The Ann Arbor city council declined to exercise its right of first refusal on the Edwards Brothers Malloy property at its special session on Feb. 24, 2014. Chuck Warpehoski (Ward 5) compared the process of reviewing the options over the last few weeks to riding a “see saw.” (“Art” by The Chronicle.)

That’s because the meeting was a special session, dealing with just one substantive issue: a resolution to exercise the city’s right of first refusal to purchase the 16.7 acre Edwards Brothers Malloy property on South State Street, and a closed session to discuss that issue.

The council’s 5-6 vote on the land acquisition fell short of a simple majority, let alone the 8-vote majority it needed. That vote came after the closed session, which lasted an hour and 40 minutes. The council then deliberated for about an hour and 10 minutes.

The council’s decision came four days after the University of Michigan’s board of regents had authorized proceeding with a purchase of the property for $12.8 million. The site is located at 2500-2550 South State Street, immediately adjacent to existing UM athletic facilities. It’s assumed the university would use the land at least in part to support its athletic campus.

Voting to exercise the right of first refusal were: Sabra Briere (Ward 1), Sally Petersen (Ward 2), Jane Lumm (Ward 2), Margie Teall (Ward 4), and mayor John Hieftje.

Voting against exercising the right of first refusal were: Sumi Kailasapathy (Ward 1), Christopher Taylor (Ward 3), Stephen Kunselman (Ward 3), Jack Eaton (Ward 4), Chuck Warpehoski (Ward 5) and Mike Anglin (Ward 5).

Deliberations focused on two main issues: (1) the financial risks and benefits; and (2) the city’s relationship with the university.

The motivation for the city to exercise its right of first refusal on the property was based in large part on a desire to protect the city’s tax base. The property current generates roughly $50,000 in annual real property tax revenue to the city’s general fund. But the city’s total revenue from the parcel is just 28% of the total taxes levied by all jurisdictions. The net present value over the next 25 years of the levy from all jurisdictions is roughly $6 million. That was weighed by the council against a purchase price of $12.8 million that reflected a “premium” over the appraised value of around $8 million.

Also a factor weighed by the council was a $218,000 annual holding cost for the land, which reflected a 1.7% interest rate that Flagstar Bank had offered. That’s about half the rate the council was assuming in its earlier review of its options.

Another piece of the financial equation was that the some of the tax abatement previously granted by the city to Edwards Brothers would be coming back to the taxing jurisdictions. That’s because by selling the property, Edwards Brothers would not be meeting all the terms of the tax abatement. There’s a clawback provision in that case – which returns taxes to jurisdictions amounting to a total of $200,000. Of that total, the city’s portion is $90,000. It’s under the terms of that tax abatement that the city had obtained a right of first refusal on the sale of the property.

The deal would have been financed from the general fund. According to the city’s year-end audited statements for FY 2013, the general fund unassigned balance stood at $14,392,854 as of June 30, 2013.

Councilmembers like Eaton and Kailasapathy were clearly opposed to exercising the city’s right of first refusal, based on the substantial risk they thought the city would be taking. Everything would need to go right, in order for the city to come out ahead, they said. Kailasapathy indicated that the “premium” price to be paid by the city for the real estate was a significant reason to vote against it.

Kunselman, in voting against the resolution, relied on what’s become for him a familiar criticism of “speculative development.” He cited in part what he’d learned taking a course on real estate from local developer Peter Allen, a lecturer at UM.

Councilmembers like Warpehoski and Taylor were less adamant about their no votes. Warpehoski thought the odds were “better than even” that the city would come out ahead long-term. But because the city would be gambling with public funds, he wondered if “better than even” was good enough. “Right now, I’m thinking maybe not,” he concluded. Earlier in the meeting Taylor had offered similar sentiments, saying that he’d “regretfully” vote no. “We could have pulled it off; we had a reasonable shot at pulling it off. In light of our mission, I think a reasonable shot is not good enough,” Taylor said.

The sixth vote against the resolution came from Anglin. He responded to one of the arguments made by those who supported the resolution – that by exercising its right of first refusal, the city could leverage some collaboration with the university on the future of the parcel. For Anglin, the price was too high just to sit at the same table with the university.

Petersen, Briere and Lumm specifically mentioned the ability to leverage some cooperation from the university on the future of the land as one argument for exercising the city’s right of first refusal. Kunselman called that trying to take the parcel hostage and holding a gun to the university’s head. But some who supported the resolution saw the possibility that exercising the right of first refusal could lead to improved city-university relations.

Hieftje ventured that the city-university relationship is as good now as it has ever been, adding: It’s a good relationship as long as things happen the way the university wants them to.

Those voting yes generally felt that the risk to the city posed by exercising the right of first refusal justified the potential benefit to the city’s tax base. They also cited the opportunity to control the future of the parcel, and to influence development in that part of the city. Responding to a remark from Warpehoski earlier in the meeting – that the South State Street corridor did not give him “warm fuzzies” – Teall said: “I like it. It’s my neighborhood.”

Some background information on the possible acquisition of the property by the city was released last week, on Feb. 18, the day of a regular council meeting. [Edwards Brothers chart] [Additional offer for Edwards Brothers] [Feb. 18, 2014 memo to council]

This article provides more background on the council’s handling of the issue, a sketch of the deliberations, and a more detailed presentation of the deliberations.

Background on Prior Council Action

Prior to the Feb. 24 session, the council most recently had voted to postpone the question of using its right of first refusal on the Edwards Brothers property. That happened at its Feb. 18, 2014 meeting – after a closed session that lasted about 25 minutes.

Before that, the council had on Feb. 3 postponed the item “to our next meeting” – which at that time was scheduled for Feb. 18. But subsequently a special meeting was called for Feb. 10 to consider the question. That special meeting was then cancelled.

Earlier, at its Jan. 6, 2014 meeting, the council had directed the city administrator and the city attorney to explore options and gather information about the Edwards Brothers land. The due date for that gathering of information was specified in the council’s resolution as Jan. 30 – the same day that the land-purchase item was added to the Feb. 3 agenda.

At its following meeting, on Jan. 21, 2014, the council approved without discussion a $25,550 contract with Atwell LLC for environmental site assessment services on the property. That assessment included a survey of asbestos-containing materials.

The pending sale of the property to UM was announced in a Nov. 27, 2013 press release. The business – a fourth-generation Ann Arbor publishing and printing firm – had signaled its intent to put the property on the market in late July.

An item authorizing the $12.8 million purchase was approved on Feb. 20, 2014 by the UM board of regents, so that the university could move ahead if the city did not exercise its right of first refusal.

The city’s right of first refusal on the property was a condition of a tax abatement granted by the city council three years ago, on Jan. 18, 2011. Purchase by the university would remove the property from the tax rolls. Washtenaw County records show the taxable value of the property at just over $3 million. In 2013, Edwards Brothers paid a total of $182,213 in real property taxes, not all of which is the city’s levy. The total city levy of 16.45 mills on $3 million of taxable value works out to about $50,000.

According to the tax abatement agreement, the event triggering the city’s right-of-first-refusal window of 60 business days was a formal notification to the city by Edwards Brothers, which was made on Nov. 27, 2013. According to a staff memo from city administrator Steve Powers, the city had until Feb. 26, 2014 to exercise its right of first refusal. If the city decided to exercise that right, it had to close on the purchase by Feb. 28, 2014.

Deliberations: Brief Overview

Stephen Kunselman (Ward 3) had possibly telegraphed his intent to vote no on the question by voting against going into closed session on Feb. 18. Discussion of land acquisition is one of the exceptions in the Michigan Open Meetings Act, which otherwise requires that all parts of a meeting be open to the public. Votes to go into closed session require a roll call vote of the council under the OMA.

At the council’s Feb. 24 special session, Kunselman repeated his no vote on the question of going into a closed session.

Before the meeting, Community Television Network staffer Christopher Maassen explained to city clerk Jackie Beaudry that a new microphone had been provided for her.

So when deliberations opened, a provisional tally would have already had Kunselman in the no column. But the first four councilmembers to speak indicated they’d be supporting the resolution: Sally Petersen (Ward 2), followed by Sabra Briere (Ward 1), then Margie Teall (Ward 4) and Jane Lumm (Ward 2).

Then Jack Eaton (Ward 4) weighed in against the resolution, followed by Sumi Kailasapathy (Ward 1). Another no vote besides Kunselman’s anticipated expression of opposition would at that point have provisionally settled the issue.

That indication of opposition came from Christopher Taylor (Ward 3), which was a surprise to many – including Kunselman. But Taylor’s position was not adamant. In fact, he wound up arguing that the case for voting yes was stronger than other no-voters had let on.

By the time Kunselman weighed in, that brought the tally to four councilmembers who said they’d be opposing the resolution. Mike Anglin (Ward 5) then added sentiments against the resolution, as did Chuck Warpehoski (Ward 5).

Warpehoski and mayor John Hieftje both noted when they spoke that it was already apparent how the vote was going to turn out.

The tally for mayoral candidates on the vote was 2-2: Briere and Petersen voted for the resolution; Kunselman and Taylor voted against it. All of these councilmembers have declared their candidacy for mayor in this year’s Democratic primary.

Deliberations

Sally Petersen (Ward 2) led off deliberations by saying they all had known University of Michigan has been interested in the property, and that it’s a special situation for the city.

