resolution the council considered was for a two-year extension. The lawsuit will remain settled regardless of what council action is taken. From the staff cover memo:

The consent judgment granted these approvals … with an expiration of November 30, 2010. The petitioner has requested a five year extension due to current economic conditions. Because the approval of this project was a consent judgment, it is within the City Council and HDC’s discretion to grant this approval if they would like to provide an opportunity for this development to be completed. Whether or not this extension is granted, the lawsuit between the two parties will remain settled. Staff supports an extension of two years, consistent with the City’s policy of extending site plans for two year periods.

The resolution considered by the council also explicitly conditioned any extension on approval by the city’s historic district commission.

The council’s deliberations were led off  by Tony Derezinski (Ward 2), who had announced during his communications at the previous meeting that the issue would be coming before the council. Derezinski cited the absence of Sandi Smith (Ward 1) and Stephen Rapundalo (Ward 2) in suggesting a postponement – there would still be time to act before the site plan approvals expired.

The council’s delay, Derezinksi noted, meant that the historic district commission would weigh in first on the extension, at their meeting later in the week.

Outcome: The council voted unanimously to postpone consideration of an extension for Glen Ann Place.

Area, Height, Placement (AHP)

The proposed revisions to area, height and placement provisions in the city’s zoning code for most zoning designations outside of the downtown area – a notable exception being the R4C area, which is being studied separately – has a history dating at least to September 2008. At that time, the city council asked the planning commission to seek additional public input before moving ahead with recommended changes.

The general spirit of the changes is intended to achieve a variety of goals consistent with best practice in land use, among them, as specified in the city’s planning staff report:

a) more compact use of land and infrastructure;

b) the preservation of natural systems,

c) accommodating new growth along transit corridors in existing urban areas which have existing infrastructure,

d) locating buildings closer to the right-of-way to promote non-motorized access, and

e) mixed land uses.

The anticipated benefits of the changes include, from the city planning staff report:

1. Business and Job Retention and Expansion – The proposed amendments will allow the expansion of existing employment and retail uses that will encourage businesses to remain and expand in Ann Arbor.
2. Revitalization of older Retail and Employment Centers – Many retail and employment centers in Ann Arbor were built more than 30 years ago and have become dated and underutilized. These proposed amendments will encourage these sites to redevelop and be revitalized.
3. Environmental Benefits – Redeveloping sites will trigger a number of code requirements that will result in substantial environmental gains such as: a) storm water management (buildings constructed prior to 1978 typically do not detain storm water), b) landscaping, which will result in additional open space being provided as well as new trees and shrubs, and c) new energy efficiency standards for new buildings.
4. Improved Non-motorized Access – The revisions will result in new buildings being constructed closer to public streets and sidewalks which will improve access for transit riders, cyclists, and pedestrians, including those with limited access abilities.
5. Improved Efficiency of Land Use, Mass Transit and Infrastructure – The proposed revisions will allow existing non-residential zoning districts to be used more efficiently and compactly. This will better support transit service, encourage development in existing urban areas instead of greenfields (and other sites without access to transit), and use existing infrastructure more efficiently.
6. Enhanced Housing Diversity – By creating a new small lot single-family district (R1E) and encouraging parking to be located under new residential buildings, these proposed amendments will help expand the continuum of housing choices in Ann Arbor.

AHP: Public Hearing

Jim Mogensen recalled following the issue from the time it emerged from the planning commission’s ordinance review committee. The original proposal, he said, had included no height limits and the city council had caught that fact and sent it back for further public process.

Mogensen encouraged the council to reflect on situations – like the shopping center across from Arborland – that are planning a makeover, but not redevelopment with new construction. Would the new AHP provisions apply? he wondered. He observed that the basic challenge for that shopping center is that it’s “on the wrong side of the street.” In general, he cautioned, there could be cases where an owner had enough capital for a makeover, but not enough to redevelop. The council should think that through, he said.

AHP: Council Deliberations

The council deferred to a request from Marcia Higgins (Ward 4) to postpone action for two weeks. She indicated that she had questions about the changes that she had not been able to submit to city staff.

Outcome: The council voted unanimously to postpone the vote on AHP zoning changes.