From left: Sabra Briere (Ward 1) and Sally Petersen (Ward 2).

They’d heard consistently from UM that on topics of mutual interest, the university would certainly collaborate with the city, she noted. This is a situation where the city and the university literally have common ground and mutual interest, Petersen said. And figuratively, the parcel’s tax base makes a significant contribution to the ability of the city to provide quality of life to its residents. She said that the issue of quality of life was of mutual interest to both UM and the city of Ann Arbor. It’s a pivotal time and a chance to collaborate well with UM – if the city chooses to purchase the land. And collaborating with the UM is just one option available, she said.

So Petersen was prepared to vote yes – because the city’s acquisition of the land could help improve the city-university relationship in precedent-setting ways. If for some reason the university and the city can’t collaborate, she added, then other options are available. The council was not voting that evening on what to do with the property. Rather, the council was just voting on whether to exercise the right of first refusal. Petersen called it a great opportunity for the city that the city doesn’t have very often. That opportunity was the chance to own an asset that could be mutually beneficial for the quality of life for both the city and the university.

Sabra Briere (Ward 1) was up next. She thanked Petersen for her comments, saying they echoed many of her own thoughts over the last day.

Sabra Briere (Ward 1).

Briere reported she’d talked to the most fiscally conservative people she knows – who have advised her to exercise the right of first refusal if given a choice. That surprised her, because those are people who she would have called “risk averse” and people who look askance at government spending. Yet those people have uniformly asked her to exercise the right of first refusal. She had also spoken with University of Michigan representatives about the mutual relationship and about the development the university has engaged in and the university’s expectations of support from the city. Of particular interest to her was a conversation that made it clear that if the city exercised its right of first refusal, then the university would have a reason to talk with the city.

The only reason the university  was even considering thinking about the city’s South State Street corridor plan or how the property could be used to benefit both the city and the university is because city was considering exercising the right of first refusal, Briere said.

So Briere said she’d join Petersen in thinking it could be an opportunity to engage in a productive discussion with the university. It might benefit the city’s fiscal situation as well as benefiting the university’s ambition. And for those who urged her to exercise the right of first refusal not because they were conservative but because they were aggressive, she felt that many people would like the UM to understand its impact on the community.

Margie Teall (Ward 4).

Margie Teall (Ward 4) thanked Briere and Petersen for their comments about collaborating with University of Michigan. She saw it as a positive opportunity for the city as well – something that could be very beneficial to the city. She thanked the city staff who had done a very thorough job of reviewing the information and “looking under every rock,” she said. The due diligence has been great, and the information that’s been shared has been very valuable, Teall said. She’d be joining Briere and Petersen in supporting the resolution.

Jane Lumm (Ward 4) was the fourth voice of support out of the first four councilmembers to speak. She called it a difficult decision. She said she could understand how councilmembers could end up in different places on this issue. As a general rule, the city should not be in the real estate business, she said. But as councilmembers, they should decide when it’s appropriate and should not just avoid any and all risk.

She had reached out to UM, but it became clear that it the university was not interested in talking to the city before now. Even though she’d tried to see if the city and university could have a conversation about what could be mutually beneficial, there was not much interest on the university’s side – unless the city exercised the right of first refusal.

Lumm saw this as an opportunity to work with the university. As Teall pointed out, she said, the city staff has conducted a lot of analysis and due diligence. And that’s helped guide the council. The city would be taking on financial risk, she said, with outcomes ranging from a potential $2.2 million loss to a $1.2 million gain. If the city retained control, that would best serve the city’s long term financial interest, Lumm said. When you consider the value of taxes retained for other taxing jurisdiction – if the city exercised its right of first refusal – the financial equation tilts to the positive side, she said. She allowed that she works for the city – not the other taxing jurisdictions – but retaining taxes for the other jurisdictions is a significant interest, too. Risking tax dollars now, in order to protect the tax base for the city and other jurisdictions, would ultimately serve the taxpayers. On balance, Lumm concluded the benefits of the city purchasing the property warranted the risk.

Jack Eaton (Ward 4) offered the first sentiments against exercising the city’s right of first refusal. At the beginning of the process, he said, he wanted nothing more than to keep the property on the tax rolls. It’s a unique parcel in that if the city purchased it, the University of Michigan can’t just go out and buy another 17 acres that serves the same purpose. As he looked at the numbers, however, he’d become more skeptical. Everything has to go absolutely right, he said, in order for the city to come out on the positive side.

In the meantime, Eaton said, the city would be spending about $218,000 a year on an interest-only loan, which would “dwarf” the city’s general fund reserves. The city would also need to try to obtain a $1.5 million brownfield grant. Every aspect of the acquisition of the property by the city is full of potential, but also full of risk. He couldn’t see “gambling with taxpayers’ money,” when the potential for disaster seems to be equal to that of coming out ahead. So he’d vote against the resolution.

From left: Sumi Kailasapathy (Ward 1) and Sabra Briere (Ward 1).

Sumi Kailasapathy (Ward 1) picked up on Eaton’s thoughts, saying that for her it’s a risk-reward calculus. Everything we do in life is full of risks, she said, but we should weigh that against benefits and rewards.

Her main concerns included the fact that the valuation of the property had come out at about $8 million. The city would be purchasing the property for about $12.8 million. Based on the information the council had been provided, the downside could realize capital loss of up to $4 million. She allowed that would be a worst-case scenario. If the property remains on the tax rolls, 28% of the benefit would accrue to the city. But the city would be taking 100% of the risk. She might have felt differently if all the taxing jurisdictions split the risk.

A third issue was the holding cost of $218,000. That would come out of the general fund, and she wondered what would have to be cut as a result – because nothing is certain. What if the city needed to hold the land for three or four years? That would add up to another $1 million. She did not feel confident enough that there’s a market for commercial development. She hasn’t seen a market study that says an additional mall or apartment complex is needed. The downside could be devastating, she said.

Christopher Taylor (Ward 3) led off his remarks by echoing the thanks that had been expressed to staff. At each and every turn, when he’d had questions, the staff had come through with answers that were as clear as possible in a shifting environment. Along the way he had felt well supported.

City of Ann Arbor chief financial officer Tom Crawford. City staff received praise around the table from councilmembers in connection with the due diligence process.

Like Eaton, when this first came up, Taylor said, he was enthusiastic and quite willing to explore the possibility, because the loss of land and tax base is an important long-term challenge with respect to the university. Great benefits accrue to the city due to UM, Taylor said, but one downside is that when the university expands, it does draw land off the rolls. And that’s a long-term challenge to the city: to maintain services to residents and to improve quality of life for residents. So when this issue first came before the council, he felt it was an exciting opportunity to have some agency over that long-term challenge.

Taylor would have liked the university to have engaged in a conversation with the city before an offer had been made to Edwards Brothers. That would have been a fruitful and collaborative effort, he felt. It didn’t turn out that way, and he understood that the interests of the city and the university are not necessarily at odds, but they are not entirely congruent.

So it comes to the city council to decide whether to exercise the right of first refusal, Taylor said. As others had already said, it could go either way: There could be gain or loss. The city has had conversations with people who are interested in purchasing the property – and the city knew that the university is interested in purchasing the property. All those things suggest there is some market opportunity, he said.

Taylor addressed the issue of asymmetric risk: The city stands to get 28% of the benefit in exchange for bearing 100% of the risk. “That’s pretty big for me,” he said. If he were in the business of purchasing real estate, and selling it to developers, he felt it was a deal that could easily work. “There is plainly demand here,” he said, and he thought that the risk is not as great as other councilmembers had indicated. But there is plainly risk, he allowed.

Jane Lumm (Ward 2) and Christopher Taylor (Ward 3).

So he stepped back and asked: “What is mission here?” For Taylor, the mission is to provide quality of life for residents, and to maintain and improve that quality of life with residents, to provide services and to do “the things that residents demand of us.” That requires money, he noted, and so those things are somewhat at odds.

As Taylor approached his conclusion, he set himself up to express the position opposite to the one he wanted to take: “In the end, however, I don’t think that the risk here is – I framed that wrong. I think that the risk here is greater than the reward, in light of our mission.” The city’s mission is municipal, it’s not economic, he said. “We’re not in the real estate business. We’re in the business of providing services and creating a city where people can live and thrive.” So he said he’d “regretfully vote no.”

“We could have pulled it off; we had a reasonable shot at pulling it off,” Taylor said. “In light of our mission, I think a reasonable shot is not good enough.”

Stephen Kunselman (Ward 3) led off his remarks thanking Taylor, saying, “That was well said,” and adding “actually, I’m surprised.” Kunselman then laid out his own position by saying: “I am risk averse.” [At this point, four votes against the resolution were clear.] He’s consistently been opposed to speculative development using taxpayer dollars, he said, noting that he was one of the first to “jump off the bus” on the former Y lot project.

Stephen Kunselman (Ward 3).

At one of the first council meetings after Kunselman was elected, the city was partnering on the Broadway Village, he said – and that’s still vacant land. He thought the city was going to get a parking structure out of it. In considering what other communities have done with speculative development, he looked at Sylvan Township and the added tax cost to that community. None of the Sylvan elected officials are still there, he said, but the community is paying for it.

Kunselman looked at Ypsilanti and the Water Street project. He could only imagine the conversations that officials were having when that project was proposed – but he ventured that they were similar to those the Ann Arbor city council had just had in closed session. “How great it would be, how unique, how thoughtful and foresighted … that the community would spend lots and lots of money for future development that nobody had any idea of what they were doing.”

He looked at the city of Troy, which had partnered with a developer. They got a new train station but can’t figure out who owns the land, so that’s going to end up in court, Kunselman ventured. He also pointed out that the city of Ann Arbor borrowed millions of dollars in connection with the Library Lane underground parking structure, to put in infrastructure [stronger foundations, among other elements] to support future development, but “we have no idea what we’re doing there.”

“No, I’m not into speculative development,” Kunselman continued. That’s out of the realm of health, safety and welfare, he said. About the holding cost for the land, he characterized $218,000 annually as three FTEs [full-time equivalent employees]. If the city has that much money to put toward interest-only payments, then the city had money it could put toward three beat cops downtown, he ventured. “What’s our priority? Beat cops or speculative development?” he asked.

As far as working with the university, “that bus left the station a while ago,” Kunselman said. What is being talked about now is “holding the property hostage and putting a gun to the university’s head” and saying, “come talk to us now.” That’s not a great way to start a relationship, Kunselman said. But he agreed with Taylor: If UM keeps buying property, Ann Arbor’s quality of life is going to go down. He hoped UM at some point understands, that at some point it’s going to “kill the goose that lays the golden egg” that provides quality of life for students.

All the students who come from around the world to this community will be isolated downtown, “while the rest of us are trying to fill potholes out in our neighborhoods,” Kunselman said. Speculative development is always based on assumptions, and as Eaton had pointed out, every piece has to work, and if one piece misses, then it fails, Kunselman said. If it winds up in court, the city would lose, he ventured. Local government doesn’t have governmental immunity when it comes to speculative development, he said. So he would not be supporting this.

Petersen took a second turn to reiterate something Kunselman had said: If UM continues to buy up property, the quality of life is going to go down. That’s what would be prevented by exercising the city’s right of first refusal, she contended. When she heard Eaton say that everything has to go right, and when Kunselman says that he doesn’t support speculative development, she wanted to stress that the council was not voting on speculative development that night. The council was not voting on a purchase agreement with a developer. So not everything has to go right, she said.

The council would be buying itself an opportunity to “make things more right,” Petersen said. The downside of not exercising the right of first refusal is a $6 million net present value hit to all the taxing authorities over 25 years, she noted. That was significant to her. She allowed that the city is not in the business of speculative development, but the city is in the business of protecting revenue streams for the city. If the right of first refusal is not exercised, then there will be a significant loss to the city’s revenue stream. If the city does exercise that right, the city has a better chance of increased revenue, Petersen concluded.

Mike Anglin (Ward 5) thanked other councilmembers and staff. He said that when the property on State Street came on the market, the right of first refusal looked like a great opportunity. But when you think about it, he said, it seems speculative. It might be a way to have a conversation with the university, he said, nothing that there’s going to be a new administration at UM. [UM president Mary Sue Coleman is retiring this year, to be replaced by Mark Schlissel.]

Purchasing land and holding it as a “gift” to the university would distract the city from its focus on serving the citizens, Anglin said. There are many things that are not being done that should be done, he noted, and this purchase would make the city potentially vulnerable. About the idea that the land could be used to leverage a conversation with the university, Anglin said, “That’s too high a price to sit at the table with the university.”

Chuck Warpehoski (Ward 5).

Chuck Warpehoski (Ward 5) began by saying that for him, the process has been a see saw: He’s been for it, then against it, for it, then against it. Counting the votes expressed in the deliberations up to that point, Warpehoski ventured that it doesn’t matter what he thinks, so that gave him some freedom to “do whatever I want! I think we should open up a Chuck E. Cheese’s there! ”

He rejected Kunselman’s comparison that acquiring the property was a way to put a gun to the head of the university. That’s just not accurate, Warpehoski said. There’s a lot of detailed collaboration between the city and the university on issues of infrastructure, he said. But sometimes on larger issues it’s difficult to get traction for an agreement. The only way to have a successful negotiation is when you have something the negotiating partner wants or fears. When it comes to the university, he said, the city typically has neither.

Some of the council’s conversation up to that point had been about risk and reward, Warpehoski noted. And that is a big question as the council has looked at the issue from the financial side of things. If the city declines to exercise its option, the city would have a guaranteed loss to the general fund of $50,000 over 25 years. If the city does exercise its right of first refusal, there’s a possible loss or possible gain – but it’s a roll of the dice, he said.

Warpehoski felt the odds were better than even, but it’s still a roll of the dice. Another element is the quality of life piece. The city had been approached by people who develop housing and by people who develop retail. When he thinks of that stretch of South State Street, he doesn’t “get warm fuzzies.” It’s not his favorite part of the city. He was not confident that if UM bought it or the city bought, that his attitude toward that stretch would change. But that quality of life component is a part of the risk-reward calculation.

The conversations at the table reminded Warpehoski of the three questions of Rabbi Hillel. The first question is: “If I am not for myself, who will be for me?” That cuts both ways, Warpehoski said: If the city is for itself, there’s the risk of losing tax revenues or incurring a loss to the general fund. But there’s a potential gain of taxable value. Rabbi Hillel’s second question was: “If I am only for myself, what am I?” There are other people this conversation affects, Warpehoski said. Hillel’s third question: “If not now, when?” On the third question, Warpehoski said, “Well, we’re out of time so that one is easy.” He thought the city’s odds are better than even, he said, but it’s public funds he’d be gambling with, so he wondered if better than even is good enough. “Right now, I’m thinking maybe not,” he concluded.

Lumm allowed that it was an academic argument at this point [given the nose count of councilmembers who'd expressed opposition]. But she followed up on a point Petersen had made: that the other taxing jurisdictions stood to lose $6 million in tax revenue over the next 25 years, if the city did not exercise its right of first refusal.

Jane Lumm (Ward 2) and city attorney Stephen Postema.

She called protecting the tax base a “share responsibility,” allowing that it was unfortunate that the city would be bearing all the risk. There’s an upside to controlling a major parcel, she said. It’s a once-in-a-lifetime opportunity on one of the city’s busiest corridors, she said. It could be a potential catalyst to redevelopment of the corridor and realizing master plan goals. It would not only protect the tax base, it would increase it. She’d done her best to reach out to the university. She commended city administrator Steve Powers for extending an olive branch many times to the university.

It’s unfortunate when she heard from the university that if the city exercised its right of first refusal, it would have a chilling effect on the city-university relationship: “What does that say?” Lumm asked. That’s not something that partners say to each other, she said. Powers has put forth a superb effort and tried “valiantly” to reach out to the university, Lumm said. The city needs the university to understand that the city is serious about protecting its tax base. Because of the lack of interest up to now, the city didn’t have negotiating leverage, she said.

Kunselman followed up on some of the commentary about the city-university relationship. “Everyone knows I work for the university,” he said. He pointed out that this was the first year that the council has not had an invitation to a regent-council dinner or cocktail hour. “So our relationship is obviously not doing very well,” he ventured. Last year, the event was canceled because of the UM basketball team made the Final Four. In prior years, the council and regents had some social interaction around this time of year, Kunselman noted. He didn’t think that purchasing the property would be a nice way to say that the city wants to restore its relationship.

Ann Arbor city administrator Steve Powers.

Everything has unintended consequences, Kunselman said, and that why it’s called speculative. It’s an admirable goal to try to protect the tax base. But the city could not be able to outbid the university on every piece of land it wants over the coming years. And the city knows which property the university wants: It’s next to the land they already own. That’s strategic planning on their part, he said. The university has an “institutional patience” that the city council does not have, Kunselman said. The university can plan ahead for decades.

The question is whether the city can establish a better relationship with UM and encourage the university to start building “up instead of out.” Kunselman ventured that when UM bought the Pfizer property, “none of us were complaining then. We looked at it as a good thing.” [Across the table from Kunselman, Teall was visibly exasperated at Kunselman's remarks about Pfizer, expressing some incredulity.] Kunselman responded to Teall, saying he remembered being happy about it. There were people talking about how good it was that the property was being “backfilled with people,” Kunselman said. At least, he said, the city was not trying to outbid the university. He didn’t think it was the greatest thing either, because the acquisition of the Pfizer property by UM resulted in the city losing 4% of its tax base. But the buildings were at least not sitting empty. [The former Pfizer campus is now the UM North Campus Research Complex (NCRC).]

As a real estate deal, the city would be buying high so it was priced at a premium, Kunselman said. That’s not good real estate business sense to flip this and think you’re going to make some money, Kunselman said: He’d learned in that in Peter Allen’s real estate class. The idea that the city will protect the tax base by buying high, hoping to sell at a greater profit, doesn’t make a great argument, he said. Public health, safety and welfare – that is the city’s mission, Kunselman said. When the city’s quality of life is higher than other communities, that creates a strong tax base.

About the zoning in the area, Kunselman said that the master plan for South State Street doesn’t call for C3 (commercial) zoning. So he was not about to throw all the master planning documents out just to speculate. The planning documents reflect what the community wants in that part of the city, he said. He urged councilmembers to vote down the resolution, encouraging those who’d expressed support to change their minds.