Liquor

The council considered recommendations to the state to grant liquor licenses of two types: a micro brewer liquor license for Wolverine State Brewing Company at 2019 W. Stadium Blvd.; and a downtown development district liquor license to Mehak Indian Cuisine at 212 E. Washington.

Before the council were also two ownership transfers of liquor licenses – to Rush Street, at 314 S. Main St., and to Sava’s Cafe at 214 S. State St.

The limited deliberations came from two members of the liquor license review committee, Mike Anglin (Ward 5) and Tony Derezinski (Ward 2), who noted that the downtown development district license recommended for Mehak was a good sign – investors see downtown Ann Arbor as an opportunity. Derezinski said it would add to the variety of food and social life downtown.

Outcome: The council supported the requests and applications for all four liquor-related agenda items.

Alarms

Before the council was a wholesale repeal and replacement of the ordinance that regulates how false alarms to police and fire are handled when those false alarms are caused by automatic alarm systems. The city itself is moving to an automated system for enforcement and billing of false alarm fees – EnablePoint, which is supposed to reduce city staff time required to track and prepare false alarm billings. The false alarm tracking software will integrate with the recently implemented New World Financial System.

Separately, the council considered a new fee structure for false alarms. Under the new ordinance and fee schedule, registration would be required for fire alarm systems, and the “free” first-time offense is to be eliminated. False alarms from non-registered locations are assessed the registration fee plus the standard fine.

False Alarms Response Fee Schedule (Police and Fire Alarms)

                                   Current     Proposed

POLICE
Annual Alarm System Registration    $37         $ 37
False Alarm Response                $82         $ 82
1st False Alarm Response for
Non-Registered Location             $82         $119

FIRE
Annual Alarm System Registration    none        $ 37
1st False Alarm Response            none        $250
2nd False Alarm Response            $120        $250
3rd and Subsequent Response         $360        $250
1st False Alarm Response for
Non-Registered Location             none        $287

as-

Alarms: Public Hearing

Jim Mogensen suggested that the council be aware that after-hours cleaning services can sometimes trip alarms and that they need to make sure this phenomenon is taken into account.

Alarms: Council Deliberations

Sabra Briere (Ward 1) expressed some concern on behalf of a resident who had contacted her about the ordinance change. He was worried that a false alarm triggered while he was out of town had previously cost him around $90, but the new arrangement seemed like it could cost him as much as $500.

City fire safety staff explained that there is an appeals process similar to the one used for traffic tickets. By way of background, the $500 figure is not related to the false alarm fee schedule, but rather to violations of the ordinance itself. For example, the new ordinance specifies that alarm companies cannot represent that their equipment has been tested or approved by the city of Ann Arbor:

3. No Person engaged in the business of installing, leasing, maintaining, repairing, replacing or servicing Alarm Systems shall: a. represent to anyone that any of the equipment they sell or service has been tested or in any way approved by the City of Ann Arbor. b. install an Alarm System unless a valid permit is in effect. c. obtain all permits, licenses and inspections required and comply with all applicable statutes, ordinances and regulations.

If an alarm company were to claim the city of Ann Arbor had approved their system, then that company would be guilty of an infraction that could be cited and fined for $500. The schedule of false alarm response fees will no longer be graduated. But for frequent false alarms from one location, the new ordinance provides a mechanism for the city to enforce disconnection of that alarm service.

Outcome: The council voted unanimously to approve the false alarm ordinance and fee schedule change.

UM Soccer Facility

On the council’s agenda was an item that dealt with annexation of property to the city of Ann Arbor from Pittsfield Township and the zoning of the parcel as public land (PL). The property, owned by the University of Michigan, is located on the east side of South Main Street, south of Ann Arbor Saline Road. The university uses the land for a soccer facility and recently completed the construction of a new soccer stadium. The point of the annexation is to allow the university to hook up water and sewer facilities for restrooms in the new stadium. Fees associated with the hookup include: $37,389 water improvement charge, $97,740 sewer improvement charge, and $14,000 local public improvement charge for storm sewer.

The city’s planning staff and planning commission recommended approval of the rezoning in December 2009, and in the interim, the university has completed construction of the facility.