Briere responded to Kunselman. The city didn’t exercise a right of first refusal on the Pfizer property, she said, because the city didn’t have one. And to suggest that the might have had such a right she found “a little distracting.” She recalled how many residents suggest that when someone proposes a use for a piece of property they oppose, that the city should simply purchase the land. She allowed there are no arguments to say that exercising the right of first refusal on the Edwards Brothers property is a safe risk.

But the question the council was considering was land acquisition, not zoning or a particular project, Briere stressed. The discussion was about being in control of how a piece of property was used in the future. She called that a rare situation for the city. Making the conversation about the University of Michigan is the “lowest hanging fruit” argument, she said. She didn’t look at it as being about the university. She ventured that the council would have had some of the same discussions about the land, if Edwards Brothers had chosen to sell it to a different party. In some cases, the university is a distraction. She understood both sides of the risk argument. “To me this is an acceptable risk,” she said, because she believed it was short-term.

Kailasapathy reiterated the fact that the $8 million appraisal compared to the $12 million purchase price reflected a 50% premium. The city would be paying a premium, and the clock was ticking. That 50% premium made the city vulnerable, she said. The city’s options would be narrowed by agreeing to pay that premium.

Taylor used his second turn to “defend the yes voters,” even though he was voting no. The argument based on the premium purchase price was not as strong as it was portrayed, because the terms of the deal include a rental payment and cell tower revenue. The city is also in a position that is distinct from an ordinary purchaser, Taylor said. The city’s economic return is influenced by the purchase price, but is not solely dependent on it. It’s not required that the city buy the property at $X and sell it as $(X + Y) – because the city can make it up on the back end. So the case for voting yes is stronger than what some councilmembers had portrayed, he said.

Taylor also thought that the council’s decision on this matter was not an “existential question” on the university-city relationship. Generally, the city and the university get along, he said. The university’s mission is distinct from the city’s, he said. He characterized the existing relationship as “cordial.” He said that an initial conversation between the university and the city would have been good at the point when the university was thinking about buying the property. But that didn’t happen and that was a disappointment.

Responding to a point Petersen had made that the loss was guaranteed, if the city did not exercise its right of first refusal, Taylor allowed that if the city did act, there was a chance to eliminate the loss and to achieve a benefit. But he concluded that the chance was not sufficient and the risk was off-mission.

From left: city attorney Stephen Postema and mayor John Hieftje.

Mayor John Hieftje ventured that the outcome was pretty clear at this point. He got clarification that some of the tax abatement granted by the city would be coming back to the other taxing jurisdictions. That’s because by selling the property, Edwards Brothers would not be living up to the terms of the tax abatement. City CFO Tom Crawford explained that there’s a clawback provision in that case. It returns taxes to jurisdictions amounting to a total of $200,000. The city’s portion of that is $90,000.

Hieftje called the opportunity to exercise the city’s right of first refusal as a very good thing to investigate. It was something that needed to be investigated thoroughly. He commended city staff for making that happen. Due diligence was indeed performed, he said. That had been necessary to satisfy the council and the public that everything had been looked into.

Hieftje ventured that the city-university relationship is as good now as it has ever been, adding: It’s a good relationship as long as things happen the way the university wants them to. He continued by saying that when university representatives produce their standard list of benefits that the university brings to the community, it’s as if UM is pretty much responsible for anything good that happens. But the items on the list are just what a state-financed university should be doing, he said.

Hieftje wished the university had reached out to the city before it got to this point. He’d made a call, and the city administrator had made efforts. It would have been be a perfect time to say: Let’s talk about this. But that didn’t happen, he said. At some point, Hieftje added, the university’s continued expansion will severely impact the quality of life in the city. He also pointed out the impact on other taxing jurisdictions, saying at some point, “They’re [UM] going to wear us all out.”

Hieftje responded to Kunselman’s earlier comments about the Library Lane parking structure as including speculative development. That had opened up the ability of downtown to have high tech jobs, Hieftje said, and the only way to build it smartly was to put it underground, with extra strong foundations.

Hieftje felt like the exercise of the right of first refusal would be going out on a little bit of a limb, not a big limb. He ventured that it could go either way – plus or minus $1 million.

Teall concluded by expressing disappointment about how the vote was going to turn out. She was also disappointed in the “over the top language” and the “posturing” that she’d heard around the table. She responded to Warpehoski’s remarks about the State Street corridor not being his favorite part of town: “I like it – it’s my neighborhood.” Lots of wonderful businesses are located along there, she said.

She ventured somewhat sardonically that perhaps the University of Michigan would put up a giant electronic billboard on the Edwards Brothers property. She expressed disappointment that the university would likely not extend Oakbrook to connect State Street and South Main, as it’s envisioned in the city’s corridor plan. She indicated that the university probably did not plan on making it a public road.

Teall concluded that it was a disappointing decision for her.

Outcome: On a 5-6 vote, the council rejected a resolution to exercise its right of first refusal to buy the Edwards Brothers property. Voting to support exercising the right of first refusal were: Sabra Briere (Ward 1), Sally Petersen (Ward 2), Jane Lumm (Ward 2), Margie Teall (Ward 4), and mayor John Hieftje. Voting against the resolution were: Sumi Kailasapathy (Ward 1), Christopher Taylor (Ward 3), Stephen Kunselman (Ward 3), Jack Eaton (Ward 4), Chuck Warpehoski (Ward 5) and Mike Anglin (Ward 5).

Present: Jane Lumm, Mike Anglin, Margie Teall, Sabra Briere, Sumi Kailasapathy, Sally Petersen, Stephen Kunselman, Jack Eaton, John Hieftje, Christopher Taylor, Chuck Warpehoski.

Next regular council meeting: March 3, 2014 at 7 p.m. in the council chambers at 301 E. Huron. [Check Chronicle event listings to confirm date.]

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Former Y lot from the northwest corner of William and Fifth Avenue in downtown Ann Arbor, looking northwest. In the background, the new Blake Transit Center is under construction. The AAATA voted to establish a committee to meet with whatever developer makes a successful purchase offer on the lot. Also announced is that the old BTC building, located on the opposite side of the block, will be demolished in early November, somewhat ahead of the original timing. (Photos by the writer.)

The funding agreement between the AAATA and the city of Ypsilanti formalizes the existing arrangement under which Ypsilanti passes its dedicated transit millage through to the AAATA. The board approved it unanimously. The Ypsilanti city council will consider the agreement on Nov. 5.

In another piece of business that came at the end of the meeting, after a closed session that lasted about an hour and a half, the board voted to establish a subcommittee to meet with whichever developer might make the winning bid on the city-owned property at Fifth and William – known as the old Y lot. That’s an alternative to the AAATA attempting to bid on the property itself, which was listed at $4.2 million. Bids were due by Oct. 18. The city paid $3.5 million for the property 10 years ago and still owes that much on a balloon payment due at the end of this year.

An item that simply authorized the purchase of additional vehicles for the AAATA’s vanpool program had some complex history behind it – involving the federal government shutdown. The shutdown prevented the AAATA from completing its pursuit of a waiver from the Federal Transit Administration for the Buy America requirement. And the Buy America requirements were pointing the AAATA toward purchasing more expensive vehicles (Chevrolet Traverses) that did not fit the needs of passengers as well as the non-qualifying vans (Dodge Caravans). So the board opted to use local millage revenue, and to backfill the operational expenses that the millage money was covering – by using federal preventive maintenance dollars.

In a final routine item, the board authorized the AAATA’s chief executive officer to execute contracts with MDOT that are less than $1 million.

A common thread among public commentary and other board communications was the 5-year service improvement plan the AAATA has developed, and the schedule of public meetings to introduce that plan.

Editor’s note: For the AAATA’s Oct. 17 meeting, The Chronicle hired a CART (Communications Across Real Time) professional to provide a real-time “text” stream of the meeting that was accessible online through The Chronicle. The resulting transcript from that live text stream is available here: [link]. The Chronicle is experimenting with ways to make public meetings more accessible to a broader segment of the community, and to provide archival transcripts of those meetings.

Financial Terms: AAATA, Ypsi City

The board was asked to ratify its side of a transportation funding agreement with the city of Ypsilanti, which was admitted as a member of the AAATA four months ago, on June 20, 2013.

Responding to an emailed query from The Chronicle, mayor Paul Schreiber indicated that the Ypsilanti city council is scheduled to consider the agreement on Nov. 5.

That financial agreement comes as the Ann Arbor city council is set to consider at its Oct. 21 meeting the approval of another change to the AAATA’s articles of incorporation – to add Ypsilanti Township as a member of the AAATA. At the Oct. 17 board meeting, it was indicated that the AAATA would be considering a similar financial agreement with the township. That agreement would differ from the one considered by the board on Oct. 17 with the city of Ypsilanti in at least one respect – the source of funds. While the city of Ypsilanti has a dedicated transit millage, the township obtains services through a purchase-of-services agreement (POSA).

The agreement between AAATA and the city of Ypsilanti recognizes the AAATA as the public transportation provider for the city of Ypsilanti. The agreement is to transfer the full amount generated by Ypsilanti’s 0.9879 mill transit tax to the AAATA. The tax was authorized by voters in 2010 and is estimated to generate $273,797 in 2013. However, the agreement calls for the AAATA to pay the city of Ypsilanti 1% of the amount generated by the millage to cover costs that include tax assessment, billing, collection, and various city clerk responsibilities.

The agreement also establishes reporting requirements on the AAATA to the Ypsilanti city council – including submission of the AAATA’s budget for comment, provision of the AAATA’s audited financial statements, and a quarterly activity report with information on ridership, budget variations, and other service metrics. The AAATA is also supposed to keep the Ypsilanti city council apprised of any long-term decisions. The two parties agree under terms of the document to recognize that their obligation as public bodies is to “exist harmoniously for the public good.” [.pdf of resolution and AAATA-Ypsilanti agreement]

Financial Terms: AAATA, Ypsi City – Board Deliberations

Toward the start of the meeting during communications time, Gillian Ream Gainsley – who represents the city of Ypsilanti on the AAATA board – reported that she’d attended the Ypsilanti city council meeting on Tuesday, just to speak in favor of the council’s support for the city joining the authority. She indicated that she felt there was a lot of support for the two cities to be working together on transportation service.

Standing is board member Jack Bernard. Seated is Gillian Ream Gainsley, a board member who represents Ypsilanti.

When he reported out on the items from the performance monitoring and external relations committee, Roger Kerson noted that Jack Bernard [a board member who's an attorney in the University of Michigan's office of the general counsel] had raised the question of what happens if there’s a breach of the agreement on either side. If the money doesn’t arrive from Ypsilanti, does AAATA have the right to terminate service, or if the AAATA terminated service, would both parties be in breach? While Bernard had flagged that issue, it seemed like a very unlikely occurrence, so the committee was comfortable with the agreement as written.

When the board came to the item on its agenda, Kerson described the agreement as formalizing the relationship that already exists. It puts in writing that the funds generated from Ypsilanti’s transportation millage will flow through to the AAATA on an indefinite basis. Those funds will automatically flow to the AAATA, and that stabilizes the AAATA’s finances, enables long-term planning and is a good way to continue the good faith relationship, he said.

Ream Gainsley added the understanding had always been that the city of Ypsilanti’s dedicated transit millage would flow directly to the AAATA, so the agreement was in everyone’s interest.

Board chair Charles Griffith ventured that if the Ann Arbor city council were to approve membership of Ypsilanti Township in the AAATA at its Oct. 21 meeting, then a similar agreement would be executed with the township. CEO Michael Ford confirmed Griffith’s understanding.

Outcome: The board voted unanimously to approve the financial agreement between the AAATA and the city of Ypsilanti.

Subcommittee on Y Lot

The board considered a resolution related to the city-owned parcel on William between Fourth and Fifth avenues in downtown Ann Arbor, known as the old Y lot. The resolution established a committee to meet with whatever party might make a successful purchase proposal for the city-owned parcel.

The resolution to form a subcommittee – whose members aren’t yet identified – is an alternative to bidding to purchase the property.

The AAATA has historically been interested in the property, which is immediately south of the AAATA’s downtown Blake Transit Center. The city’s purchase of the land in 2003 followed an attempt by the AAATA to acquire and develop the parcel. The AAATA continues to envision the block as a center of transit activity.

The property was listed at $4.2 million with purchase offers due by Friday, Oct. 18. The AAATA board resolution indicates in a “whereas” clause that any offers are expected to be brought to the Ann Arbor city council’s Oct. 21 meeting. The resolution is based on the idea that the AAATA wants to establish good relations with any potential developer of the site.

The subcommittee of the board is supposed to meet with developers and take part in future negotiations.

The city council is exploring whether to sell that property, which is also across from the downtown Ann Arbor District Library. Earlier this year, the city selected Colliers International and local broker Jim Chaconas to handle the possible sale, as the city faces a $3.5 million balloon payment this year from the purchase loan it holds on that property. The city has owned the land for a decade.

Now a surface parking lot, the site was zoned D1 as part of the original A2D2 (Ann Arbor Discovering Downtown) zoning process. The site was also one of five parcels that was the focus of the Ann Arbor Downtown Development Authority’s Connecting William Street project, and was part of a more recent evaluation by the city’s park advisory commission as a potential downtown park.

Two months ago, at its Aug. 20, 2013 meeting, the Ann Arbor city planning commission made recommendations on the development of the former Y lot. Among others, those recommendations included: a building that generates foot traffic, provides a human scale at the ground floor and creates visual appeal; a “mixed use” development; and a building with vehicular access and parking that are accessed via the city’s new Library Lane underground parking structure.

Subcommittee on Y Lot: Board Deliberations

The AAATA board resolution was not originally on the agenda, although a closed session did appear on the agenda. That closed session came at the end of the meeting and lasted about an hour and a half. Land acquisition is one of the reasons that a public body can enter into a closed session under Michigan’s Open Meetings Act.

Old Y lot from the northeast corner of Fourth Avenue and William Street. Part of the site, now a surface parking lot, is being used as a staging area for construction of the AAATA’s new Blake Transit Center.

When the board emerged from the closed session, Roger Kerson read aloud the resolution and gave some commentary on it. Kerson chairs the AAATA’s performance monitoring and external relations committee.

Kerson described the formation of a subcommittee to engage the eventual developer of the site as an alternative to the AAATA purchasing the property.
Even though making a successful bid for the property would give the AAATA complete control, Kerson said, it’s not practical for the AAATA to make a bid at this time – as it would deplete the AAATA’s financial reserves.

So instead, Kerson said, the AAATA should be proactive and engage with whomever the city selects as the successful bidder. The AAATA could make its needs known to the developer with respect to providing transit. The idea would be possibly to help the developers meet their needs and simply be a good neighbor. Kerson said it would be best to engage early, instead of waiting to review something that a developer might come up with, without the AAATA’s input. The subcommittee would actively engage that process, Kerson concluded.

Outcome: The board voted unanimously to approve a resolution to form a subcommittee of AAATA board members to meet with the future developers of the old Y lot.

Subcommittee on Y Lot: BTC Construction

Also at its Oct. 17 meeting, the AAATA board was updated regarding progress on construction of a new transit facility immediately adjacent to the old Y lot.

New Blake Transit Center awning under construction on Oct. 18, 2013.

Completion of the new Blake Transit Center building, located on the Fifth Avenue side of the lot, is now expected toward the end of January 2014, which is about six weeks later than originally planned. The old building, which stands on the Fourth Avenue side, was originally not planned for demolition until the new building was complete. However, because the construction schedule has slipped and AAATA staff are concerned about a hard winter arriving and stalling the demolition schedule, the AAATA is planning to demolish the old building sooner than that.

The strategy will be to use trailers as a temporary substitute for the building. Terry Black, AAATA manager of maintenance who’s supervising the construction, explained that the target date for transitioning from the old building to trailers is Oct. 28. During the week of Oct. 28, the move will be made out of the old building, and then on the weekend of Nov. 2-3 the building will be torn down.

Vanpool Vehicles

The final form of the item on the agenda authorizing vanpool vehicle purchases evolved through a couple of different iterations – due in part to the federal government shutdown.

A vanpool is essentially a group of people who are provided a vehicle, and charged a price for the use of that vehicle so they can drive to work together. According to CEO Michael Ford’s written update to the board, the AAATA’s vanpool program currently has 44 active vanpools.

The resolution in its final form authorized the purchase of up to 40 vehicles for the AAATA’s vanpool program to replace aging vehicles, as well as to meet additional demand for the program. The vans will be either Dodge Caravans (mini-vans) at $21,356 from Snethkamp of Lansing, or Ford Econoline vans (full-size vans) from Gorno of Woodhaven, at $20,940.

According to the resolution, the Ford Econoline meets the conditions of the Federal Transit Administration’s Buy America program – which require 65% American components and final assembly in the United States. The Dodge Caravan meets the 65% American-made component requirement, but is assembled in Canada – with union labor. So the funding of the Caravan, which does not meet all the FTA’s Buy America criteria, will be drawn from local millage money, while the Ford vehicles will use federal funds.

According to AAATA manager of service development Chris White, operations that the local millage money would have covered will instead be paid for with federal dollars.

Vanpool Vehicles: Background on Resolution

Minutes from the AAATA’s planning and development committee meeting earlier in the month indicate the original proposal was to purchase 25 vans, with the option of 10 additional vans. And according to the minutes of the Oct. 8, 2013 committee meeting, at that time the AAATA estimated that during the current fiscal year, a total of 35 vans – either to replace aging vehicles or to provide a vehicle for new vanpools – would be needed.

The AAATA’s preferred approach would have been to use a Buy America waiver to purchase Dodge Caravans, which the Federal Transit Administration had granted back in May 2012 when the AAATA began its vanpool program. However, a year ago, in November 2012, the FTA rescinded the Buy America waiver for Dodge Caravans. But in rescinding the waiver, the FTA also provided a way for a transit authority to petition the FTA for waivers on a case-by-case basis.

AAATA board member Eli Cooper.

According to an Oct. 16 memo from CEO Michael Ford to the board, the AAATA had begun working with the FTA in May 2013 to obtain a waiver for Dodge Caravans.

However, because of the federal government shutdown, FTA representatives overseeing the Michigan area were not able to consider the AAATA’s request for waiver on FTA’s Buy America program for the Dodge vehicles. So the request originally placed on the agenda was just to buy 10 Buy America compliant vehicles right now, in order to meet immediate needs. The vehicles specified in the initial version of the resolution were for the Chevrolet Traverse – which is a “crossover” vehicle something like an SUV or a van – to be sourced from LaFontaine Chevrolet of Dexter at a cost of $28,175 each. While the Traverse met the Buy America standard, only 10 were to be purchased, because AAATA staff didn’t feel the vehicle would meet the needs of vanpool riders.