Soccer: Public Hearing

During the public hearing on the rezoning of the land where the soccer stadium is located, only one person spoke – Jim Mogensen. He characterized it as a “missed opportunity” because the facility is already built. He noted that the planning commission had denied a special use exemption by Arbor Dog Daycare due to noise complaints, and suggested that the same principle could be applicable to the UM soccer stadium. [Chronicle coverage: "Expansion of Arbor Dog Daycare Denied"] The fact that UM was not applying for a special use exemption and was just now bringing the rezoning to the council after the facility was built was characterized by Mogensen as “institutional narcissism.”

Mogensen noted that there are more and more clear commercial enterprises on the university campus. As the university grows, he said, it puts more strain on infrastructure to support it, without a corresponding contribution in property taxes. He encouraged the council to think through what happens when commercial activities take place on public property. He encouraged the council to postpone the rezoning – the facility had already been built. It was worth taking the time to think through the issues, he said.

Soccer: Council Deliberations

Sabra Briere (Ward 1) indicated her dismay that the facility had already been built before the council rezoned the property. She said that in the future, she hoped the university would “jump through the hoops in the right direction.”

Outcome: The council unanimously approved the rezoning of the university’s land to PL (public land), with the newly constructed soccer stadium, which has been annexed into the city.

Peace Corps

Before the council was a street closing – State Street, from South University to East William – in connection with the 50th anniversary celebration of the founding of the Peace Corps. There will be two events on Oct. 14, 2010, one of them in the wee hours of the morning, to mark the exact anniversary of the 2 a.m. speech by John F. Kennedy from the steps of the Michigan Union. The later event, at 11 a.m. will include as guest speakers  Sen. Harris Wofford, Jack Hood Vaughn, Aaron Williams, Julia Darlow, Mary Sue Coleman and Jennifer Granholm.

The University Record provides additional background: “The Peace Corps: It all started here.”

Outcome: The council voted unanimously to approve the street closing.

Nominations

The council received several nominations for appointments to boards and commissions that will be voted on by the council at their Oct. 18 meeting. Two of note were Malverne Winborne, to fill a vacancy on the Ann Arbor public art commission (AAPAC), and Tim Hull to fill a spot on the taxicab board.

For background on AAPAC’s own efforts to identify a new member, see “Ann Arbor art commission also seeks two new members.”

Hull has addressed the council during public commentary in recent months on the topic of holding the Ann Arbor Transportation Authority more accountable, and he did that on Monday night as well. He also thanked the mayor for the nomination to the taxicab board.

Tax “Loophole”

Margie Teall (Ward 4), during her communications time, asked the city’s CFO, Tom Crawford, about an issue that had been raised at a recent candidate forum by independent candidate Newcombe Clark, who along with Republican John Floyd is contesting the Ward 5 city council seat currently held by Democrat Carsten Hohnke.

Tax Issue: Background

The kind of “tax loophole” in question relates to real estate transactions involving companies that own companies, which in turn own real property – where the transaction itself is not directly about the real property, but which has the end effect of transferring the ownership of that property.

In a court case from 2006, Signature Villas v. City of Ann Arbor, the Michigan Court of Appeals ruled that in a transaction involving ownership of a company that, in turn, owns real property, the transaction meets the state statutes definition of a “transfer of ownership.”

From the court’s opinion [emphasis original]:

Petitioner asserts that § 27a(6)(h) only applies to the conveyance of ownership interests in legal entities that own property, and does not apply to the conveyance of the ownership of a company that owns a company that owns property. We disagree.

Whether a transfer of ownership has taken place is important, because when a transfer takes place, the effect of Proposal A [passed in 1994] – which limits the rate at which taxes on a property can increase – is undone. From previous Chronicle coverage on tax issues:

When a property is purchased, the taxable value is reset to be equal to assessed value. And the assessed value is an amount set at roughly 50% of market value. But in years subsequent to that purchase, the assessed value of the property will increase or decrease, depending on overall market conditions.

If the market goes up after the purchase, then the assessed value goes up, and intuitively, taxes paid on the property (that is, the taxable value) should increase, and they do. But Proposal A puts a cap on how fast the taxable value can increase. That cap is 5% or the rate of inflation, whichever is lower.