After that resolution was prepared, according to Ford’s memo to the board, additional requests for vanpools were received, which bumped the estimated total number of vehicles needed for the next fiscal year to 40.

That led the AAATA to pursue the strategy of using local millage money for the Dodge vans, but federal funds for the Fords. Vehicles purchased with local millage money are not subject to Buy America requirements. The local revenue would otherwise be used for operations. The federal grant funds that would have been used to purchase the vehicles were transferred from the vanpool vehicle line item to the preventive maintenance line item. Preventive maintenance is considered operating revenue.

The argument for that strategy expressed in Ford’s memo was that purchasing more expensive vehicles ($28,175 each for the Chevrolet Traverse compared to $21,356 each for the Dodge Caravan) would have been a lose-lose proposition, because the vehicles did not meet the purpose of the program as well as the less-expensive vehicles.

Vanpool Vehicles: Board Deliberations

Eli Cooper led off deliberations by appealing to the “base definition” of the program: “It is a vanpool program. It is not the SUV crossover program!” He ventured that anybody who is familiar with the difference between the amount of useable room inside a minivan [Dodge Caravan] compared to a small SUV [Chevrolet Traverse] would recognize the higher level of comfort and convenience for vanpool riders.

Roger Kerson, AAATA board member and Dodge Caravan owner.

Cooper also stressed the cost difference between the two vehicles: $28,175 each for the Chevrolet Traverse compared to $21,356 each for the Dodge Caravan. About the Traverse, Cooper said: “They are not vans.” The Traverse could accommodate seven passengers, but “if you are anything older than ten years old, then try to
get into the back row, the third row seating in a Traverse!” Cooper said he didn’t think that’s the right way for the AAATA to treat its customers.

Cooper reviewed the issue with the Buy America waiver, allowed that a waiver might have been forthcoming. The older vehicles, inherited from the MichiVan program, are wearing out and need to be replaced. He said there was not time for the crisis in government to be resolved before bringing the resolution forward. Cooper said he was glad that staff was creative enough to find a way to be flexible about the funding so that the vehicles could be purchased.

Earlier in the meeting during his report from the performance monitoring and external relations committee, Roger Kerson commented on the Buy America policy as it relates to the Dodge Caravan.

He described it as the preferred vehicle, which is assembled in Canada, and thus does not meet the Buy America requirements. He told his colleagues that he knew a lot about this from his work for the UAW – that the Caravan is a vehicle made by union members in Canada. [Kerson was head of public relations for the UAW for three and a half years, through 2009.] Kerson pointed out that the UAW’s website promotes the Caravan as a union-made vehicle, and the Caravan has many American parts.

Kerson told his board colleagues that personally he owns a Caravan. He said that purchasing a Caravan supports jobs in Michigan – because the engine, powertrain and many of the key components are made in the U.S. before being trucked over to Windsor for final assembly.

Outcome: The board voted unanimously to approve the vanpool vehicle purchases.

MDOT Contract Authorization

The board considered a resolution giving CEO Michael Ford authorization to execute all contracts with the Michigan Dept. of Transportation that are less than $1 million for the next fiscal year, through Sept. 30, 2014.

It’s a routine annual authorization. Other than a brief description from Roger Kerson, there weren’t any substantive deliberations on the topic. Ford is expected to report to the board on all the contracts he executes under this authorization.

Outcome: The board voted unanimously to authorize the CEO to execute contracts with MDOT that are less than $1 million.

Communications, Committees, CEO, Commentary

At its Oct. 17 meeting, the board entertained various communications, including its usual reports from the performance monitoring and external relations committee, the planning and development committee, as well as from CEO Michael Ford. The board also heard commentary from the public.

The main highlight with threads across different points in the board’s meeting was the 5-year plan for service improvements that the AAATA is proposing. The service improvements would be implemented if additional funding is provided, likely in the form of a millage to be levied by the AAATA itself. The amount of the additional tax levy would be about 0.7 mills. No decision has yet been made by the board to place a millage before the voters, but that could take place as soon as May 2014.

The current efforts of the AAATA to increase service frequency, times and geography are the outcome of a demised effort to create a countywide authority in 2012. The Ann Arbor city council subsequently gave direction to the AAATA to focus its efforts on the communities that are located more geographically near Ann Arbor. With the addition of the city of Ypsilanti and Ypsilanti Township (pending Ann Arbor city council action on Oct. 21), about 50% of the county’s population live in a member jurisdiction.

Comm/Comm: 5-Year Service Plan – CEO Remarks

Board member Eli Cooper and CEO Michael Ford both noted that the staff had participated in a city council work session earlier in the week, on Oct. 14, 2013. The “urban core” implementation program focuses on local improvements for Ann Arbor. As part of the program, the city of Ann Arbor would receive a 33% increase in service. Additional meetings are scheduled. Ford reported that staff continues to meet with community leaders and elected officials to gain their support and interest in the process.

Comm/Comm: 5-Year Service Plan – First Meeting

Board member Jack Bernard reported that he’d attended the first of the 5-year service plan public meetings, which took place just before the Oct. 17 board meeting. There are a lot more of them scheduled, he said.  Chris White and Michael Benham had done a fantastic job talking with the first group of people, Bernard reported. The presentation went smoothly, and the questions from the public were fielded very well. It was really wonderful to see the interaction between the staff and the public, Bernard said.

Comm/Comm: 5-Year Service Plan – Impact on Taxicab Drivers

During public commentary at the first 5-year service plan meeting, which took place on Oct. 17 from 4-6 p.m. – before the 6:30 p.m. AAATA board meeting – Bill Higgins addressed the staff about concerns he had as a cab driver. He reprised his remarks at the board meeting during public commentary. [This is not the same Bill Higgins who recently attended a community meeting on sidewalk construction on Scio Church Road.]

Higgins said he’d been a cab driver for about 25 years and has ridden the AAATA buses probably for 40 years. He told the board that the bus service is squeezing the cab drivers. As an example, he described the AAATA’s AirRide service between downtown Ann Arbor and Detroit Metropolitan Airport as $7. [The fares listed on the AirRide website show fares in that range only for senior rides, at $7.50. Standard fare for a walk-on, for example, is $15 for a one-way trip.]  If the rate were $12, then he felt he’d have a chance to compete.

The art fair shuttle offered by the AAATA has the same negative impact, he said. On football Saturdays, the AAATA’s shuttle service also has a negative impact on the ability of taxicab drivers to earn a living, he said. Another AAATA program that’s eating into the taxicab business is the University of Michigan MRide program, which allows UM students to get rides on AAATA buses without paying a fare to board. Instead of paying for a cab to go shopping, they just take the bus.

Increasing the hours of service, he said, would  keep putting the squeeze on taxicab drivers, he said, who are just barely making enough money to live in Ann Arbor.

Present: Charles Griffith, Eric Mahler (arrived later in the meeting), Susan Baskett, Eli Cooper, Roger Kerson, Anya Dale, Gillian Ream Gainsley.

Absent: Sue Gott.

Next regular meeting: Thursday, Nov. 21, 2013 at 6:30 p.m. at the Ann Arbor District Library, 343 S. Fifth Ave., Ann Arbor [Check Chronicle event listings to confirm date]

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The university is buying three properties on the east side of South Division Street, north of Packard – at 545, 549 and 551 S. Division – for a total cost of $1.5 million.

The two properties at 549 and 551 S. Division are being purchased for $1.075 million. Krazy Jim’s Blimpy Burger, which has been in business since 1953, leases the building at 551 S. Division. The deal is expected to close on Dec. 31, but the lease to Blimpy Burger will run through Aug. 31, 2013. Tenants will also be allowed to stay in the adjacent house at 549 S. Division, which includes several apartments, through Aug. 31.

A 2,434-square-foot house at 545 S. Division – also used for apartments – is being purchased for $425,000, in a separate deal expected to close by Dec. 31. Tenants will be allowed to stay through the end of their leases, which at the latest ends on Aug. 31, 2013.

These properties on South Division are across the street from UM’s Perry Building, where offices for the Inter-University Consortium for Political and Social Research are located. The properties are also near UM’s West Quad dormitory at 541 Thompson St.

At their Dec. 13 meeting, regents also approved the sale of a house at 631 Oxford, which the university has owned since 1964. According to a staff memo, the 2,460-square-foot house was built in 1918 and has four bedrooms, three-and-a-half baths, and a two-car detached garage. It has been used as temporary housing for deans, administrators and faculty, and is being sold for $442,500. Proceeds will become part of the university’s endowment to benefit the general fund.

There was no discussion on any of these items, and all votes were unanimous.

This report was filed from the Michigan Union’s Anderson room on UM’s central campus, where the regents held their December meeting.

According to a staff memo, a decades-old stone wall located between the Arb and the property at 5 Geddes Heights Drive – near the southeast corner of the park – was assumed to indicate the property line. A recent land survey found that UM owns 508 square feet of land on the side of the private property, and the private landowner owns 224 square feet on the university’s side of the stone wall. [City records indicate the property at 5 Geddes Heights is owned by Ilene Forsyth.]