Suppose you buy a home for $200,000. If you’re paying the “right” price, based on the assessor’s assumptions, then the assessed value and the taxable value would be $100,000. Further, suppose that the following year, the properties in your neighborhood appreciate by 10%, putting the assessed value at $110,000. And suppose that inflation for that period is right at 5%. The difference between the 10% appreciation and the 5% overall inflation means that for that year the taxable value can’t increase to match the assessed value . Due to Proposal A, the maximum taxable value for the property would be $105,000. On that scenario, the property would have an assessed value of $110,000 and a taxable value of only $105,000.

If a property’s assessed value is currently greater than its taxable value, then a transaction involving that property will reset the taxable value at an amount greater than its current taxable value – so there’s an advantage to the purchaser if that transaction could be analyzed as not an actual transfer of ownership. That’s the kind of analysis the Court of Appeals ruled against in 2006.

For the city of Ann Arbor, then, the question is: How realistic is this idea that there could be $4.5 million in additional property taxes that are currently not being paid, because there were transactions since 2006 that were not property analyzed and reported as transfers of ownership?

Tax Issue: City Staff Response

In response to Teall, Crawford allowed that on occasion, that kind of transaction could take place, but that the city was not aware of any specific instances – the city would address any such cases, he said. He invited the city attorney to weigh in on the issue. City attorney Stephen Postema characterized the recent community conversation on the topic as treating the subject as if it were surprising or new. In fact, he said, it was the city of Ann Arbor that had established the legal precedent that governs such transactions, so of course the city is aware of the issue.

Teall asked if the city was on the lookout for subsequent transactions – Postema and Crawford confirmed that they were. Crawford noted that the issue applies statewide and that the city had a number of “clever ways” of monitoring all commercial real estate transactions – he expressed reluctance at revealing publicly what those ways are. However, he assured Teall that the city does ongoing due diligence on such transactions. Crawford noted that in cases where property owners are identified as being in violation, they must make historical repayment with interest and penalties.

Mike Anglin (Ward 5) inquired whether the city might be able to encourage compliance by looking at the possibility of a “tax amnesty.” Crawford replied that this was not an option for a local municipality – the city could not waive the penalties or interest, either.

Stephen Kunselman (Ward 3) wanted to know if the Glen Ann Place property – considered but postponed that evening – had changed ownership and could possibly fit the category of properties that needed to have a transfer of ownership recorded. Crawford told Kunselman he would need to check.

Summer Festival Gift

Making a presentation to the city on behalf of the Ann Arbor Summer Festival were AASF board members Jim Kosteva and Jayne Miller, and festival director Robb Woulfe.

(From left to right): Robb Woulfe, director of the Ann Arbor Summer Festival; mayor John Hieftje; Jayne Miller and Jim Kosteva, members of the Summer Festival board.

Kosteva is the University of Michigan director of community relations, while Miller was, until earlier this year, community services area administrator for the city.

Their presentation to the city was a large print of a photograph taken by Myra Klarman, who is the festival’s photographer. Woulfe thanked the council for their past support, noting that typically the Summer Festival appeared before the council to ask for money or to relax wage requirements, but on this occasion they wanted to make a gift to the city.

He said he hoped the city would find a place to hang Klarman’s print. [For some background on Summer Festival funding and wages: "Living Wage: Insourcing City Temps"]

Communications and Comment

There are multiple slots on every agenda for city councilmembers and the city administrator to give updates or make announcements about important issues that are coming before the city council. And every meeting typically includes public commentary on subjects not necessarily on the agenda.

Comm/Comm: East Stadium Bridges Traffic Control

Sue McCormick, the city’s public services area administrator, briefed the council on the traffic control plan for the start of construction on the East Stadium bridge replacement, now scheduled to start in the summer of 2011. There will be an east-west detour for Stadium Boulevard traffic, she explained, that will route traffic via South Main, Eisenhower, and South Industrial. The north-south detour for State Street – which leads under the bridge – will take traffic via Packard and Stimpson. McCormick pointed out that this is effectively the same traffic control plan that the city had used in November 2009, when five beams of the bridge were removed. That plan had included input from the Ann Arbor Transportation Authority and the Ann Arbor Public Schools, she said.