The agreement approved by regents states that the university will “quitclaim” its 508 square feet to the 5 Geddes Heights landowner, who will in turn “quitclaim” 224 square feet to UM. The staff memo indicates that the university’s real estate policy allows for land exchanges of “incidental parcels” to settle this kind of boundary issue.

This report was filed from the Michigan Union’s Rogel ballroom, where the board held its July meeting.

The desire of the AATA to acquire the six-foot strip has been mentioned at several AATA board meetings during routine updates. It’s part of the AATA’s plan to reconstruct the BTC on the South Fifth Avenue side of the block; the BTC currently stands on the South Fourth Avenue side, with a canopy that stretches towards Fifth. The AATA hope to finalize the design of the new transit center by the end of December 2011, with construction to start in early 2012.

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

The building that formerly housed The Ann Arbor News, at the southwest corner of Huron and Division.

However, the three-story News building is only one of several properties being considered as a potential home for the credit union’s administrative offices, says Jeff Schillag, the institution’s vice president of marketing and community relations.

Not all the potential sites are downtown, Schillag says. And any acquired space would replace leased office space.

Opened in 1936, the Albert Kahn-designed News building was shuttered last July when Advance Publications closed the daily newspaper.

A two-story press remains in the 80,000-square-foot building. The property also includes on-site parking, with entrances off of both Washington and Huron, and an additional parking lot on Ann Street. The building was renovated in 2004-05.

As part of its investigation into the property, the credit union retained Atwell-Hicks to take soil samples at The News building last week, Schillag says. Boring equipment in the parking lot was visible to passers-by as the engineers did that work, and prompted The Chronicle to follow up.

Pavement in the parking lot of the former Ann Arbor News building shows remnants of work done last week by Atwell-Hicks.

Schillag emphasized that the activity does not mean the credit union has decided to purchase the property.

Tax assessors put the 2009 value of The News building, at 340 E. Huron, at about $10 million and the lot at 336 E. Ann St. at about $600,000. The News building occupies the width of a block, with frontage on West Washington as well as Huron Street. The properties went on the market in October and are listed with Colliers International, with an asking price of $9.3 million.

In January, Swisher Commercial reported a vacancy rate of 17.6% in Ann Arbor’s office market. The rate for the downtown area was 16.5%, or 288,223 square feet.

The privately held Advance Publications Inc. bought The News – along with the Grand Rapids Press, Flint Journal and several other Michigan papers – in 1976.

Last year, the company reduced the number of publication days at the Journal and a number of the other Michigan papers. It also closed The News – in its place, the company launched a new enterprise, AnnArbor.com, which publishes online and offers print editions twice a week.

The UM Credit Union operates six branches in Ann Arbor, plus a branch on UM’s Dearborn campus. Its main downtown Ann Arbor office is next to the Ann Arbor District Library, at 333 E. William.

The University of Michigan Credit Union building on East William. The view is to the northwest. Behind the building, at the top of this photo, is the top of a crane being used on construction of the Fifth Avenue underground parking structure.

Longtime Ann Arbor resident Metta Lansdale was recently hired as director of the Traverse Area District Library in Traverse City. Her first day on the job is today, Nov. 2. I talked to her on the teeter totter just before her move north.

We talked about a range of moving topics – the fact that she’s managed to sell her Ann Arbor house, how she found a place to live in Traverse City, her relationship to the Ann Arbor community, plus how she’s getting rid of the stuff she doesn’t want to move.

And some of that stuff includes books. I was keen to know how a librarian culls her own private collection.

In the mix of talk on the totter, there’s some brief discussion of the tools currently being used by a historic district study committee in Ann Arbor. That committee is examining an area in Ann Arbor south of William Street as a possible historic district, and will eventually make a recommendation to the Ann Arbor city council on that matter.

Sign at Fresh Seasons Market on West Liberty. (Photo by the writer.)

It’s hard to keep something under wraps when your landlord’s real estate agent puts a “For Lease” ad on the front page of the local newspaper. That ad ran last Thursday to solicit a new tenant for the building at 2281 W. Liberty, where Fresh Seasons Market has been located for about 20 years. And it prompted the grocery’s customers to ask: What’s up?

“We’re not signed, sealed and delivered yet,” said Fresh Seasons general manager Jan DeMunnik, referring to their new, undisclosed location, which she characterized as “very close” to the current store. They hadn’t planned to announce the move just yet, she said, but the real estate advertisement forced their hand.

Since then they’ve put a notice about the move on the sign outside their business, and are passing out flyers to customers that explain the situation – and to make sure people know that they are not closing.

Ben and Lynda Stahl bought the business 15 years ago from Gary Coleman, who still owns the building but lives out of state. They’ve been on a renewable five-year lease, which ends later this year. That made it a good time to look around for alternative space, DeMunnik said. Because of the economy, there are a lot of empty buildings and good deals, she explained.

They found a location with lower rent and in better condition, DeMunnik said. The space will allow them to keep their outdoor area as well – the market has a large garden section, selling annuals and perennials in season, and Christmas trees during November and December.

The Chronicle asked DeMunnik whether the new location might be the former CVS store about a block away, just east of Stadium on Liberty. That store has been empty since early 2008, when CVS moved to its new building at 2100 W. Stadium Blvd. The former Arbor Farms store, just north of Liberty on West Stadium Boulevard, is also vacant. So is the one-story commercial building at Liberty and First, next to Liberty Lofts condos. Earlier this year, that building was being looked at for a possible European-style indoor farmers market.

DeMunnik said she couldn’t comment on any speculation about the store’s future location. She said they’ll inform customers as soon as they can, saying it was difficult to know how soon that would be. They hope to move after the holidays, which is traditionally a slow time for the store, she said. But that depends on how things come together with the new landlord.

Because they were forced to reveal their plans to move, DeMunnik says they’re now using it as an opportunity to get feedback from customers about what changes they should make at the new location. Feedback forms haven’t yielded any concrete suggestions so far, she said, other than customers urging them to stay open – which they are.

“We won’t be any different,” DeMunnik said. “We just might look a little different.”

Jim Chaconas, an agent with Colliers International, is representing Coleman in trying to lease or possibly sell the 8,100-square-foot building where Fresh Seasons is now located. The building, on 1.5 acres, is listed for sale at $1.2 million. According to city records, the property’s state equalized value (SEV) is $591,900. Typically, market value is roughly double a property’s SEV.

The lease rate will depend on what changes prospective tenants want to make to the building, Chaconas said, but would likely be in the $12-$15 per-square-foot range, triple net (meaning that the tenant would also pay for taxes, insurance and maintenance).

The property is zoned C2B, or a “business service district.” From the city’s description of C2B zoning:

This district is designed to provide for certain types of commercial activities which have functional and economic relationships to a central business or fringe commercial district. Such activities will include wholesale suppliers, retail and supply warehouses, motor vehicle major repair and service agencies, carports and other parking establishments, equipment and machinery dealers, building materials dealers, food processing plants, farm and garden supply stores, places of entertainment or recreation, public utility facilities and retail establishments related in a peripheral manner to those of the Central Business District.

In this district the customer may come to the particular establishments either by automobile or as an extension of the CBD (Central Business District) pedestrian shopping activity. Since there is little essential interdependence of activities, each establishment can have its own automobile parking area. Good traffic accessibility is essential to this district, particularly for trucks and other freight carriers. The uses permitted, because of their required contact with auto and truck traffic, would be incompatible in the Central Business District.

Chaconas said the zoning allowed for great flexibility: “I can sell cars. I can sell fruit. I can put a restaurant there, if I want to.”

One prospective tenant is interested in putting another market in that spot, he said. Others who’ve expressed interest haven’t indicated how they’d use the building.

The lobby entrance to the McKinley Towne Centre building at 505 E. Liberty St. WCC officials had been considering vacant space in the building's lower level for a possible satellite campus. (Photo by the writer.)

Skyrocketing enrollment and an abundance of inexpensive Ann Arbor office space are among the factors prompting Washtenaw Community College officials to consider opening a downtown Ann Arbor campus.

For possible classrooms the administration had been contemplating up to 30,000 square feet in the lower level of a building on East Liberty owned by McKinley. Deans from the college visited the space recently, but on Tuesday WCC administrators decided to pull back from making a decision about that location, according to Stephen Gill, chair of the college’s board of trustees.

Instead, they’ll take the next six months to strategize, figuring out what their programatic needs might be, how much space they need and what kind of presence makes sense in Ann Arbor. WCC already offers satellite classes in Ypsilanti and Chelsea, but this would be the first time the 43-year-old institution would have a significant presence in downtown Ann Arbor.

The space available in the McKinley property – which until 1998 housed headquarters for the Borders Group bookstore chain – was being offered at a very good rate, Gill said. He declined to disclose the price, saying it would have depended on how much space they decided to lease, how much security they’d need and what kind of renovation would be required. Part of the space has been used this summer by entrepreneurs with TechArb – The Chronicle visited their subterranean digs in June.

Lower level space in McKinley Towne Centre is also accessible from East Washington Street. UM's English Language Institute has offices in the building, which is attached to a parking structure. (Photo by the writer.)

But that location might not end up being the spot WCC chooses, Gill told The Chronicle on Tuesday. “The reality is there’s a lot of inexpensive space downtown.”