McCormick advised the council that the city would approach the community again 4-5 months before the start of construction for additional input and education about the planned detours. She also noted that in November there would be a “traffic summit” with the Washtenaw County Road Commission and the Michigan Dept. of Transportation, which would be an opportunity to look at the range of other road construction projects planned for the same period. That would allow the city to coordinate and modify the East Stadium traffic control plan, she said. She noted that the plan could be different, depending on whether construction starts before or after schools end their spring session.

McCormick advised the council that based on the experience in November, there could be up to a 40% reduction in traffic volume along the corridor, which would mean that the detour routes would carry 60% of the traffic that would ordinarily travel unimpeded along Stadium and State streets. That’s because driver awareness of the situation would lead people to find other ways without using the detour.

Margie Teall (Ward 4) asked that the city take a look at pedestrian traffic and how people might get from Burns Park to Pioneer on foot during the construction period.

Comm/Comm: Commuter Rail Excursion Service

Mayor John Hieftje reported that he’d attended another meeting attended also by the mayor of Dearborn about the Ann Arbor to Detroit commuter rail project. Hieftje expressed his optimism about the project eventually becoming a reality, based on the amount of money the federal government is investing in rail transportation through the ARRA stimulus program. At SEMCOG’s Oct. 28 meeting – to be held at 4:30 p.m. at the Henry Ford, Hieftje announced, the refurbished railcars to be used for the service will be on display. They’re double-decker stainless steel cars.

An excursion service would be offered to Detroit’s Thanksgiving Day parade, as well as to the Big Chill, a hockey game at Michigan Stadium between the University of Michigan and Michigan State University, scheduled for Dec. 11. Hieftje also mentioned the possibility of excursion trains scheduled for the Ann Arbor art fairs. He cautioned, though, that there would not suddenly be commuter rail service – it would be built layer by layer.

Comm/Comm: Fuller Road Station

Two people addressed the city council during public commentary reserved time on the subject of Fuller Road Station, a proposed parking deck to be built in partnership with the University of Michigan on land designated as city parkland.

Nancy Shiffler noted that the city’s planning commission had recommended approval of the project’s site plan at its Sept. 21, 2010 meeting. She felt the commission had not considered the precedent it would set for use of park land without the consent of voters. She alluded to the history of the parcel in question, which she contended was purchased with taxpayer money and federal help and was designated as a wildlife habitat. She also characterized the project as bad transportation planning, saying that a parking deck is counter to a goal of mass transit. She also contended that the planning commission had not appropriately applied private development standards, and called the citizen input activities in connection with the project “bait and switch.”

Gwen Nystuen, who serves on the city’s park advisory commission, noted that the city council would likely be voting on the site plan at its next meeting. She said there are questions about used of dedicated park land for a transportation use. She urged the council to take additional time to consider the proposal, saying that Ann Arbor currently has more time than money, so it makes sense to spend some time. [Coverage of park advisory commission discussions on Fuller Road Station: "PAC Softens Stance on Fuller Road Station"]

Comm/Comm: City-DDA Parking Agreement

Fuller Road Station is a topic that has arisen as a tangential topic in the context of ongoing negotiations between the Ann Arbor Downtown Development Authority and the city of Ann Arbor on the parking agreement that governs how the DDA manages the city’s parking system. The question has arisen as to whether the Fuller Road deck would fall under any new re-negotiated agreement.

At Monday’s council meeting, Christopher Taylor (Ward 3) who serves on the council’s committee that is engaged in the negotiations, gave an update on their status. He said the conversations have moved away from the idea of the DDA taking responsibility for enforcement of parking regulations to focus on reworking the language of the existing agreement and the idea that the DDA would become the implementation engine for development of city-owned surface parking lots in the downtown. He alerted his colleagues to the likelihood of a city council work session when the DDA would present their concept for implementation of DDA-led development.

Comm/Comm: Housing Commission

Tony Derezinski (Ward 2), who is the city council’s liaison to the Ann Arbor Housing Commission, reported on a useful field trip the commission had made to Grand Rapids to look at the diversity of options that Grand Rapids had achieved.