There are also a lot of current WCC students in Ann Arbor. A recent demographic study indicated that close to a thousand WCC students live within a mile of the McKinley building on East Liberty, Gill said. It was also attractive because of its visibility – with an entrance off of one of downtown’s major streets – and the fact that it’s on an AATA bus line. Those factors will remain important when selecting a site. The idea is to give students more options, Gill said.

Opening an Ann Arbor satellite would also help WCC’s main campus. The availability of parking and classroom space there is already tight, and will become even more so this fall as enrollment is expected to jump between 10-20%, Gill said. According to the college’s website, nearly 20,000 students take classes for credit, and roughly 8,000 enroll in non-credit courses through WCC’s LifeLong Learning program. Downtown Ann Arbor is being considered primarily as a location to offer for-credit classes.

Gill said that in addition to WCC’s reputation as an educational institution, the economic downturn has been a key factor in the college’s increased enrollment. Courses are less expensive than those offered at Eastern Michigan University or the University of Michigan, but credits from WCC can be transferred to those institutions. [Not including fees, WCC tuition is $73 per credit hour for in-district students, and $124 for out-of-district students. EMU charges $238 for Michigan residents and $701 for non-residents, while UM's per-credit-hour tuition varies widely depending on the course of study, with a minimum of $450 for in-state students and $1,419 for students from out of state.]

WCC has also seen a spike in enrollment from people looking to change careers, Gill said. including former auto industry employees who’ve been laid off over the past few years.

News of WCC as a potential tenant comes on the heels of another possible shift in the occupancy of downtown Ann Arbor real estate. On Monday, the Ann Arbor Area Chamber of Commerce announced plans to try to sublet all or part of its 6,300-square-foot third-floor office in the Glazier Building at the corner of Main and Huron streets – a building owned by Dahlmann Properties. John Hansen, the chamber’s interim president, said they have too much space for their needs and would ideally move into smaller, less-expensive offices.

From right: At the counter of the county clerk’s office on Main Street, senior clerk Susan Bracken Case reviews documents from UM’s purchase of the Pfizer property, while chief deputy clerk Jim Dries, Liberty Title co-president Tom Richardson and Liberty Title vice president Matt Keir look on.

Because documents for the sale of Chrysler’s Chelsea Proving Grounds were also filed that day in a separate transaction – a coincidence of timing – it marked the largest amount of transfer tax ever recorded in a single day for the county. Neither the purchase prices nor the taxes paid for those deals were disclosed. (See the end of this article for more information about how the real estate transfer tax works.) But for the Pfizer sale, the check received by the county was enough to make senior clerk Susan Bracken Case gasp, then grin.

We initially heard that the UM/Pfizer documents would be filed at 10 a.m., so we headed over to the clerk/register of deeds office at 200 N. Main to observe the occasion. Turns out we were a little off on the timing – in fact, the final transaction with the county didn’t occur until around 2 p.m. But we were able to return and bear witness to the event, as did a guy who happened to walk in at the same time to ask about a tax lien – wearing shorts and a T-shirt amid a cluster of suits and ties, he seemed momentarily unsure if he was in the right place.

Much of the heavy lifting had been completed prior to Tuesday, but we asked John Cameron, an attorney with Dickinson Wright (and outside counsel for the university in this transaction) to fill us in on the final steps taken to close the deal that day.

A small group of attorneys had gathered at 9 a.m. in the Fleming Administration Building at the office of Ciara Comerford, who is UM assistant general counsel and the point person for the university on this deal. For about 90 minutes, they went over final details of the transaction – ensuring that no last-minute problems had arisen, making sure the university’s insurance on the property was in order, checking to see that the billing for gas, electricity and other utilities had been transferred to UM.

They then authorized the university treasurer’s office to wire funds for the purchase to First American Title in Chicago, which was the closing agent for this deal. Though the attorneys and staff at the clerk’s office would not disclose the purchase price, university officials previously have said they planned to pay $108 million for the 174-acre site on Plymouth Road, located near UM’s north campus and medical complex.

Liberty Title on Main Street, where some of the action took place Tuesday in closing the real estate deal between Pfizer and UM.

The attorneys waited until they’d received word that the transfer was verified – they’d been given a federal reference number as a way to track it in case problems arose, but none did – then they packed up their briefcases and headed over to Liberty Title, on Main Street just a block away from the county administration offices.

Liberty Title was the local agent for First American Title – Tom Richardson, Liberty Title’s co-president, said somewhat ruefully that they were not providing title insurance, which presumably would have meant a little more coin for his firm. Rather, they worked with the attorneys to review all the closing documents, a process which included making some minor changes and faxing papers back and forth between Liberty Title and First American Title, Cameron said. They checked to make sure each of the 20 or so documents were properly signed and notarized, and made a brief trip in the late morning to the clerk/register of deeds office to see if everything was in order from the county’s perspective.

At this point – and we’re not kidding – they called the university to send someone out to the property and verify that it was still standing and that all the property they’d agreed to purchase was there – including records and personal property, such as equipment. It was.

Back at the Liberty Title office, Cameron got on a conference call with the attorney representing Pfizer and the title insurance representative from First American Title. Each of them said something to the effect of “I’m authorizing you to close this transaction.”

Tom Richardson of Liberty Title, county clerk Larry Kestenbaum, attorney John Cameron and chief deputy clerk Jim Dries await the final document processing of UM’s purchase of the Pfizer research campus.

With that, the escrow officer for First American Title broke the escrow account, which freed up funds to pay the deal’s broker their brokerage commission and to pay the transfer tax, among other fees. The official closing also meant that the group in Ann Arbor was now authorized to record the documents with the county, so they crossed the street to the county administration offices. They got a tax certificate from the treasurer’s office – verifying that there were no back taxes owed on the property – then brought all the documents to the clerk/register of deeds, where the paperwork was recorded. The attorneys received time-stamped copies of the documents – the originals will be scanned into the county’s database and returned to them in a few days.

When Cameron concluded his description of the day, he said: “And now we’re going out to lunch. We’re done.”

It was a bit anti-climactic, in fact. Comerford of UM’s general counsel said there’d likely be some kind of celebration at the Pfizer site later in the day by the staff of the Medical School, which is paying more than $60 million of the purchase price and is taking the lead in determining how to use the space.

Some staff from the office of Hank Baier, UM’s associate vice president for facilities and operations, would also be part of whatever celebration ensued – Baier’s staff was on hand Tuesday at the Pfizer site to take over the management of the buildings and property from local representatives of the drug company, Comerford said.

Coda: Real Estate Transfer Tax

While the county couldn’t disclose the purchase price or transfer tax paid on the Pfizer property, chief deputy clerk Jim Dries did give The Chronicle a mini-tutorial on how the tax is calculated, as well as some data about how much transfer tax the county has collected over the past 20 years.

The seller is responsible for paying the Michigan real estate transfer tax (RETT) for the sale of real property, such as land or buildings (as opposed to personal property, such as equipment, appliances, furniture or other items that can be moved). The county collects the tax when the property deeds are presented to the register of deeds office for recording after a sale has closed.

The state gets the largest portion of the RETT: For every $1,000 of a property’s sale price, the state gets $7.50 and the county gets $1.10. So if the $108 million cited by UM were the price only for real property (an unlikely but possible scenario), then the county would have received about $119,000 in RETT, with the state receiving $810,000.

Why wasn’t the purchase price disclosed? State law does require that the price for real property be disclosed to the government, but it can be done in one of two ways: 1) on the deed, which is a public record, or 2) on a real estate transfer valuation affidavit, which can be filed when the deed is presented for recording. If an affidavit is filed, that keeps the transaction price confidential. Often you’ll see a property’s purchase price recorded as $1 on official public documents – that means an affidavit has been filed. Both major deals on Tuesday filed affidavits, so no information on the purchase prices was disclosed to the public.

But here’s some context: On Tuesday, the county collected RETT on 19 real property transactions, including the Chrysler and Pfizer deals. Gross receipts for transfer taxes on those 19 transactions totaled $1,053,551, including $918,498 in state RETT and $135,053 in county RETT.

The previous day (Monday, July 15), the county collected just $39,367 total, including $30,202 in state RETT and $9,164 in county RETT.

Overall, a drop in real estate prices and a slowdown in sales have resulted in a sharp drop in RETT revenue for the county, which peaked in 2005 at $2.54 million. Last year, RETT revenues fell slightly below $1.4 million. So far in 2009 (through July 16) RETT revenues are $482,300.

Finally, for data geeks among our readers, here’s a listing of county RETT revenue from 1988 through 2008:

-
1988 = $793,920
1989 = $795,316
1990 = $717,684
1991 = $738,481
1992 = $799,184
1993 = $896,369
1994 = $1,106,343
1995 = $1,057,454
1996 = $1,205,976
1997 = $1,449,923
1998 = $1,741,230
1999 = $1,834,796
2000 = $1,888,762
2001 = $1,878,522
2002 = $2,119,614
2003 = $2,238,317
2004 = $2,539,692
2005 = $2,542,227
2006 = $2,203,118
2007  = $1,844,344
2008 = $1,397,368

The sale of Pfizer’s property to UM wasn’t the only major deal to pass through the county clerk’s office on Tuesday. This 700-page document outlines details of Chrysler’s transfer of its Chelsea Proving Grounds to New Carco Acquisition LLC – the company that’s now holding some of Chrysler’s former assets following the automaker’s merger with Fiat.