Comm/Comm: Single-Stream Recycling

Two organizations, independently of each other, in their remarks before the council expressed appreciation to the city for implementation of the single-stream recycling system.

For the Inter-Cooperative Council, general manager Eric Lipson and president Jeremiah Devlin-Ruelle were on hand to receive a mayoral proclamation declaring October Co-op Month in Ann Arbor. Devlin-Ruelle cited the single-stream system as providing a way for the cooperative housing organization to do a lot more recycling. He also praised the council for passing the recent ban on porch couches, saying it would make Ann Arbor safer.

During public commentary, Ken Wilson, pastor of Vineyard Church, read forth a resolution, signed by 539 people from his congregation, that expressed appreciation for the council’s service to the community, and highlighted the city’s implementation of single-stream recycling as a specific example.

Comm/Comm: NAP Volunteer

Denise Held was honored for her work as a volunteer in the city’s adopt-a-park program. The city council recognizes the efforts of a park volunteer once a month, typically at the first of its two monthly meetings. Held expressed her thanks to Sue McCormick, the city’s public services area administrator, for creating Brookside Park in the first place.

Comm/Comm: Community Policing

Jim Mogensen addressed the council on the topic of community policing and the homeless population. The overall context for his remarks is a recently re-constituted task force to look at panhandling in the downtown area. The council approved on Monday night the appointment of two additional members to that task force – Peter Ludt to represent the State Street merchants, and Mary Campbell to represent the Kerrytown merchants.

Mogensen related two anecdotes based on his experience 20 years ago in Silver Springs, Maryland. One involved a building where people had been living as squatters. The building’s owner boarded up the building to prevent people from occupying it. When asked how the people had reacted to having access to their temporary quarters blocked, his response was “What people?” Several people were then discovered inside, still alive but hungry and dehydrated.

The second anecdote involved a woman who called police about people hanging out on the street corner in view of her apartment window – doing drugs, having sex and the like. On investigation, the police determined that the people in question were simply waiting for the bus. When the calls persisted from the woman, the solution that was found was to move the bus stop a few yards down the road, so that bus riders waiting for the bus were no longer in the woman’s view.

Mogensen offered those two anecdotes as illustrations that the solutions to problems don’t always recognize what the actual problem is. As the city considers how to deal with panhandlers, he cautioned, he asked councilmembers to reflect on the fact that we recognize the interest that food cart vendors have in having access to the pedestrian flow. In the same way, panhandlers have an interest and a stake in having access to the pedestrian flow – something we should be mindful of, he said.

Comm/Comm: Integrated Funding

Lily Au addressed the council on the topic of the coordination of nonprofit funding with the city, the county and the Urban County, which is now proposed to include United Way and the Ann Arbor Area Community Foundation. [For Chronicle coverage of a recent meeting of the Urban County executive committee, which discussed the topic: "Coordinated Funding for Nonprofits Planned"] Votes by the Urban County, the county’s board of commissioners and the Ann Arbor city council will be coming up in late October and early November.

Lily Au makes her point with toy boats.

Using toy boats as props, Au warned that the consolidation meant that a big boat was being built. But the problem with a big boat is that it can’t reach a small stream.

She questioned whether the consolidation would actually save money, pointing to the administrative overhead cost that would be incurred – in addition to the administrative overhead of the United Way and the Ann Arbor Area Community Foundation. Au also asked who would be responsible for overseeing how the money is spent in the consolidated approach, once the money is allocated.

Comm/Comm: Zoning Reform

Thomas Partridge introduced himself as a Washtenaw County Democrat with Christian values. He called on the city council to unite the city, the county, and the state and give inspiration to the entire nation by establishing zoning regulations in support of affordable housing. He called for the election of Democrat Virg Bernero as Michigan’s next governor.

Present: Mike Anglin, Margie Teall, Sabra Briere, Tony Derezinski, Stephen Kunselman, Marcia Higgins, John Hieftje, Christopher Taylor, Carsten Hohnke.

Absent: Stephen Rapundalo [arrived towards the end of the meeting], Sandi Smith.

Next council meeting: Oct. 18, 2010 at 7 p.m. in council chambers, 2nd floor of the Guy C. Larcom, Jr. Municipal Building, 100 N. Fifth Ave. [confirm date]